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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K





(Mark One)



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007; OR
|- | ------------------------------------------------------------------------------------------------------------------------------------



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROMTO
|- | -------------------------------------------------------------------------------------------------------------------------

Commission File Number 001-32160

AXESSTEL, INC.

(Exact name of registrant as specified in its charter)



|                                                             |  |                                        
|------------------------------------------------------------ |  | ---------------------------------------
|Nevada                                                       |  | 91-1982205                             
|State or other jurisdiction of incorporation or organization |  | (I.R.S. Employer Identification Number)
|                                                             | 
|6815 Flanders Drive, Suite 210, San Diego, California        |  | 92121                                  
|(Address of principal executive offices)                     |  | (Zip Code)                             

Registrants telephone number, including area code: (858) 625-2100

Securities Registered under Section 12(b) of the Act:



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|Common Stock        |  | American Stock Exchange                  

Securities Registered under Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ̈ No x.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ̈ No x.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No  ̈

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

Indicate by check mark if the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b(2) of the Exchange Act. (Check one).



|                          |  |                     |  |                        
|------------------------- |  | ------------------- |  | -----------------------
|Large accelerated filer  ̈ |  | Accelerated filer  ̈ |  | Non-accelerated filer x

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

The aggregate market value of the voting stock
held by non-affiliates of the registrant, based upon the closing stock price of the Common Stock reported on the American Stock Exchange on June 30, 2007 was approximately $21.6 million. Shares of Common Stock held by each officer and director
and by each person who owns 10% or more of the outstanding Common Stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination
for other purposes.

The number of outstanding shares of the registrants common stock, par value $0.0001 per share, as of March 28, 2008 was
23,228,982.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after registrants fiscal year end December 31, 2007 are incorporated by
reference into Part III of this report.









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AXESSTEL, INC.

FORM 10-KANNUAL REPORT

For the Fiscal Year Ended December 31, 2007

Table of Contents



|         |  |                                                                                                              |  |   
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|Part I   |  |                                                                                                              |  | 1 
|         |  |                                                                                                             
|Item 1.  |  | Business                                                                                                     |  | 1 
|Item 1A. |  | Risk Factors                                                                                                 |  | 10
|Item 1B. |  | Unresolved Staff Comments                                                                                    |  | 24
|Item 2.  |  | Properties                                                                                                   |  | 24
|Item 3.  |  | Legal Proceedings                                                                                            |  | 24
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                          |  | 24
|         |  |                                                                                                             
|Part II  |  |                                                                                                              |  | 25
|         |  |                                                                                                             
|Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 25
|Item 6.  |  | Selected Financial Data                                                                                      |  | 27
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 28
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 42
|Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  | 42
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 43
|Item 9A. |  | Controls and Procedures                                                                                      |  | 43
|Item 9B. |  | Other Information                                                                                            |  | 44
|         |  |                                                                                                             
|Part III |  |                                                                                                              |  | 45
|         |  |                                                                                                             
|Item 10. |  | Directors, Executive Officers and Corporate Governance                                                       |  | 45
|Item 11. |  | Executive Compensation                                                                                       |  | 45
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 45
|Item 13. |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 45
|Item 14. |  | Principal Accountant Fees and Services                                                                       |  | 45
|         |  |                                                                                                             
|Part IV  |  |                                                                                                              |  | 46
|         |  |                                                                                                             
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                   |  | 47

Except where the context otherwise requires, all references in this Annual Report on Form 10-K to (a) the
Registrant, the Company, Axesstel, we or our refer to Axesstel, Inc., a Nevada corporation.



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##### Table of Contents

PART I

Special Note Regarding Forward-Looking Statements

This report, including the sections entitled Business and Managements Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements.
These statements relate to future events, our future financial performance, growth of our target market and growth of the worldwide telecommunications markets, future demand for our products, and similar expectations. These statements involve known
and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied
by these forward-looking statements. You can identify forward-looking statements by terminology such as may, will, should, expects, intends, plans, anticipates,
believes, estimates, predicts, potential, continues or the negative of these terms or other comparable terminology. These risks and other factors include those listed under Risk
Factors and elsewhere in this report. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not
place undue reliance on any forward-looking statements as they reflect our managements view only as of the date of this report. We will not update any forward-looking statements to reflect events or circumstances that occur after the date on
which such statement is made.

ITEM 1. BUSINESS

Overview

Axesstel designs, develops, and markets fixed wireless voice and broadband data products for the worldwide telecommunications market. Our product portfolio includes fixed wireless desktop phones, public call office phones, voice/data
terminals, broadband modems, and 3G gateway devices for access to voice calling and high-speed data services. Our products have similar functionality to phones and modems that use traditional landline telecommunications network; however, they
leverage wireless 2.5 and 3G networks to provide voice and broadband data services in areas without landline infrastructure or where wireless networks are used as an alternative to existing landline infrastructure.

Most of our products sold to date have been based on CDMA2000 (3G Code Division Multiple Access) 1X and 1xEV-DO technology. We are increasing our focus on GSM (Global
System for Mobile Communications) and GPRS (General Packet Radio Service) technologies to enhance our product offering and to expand our market. We are also increasing our focus on high speed data products. In the coming months we expect to
introduce products leveraging leading-edge data technologies, including EDGE (Enhanced Data Rates for GSM Evolution), HSDPA (High-Speed Downlink Package Access) and HSUPA (High-Speed Uplink Packet Access).

Axesstel has shipped over 4 million products to over 54 operators, serving over 40 countries worldwide. We currently sell our products to telecommunications service
providers in developing countries where large segments of the population do not have telephone service. At present, our principal customers are Telecommunications Movilnet C.A., in Venezuela, Telefonica Moviles, S.A. in Latin America, and Bharat
Sanchar Nigam Limited (BSNL) in India. Historically, the majority of our revenues have come from sales of fixed wireless phones. Increasingly our revenues are coming from the sale of high speed data products. In 2007, 42 percent of our revenues were
derived from sales of data products. We anticipate that sales of data products will continue to grow at a 50% rate, and will constitute a majority of our sales for 2008.

Market Opportunity

According to the International Telecommunications Union (ITU), there are 6.7 billion people in
the world, but only about 3.4 billion have any access to either wireless or wire-line telecommunication services. That leaves 3.3 billion people, or approximately 50% of the worlds population, without even basic access to voice and data
services. Outside of Europe and North America, telephone penetration is less than 10% of the worldwide population.



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Telecommunications Services in Developing Areas

Developing countries within Asia, Africa, Middle East, Eastern Europe and Latin America, such as India, Indonesia, Pakistan, Philippines, Vietnam, China, Iraq, South
Africa, Brazil, Venezuela and Russia are among the worlds fastest growing emerging telecommunications markets. Within these areas, landline telecommunications networks typically are limited to densely populated urban areas because the cost of
deploying landline telecommunications networks in developing areas has proven economically unfeasible. As a result, people living outside of urban areas or in unwired regions within urban areas generally do not have access to telephone or internet
services. Since deployment of landline telecommunications networks in these regions has proven to be expensive, services have therefore been limited to the wealthiest portions of the population.

Changes in the worldwide telecommunications industry, and specifically in the wireless sector of the industry, have substantially increased the economic feasibility of
deploying wireless telecommunications services to developing areas.

These changes include:



| |  |  | advances in wireless technology and manufacturing, which have reduced infrastructure costs for network operators and equipment costs for consumers and increased the
subscriber capacity on wireless networks;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | emergence of creative subscriber plans, such as pre-paid phone plans, which have driven rapid subscriber growth; and
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | reduced government tariffs and increased government subsidies, which have encouraged the growth of telecommunications networks.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

As a result of these factors, the geographic reach of wireless networks has expanded. The governments of these countries recognize that their populations need access to
reliable voice and internet services in order to improve socioeconomic conditions. As a result, we expect the demand for voice and data services to increase in these regions.

Wireless Transmission Standards

CDMA technology has
emerged as one of the leading standards for wireless wide area networks (WWAN). CDMA is a spread spectrum technology, which allows multi users to simultaneously occupy and utilize the same frequency spectrum in a given band by assigning
unique logical codes to each communication channel that differentiates it from others in the same spectrum. Given the finite wireless spectrum resources available, CDMA allows more efficient sharing of the airwaves among multiple users and more
dynamic network system planning for the operators than some alternative technologies.

An alternative standard, the Global System for Mobile Communications
(GSM) is the worlds most popular standard for mobile phones. The ubiquity of the GSM standard facilitates international roaming between mobile phone operators, enabling subscribers to use their phones in many parts of the world. For network
service providers the GSM standard provides the ability to deploy equipment from different vendors because the open standard allows easy inter-operability.

As the GSM standard has continued to develop, it has integrated data capabilities while retaining backward compatibility with the original GSM phones. The standard was enhanced to add packet data capabilities by means of General Packet
Radio Service (GPRS). GPRS can be utilized for services such as Short Message Service and Multimedia Message Service, but also for Internet communication services such as email and web access.

Higher speed data transmission has also been introduced by Enhanced Data rates for GSM Evolution (EDGE) which provides for increased data transmission rates and improve
data transmission reliability. It is generally



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classified as a 2.75G network technology. EDGE has been introduced into GSM networks around the world since 2003, initially in North America. It can be used
for any packet switched applications such as an Internet connection.

Newer versions of wireless network technologies, popularly known as 3G, include
CDMA2000 1xEV-DO (Evolution Data Optimized). This technology improves the ability to deliver high-speed data access to wireless devices and has been designed to provide wireless access speeds comparable to digital subscriber line, or DSL, and cable
modems. Subscribers can attain wireless access to data at maximum speeds of up to 2.4 Mbps (Rev.0) or 3.1Mbps (Rev.A) on CDMA2000 1xEV-DO networks.

Another widely deployed global 3G WWAN technology is known as WCDMA (Wideband CDMA). Even though WCDMA shares a lot of the similar underlying technologies as CDMA2000, WCDMA is a different WWAN technology that is mostly adopted by GSM
operators for improved spectral efficiency and more importantly, increase network capacity. WCDMA has also evolved from 384kbps to the much higher speed HSDPA (High Speed Downlink Packet Access) and HSUPA (High Speed Uplink Packet Access) capable of
data speed of up to 7.2Mbps downlink, 2.1Mbps uplink. Because of its strong connection to GSM technology, WCDMA and HSDPA are most popular in the Europe and Asia Pacific, and in some North and South American countries.

Broadband Data Applications

Telecommunications
service providers continually are seeking high-margin, high-growth opportunities to complement their voice-based product offerings. Providing high-speed data access to existing voice customers enables operators to increase their revenue by
leveraging their current infrastructure and customer base. Historically, high-speed data access was limited to businesses that could afford to purchase expensive hardware and pay the usage charges. As network costs have declined and technology and
manufacturing advancements have developed, high-speed data access has increasingly become available for residential customers. In order to implement objectives to rollout high-speed data access, carriers are seeking cost-effective technologies to
allow users without existing landlines, DSL or cable connections to access to high-speed data.

In areas that are inaccessible to DSL and cable, CDMA2000
1xEV-DO or HSUPA is an attractive option for telecommunications service providers to deploy. Even in markets where DSL and cable modems are offered, CDMA2000 1xEV-DO and HSUPA offer comparable speeds to DSL and cable and enable operators to capture
market share with the added benefit of mobility. Utilizing the latest CDMA and HSUPA transmission standards, these areas can quickly be provided high-speed internet access and serve up a multitude of other horizontal and vertical data applications.

Products and Features

We offer fixed wireless desktop
phones, public call office phones, voice/data terminals, fixed and mobile broadband modems and 3G gateway devices used for voice calling and high-speed data services in homes, retail locations, businesses, and public transportation and emergency
response environments.

Fixed Wireless Desktop Phones

Our fixed wireless desktop phones are designed for voice and data usage in homes, businesses and retail locations. Our phones are offered in standard, enhanced, and durable models. Currently, we offer CDMA phones that
operate in each of three frequency bands: 450 MHz, 800 MHz, and 1900 MHz. Our GSM phone line includes two dual band models (850/1900 MHz and 900/1800 MHz) and one quad-band model (850/900/1800/1900 MHz).



3



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The following tables list some of the features included in our fixed wireless phone product portfolio.



l: Standard

O : Not Available

n: Optional


CDMA/GSM Fixed Wireless Phones



|                |  |       |  |             |  |             |  |             |  |          |  |             |  |       |  |      
|--------------- |  | ----- |  | ----------- |  | ----------- |  | ----------- |  | -------- |  | ----------- |  | ----- |  | -----
|Model           |  | PXQ20 |  | PX100Series |  | PX200Series |  | PX300Series |  | L Series |  | PG110/PG120 |  | PG130 |  | PG530
|                |  |       |  |             |  |             |  |            
|                |  | LOGO  |  | LOGO        |  | LOGO        |  | LOGO        |  | LOGO     |  | LOGO        |  | LOGO  |  | LOGO 
|Voice           |  | l     |  | l           |  | l           |  | l           |  | l        |  | l           |  | l     |  | l    
|SMS             |  | l     |  | l           |  | l           |  | l           |  | l        |  | l           |  | l     |  | l    
|Data            |  | O     |  | O           |  | l           |  | l           |  | O        |  | O           |  | n     |  | n    
|LCD Backlit     |  | l     |  | l           |  | l           |  | l           |  | l        |  | l           |  | l     |  | l    
|Keypad Backlit  |  | l     |  | l           |  | O           |  | l           |  | O        |  | l           |  | l     |  | l    
|SpeakerPhone    |  | l     |  | l           |  | l           |  | l           |  | n        |  | l           |  | l     |  | l    
|RUIM/SIM        |  | n     |  | n           |  | n           |  | n           |  | n        |  | l           |  | l     |  | l    
|FM Radio        |  | n     |  | n           |  | n           |  | n           |  | n        |  | O           |  | n     |  | O    
|TNC Antenna     |  | l     |  | O           |  | l           |  | O           |  | l        |  | O           |  | l     |  | O    
|Back-up Battery |  | l     |  | l           |  | l           |  | l           |  | l        |  | l           |  | l     |  | l    

Fixed Wireless Public Call Office Phones

We have two fixed wireless public call office (PCO) phones that enable telecommunications service providers to offer telephone service for public locations that are not
serviced by landline networks. Our attended PCO phone couples proprietary metering technology with our fixed wireless desktop phones, which displays in real-time the calling units used by the caller. Our unattended PCO phone converts a landline
coin- or card-operated payphone into a wireless payphone by embedding our fixed wireless phone into the payphone itself.



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Fixed Wireless Voice/Data Terminals

Our fixed wireless terminal offers an affordable voice and high-speed data alternative to dial-up modems for areas not covered by a landline network. Users can plug their computers into the terminal for Internet
access at data rates up to 153.6 kbps. In addition, users can plug any telephone into the terminal for voice service and any analog facsimile machine into the terminal for receiving and sending facsimiles. The following table lists some of the
features included in our fixed wireless voice/data terminal.



l: Standard

O: Not Available

n: Optional


CDMA/GSM Fixed Wireless Terminals



|                |  |  |  |  |  |  |  |              |  |  |  |      
|--------------- |  |  |  |  |  |  |  | ------------ |  |  |  | -----
|Model           |  |  |  |  |  |  |  | TX200 Series |  |  |  | TG230
|                |  |  |  |  |  | 
|                |  |  |  |  |  |  |  | LOGO         |  |  |  | LOGO 
|Voice           |  |  |  |  |  |  |  | l            |  |  |  | l    
|Data            |  |  |  |  |  |  |  | n            |  |  |  | n    
|RUIM/SIM        |  |  |  |  |  |  |  | n            |  |  |  | l    
|MeterPulse      |  |  |  |  |  |  |  | l            |  |  |  | l    
|Analog Fax      |  |  |  |  |  |  |  | n            |  |  |  | O    
|Back-up Battery |  |  |  |  |  |  |  | l            |  |  |  | l    



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Broadband Modems and 3G Gateways

We currently offer three broadband modem product lines and one line of 3G gateways. Our first generation fixed wireless broadband modem offers EV-DO data only. The
Advanced Series is our second generation fixed wireless broadband modem that includes EV-DO data, CDMA 1X voice, and fax capability. The modems enable many users in developing countries that have multi-user, networked environments to connect to the
Internet. Our products provide a convenient network connection that does not require the installation of any drivers and can support routed networks with ease. Our broadband modems can support single-user connections as well as local area networks
providing high-speed Internet access to both small businesses and residential users and data rates up to 2.4 Mbps. Our third line is comprised of portable broadband USB modems that allow users to access broadband data from the home, office or while
traveling. The USB modems have been developed for operation on CDMA2000 1xEV-DO Rev A networks worldwide. We have announced plans to expand these devices for operation on Edge, HSDPA and HSUPA networks.



l: Standard

O: Not Available

n: Optional


3G Wireless Modems/Gateways



|                |  |          |  |               |  |              |  |          |  |               |  |              |  |         
|--------------- |  | -------- |  | ------------- |  | ------------ |  | -------- |  | ------------- |  | ------------ |  | --------
|Model           |  | D Series |  | Adv. D Series |  | MV100 Series |  | MD130    |  | MV400i Series |  | MV400 Series |  | MD430   
|                |  |          |  |               |  |              | 
|                |  | LOGO     |  | LOGO          |  | LOGO         |  | LOGO     |  | LOGO          |  | LOGO         |  | LOGO    
|                |  |          |  |               |  |              | 
|EV-DO Data      |  | l        |  | l             |  | l            |  | HSDPA    |  | l             |  | l            |  | HSDPA   
|                |  |          |  |               |  |              | 
|Ethernet Port   |  | l        |  | l             |  | O            |  | O        |  | l             |  | l            |  | l       
|                |  |          |  |               |  |              | 
|USB Port        |  | l        |  | l             |  | l            |  | l        |  | l             |  | l            |  | l       
|                |  |          |  |               |  |              | 
|Wi-Fi           |  | O        |  | O             |  | O            |  | O        |  | O             |  | l            |  | O       
|                |  |          |  |               |  |              | 
|Voice           |  | O        |  | l             |  | n            |  | n        |  | O             |  | O            |  | O       
|                |  |          |  |               |  |              | 
|Analog Fax      |  | O        |  | n             |  | O            |  | O        |  | O             |  | O            |  | O       
|                |  |          |  |               |  |              | 
|Meter Pulse     |  | O        |  | n             |  | O            |  | O        |  | O             |  | O            |  | O       
|                |  |          |  |               |  |              | 
|R-UIM/SIM       |  | O        |  | O             |  | n            |  | l        |  | n             |  | n            |  | l       
|                |  |          |  |               |  |              | 
|Dual-Band       |  | O        |  | n             |  | n            |  | Tri-Band |  | n             |  | n            |  | Tri-Band
|                |  |          |  |               |  |              | 
|Back-up Battery |  | O        |  | l             |  | l            |  | l        |  | l             |  | l            |  | l       

Our MV400 Series 3G gateways provide EV-DO Rev A data, a WiFi router, and a four port Ethernet switch for a
complete desktop networking solution. They have been designed as a plug-and-play solution, with a convenient network connection and USB connection module embedded in the modem. The 3G gateways allow users to network multiple desktop and laptop PCs
to 3G broadband data. The MV400 Series provides a data rate up to 3.1 Mbps. Axesstel has announced its plan to develop a new line of 3G gateways for operation on Edge, HSDPA and HSUPA networks.



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Customers

We sell a
majority of our products to telecommunications service providers that provide wireless voice or data services in developing markets. The following table shows the percentage of our total revenues derived from various geographic regions in each of
the last three fiscal years:



|                            |  |      |            |      |   |            |  |   |           
|--------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|                            |  | 2007 |            | 2006 |   | 2005      
|Revenues                    |  |      |            |      |   |            |  |   |           
|Asia and Pacific Rim        |  | $    | 18,670,977 |      | $ | 37,542,635 |  | $ | 68,909,960
|Latin America               |  |      | 47,882,684 |      |   | 53,610,255 |  |   | 25,223,126
|Europe, Middle East, Africa |  |      | 15,849,424 |      |   | 4,299,339  |  |   | 388,125   
|United States and Canada    |  |      | 32,300     |      |   | 67,445     |  |   | 144,500   
|                            |  |      |            |      |   |            |  |   |           
|Total revenues              |  | $    | 82,435,385 |      | $ | 95,519,674 |  | $ | 94,665,711
|                            |  |      |            |      |   |            |  |   |           

Our principal customers currently are Telecommunications Movilnet C.A., in Venezuela, Telefonica Moviles, S.A.,
the wireless affiliate of Telefonica, S.A. in Latin America and Bharat Sanchar Nigam Limited (BSNL) in India, each of which accounted for more then 10% of our total revenues in 2007. We supply products to Telefonica Moviles and Telecommunications
Movilnet C.A. on a purchase order basis. In 2006, we were awarded a contract tender along with our Indian manufacturing partner XL Telecom Limited, to supply BSNL with 350,000 fixed wireless phones. We completed production of the 350,000 phones in
2006 and received follow-on orders in 2007.

We ended the year with a total of 54 customers in 40 countries. We believe that there are over 100 additional
telecommunications service providers worldwide that have deployed or plan to deploy fixed wireless solutions or have deployed or plan to deploy solutions such as our data product solutions. In general, we sell our products on a negotiated fixed
price-per-unit purchase order basis.

Two of our largest customers in 2006 and 2007 were in Venezuela. In 2007, we experienced substantial delays in
payments for products due to government currency controls that significantly impacted our results of operations for the third and fourth quarter of 2007. Our international sales and operations are subject to inherent risks, all of which could have a
material adverse effect on our financial condition or results of operations. See Risk Factors below.

Historically, our business was developed
through the sale of wireless phones. 2006 was the first year that data productsmodems and gatewaysconstituted a significant portion of our revenues. Data products accounted for $25.8 million or 27 percent of revenues in 2006. In 2007,
data products accounted for $34.9 million or 42 percent of revenues. We expect to introduce over a dozen new products in 2008 including EDGE, HSDPA, and HSUPA data devices. We expect demand for data products to continue to grow in developing
countries in 2008 and expect a 50% increase in revenues from data products in 2008 over 2007 levels.

Sales and Marketing

We manage and conduct the majority of our sales directly to telecommunications service providers worldwide. During 2006 we undertook an initiative to localize
our sales force, and put our sales team closer to the customer. We divide our sales group in three principal regions: Americas, Europe Middle East and Africa (EMEA), and Asia. We expanded our sales and marketing team from nine members at the
beginning of the year to 12 members as of December 31, 2007, consisting of employees and consultants who are located in the United States, Mexico, Venezuela, India, Holland and Spain. We supplement our presence in Africa, Asia, Eastern Europe, Latin
America and the Middle East through the hiring of local sales representatives or agents.

We have established and seek to establish strategic relationships
with telecommunications infrastructure providers in order to promote our products. Our products are regularly included in bids by such service providers, which provides greater exposure for our products and brand.



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Manufacturing

At
present, we use Wistron NeWeb Corporation (WNC) to manufacture the majority of our products. WNC provides us with a variety of manufacturing services, including component procurement, product manufacturing, final assembly, testing, quality control,
fulfillment and delivery services. WNC generally procures all raw materials, and holds work-in-process and finished good inventory for our products. We believe outsourcing through WNC provides us with flexibility and allows us to:



| |  |  | focus on research and development, design, sales and marketing;
| | - |  | ---------------------------------------------------------------



| |  |  | realize economies of scale;
| | - |  | ---------------------------



| |  |  | access high-quality manufacturing resources and personnel;
| | - |  | ----------------------------------------------------------



| |  |  | scale production rapidly;
| | - |  | -------------------------



| |  |  | reduce working capital investment; and
| | - |  | --------------------------------------



| |  |  | reduce capital equipment costs and equipment obsolescence risk.
| | - |  | ---------------------------------------------------------------

We commenced large-scale product manufacturing with WNC at the beginning of 2004. Our manufacturing arrangement with WNC is designed to allow us to fulfill high-volume orders with short lead-times. We manage our
relationship with WNC to focus on improvements in design-for-manufacturing, test procedures, quality, cost optimization and production scheduling. WNC presently has two high speed production lines in mainland China dedicated to high volume
production, and the ability to add additional lines to match future capacity needs. We work with WNC in sourcing components for our products in an effort to reduce costs, ensure the quality of the components we purchase and mitigate against the risk
that components are not available at the time we need the components to fulfill our customer orders. We believe WNC provides flexibility and scalability to our manufacturing operations.

In 2006, we entered into an agreement with XL Telecom Limited, headquartered in Hyderabad, India. This agreement allows us to participate on public tenders in India where the manufacturing must be completed in
country. To date we have produced in excess of 700,000 units and delivered them on a partially assembled or semi-knockdown basis to XL Telecom who then completes the production and testing and delivers them to the customer. We completed fulfillment
of the public tender with XLTelecom Limited in 2007 and are not currently manufacturing under this arrangement.

In the third quarter of 2005, we opened a
manufacturing facility in Korea. As we entered 2006, our production volumes for this facility did not support the overhead. During the third quarter of 2006 we sold our Korean manufacturing center to BroadTel Inc. and formed an outsource arrangement
with them to build our low volume, high mix products. This relationship allows us to reduce our fixed costs as well as focus more of our internal resources on design and development.

Under the terms of our supply agreement with each of WNC and BroadTel, we submit purchase orders for finished goods. Our manufacturers purchase and maintain inventories of components and subassemblies against a
rolling forecast of orders that we provide to them on a monthly basis. We only take goods into inventory when the finished goods are delivered to us and title and risk of loss transfers. Because we generally order finished goods upon receipt of an
order from our customer, finished goods are typically shipped directly from our manufacturer to the customer. As a result, we do not hold the goods in inventory. Occasionally we experience a cancellation of a customer order, and the customer refuses
shipment. Under the terms of our agreements with our manufacturers, we can defer delivery of goods for certain proscribed periods of time. During that time, we will attempt to sell the goods to another customer. If we are unsuccessful in selling
them before the deferral period expires, the manufacturer delivers the finished goods to us and we take the goods into inventory.

We may enter into
manufacturing relationships with other manufacturing partners in low labor cost regions, such as Brazil and India. We are evaluating whether this approach will allow us to increase our manufacturing capacity and lower our unit costs.



8



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Research and Development

We focus on developing innovative fixed wireless high-speed solutions to address opportunities presented by next generation wireless networks. In the fourth quarter of 2007, we restructured some of our workforce and reduced headcount. We
have increased our use of outsourced design and engineering services, particularly with respect to our phones and lower end commodity products. As of December 31, 2007, we had 32 engineers, 22 of which are located in our South Korean research
and development center and 10 of which are based in our San Diego facility. Our engineers are categorized into the following groups: hardware, mechanical, and software. For the years ended December 31, 2007, 2006, and 2005, our research and
development expenses were $7.1 million, $5.9 million and $5.5 million, respectively. The increase in 2007 was mainly attributable to increases in outside certification test fees and outside development of prototype products in the development of
both our phone and data products.

Intellectual Property

We protect our intellectual property through a combination of patents, trademarks, trade secrets, licenses, non-disclosure agreements and contractual provisions. Generally, we enter into non-disclosure and confidentiality agreements with
our employees, consultants and third parties that have access to our proprietary technology.

We have entered into a license agreement with Qualcomm under
which we were granted a worldwide, nonexclusive, royalty-bearing license to Qualcomms CDMA technology to make, sell and lease fixed wireless CDMA and WCDMA-based products. The license agreement may be terminated by Qualcomm upon an uncured
material breach of the license agreement by us. We have also entered into various software agreements with Qualcomm to license its software to use with our products that incorporate Qualcomms CDMA technology. These agreements are effective as
long as the license agreement is effective. We intend to purchase additional software from Qualcomm that would be required for our newly proposed products.

We cannot be certain that any patent application we may file will result in the issuance of a patent. From time to time, we may encounter disputes over rights and obligations concerning intellectual property. While we believe that our
product and service offerings do not infringe the intellectual property rights of any third party, we cannot assure you that we will prevail in any intellectual property dispute.

Competition

The market for fixed wireless products is highly competitive and we expect competition to increase. We
primarily compete against established companies such as LG Electronics, Inc., Huawei Technologies Co., Ltd., and ZTE Corporation. As we increase our development initiatives in data products, we will face competition from additional established
companies. In addition, there is always potential for new competition to enter our target markets.

We believe that we compete principally on the basis of
design functionality, reliability, quality, price and ease of deployment, installation and use. We believe that we compete favorably with our competitors based on these factors. Some of our competitors offer bundled end-to-end packages, which may be
more appealing to network operators seeking to use a single supplier of both phones and infrastructure.

Many of our current and future competitors may,
and all of the competitors named above, have significantly greater financial, technical and marketing resources as well as greater purchasing power than we do. These greater resources may allow these competitors to obtain better manufacturing prices
and efficiencies than we have. Although we believe we compete effectively in our markets, remaining competitive will require substantial investments by us to continue to develop innovative products at reduced costs. We cannot guarantee that we will
be able to compete successfully.



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Employees

In the
fourth quarter of 2007, we restructured our workforce and reduced headcount in an effort to lower operating expenses and implement our outsource design and engineering program. As of December 31, 2007, we had a total of 63 full-time employees,
down from 87 employees at the beginning of the year. Of the 63 employees, 23 are located in the United States, 37 are located in South Korea, and one each in China, Holland, and India. In the United States, 10 are involved in product design and
development, 10 are involved in general and administrative functions, and three are involved in sales and marketing. In South Korea, 22 of our employees are involved in product design and development, 12 are involved in operations, and three are
involved in administration. We also use the services of consultants. At December 31, 2007, we had a total of nine consultants, seven performing sales activities and one performing product development. We have never had a work stoppage, and none
of our employees are represented by a labor organization or under any collective bargaining arrangements. We believe our relationships with our employees are good.

Governmental Regulation

Our products are incorporated into commercial wireless communications systems that are subject to regulation
domestically by the Federal Communications Commission and internationally by other government agencies. Although the equipment operators are usually responsible for compliance with these regulations, regulatory changes, including changes in the
allocation of available frequency spectrum, could negatively affect our business by restricting development efforts by our customers, making current products obsolete or increasing the opportunity for additional competition. In addition, the
increasing demand for wireless telecommunications has exerted pressure on regulatory bodies worldwide to adopt new standards for these products, generally following extensive investigation of and deliberation over competing technologies. The delays
inherent in this governmental approval process have in the past caused and may in the future cause the cancellation, postponement or rescheduling of the installation of communications systems by our customers.

Available Information

Our Form 10-K reports, along with all
other reports and amendments filed with or furnished to the Securities and Exchange Commission (SEC), are publicly available free of charge on the Investor Relations section of our website at www.axesstel.comas soon as reasonably
practicable after these materials are filed with or furnished to the SEC. Our corporate governance policies, ethics code and Board of Directors committee charters are also posted within this section of the website. The information on our
website is not part of this or any other report we file with, or furnish to, the SEC. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC. The address of that site is www.sec.gov.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Our ability to implement our business strategy and
achieve the intended operating results is subject to a number of risks and uncertainties, including the ones identified below, and additional risks not currently known to us or that we currently believe are immaterial.

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

We have incurred significant net losses to date. We incurred a net loss of $9.0
million for the year ended December 31, 2007; a net loss of $6.6 million for the year ended December 31, 2006, and a net loss of $10.2 million for the year ended December 31, 2005. At December 31, 2007, we had an accumulated
deficit of $37.7 million and a working capital deficit of $2.9 million. Achieving and sustaining profitability will require us to increase our revenues, reduce our manufacturing costs and manage our operating and administrative expenses. We cannot
guarantee that we will be successful in achieving and then maintaining profitability and eliminating



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

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

As of the date of our most recent audit, we had not generated sufficient
revenues to meet our cash flow needs. As a result, our auditors have expressed substantial doubt about our ability to continue as a going concern. Although we have generated revenue, we are still operating at a net loss. We cannot assure you that we
will be able to obtain sufficient funds from our operating or financing activities to support our continued operations. If we cannot continue as a going concern, we may need to substantially revise our business plan or cease operations, which may
reduce or negate the value of your investment.

Our international sales and operations subject us to various risks associated with, among other things,
foreign laws, policies, economies and exchange rate fluctuations.

Our primary target markets include Asia, EMEA, and Latin America. Our largest
customer in 2007 resided in Venezuela, and we experienced long payment cycles in collecting accounts receivables due to government currency exchange controls. As of the date of this report, we continue to receive orders from customers in Venezuela
and are continuing to receive payments from Venezuelan customers. In 2008, we entered into an agreement with a distributor that provides us payment based upon a letter of credit to help mitigate these long payment cycles.

All of our international sales and operations are subject to inherent risks, all of which could have a material adverse effect on our financial condition or results of
operations. These risks affecting our international sales and operations include:



| |  |  | longer payment cycles and greater difficulty in collecting accounts receivable;
| | - |  | -------------------------------------------------------------------------------



| |  |  | changes in a specific countrys or regions political or economic conditions, particularly in emerging markets, where substantially all of our customers
are located;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in complying with foreign regulatory requirements applicable to our operations and products;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | difficulties in obtaining domestic and foreign export, import and other governmental approvals, permits and licenses and compliance with foreign laws, including
employment laws;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in staffing and managing foreign operations, including work stoppages or strikes and cultural differences in the conduct of business, labor and other
workforce requirements and inadequate local infrastructure;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | trade restrictions or higher tariffs, quotas, taxes and other market barriers;
| | - |  | ------------------------------------------------------------------------------



| |  |  | transportation delays and difficulties of managing international distribution channels;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | political and economic instability, including wars, terrorism, political unrest, boycotts, curtailment of trade and other business restrictions; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | public health emergencies such as SARS and avian bird flu.
| | - |  | ----------------------------------------------------------



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These international risks make our ability to meet the demand for wireless products unpredictable. In addition, because
all of our sales are denominated in U.S. dollars, changes in foreign currency exchange rates affect the market price for our products in countries in which they are sold. If the currency of a particular country weakens against the U.S. dollar, the
cost of our products in that country may increase to the service provider and end user, which may result in the service provider or end user choosing to purchase the products of one of our competitors instead of our products.

We expect our operating results to fluctuate on a quarterly and annual basis, which could cause our stock price to fluctuate or decline.

We believe that our operating results may fluctuate substantially from quarter-to-quarter and year-to-year for a variety of reasons, many of which are beyond our control.
Factors that could affect our quarterly and annual operating results include those listed below as well as others listed in this Risk Factors section:



| |  |  | our current reliance on large-volume orders from only a few customers;
| | - |  | ----------------------------------------------------------------------



| |  |  | the receipt and shipment of large orders or reductions in these orders;
| | - |  | -----------------------------------------------------------------------



| |  |  | variability between customer and product mix;
| | - |  | ---------------------------------------------



| |  |  | changes in our pricing policies or those of our competitors;
| | - |  | ------------------------------------------------------------



| |  |  | the introduction of new products or product enhancements by us or our competitors;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | changes in the terms of our arrangements with customers or suppliers;
| | - |  | ---------------------------------------------------------------------



| |  |  | ability of our customers to accurately forecast demand for our products by their end users;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | general economic conditions in developing countries which are in our target markets;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | the timing of final product approvals from any major customer;
| | - |  | --------------------------------------------------------------



| |  |  | delays or failures to fulfill orders for our products on a timely basis;
| | - |  | ------------------------------------------------------------------------



| |  |  | the ability of our customers to obtain letters of credit that are satisfactory to us and our ability to confirm them in a timely manner;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our inability to forecast our manufacturing needs;
| | - |  | --------------------------------------------------



| |  |  | delays in the introduction of new or enhanced products by us or market acceptance of these products;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | our ability to finance our working capital needs;
| | - |  | -------------------------------------------------



| |  |  | change in the financial position of our manufacturer;
| | - |  | -----------------------------------------------------



| |  |  | the availability and cost of raw materials and components for our products;
| | - |  | ---------------------------------------------------------------------------



| |  |  | limited use of our net operating loss carry-forwards;
| | - |  | -----------------------------------------------------



| |  |  | an increase in product warranty returns or in our allowance for doubtful accounts; and
| | - |  | --------------------------------------------------------------------------------------



| |  |  | operational disruptions, such as transportation delays or failures of our order processing system.
| | - |  | --------------------------------------------------------------------------------------------------

A substantial portion of our sales in a given quarter may depend on obtaining orders for products to be manufactured and shipped in the same quarter in which those
orders are received. As a result of these factors, period-to-period comparisons of our operating results may not be meaningful, and you should not rely on them as an indication of our future performance. In addition, our operating results may fall
below the expectations of public market analysts or investors. In this event, our stock price could decline significantly.



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An increasing portion of our business has shifted to sales under open credit terms, increasing our need for working
capital. The transition to credit terms may create difficulties in the collection of our accounts receivable. In addition, we may need to maintain greater working capital in the future, and if we fail to obtain sufficient working capital we may have
to limit our acceptance of customer purchase orders.

Our sales in different geographic regions have typically followed commercial practices for those
regions. In our Asia and EMEA markets, we customarily accept customer orders based on prepayment terms or letters of credit. This generally enables us to maintain a low level of working capital because we are able to quickly collect payment for the
products that we deliver and pay our third-party manufacturers and vendors. If there are any discrepancies with the documents presented by the manufacturers, the freight forwarder or us, it may cause the letters of credit to be invalid or payment to
be delayed. If a letter of credit is issued late or we experience problems collecting on letters of credit, shipments will be delayed, which may cause us to miss our quarterly financial projections.

In our Latin America market, we customarily accept customer orders based on open credit terms. Due to increased sales activity from this region, we have been required to
maintain a greater level of working capital and to borrow money in order to pay our manufacturer and third-party vendors. During the third and fourth quarters of 2007, slow payments from our customers in Venezuela resulted in a working capital
shortfall. We were behind in payments to WNC which resulted in shipment delays that impacted our results of operations in the fourth quarter of 2007. We have entered into a distribution arrangement for Venezuela with a distributor that provides us
with letters of credit. To the extent that current or future customers are unable or unwilling to establish letters of credit acceptable to us, we would need to have greater working capital in order to fulfill such customers orders. In such an
event, we would be subject to greater collections risks and might be precluded from accepting large orders from these customers due to limitations on our working capital. Any inability to accept orders could harm our ability to meet our projections
and reduce our revenues.

We depend on a single third-party manufacturer to produce a majority of our products.

We currently rely on WNC to manufacture almost all of our products. We expect to continue to rely primarily on a limited number of third-party manufacturers to produce
our products. Our reliance on others for our manufacturing exposes us to a number of risks which are outside our control, including:



| |  |  | unexpected increases in manufacturing costs;
| | - |  | --------------------------------------------



| |  |  | interruptions in shipments if a third-party manufacturer is unable to complete production in a timely manner;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | interruptions in shipments for an extended period of time due to acts of God, war, terrorism, earthquakes, tsunamis, typhoons, damaging winds or floods or a
recurrence of SARS or similar widespread pandemic;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | interruptions in manufacturing and shipments for an extended period of time due to shortages of electricity or water;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | inability to control quality of finished products;
| | - |  | --------------------------------------------------



| |  |  | inability to control delivery schedules;
| | - |  | ----------------------------------------



| |  |  | inability to control production levels and to meet minimum volume commitments to our customers;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | inability to control manufacturing yield;
| | - |  | -----------------------------------------



| |  |  | inability to maintain adequate manufacturing capacity;
| | - |  | ------------------------------------------------------



| |  |  | inability to secure adequate volumes of components in a timely fashion or at expected prices;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | unwillingness of our current or future manufacturing suppliers to provide sufficient credit to support our sales;
| | - |  | -----------------------------------------------------------------------------------------------------------------



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| |  |  | manufacturing delays due to lack of financing, availability of parts, labor stoppages, disruptions or political instability in the region; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | scarcity of shipping containers.
| | - |  | --------------------------------

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

Given that we rely primarily on WNC to manufacture our products, we are subject to risks affecting WNCs
business, including delays in its manufacturing process, availability of components, disruptions in its workforce or manufacturing capabilities, capacity constraints, quality control problems and compliance by WNC with import and export restrictions
of the United States and foreign countries. In particular, in order to meet our projected demand, WNC may need to make additional capital expenditures, which it may choose not to do. Any of these risks could result in a delay of quality products
being shipped to our customers, which could negatively impact our revenues, our reputation and our competitive position in our industry.

During the third
and fourth quarters of 2007, we were substantially behind in our payments to WNC. WNC suspended shipments of certain products and stopped inventory purchases of components for our products because of our overdue account with them. That shipment
delay impacted our results of operations for the fourth quarter of 2007 as we were unable to ship customer orders and unable to meet customer delivery requirements for new orders.

We rely on third party providers of components and subassemblies for our products, and if they fail to provide timely quality products, our business and reputation could be harmed.

Our products are comprised of a number of components and subassemblies which we or our manufacturers purchase from third parties. Some of those components and
subassemblies are complex and may contain defects in design, materials or workmanship. We receive product warranties from the suppliers of these components. However, any interruption in supply, design or manufacturing defects in those components or
subassemblies could cause us to delay or lose sales, or result in product recalls which could damage our financial position and business reputation. In addition, our access to those components and subassemblies is subject to the third party
suppliers decisions concerning production volumes and length of time to offer a product. Any decision by a subcomponent supplier to reduce production or terminate production for a component or subassembly that we use, could force us to pay
more for the components, or redesign our products to use different components or subassemblies.

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

For the year ended
December 31, 2007, three of our customers and their affiliates accounted for approximately 69% of our revenues, of which one customer comprised approximately 32% and the other customers comprised approximately 20% and 17%, respectively. For the
year ended December 31, 2006, three of our customers and their affiliates accounted for approximately 57% of our revenues, whose orders comprised 24%, 19% and 14% of revenues, respectively. For the year ended December 31, 2005, two of our
customers and their affiliates accounted for approximately 80% of our revenues, of which one customer comprised approximately 59% and the other customers comprised approximately 21% of revenues. While the significant customers were not the same in
each period, our results of operations have been supported by one or two significant customers each quarter. We



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expect that our dependence on a small number of customers will continue into the foreseeable future. At present, these customers generally purchase products
from us on a purchase order basis. Orders covered by firm purchase orders are generally not cancelable; however, customers may decide to delay or cancel orders. In the event that we experience any delays or cancellations, we would have difficulty
enforcing the provisions of the purchase order and our revenues could decline substantially. Any such decline could result in us incurring net losses, increasing our accumulated deficit and needing to raise additional capital to fund our operations.

We may not be able to compete effectively against larger and better capitalized competitors.

Larger and better capitalized competitors such as LG Electronics, Inc., Huawei Technologies Co., Ltd. and ZTE Corporation have significantly greater penetration in key
markets than we do. Economies of scale allow these competitors to offer product pricing and related incentives that we may be unable to match. Our target customers are large telecommunications service providers serving developing countries and
regions where demand for basic telephone service has grown substantially in recent years. Our competitors may choose to and may be better positioned to pursue opportunities in those developing countries. Dominance in certain key markets may serve to
effectively lock out competitors, including us, and may allow these larger competitors to achieve and maintain higher profit margins than they could otherwise. These profit margins may allow these larger competitors to subsidize
expansion efforts in geographic areas in which we operate and in which we are substantially dependent for a significant portion of our revenue.

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

The markets for fixed wireless
products are highly competitive, and we expect competition to increase. As we develop new products we anticipate coming in competition with other well funded competitors. These competitors may be able to:



| |  |  | more accurately predict the new or emerging technologies desired by the market;
| | - |  | -------------------------------------------------------------------------------



| |  |  | respond more rapidly than we can to new or emerging technologies;
| | - |  | -----------------------------------------------------------------



| |  |  | respond more rapidly than we can to changes in customer requirements;
| | - |  | ---------------------------------------------------------------------



| |  |  | devote greater resources than we do to sales or research and development efforts;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | offer vendor financing for their products;
| | - |  | ------------------------------------------



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



| |  |  | obtain components and manufacture and sell products at lower prices as a result of efficiencies of scale or purchasing power, thereby rendering our products
non-competitive or forcing us to sell our products at reduced or negative gross margins.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

We expect to experience competitive pricing pressure for our products, which may impair our revenue growth, gross margins and ability to achieve profitability.

Pricing for fixed wireless phones has been declining along with pricing in general for telecommunications equipment and other technology products. We
believe that these pricing trends will affect both wireless phones as well as modems. We expect these trends will continue in the future and perhaps accelerate, particularly if large



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companies with greater purchasing power enter the market or other competitors enter the market with lesser quality products or improper license rights.
Accordingly, as we reduce our selling prices, our results of operations will be adversely affected unless we can generate equivalent cost reductions in our cost of goods and otherwise.

Opportunities in the fixed wireless telecommunications industry could be impacted by decreasing prices for mobile handsets.

Historically a substantial portion of our revenues have been derived from sales of fixed wireless telephones. Sales prices for comparably featured telephones have declined over the past several years. Furthermore, the wireless
telecommunications industry generally is subject to rapid technological change, with increased product functionality and rapid product obsolescence. Prices for basic mobile handsets have dropped significantly. Falling prices of mobile wireless
handsets could cause them to be more economically competitive with our products and may result in decreased in demand for our fixed wireless telephones.

We will need to develop new products and features to meet the needs of our customers in order to be successful.

The fixed wireless
telecommunications market is characterized by rapid technological advances, evolving industry standards, changing customer needs and frequent new product introductions and enhancements. To maintain and increase our revenues, we must develop and
market new products and enhancements to existing products that keep pace with advancing technological developments and industry standards and that address the needs of our customers and their end users. The process of developing new technology and
products is complex, uncertain and expensive, and success depends on a number of factors, including:



| |  |  | predicting market acceptance of new technology platforms.
| | - |  | ---------------------------------------------------------



| |  |  | proper product definition;
| | - |  | --------------------------



| |  |  | component cost;
| | - |  | ---------------



| |  |  | resolving technical hurdles and obtaining appropriate product certifications as required by our customers;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | timely completion and introduction to the market;
| | - |  | -------------------------------------------------



| |  |  | differentiation from the products of our competitors; and
| | - |  | ---------------------------------------------------------



| |  |  | market acceptance of our products.
| | - |  | ----------------------------------

We must commit
significant resources for research and development of new products, in many instances, before knowing whether our investments will result in products the fixed wireless telecommunications market will accept. Further, we may be required to purchase
licenses from third parties in connection with the development of new products and these licenses may not be available on commercially reasonable terms, or at all. Even if we successfully introduce new products and technologies, our products may not
be accepted by the market or we may be unable to sell our products at prices that are sufficient to recover our investment in developing those new products. In particular, many of the end users in our target markets have low incomes and rely on
subsidies from telecommunications service providers in order to purchase our products. If we fail to introduce new products at prices that are competitive and allow us to generate a profit, we will lose customers and market share and the value of
our company will decline.

We may not address successfully the problems encountered in connection with any potential future acquisitions.

We will, from time to time, consider opportunities to acquire or make investments in other technologies, products and businesses that could enhance our
capabilities, complement our current products or expand the breadth of our markets or customer base. We have limited experience in acquiring other businesses and technologies.



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Evaluating potential acquisitions can be expensive and require significant management resources without significant return unless the acquisitions are
completed. Potential and completed acquisitions and strategic investments involve numerous risks, including:



| |  |  | problems assimilating the purchased technologies, products or business operations;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | problems maintaining uniform standards, procedures, controls and policies;
| | - |  | --------------------------------------------------------------------------



| |  |  | unanticipated costs associated with the acquisition;
| | - |  | ----------------------------------------------------



| |  |  | failure to adequately integrate operations or obtain anticipated operative efficiencies;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | diversion of managements attention from our core business;
| | - |  | -----------------------------------------------------------



| |  |  | adverse effects on existing business relationships with suppliers and customers;
| | - |  | --------------------------------------------------------------------------------



| |  |  | risks associated with entering new markets in which we have no or limited prior experience;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | potential loss of key employees of acquired businesses; and
| | - |  | -----------------------------------------------------------



| |  |  | increased legal and accounting costs as a result of the newly adopted rules and regulations related to the Sarbanes-Oxley Act of 2002.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------

If we fail to properly evaluate and execute acquisitions and strategic investments, our management team may be distracted from our day-to-day operations, our business
may be disrupted and our operating results may suffer. In addition, if we finance acquisitions by issuing equity or convertible debt securities, our stockholders would be diluted.

For most of our products, we rely upon a license and chipsets from Qualcomm Incorporated for CDMA technology that is critical to our products.

Substantially all of the products we have sold to date are based on proprietary CDMA technology that we license from Qualcomm. Our non-exclusive license from Qualcomm does not have a specified term and may be
terminated by us or by Qualcomm for cause or upon the occurrence of specified events. If we were to lose access to this licensed technology, we would be forced to acquire rights to, or otherwise develop, other non-infringing technology.

We also depend upon Qualcomm to provide the chipsets critical for the manufacture of our products. We purchase these chipsets from Qualcomm on a purchase order basis,
and we cannot be certain that we will receive chipsets from Qualcomm on terms, including pricing, quality and timing, that allow us to deliver our products to our customers on a timely basis, or at all. From time to time, we may experience delays in
receiving chipsets from Qualcomm because of increased demand in the market for these chipsets. Further, as Qualcomm modifies its chipsets, we must ensure that our products and the networks upon which our products function are compatible with the
modified chipsets in accordance with the requirements of our customers.

Even if there is a second source for these chipsets, establishing a relationship
with that source may be time consuming and expensive, which could adversely affect our ability to manufacture our product on a timely basis and at a price that will enable us to sell our products at a price above our cost of sales.

If we experience any delay in the delivery of chipsets, if we are unable to obtain chipsets on terms that are consistent with our expectations or if our products are not
compatible with the modified chipsets, our ability to timely deliver our products to our customers and at prices that will enable us to make a profit might be harmed, which could negatively impact our gross margins, our reputation and our
competitive position in the marketplace.

We rely on limited or sole sources for many of our components.

In addition to Qualcomm, we rely on third-party vendors to supply components for the manufacture of our products. Our components are purchased on a purchase order basis.
Any shortage or delay in the supply of key



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components may harm our ability to meet scheduled product deliveries. It is not always possible to maintain multiple qualified suppliers for all of our
components and subassemblies. As a result, some key components are purchased only from a single supplier or a limited number of suppliers. If demand for a specific component increases, we may not be able to obtain an adequate supply of that
component in a timely manner. In addition, if our suppliers experience financial or other difficulties, the availability of these components could be limited. We have experienced, and may experience in the future, problems in obtaining or delays in
receiving adequate and reliable quantities of various components from certain key suppliers. It could be difficult, costly and time-consuming to obtain alternative sources for these components or to change product designs to make use of alternative
components. If we are unable to obtain a sufficient supply of components, if we experience any interruption in the supply of components or if the cost of our components increases, our ability to meet scheduled product deliveries could be harmed,
which could result in lost orders, harm to our reputation and reduced revenues.

We may experience delays in manufacturing and our costs may increase if
we are unable to accurately forecast all of our needs.

We utilize a rolling forecast of demand, which we and WNC use to determine our component
requirements. Lead times for ordering components vary significantly and depend on various factors, such as the specific supplier, contract terms and demand for and availability of a component at a given time. If our forecasts are less than our
actual requirements, we, WNC or any other third-party manufacturer that we use in the future, may not be able to manufacture products in a timely manner or may build excess inventory. Furthermore, if we cannot produce our products in a timely
manner, the liquidated damages provisions in some of our contracts with our customers may result in our selling our products at a loss. If our forecasts are too high, we and our manufacturer will be unable to use the components that were purchased
based on our forecasts. The cost of the components used in our products tends to drop rapidly as volumes increase and technologies mature. Therefore, if we or WNC are unable to use components purchased based on our forecasts, our cost of producing
products may be higher than our competitors due to an oversupply of higher priced components. Excess components or inventory will tie up working capital and cause us to incur storage and other carrying costs, which may cause us to borrow additional
funds that may not be available on commercially reasonable terms. Further, excess components or inventory not used or sold in a timely manner may become obsolete causing write-offs or write-downs, which could seriously harm our results of
operations.

We may decide or be forced to stock inventory of components or finished product.

Historically we did not maintain inventories. We produced products only on receipt of orders from our customers. Our manufacturers maintain an inventory of components and
subassemblies. Under the terms of our agreements with our manufacturers, we can delay receipt of finished goods for a specified period. However, if a customer cancels an order and we cannot identify a new purchaser for that product, we may be forced
to acquire the inventory from our manufacturer and hold it in our inventory. In addition, for competitive reasons or because of delays in the supply chain, we may be forced to stock additional components or finished product. This may require
substantial working capital, which would be costly and might be unavailable, or may cause us to incur storage and other carrying costs. The inventory we stock might become obsolete, requiring us to write it off and sustain a loss, which could be
substantial.

Our products are complex and may contain errors or defects, which may cause us to incur significant unexpected expenses and lose sales.

Our products are complex and must meet stringent customer and end user requirements. Although our products are examined and tested prior to release,
these tests cannot uncover all problems that may occur once our products are widely deployed to end users. We have been selling our products for a relatively short period of time. As a result, we have limited experience as to the long-term
performance attributes of our products and



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whether they will develop errors or defects in the future. If errors or defects are discovered and we are unable to promptly correct those errors or defects,
we could experience the following, any of which would harm our business:



| |  |  | costs associated with testing, verification and the remediation of any problems;
| | - |  | --------------------------------------------------------------------------------



| |  |  | costs associated with design modifications;
| | - |  | -------------------------------------------



| |  |  | loss of or delay in sales or high level of returns;
| | - |  | ---------------------------------------------------



| |  |  | loss of customers;
| | - |  | ------------------



| |  |  | failure to achieve market acceptance or loss of market share;
| | - |  | -------------------------------------------------------------



| |  |  | increased service and warranty costs;
| | - |  | -------------------------------------



| |  |  | liabilities and damages to our customers and end users; and
| | - |  | -----------------------------------------------------------



| |  |  | increased insurance costs.
| | - |  | --------------------------

We recently began
shipments of products based on the GSM standard and may face unexpected expenses in connection with the manufacture, support and sale of those products.

We have recently begun selling phones based on the GSM standard, and have plans to introduce additional products on the GSM and GPRS standards. We do not have substantial experience in manufacturing, selling or supporting products based on
those standards. While we have historically had very low incidences of warranty claims for our CDMA based products, our products are complex. We may face higher instances of defects or warranty claims with respect to GSM products, which may result
in higher service expenses. Having a GSM product suite will enable us to open new markets and sell to telephone service providers that have deployed GSM based networks. However, we do not currently have substantial experience with selling to this
customer base, or designing, pricing and selling products in this market.

We may experience long sales cycles for our products, as a result of a
variety of factors.

Our sales cycle depends on the length of time required for adoption of new technologies in our target markets. At times, orders for
our products are tied to the rollout of new infrastructure by the network operator, the precise timing of which is subject to construction and other delays. The period between our initial contact with a potential customer and its decision to
purchase our products is relatively long. The evaluation, testing, acceptance, proposal, contract negotiation, funding and implementation process can extend over many months. Based on our limited operating history, it generally takes us between
three and six months to complete a sale to a customer; however, in certain instances the sales cycle may be substantially longer. As a result, we may not be successful in forecasting with certainty the sales that we will make in a given period.

If our sales cycle unexpectedly lengthens in general or for one or more large orders, the timing of our revenues and results of operations could be
harmed, which in turn could reduce our revenues in any quarter. Therefore, period-to-period comparisons of our results of operations may not necessarily be meaningful, and these comparisons should not be relied upon as indications of future
performance. Further, sales cycles that are longer than we expect likely will harm our ability to generate sufficient cash to cover our working capital requirements for a given period.

We depend in substantial part on the adoption and acceptance of fixed wireless telecommunications in developing countries and regions to create demand for our products.

Our target customers are large telecommunications service providers who are developing wireless services in developing countries and regions where demand for basic
telephone service has grown substantially in recent years and where the cost of building a wireless telecommunications infrastructure is preferable to a traditional wire line infrastructure. We sell our products to these service providers, who in
turn resell our products to their



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customers, the end users, to use over the services providers telecommunications networks. The economies in many of these countries are fragile and are
subject to significant change based on world events. This results in unpredictable demand for our products. If demand for wireless infrastructure in these countries does not continue to increase, if the service providers elect to develop traditional
landline infrastructure instead of fixed wireless infrastructure in these countries or if the service providers are unable to finance network expansion and fixed wireless products, demand for our products will not develop. Even if these service
providers elect to develop fixed wireless infrastructure, demand for our products will not develop if the service providers are unable to sell their services and our products to the end users at affordable prices. In some instances, service
providers purchase our products from us and resell the products to their end users at reduced prices in order to establish a service relationship with those users. If telecommunications service providers do not continue to subsidize the purchase of
our products, our revenues may decline if end users cannot afford our products on their own.

We must expand our customer base in order to grow our
business.

To grow our business, we must fulfill orders from our existing customers, obtain additional orders from our existing customers, develop
relationships with new customers and obtain and fulfill orders from new customers. We cannot guarantee that we will be able to develop relationships with additional telecommunications service providers and other customers and obtain purchase orders
from those customers. Further, even if we do obtain purchase orders from additional telecommunications service providers, there is no guarantee that those orders will be for product quantities or at product prices that will enable us to recover our
costs in acquiring those customers and fulfilling the orders. Whether we will be able to obtain additional orders for our products will depend on a number of factors, including:



| |  |  | the continued acceptance of fixed wireless products;
| | - |  | ----------------------------------------------------



| |  |  | the growth in our target markets of fixed wireless infrastructure;
| | - |  | ------------------------------------------------------------------



| |  |  | whether any of our customers require us to grant exclusivity or impose other restrictions on our ability to market our products to other carriers in the same
geographic region at competitive prices;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to manufacture reliable products at competitive prices that have the features that are required by our customers and the end users of those products;
and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to expand relationships with existing customers and to develop relationships with new customers that will lead to additional orders for our products.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

We may have difficulty managing further growth that we might experience.

Our business has grown at a significant rate, if we continue to experience growth in our operations, our operational, financial and accounting systems, procedures and
controls will need to be expanded, which will result in increased expenses. Our future success will depend substantially on our ability to manage growth effectively. These challenges may include:



| |  |  | maintaining our cost structure at an appropriate level based on the net sales we generate;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | managing manufacturing expansion projects;
| | - |  | ------------------------------------------



| |  |  | implementing our operational, financial and accounting systems, procedures and controls;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | meeting the after sales service level requirements from operators or end users;
| | - |  | -------------------------------------------------------------------------------



| |  |  | managing operations in multiple locations and multiple time zones;
| | - |  | ------------------------------------------------------------------



| |  |  | customizing products for release in multiple languages and regions;
| | - |  | -------------------------------------------------------------------



| |  |  | reducing our operating expenses as a percentage of revenues; and
| | - |  | ----------------------------------------------------------------



| |  |  | managing global customer base.
| | - |  | ------------------------------



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Any failure to maintain sales through agents and other third-party resellers, distributors and manufacturers of
complementary technologies could harm our business.

To date, we have sold our products to our customers through our direct sales force with significant
involvement from senior management and, when desirable or required by the laws of a particular jurisdiction or a prospective customer, through local agents and a network of other third parties, such as resellers, distributors and manufacturers of
complementary technologies. We rely on these agents and third parties to assist us in providing customer contacts and marketing our products directly to our potential customers. When working with agents, we may enter into exclusive arrangements that
preclude us from using another agent or make sales directly in a particular territory, which could harm our ability to develop new customer relationships. Certain agents and other third parties are not obligated to continue selling our products, and
they may terminate their arrangements with us at any time. Our ability to increase our revenues in the future will depend in large part on our success in developing and maintaining relationships with these agents and other third parties. Any failure
to develop or maintain our relationships with these third parties and any failure of these third parties to effectively market our products could harm our business, financial condition and results of operations.

We depend upon the wireless telecommunications industry, and any downturn in the industry may reduce our sales.

All of our sales are derived from the wireless telecommunications industry, and a substantial portion of our sales are derived from customers in developing countries. In
general, the global wireless telecommunications industry, particularly in developing countries, is subject to economic cycles and has experienced in the past, and is likely to experience in the future, periods of slowdown. Intense competition,
relatively short product cycles and significant fluctuations in product demand characterize the industry as a whole. The wireless telecommunications industry generally is subject to rapid technological change and product obsolescence. Fluctuations
in demand for our products as a result of periods of slowdown in the wireless telecommunications market or discontinuation of products or modifications developed in connection with standards or next generation products could reduce our sales.

If we are unable to retain our key personnel necessary to operate our business, our ability to develop and market our products successfully could be
harmed.

We depend substantially on our current executive officers and management. The loss of any key employee or the inability to attract or retain
qualified personnel, including engineering, finance, accounting, sales and marketing personnel, could delay the development and introduction of, and harm our ability to sell our products and damage the markets perception of us. Our success
also may depend on our ability to identify, attract and retain additional qualified management, engineering and sales and marketing personnel. In particular, we have experienced, and we expect to continue to experience, difficulty in hiring and
retaining highly skilled engineers with appropriate qualifications. Competition for qualified engineers is intense, especially in San Diego, California, where our headquarters are located, and in Seoul, South Korea, where our research and
development center is located. If we lose the services of a significant number of our engineers and cannot hire and integrate additional engineers, our ability to develop our products and implement our business strategy could be harmed.

Our competitive position will be seriously damaged if we cannot protect intellectual property rights in our technology.

Our success, in part, depends on our ability to obtain and enforce intellectual property protection for our technology. We rely on a combination of contracts and
trademark and trade secret laws to establish and protect our proprietary rights in our technology. However, we may not be able to prevent misappropriation of our intellectual property, and the agreements we enter into may not be enforceable. In
addition, effective trademark and trade secret protection may be unavailable or limited in some foreign countries.



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There is no guarantee that the patents that we have received or any additional patents that we may receive in the future,
if any, will provide us with a significant competitive advantage. Further, any patent that we have or may obtain will expire, and it is possible that it may be challenged, invalidated or circumvented. If we do not secure and maintain patent
protection for our technology and products; our competitive position will be significantly harmed because it will be much easier for competitors to sell products similar to ours. Alternatively, a competitor may independently develop or patent
technologies that are substantially equivalent to or superior to our technology. If this happens, any patent that we may obtain may not provide protection and our competitive position could be significantly harmed.

As we expand our product line or develop new uses for our products, these products or uses may be outside the protection provided by our current patent applications and
other intellectual property rights. In addition, if we develop new products or enhancements to existing products, there is no guarantee that we will be able to obtain patents to protect them. Even if we do receive patents for our existing or new
products, these patents may not provide meaningful protection. In some countries outside of the United States, patent protection is not available. Moreover, some countries that do allow registration of patents do not provide meaningful redress for
violations of patents. As a result, protecting intellectual property in these countries is difficult and our competitors may successfully sell products in those countries that have functions and features that infringe on our intellectual property.

We may initiate claims or litigation against third parties in the future for infringement of our proprietary rights or to determine the scope and validity
of our proprietary rights or the proprietary rights of competitors. These claims could result in costly litigation and divert the efforts of our technical and management personnel. As a result, our operating results could suffer and our financial
condition could be harmed.

Our competitive position will be seriously damaged if we become party to lawsuits alleging that our products infringe the
intellectual property rights of others.

Other companies, including our competitors, may currently own or obtain patents or other proprietary rights
that might prevent, limit or interfere with our ability to make, use or sell our products. As a result, our products may be found to infringe the intellectual property rights of others. In the event of a successful claim of infringement against us
and if we are unable to license the infringed technology or our current licenses do not contain adequate indemnification or warranties to cover the claim, our business and operating results could be adversely affected, resulting in reduced or
negative gross margins, harm to our reputation if we are unable to provide remedies to our customers and general harm to our competitive position in the marketplace.

Any litigation or claims, whether or not valid, could result in substantial costs and diversion of our resources. An adverse result from intellectual property litigation could force us to do one or more of the
following:



| |  |  | cease selling, incorporating or using products that incorporate the challenged intellectual property;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, if at all; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | redesign products that incorporate the disputed technology.
| | - |  | -----------------------------------------------------------

If we are forced to take any of the foregoing actions, we could face substantial costs and shipment delays and our business could be seriously harmed. Although we carry general liability insurance, our insurance may not cover potential
claims of this type or be adequate to indemnify us for all liability that may be imposed.

In addition, it is possible that our customers or end users may
seek indemnity from us in the event that our products are found or alleged to infringe the intellectual property rights of others. Any such claim for indemnity could result in substantial expenses to us that could harm our operating results.



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Failure to adequately protect our trademark rights could cause us to lose market share and cause our sales to decline.

We sell our products under our brand name, Axesstel. We use our brand name to compete in the fixed wireless telecommunications market. We have expended
significant resources promoting our brand name, and we have three registered trademarks in the United States and have applied for and received a number of trademarks in developing countries where we sell our products. However, registration of our
brand name trademark will not necessarily deter or prevent unauthorized use by others. If other companies, including our competitors, use our brand name, consumers may not recognize us as the source of our products. This would reduce the value of
goodwill associated with our brand name. This consumer confusion and the resulting reduction in goodwill could cause us to lose market share and cause our sales to decline. If we identify an infringement of our brand or trademarks asserting a claim
may be costly and time consuming.

We may face litigation that could significantly damage our business and financial condition.

In the telecommunications equipment industry, litigation is being used increasingly as a competitive tactic by both established companies seeking to protect their
position in the market and by emerging companies attempting to gain access to the market. In this type of litigation, complaints may be filed on various grounds, such as antitrust, breach of contract, trade secret, copyright or patent infringement,
patent or copyright invalidity, and unfair business practices. If we are required to defend ourselves against one or more of these claims, whether or not they have any merit, we are likely to incur substantial expense and managements attention
will be diverted from operations. This type of litigation also may cause confusion in the market and make our licensees and distributors reluctant to commit resources to our products. Any of these effects could harm our business and result in a
decline in the value of your investment in our stock.

Our Founder owns approximately 11% and ComVentures owns approximately 16% of our outstanding
common stock; and each will be able to exert substantial influence over us and our major corporate decisions.

As of December 31, 2007, Mike H.P.
Kwon, our Founder, owned approximately 11% and ComVentures owned approximately 16% of our outstanding common stock. As a result of their respective ownership interests, Mr. Kwon and ComVentures, each will have substantial influence over who is
elected to our board of directors each year as well as whether we enter into any significant corporate transaction that requires stockholder approval.

This concentration of ownership may discourage, delay or prevent a change of control of our company, which could deprive our other stockholders of an opportunity to receive a premium for their stock as part of a sale of our company, could
harm the market price of our common stock and could impede the growth of our company.

We have received notice from Amex that we are not in compliance
with certain requirements for continued listing on the Amex exchange.

On March 5, 2008 we received notice from the American Stock Exchange
(Amex) notifying us that the staff of the Amex Listing Qualifications Department has determined that Axesstel is not in compliance with Section 1003(a)(i) and Section 1003(a)(ii) of the Amex Company Guide for failure to maintain certain
minimum shareholders equity. We have a right, on or before April 7, 2008, to submit a plan to Amex describing the actions that we have taken, and intend to take, in order to regain compliance with the listing standards before September 30, 2009.
While we intend to submit a plan to Amex, no assurances can be given that Amex will accept our plan or continue to list our common stock on the Amex exchange. Furthermore, even if Amex accepts our plan for regaining compliance by September 30, 2009,
if our operating results negatively deviate substantially from that plan, Amex can again take action to delist our common stock. If our common stock is delisted from Amex we would apply to have it trade on the OTC Bulletin Board. Stocks traded on
the OTC Bulletin Board generally have limited trading volume and exhibit a wide spread between the bid/ask quotation. In addition, our common stock would become subject to the penny stock rules, which impose additional customer
suitability and disclosure requirements on broker-dealers effecting transactions in common stock. These requirements would adversely affect the market liquidity of our common stock.



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Nevada law and provisions in our charter documents may delay or prevent a potential takeover bid that would be
beneficial to common stockholders.

Our articles of incorporation and our bylaws contain provisions that enable our board of directors to discourage,
delay or prevent a change in our ownership or in our management. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. These provisions include the following:



| |  |  | Our board of directors may fill vacancies on the board of directors;
| | - |  | --------------------------------------------------------------------



| |  |  | Our stockholders are permitted to remove members of our board of directors only upon the vote of at least two-thirds of the outstanding shares of stock entitled to
vote at a meeting called for such purpose;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | stockholder proposals and nominations for directors to be brought before an annual meeting of our stockholders must comply with advance notice procedures, which
require that all such proposals and nominations must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a special meeting of stockholders may be called only by our Chief Executive Officer, president or secretary, or by resolution of our board of directors; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our board of directors is expressly authorized to make, alter or repeal our bylaws.
| | - |  | -----------------------------------------------------------------------------------

In addition, provisions of the Nevada Revised Statutes provide that a person acquiring a controlling interest in an issuing corporation, and those acting in association with such person, obtain only such voting rights
in the control shares as are conferred by stockholders (excluding such acquiring and associated persons) holding a majority of the voting power of the issuing corporation. For purposes of these provisions, issuing corporation means a
corporation organized in Nevada which has 200 or more stockholders of record, at least 100 of whom have addresses in Nevada on the corporations stock ledger, and does business in Nevada directly or through an affiliate, and controlling
interest means the ownership of outstanding voting shares enabling the acquiring person to exercise (either directly or in association with others) one-fifth or more but less than one-third, one-third but less than a majority, or a majority or
more of the voting power of the issuing corporation in the election of directors. Accordingly, the provisions could require multiple votes with respect to voting rights in share acquisitions effected in separate stages, and the effect of these
provisions may be to discourage, delay or prevent a change in control of our company.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



|ITEM 2. | PROPERTIES
|------- | ----------

We own no real property. Our corporate headquarters is
located in San Diego, California, where we lease approximately 17,000 square feet of office space pursuant to a lease that expires in February 2011. Our principal research and development facility is located in the Gyeonggi Province of South Korea,
where we lease approximately 30,000 square feet of office space pursuant to a ten-year lease that expires in August 2015.

Each of our facilities is
covered by insurance and we believe them to be suitable for their respective uses and adequate for our present needs. We believe that suitable additional or substitute space will be available to accommodate the foreseeable expansion of our
operations.



|ITEM 3. | LEGAL PROCEEDINGS.
|------- | ------------------

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



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS.
|------- | ------------------------------------------------

None.



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PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES OF EQUITY SECURITIES.
|------- | ---------------------------------------------------------------------------------------------------------------

Market Information.

Our common stock is listed on the American Stock
Exchange under the symbol AFT. The following table sets forth the high and low sales prices as reported by the American Stock Exchange for each period indicated.



|                             |  |      |      |     |   |     
|---------------------------- |  | ---- | ---- | --- | - | ----
|                             |  | High |      | Low
|Year Ended December 31, 2006 |  |      |      |     |   |     
|First Quarter                |  | $    | 2.00 |     | $ | 1.02
|Second Quarter               |  |      | 1.85 |     |   | 1.08
|Third Quarter                |  |      | 1.89 |     |   | 1.09
|Fourth Quarter               |  |      | 2.58 |     |   | 1.57
|Year Ended December 31, 2007 |  |      |      |     |   |     
|First Quarter                |  | $    | 2.24 |     | $ | 1.52
|Second Quarter               |  |      | 1.84 |     |   | 1.24
|Third Quarter                |  |      | 1.44 |     |   | 0.85
|Fourth Quarter               |  |      | 1.15 |     |   | 0.19

On March 5, 2008 we received notice from the American Stock Exchange (Amex) notifying us that the
staff of the Amex Listing Qualifications Department has determined that Axesstel is not in compliance with Section 1003(a)(i) and Section 1003(a)(ii) of the Amex Company Guide. Specifically, the Amex staff noted that our stockholders equity
was less than $2,000,000 and losses from continuing operations and net losses were incurred in two out of our three most recent fiscal years, and that our stockholders equity was less than $4,000,000 and losses from continuing operations
and/or net losses were incurred in three out of our four most recent fiscal years.

As a result, we have become subject to the procedures and requirements
of Section 1009 of the Amex Company Guide. To maintain our Amex listing, we must submit a plan to Amex by April 7, 2008, advising Amex of action we have taken, or will take, to increase our stockholders equity to a level that would bring us
into compliance with the continued listing standards identified above by September 7, 2009. We are preparing a plan bring us into compliance with such listing standards by September 7, 2009, through increased profitability based on our operating
budget and supplemental financing, as necessary, from the sale of additional debt or equity securities. We intend to submit the plan to Amex on or before April 7, 2008.

Following its submission, the Amex Listings Qualifications Department will evaluate our plan and determine whether we have made a reasonable demonstration in the plan of an ability to regain compliance with the
continued listing standards by September 7, 2009. If the plan is accepted, we may be able to continue our listing during the plan period up to September 7, 2009, during which time we will be subject to periodic review to determine if we are making
progress consistent with the plan. If we do not submit a plan, or if our plan is not accepted, or if our plan is accepted but we fail to make progress consistent with our plan, or we are not in compliance by September 7, 2009, we will be subject to
delisting proceedings. Under Amex rules, we have the right to appeal any determination by Amex to initiate delisting proceedings.

Holders.

On February 29, 2008, the shareholders list for the Companys common shares showed approximately 1,243 registered
shareholders and 23,228,982 shares issued and outstanding.

Dividends.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain future earnings, if any, to finance the growth and development of our business. Payment of future dividends, if any,
will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements and such other factors as the board of directors deems relevant.



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Performance Graph.

The following graph compares the performance of the Company over the past five years with the performance of the Amex market index, the Nasdaq Telecommunications index and the RDG Technology Composite index.

LOGO



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##### Table of Contents

|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The following selected financial
information has been derived from our audited consolidated financial statements. The information set forth below is not necessarily indicative of results of future operations and should be read in conjunction with Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and notes thereto included in Item 8 of this Form 10-K in order to fully understand factors
that may affect the comparability of the information presented below.



|                                                                       |  |      |        |   |      |   |        |      |  |   |         |   |  |      |        |   |  |   |        |  
|---------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | - |  | ---- | ------ | - |  | - | ------ | -
|Year Ended December 31, (in thousands, except income (loss) per share) |  | 2007 |        |   | 2006 |   |        | 2005 |  |   | 2004    |   |  | 2003 |       
|STATEMENT OF OPERATIONS DATA:                                          |  |      |        |   |      |   |        |      |  |   |         |   |  |      |        |   |  |   |        |  
|Revenues                                                               |  | $    | 82,435 |   |      | $ | 95,520 |      |  | $ | 94,666  |   |  | $    | 62,565 |   |  | $ | 11,544 |  
|Net income (loss)                                                      |  | $    | (9,024 | ) |      | $ | (6,636 | )    |  | $ | (10,201 | ) |  | $    | (8,270 | ) |  | $ | (2,609 | )
|Basic earnings (loss) per share                                        |  | $    | (0.39  | ) |      | $ | (0.29  | )    |  | $ | (0.51   | ) |  | $    | (0.91  | ) |  | $ | (0.41  | )
|Diluted earnings (loss) per share                                      |  | $    | (0.39  | ) |      | $ | (0.29  | )    |  | $ | (0.51   | ) |  | $    | (0.91  | ) |  | $ | (0.41  | )
|Shares used in basic per share calculations                            |  |      | 22,932 |   |      |   | 22,721 |      |  |   | 20,183  |   |  |      | 9,123  |   |  |   | 6,417  |  
|Shares used in diluted per share calculations                          |  |      | 22,932 |   |      |   | 22,721 |      |  |   | 20,183  |   |  |      | 9,123  |   |  |   | 6,417  |  



|                           |  |      |        |      |   |        |  |      |        |      |   |        |  |   |      
|-------------------------- |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | -----
|                           |  | 2007 |        | 2006 |   | 2005   |  | 2004 |        | 2003
|BALANCE SHEET DATA:        |  |      |        |      |   |        |  |      |        |      |   |        |  |   |      
|Cash and cash equivalents  |  | $    | 555    |      | $ | 3,709  |  | $    | 9,162  |      | $ | 7,525  |  | $ | 376  
|Total assets               |  | $    | 29,363 |      | $ | 52,721 |  | $    | 36,551 |      | $ | 24,991 |  | $ | 8,881
|Long-term liabilities      |  | $    |       |      | $ | 3,069  |  | $    | 2,500  |      | $ | 2,629  |  | $ |     
|Total stockholders equity |  | $    | 1,276  |      | $ | 9,498  |  | $    | 15,461 |      | $ | 3,124  |  | $ | 3,150



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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Forward-Looking Statements

Statements in the following discussion and throughout this report that are not
historical in nature are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify
forward-looking statements by the use of words such as the words expect, anticipate, estimate, may, will, should, intend, believe, and similar
expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual
results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described below under the heading Risk Factors. We undertake no
obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.

The following discussion should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this report.

Overview

We design, develop, market and manufacture fixed wireless voice and broadband data products for the worldwide telecommunications
market. Our product portfolio includes fixed wireless desktop phones, public call office (PCO) phones, voice/data terminals, broadband modems, and 3G gateway devices for access to voice calling and high-speed data services.

Our products have similar functionality to phones and modems that use the traditional landline telecommunications network; however, they are wireless devices and can be
substituted for wired phones and modems. Most of our products sold to date have been based on CDMA (3G Code Division Multiple Access) technology developed by Qualcomm Incorporated. We are increasing our focus on new products based on GSM (Global
System for Mobile Communications) and GPRS (General Packet Radio Service) technologies to enhance our product offering and expand our market. In addition to the introduction of GSM and GPRS based products, we have increased our focus on the
development of data products, including broadband modems and 3G gateway devices, which represent an increasing percentage of our overall revenues

We
currently sell our products to telecommunications operators in developing countries where large segments of the population do not have telephone service. To date our largest markets have been in Asia, EMEA, and Latin America, with our largest
customers located in India and Venezuela. We ended the year with a total of 54 customers in 40 countries.

History

We were founded in July 2000. In late 2002 we began performing original design manufacturing and product engineering and development for major international
telecommunications companies. In December 2002, we acquired Entatel, Ltd., a South Korean company, in order to meet the engineering requirements of these projects, and changed its name to Axesstel R & D Center Co., Ltd. This name was later
changed to Axesstel Korea Inc. and continues as our operating research and development subsidiary located in Korea.

Our primary business in 2003 was
focused on contract research and development and we engaged in only limited manufacturing and product sales on behalf of third parties. In late 2003 and early 2004, we believed that changing market factors would result in increasing demand for fixed
wireless phones. In response, we refocused our business to concentrate exclusively on developing, manufacturing and selling our own branded and co-branded fixed wireless products.



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In the first quarter of 2004, we commenced large scale product manufacturing with our Taiwan-based manufacturing partner,
Wistron NeWeb Corporation, or WNC. In the third quarter of 2005, WNC transitioned our production lines from Taiwan to mainland China to take advantage of lower production costs and better access to the China supply chain. WNC presently has two high
speed production lines dedicated to high volume production, and the ability to add additional lines to match future capacity needs. We continue to work with WNC in sourcing components for our products in an effort to reduce costs, ensure the quality
of the components we purchase and mitigate against the risk that components are not available at the time we need the components to fulfill our customer orders. We believe WNC provides flexibility and scalability to our manufacturing operations.

Recent Developments

We began 2007 with four key strategic goals:



| |  |  | stabilize revenues through customer and product diversity;
| | - |  | ----------------------------------------------------------



| |  |  | increase sales through localized sales teams,
| | - |  | ---------------------------------------------



| |  |  | expand our offerings of higher margin data products; and
| | - |  | --------------------------------------------------------



| |  |  | achieve operating profitability.
| | - |  | --------------------------------

We continued our
efforts to diversify our customer base in 2007. We were successful in ending the year with 54 customers in 40 countries, and our customer base continues to expand. Our efforts to localize sales in EMEA produced significant results with revenues from
that region increasing from $4.3 million in 2006 to $15.8 million in 2007. We continued to experience strong sales in Latin America with revenues for that region of $53.6 million in 2006 and $47.9 million in 2007. In addition, we experienced
continued growth in our revenue from data products. Revenues from data products increased from $25.8 million in 2006 to $34.9 million in 2007. As a percentage of revenues, data products increased from 27% in 2006 to 42% in 2007.

Despite these efforts, we faced several operating challenges in 2007. We continue to experience significant customer concentration where two or three customers account
for the majority of our sales in any period. While sales in EMEA and Latin America were solid, sales to Asia were substantially below our expectations, declining from $37.5 million in 2006 to $18.7 million in 2007. Customers in that region continue
to be price sensitive, with average selling prices and potential profit margins decreasing substantially each year. During 2007, we were more conservative in our pricing, electing not to pursue bids where we did not see the opportunity for
reasonable gross margins.

We began 2007 with strong revenue in the first and second quarter of $25.2 million and $28.0 million, respectively. However,
third quarter revenue fell to $15.4 million primarily due to the decline in sales to customers in Asia. Two additional factors severely impacted our operations in the third and fourth quarters, as follows:

First, the Venezuelan government acquired control of that countrys telephone infrastructure in January 2007. In 2006 and continuing in 2007, Venezuela was our
largest market. The transition did not have a substantial impact on orders. We continued to receive orders from our large customers in Venezuela. However, payments out of Venezuela were delayed on orders that we shipped in the first and second
quarter. Those orders were made on open account terms and were not secured by a letter of credit or credit insurance. As a result, we were not able to finance those receivables and the delay in payment had a substantial impact on our working
capital.

Second, we had engaged an investment banking firm to review potential acquisition candidates with proprietary technology and a data product
portfolio. In the second quarter, we identified an acquisition target, and began negotiations for the acquisition. At the same time, we entered into negotiations on a financing that would provide capital for the acquisition and working capital for
the combined operations. The working capital shortfall in the



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third quarter increased the amount of capital necessary to complete and finance the acquisition. Ultimately, we were not able to complete the acquisition, or
the related financing.

Entering into the fourth quarter we again had substantial orders for products. However, as a result of our working capital
shortfall, increased by the expenses of the unsuccessful acquisition and financing, we were substantially behind in payments to our contract manufacturers. WNC, our principal manufacturer, delayed delivery of products to us, and consequently to our
customers, in the fourth quarter until we made substantial payments on our account with them. They also stopped purchasing long lead time inventory to manufacture our products. We established a payment plan with WNC. In December we collected most of
our receivables from Venezuela allowing us to make substantial payments to WNC, but the shipment and purchasing delays impacted revenues for the quarter, which fell to $13.8 million. We ended the year with revenues of $82.4 million and a backlog of
$23 million.

Outlook

As we enter 2008, we will continue our focus on our core strategic goals:

Customer diversity is critical to mitigating the
risk of quarter to quarter volatility. We will continue to diversify our customer base and add new accounts. The addition of our GSM product line is opening new markets, particularly in Central and South America, where operators are predominantly on
the GSM standard. We are also looking to supply our current customers with higher end data products as they roll out upgrades to their network infrastructure.

Our regional sales strategy has been successful in EMEA and we expect to continue that strategy. We are looking at establishing additional sales offices in that region. We have also placed a regional sales manager in Asia in an effort to
increase sales in that region.

We expect to launch over a dozen new products in 2008. In mid February at the GSM Mobile World Congress, we introduced five
newly redesigned GSM products, including dual band and quad band phones and terminals, which are available for purchase. These include basic models that deliver reliable, low cost solutions; cordless models which appeal to the growing number of
consumers looking for a more convenient product; and our quad-band models which enable operators to buy one solution and use it in all of their GSM markets or redirect inventory as appropriate. We will be introducing advanced EVDO hi-speed data
phones. We are expanding our broadband data lines to include EDGE, HSDPA and HSUPA modems, which we anticipate will be available in the second half of 2008.

We are addressing operating profitability in 2008 from both the revenue and expense side. On the revenue side, based on current backlog and anticipated growth in the wireless markets we serve, we expect revenues to return to, and exceed the
levels reached in 2005 and 2006. The migration to higher margin data products is expected to accelerate, increasing gross margin. Finally at the end of 2007 we took a number of measures to reduce our operating expenses. We transitioned research and
development of our lower margin phones to an outsourced design and manufacturing model. That is allowing us to reduce our internal engineering and support resources as well as lease expenses. We expect these changes to reduce operating expenses in
2008 by approximately $3 million.

Increasing our working capital will also be a key goal for 2008. Although we collected a substantial portion of our
accounts receivable in the last weeks of 2007, the operating loss for the year has reduced our working capital position. At the outset of 2008, we entered into a distributor agreement that will enable us to secure financing on our orders to
Venezuela. We have also established new working capital lines of credit with Wells Fargo that will allow us to borrow against backed letters of credit and credit insured accounts receivable. We expect these facilities, along with the reduction in
operating expenses described above, to provide sufficient working capital to continue operations in accordance with our current business plan. However, we do not have sufficient working capital resources to offset extraordinary expenses or a
substantial decline in operating income.



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For that reason we do anticipate seeking additional debt or equity financing during 2008. See Liquidity and Capital Resources below.

Overall, we expect revenue in 2008 to exceed $100 million, up from $82.4 million in 2007. We expect data products will contribute more than $60 million in revenues in
2008, up from $34.9 million in 2007, and to exceed phone revenues for the first time on an annualized basis. We continue to strive towards profitability based on an increase in revenues, adjustment in product mix, and streamlining of operating
expenses that was implemented at the end of 2007. Although we realize profitability is highly dependent on product and customer mix, and anticipate we may not be profitable every quarter, we are committed to achieving profitability for the year.

Revenues

Our product portfolio
consists of fixed wireless products in five categories: desktop phones, PCO phones, voice/data terminals, broadband modems, and 3G gateway devices. We believe that an increasing portion of our anticipated growth will come from sales of our next
generation data products, such as our fixed wireless broadband modem and 3G gateway devices, into developing and industrialized countries as demand grows for broadband data services.

We sell our products to telecommunications service providers on a fixed price-per-unit basis. Our customers in turn resell our products to end users as part of the end users service activation. For the year
ended December 31, 2007, approximately 69% of our revenues were derived from three customers, whose orders represented 32%, 20% and 17% of revenues, respectively.

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

We supply our principal manufacturer WNC with rolling forecasts. In addition, we receive forecasts from our customers, and in turn,
place orders with WNC for near-term production. Based upon our purchase orders and forecasts, WNC procures components in amounts intended to meet the near-term demand. Following receipt of our orders, WNC generally manufactures our products and
delivers the finished goods to the customers freight forwarder in China, transferring title at that point. We generally recognize revenue upon the transfer of title to the freight forwarder.

Cost of Goods Sold

Cost of goods sold consists of
direct materials, manufacturing expense, freight expense, warranty expense, and royalty fees. Pricing for fixed wireless products has declined since weve entered into this business. We believe our ability to increase sales of our products and
achieve profitability will depend in part on our ability to reduce cost of goods sold. We continue our cost reduction efforts through the following initiatives: increasing our purchasing power through increased volume; ordering standardized parts
used across our product lines; looking for additional manufacturing partners in low cost regions; reengineering our products with new technologies and expertise to decrease the number of components; relying more on application and software
development than hardware; and improving our manufacturing processes.



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Research and Development

Research and development expenses consist primarily of salaries and related expenses for engineering personnel, facility expenses, employee travel, fees for outside service providers, test fees and depreciation of
developmental test equipment. The majority of this activity is for software, mechanical and hardware product development. We are increasingly focusing our research and development on data products, seeking areas where product differentiation will
provide value to our customers and provide protection on pricing. We expense research and development costs as they are incurred.

Selling, General and Administrative

Selling, general and administrative expenses consist primarily of salaries and related expenses for
executive and operational management, finance, human resources, information technology, sales and marketing, program management and administrative personnel. Other costs include facility expenses, employee travel, bank and financing fees, insurance,
legal expense, commissions, accounting, professional service providers, board of director expense, stockholder relations, amortization of intangible assets, and depreciation expense of software and other fixed assets.

Critical Accounting Policies and Estimates

The discussion and
analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with our board of directors, we have identified the following accounting policies that
we believe are key to an understanding of our financial statements. These accounting policies require managements subjective judgments.

Revenue Recognition and Warranty Reserve

Revenues from product sales are recognized when the risks of ownership and title are transferred
to the customer as specified in the respective sales agreements and other revenue recognition criterion as prescribed by Staff Accounting Bulletin, or SAB, No. 101 Revenue Recognition in Financial Statements, as amended by SAB
No. 104. Generally, the risks of ownership and title pass when product is received by the customers freight forwarder. If and when products are returned, we normally exchange them or provide credits to the customer. The returned products
in turn are shipped back to the third party manufacturer and we are issued a credit or exchange from the manufacturer. At December 31, 2007, management concluded that no sales return allowance was needed.

On certain contracts, we provide warranty replacement units ranging from 1-2 percent of total units shipped. The cost related to the warranty replacement unit is
included in the cost of goods sold and recorded when revenue is recognized. On other contracts, we do not provide warranty replacement units. In these cases, we provide third party service centers to the customer for any warranty performance. Costs
for these service centers are recorded to cost of goods sold. During the year ended December 31, 2007, warranty costs amounted to approximately $524,000 and, as of December 31, 2007, we established a warranty reserve of $460,000 to cover
additional service costs over the life of the warranty. All products are tested by quality inspection prior to shipment and we have historically experienced a minimum level of defective units.

Sales Returns and Accounts Receivable Allowance

We
extend credit based on evaluation of the customers financial condition and payment history. At times, obligations for our foreign customers are secured either by letters of credit or by credit insurance. Significant management judgment is
required to determine the allowance for sales returns and doubtful accounts. Management determines the adequacy of the allowance based on historical write-off percentages and information



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collected from individual customers. Accounts receivable are charged off against the allowance when collectibility is determined to be permanently impaired.
At December 31, 2007, management determined that an allowance of $125,000 was necessary.

Capitalized Software Costs

Software development costs for products sold, which consist primarily of firmware embedded in our products, incurred after technological feasibility is
established are capitalized in accordance with Statement of Financial Accounting Standards, or SFAS, No. 86 Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed. Amortization of these costs begins
when the products are ready for sale. SFAS No. 86 and other authoritative literature, interpretations and industry practices prescribe that technological feasibility is reached when both the software and other components of the products
research and development activities are completed. We begin capitalizing software development costs upon attainment of both requirements. Our engineering processes demonstrate that the research and development activities of our products are
completed simultaneously with the commencement of the manufacturing process. As such, we expense all research and development activities performed up to the commencement of the manufacturing process.

Valuation of Long-Lived Assets, Intangible Assets and Goodwill

We assess the impairment of long-lived assets, intangible assets and goodwill at least annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we
consider important which could trigger an impairment review include:



| |  |  | significant underperformance relative to expected historical or projected future operating results;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | significant negative industry or economic trends.
| | - |  | -------------------------------------------------

When we determine that the carrying value of intangibles, long-lived assets and goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be
recovered from projected undiscounted cash flows, we measure any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model.
During the year ended December 31, 2007, we determined that our goodwill was impaired and wrote off the carrying value of approximately $386,000. Management concluded that no other long-lived assets were impaired.

Our intangible assets consist mainly of our license fee agreements, which we amortize over a three to ten year life.

Deferred Tax Assets

We periodically and at least
annually evaluate the realizability of the net deferred tax assets, taking into consideration prior earnings history, actual revenue and operations, projected operating results and the reversal of temporary differences.

Stock-Based Compensation

Effective January 1,
2006, we adopted SFAS No. 123R (revised 2004), Share-Based Payment, (SFAS 123R) which establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing
on accounting for transactions where an entity obtains employee services in share-based payment transactions. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments,
including stock options, based on the



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grant-date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for
the award, usually the vesting period. SFAS 123R supersedes our previous accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and SFAS 123, Accounting for Stock Based
Compensation, for periods beginning January 1, 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (SAB 107) relating to SFAS 123R. We have applied the provisions of SAB 107 in our
adoption of SFAS 123R.

We adopted SFAS 123R using the modified prospective transition method, which requires the application of the accounting standard as
of January 1, 2006. SFAS 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is
recognized as expense over the requisite service periods in our Consolidated Statements of Operations.

Annual Results of Operations

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



|                                    |  |                         |        |   |      |       |    |      |   |        |   |  |       |    |  |   |         |   |  |       |   
|----------------------------------- |  | ----------------------- | ------ | - | ---- | ----- | -- | ---- | - | ------ | - |  | ----- | -- |  | - | ------- | - |  | ----- | --
|                                    |  | Year Ended December 31, |       
|($ in thousands)                    |  | 2007                    |        |   | 2006 |       |    | 2005 |  
|Revenues                            |  | $                       | 82,435 |   |      | 100.0 | %  |      | $ | 95,519 |   |  | 100.0 | %  |  | $ | 94,666  |   |  | 100.0 | % 
|Cost of goods sold                  |  |                         | 64,849 |   |      | 78.7  | %  |      |   | 80,245 |   |  | 84.0  | %  |  |   | 84,415  |   |  | 89.2  | % 
|                                    |  |                         |        |   |      |       |    |      |   |        |   |  |       |    |  |   |         |   |  |       |   
|Gross margin                        |  |                         | 17,586 |   |      | 21.3  | %  |      |   | 15,274 |   |  | 16.0  | %  |  |   | 10,251  |   |  | 10.8  | % 
|                                    |  |                         |        |   |      |       |    |      |   |        |   |  |       |    |  |   |         |   |  |       |   
|Operating expenses:                 |  |                         |        |   |      |       |    |      |   |        |   |  |       |    |  |   |         |   |  |       |   
|Research and development            |  |                         | 7,090  |   |      | 8.6   | %  |      |   | 5,878  |   |  | 6.2   | %  |  |   | 5,512   |   |  | 5.8   | % 
|Selling, general and administrative |  |                         | 18,850 |   |      | 22.9  | %  |      |   | 15,233 |   |  | 15.9  | %  |  |   | 12,416  |   |  | 13.1  | % 
|Impairment of assets                |  |                         | 386    |   |      | 0.4   | %  |      |   | 1,065  |   |  | 1.1   | %  |  |   |        |   |  |      | % 
|                                    |  |                         |        |   |      |       |    |      |   |        |   |  |       |    |  |   |         |   |  |       |   
|Total operating expenses            |  |                         | 26,326 |   |      | 31.9  | %  |      |   | 22,176 |   |  | 23.2  | %  |  |   | 17,928  |   |  | 18.9  | % 
|                                    |  |                         |        |   |      |       |    |      |   |        |   |  |       |    |  |   |         |   |  |       |   
|Operating loss                      |  |                         | (8,740 | ) |      | (10.6 | )% |      |   | (6,902 | ) |  | (7.2  | )% |  |   | (7,677  | ) |  | (8.1  | )%
|Other income (expense), net         |  |                         | (284   | ) |      | (0.3  | )% |      |   | 266    |   |  | 0.3   | %  |  |   | (476    | ) |  | (0.5  | )%
|                                    |  |                         |        |   |      |       |    |      |   |        |   |  |       |    |  |   |         |   |  |       |   
|Loss before income taxes            |  |                         | (9,024 | ) |      | (10.9 | )% |      |   | (6,636 | ) |  | (6.9  | )% |  |   | (8,153  | ) |  | (8.6  | )%
|Income tax provision                |  |                         |       |   |      |      | %  |      |   |       |   |  |      | %  |  |   | 2,048   |   |  | 2.2   | % 
|                                    |  |                         |        |   |      |       |    |      |   |        |   |  |       |    |  |   |         |   |  |       |   
|Net loss                            |  | $                       | (9,024 | ) |      | (10.9 | )% |      | $ | (6,636 | ) |  | (6.9  | )% |  | $ | (10,201 | ) |  | (10.8 | )%

Comparison of Year Ended December 31, 2007 to Year Ended December 31, 2006

General

We finished 2007 with revenues of $82.4 million and a net
loss of $9 million. Revenues were strong in the first two quarters of the year, amounting to $25.2 million and $28.0 million, respectively. However orders fell during the third quarter, due in substantial part to a decline in sales to Asia, and
revenues for the period dropped to $15.4 million. Working capital and manufacturing issues, discussed below, impacted fourth quarter revenues which dropped to $13.8 million.

In addition to the decline in orders for the third quarter, two additional factors impacted our operations for the second half of the year. First, payments out of Venezuela were delayed on orders that we shipped in
the first and second quarter. Those orders were made on open account terms; they were not secured by a letter of credit or credit insurance. As a result, we were not able to finance those receivables and the delay in payment had a substantial impact
on our working capital. Second, in the second quarter we identified an acquisition target, and



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began negotiations for the acquisition of a company in the machine to machine data space. At the same time, we entered into negotiation on a financing that
would provide capital for the acquisition and working capital for the combined operations. The working capital shortfall in the third quarter increased the amount of capital necessary to complete and finance the acquisition. Ultimately, we were not
able to complete the acquisition, or the related financing.

Costs incurred in connection with the failed acquisition and financing were expensed in the
third quarter. In order to augment our working capital, we entered into a financing arrangement in the third quarter to finance certain of our accounts receivable in Venezuela. Those accounts receivables and the financing facility were repaid in the
fourth quarter and all interest and related charges incurred in connection with that financing recognized at that time.

In connection with our strategic
shift to focus internal research and development on higher margin data products, we initiated outsourced design and manufacturing operations for certain of our lower end phone products. In the fourth quarter, we restructured some of our engineering
and administrative resources, reducing operating expenses. We also experienced a management change which resulted in severance expense. The costs associated with the reduction in headcount and change in management were expensed in the fourth
quarter.

Revenues

For the year ended
December 31, 2007, revenues were $82.4 million compared to $95.5 million for the year ended December 31, 2006, representing a 14% decrease. In 2007, our revenues were derived principally from three customers, which together represented 69%
of revenues, and individually represented 32%, 20%, and 17% of revenues, respectively. In 2006, our revenues were derived principally from three customers, which together represented 57% of revenues, and individually represented 24%, 19%, and 14% of
revenues, respectively. Our revenues for the year ended December 31, 2007 consisted of 53% for phone products, 4% for terminal products and 42% for broadband modem products. For the year ended December 31, 2006, our revenues consisted of
71% for phone products, 2% for terminal products and 27% for broadband modem products. Although phone revenue decreased significantly in 2007, revenues increased substantially for broadband modem products.

Our objective is to expand our product portfolio for broadband modem products in 2008, as well as to expand our customer base to reach new customers and new regions. We
continue to expect that most of our sales will be to foreign customers or for products to be used in foreign countries. As we grow, we expect to become less dependent on a limited concentration of customers.

Cost of Goods Sold

For the year ended December 31, 2007, cost
of goods sold was $64.8 million compared to $80.2 million for the year ended December 31, 2006, a decrease of 19%. The decrease to cost of goods sold reflects the decrease in revenues in the comparable periods, and the product mix shift from
27% modem revenue content in 2006 to 42% modem revenue content in 2007, as we typically experience higher average selling prices on our data product line. Our cost of materials declined on a per unit basis in 2007 as we were able to re-engineer our
products to take advantage of cost efficient alternate parts, and reduce prices with our suppliers. In 2006 and continuing into 2007, most of our products were manufactured by one vendor.

We continue to work toward reduced manufacturing costs on a unit basis. We anticipate that our vendor will be able to further decrease its costs as our purchase volume
increases. We are also evaluating additional manufacturing vendors and other vendors to produce specific hardware and other components used in the manufacturing process in an effort to further reduce cost of goods sold.

Gross Margin

For the year ended December 31, 2007, gross margin
as a percentage of revenues was 21% compared to 16% for the year ended December 31, 2006. The gross margin percentages increase was mainly the result of favorable



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product mix from our data products during the comparative periods, as we typically experience higher margins from our data products than from our phone
products.

We expect demand for our data products to remain strong in 2008, and expect the annual gross margins as a percentage of revenue to remain in the
low twenties. However, margins may fluctuate on an individual quarterly basis due to customer and product mix, as well as other factors.

Research and
Development

For the year ended December 31, 2007, research and development expenses were $7.1 million compared to $5.9 million for the year ended
December 31, 2006, an increase of 21%.This increase was mainly attributable to increases in outside certification test fees and outside development of prototype products in the development of both our phone and data products. As a percentage of
revenues, research and development for the year ended December 31, 2007 were 9% compared to 6% in the year ended December 31, 2006.

We are
presently spending much of our research and development funds on the development of our next generation data products. In addition, significant modifications to current products are required for each customer and each geographical location where the
end user is located. As we continue the development focus for our data products, we will enact cost reduction programs to lower the cost in the development of our phone products, including a strategy to outsource most of the future development for
these products. We expect our expenditures to increase for the development of our data products in 2008, but be offset by cost reductions in the development of our phone products. Accordingly, we expect our research and development expenditures to
remain stable for 2008, but to reduce as a percent of revenue in 2008.

Selling, General and Administrative

For the year ended December 31, 2007, selling, general and administrative expenses were $18.9 million compared to $15.2 million for the year ended December 31,
2006, an increase of 24%. This increase was mainly due to the increase of internal/external sales commissions of approximately $1.1 million, increases of legal and professional fees associated with financings and a failed acquisition attempt of $1.2
million, and the increase of other operating expenses of $1.4 million. As a percentage of revenue, selling, general and administration expenses increased to 23% in 2007 from 16% in 2006.

At the end of 2007 we increased our focus on outsource design and manufacturing for certain of our products. We also reduced headcount in certain areas. However, severance and termination costs offset any savings from
the reduction in staff. Looking to 2008, we expect our selling, general and administrative expenses to increase with the anticipated increase in revenues, but to decrease as a percentage of revenues.

Impairment of Assets

For the year ended December 31, 2007, an
impairment charge of approximately $386,000 million was charged to operating expenses related to goodwill from December 2002 acquisition of Entatel. For the year ended December 31, 2006, an impairment charge of $1.1 million was charged to
operating expenses related to production equipment from our closed down manufacturing operations in Korea.

Other Income (Expense)

For the year ended December 31, 2007, other income (expense) was a net expense of approximately $284,000. This amount included interest and other income of $1.4
million, offset by approximately $1.7 million of interest and other expense associated from debt and financing activities. The majority of the $1.4 million other income benefit was derived from the amendment of a license agreement that reversed a
license fee amortization previously recorded of $1.3 million. For the year ended December 31, 2006, other income (expense) was a net benefit of approximately $266,000. This amount included interest and other income of $1.0 million, offset by



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approximately $772,000 of expense associated from debt and financing activities. The majority of the $1.0 million other income benefit was derived from the
sale of 392,156 shares of Ubistar common stock, formerly known as Axess Telecom, an unrelated third party. The 392,156 shares of Ubistar common stock were acquired as part of a litigation settlement in 2004.

In 2008, we expect interest and other expenses to be similar to the amount experienced in 2007 based on expected debt levels.

Provision for Income Taxes

For both 2007 and 2006, no income tax
provisions were recorded. Currently, we do not record tax benefits against net losses since we have established a full reserve against all deferred tax assets. In addition, according to Internal Revenue Code regulations, we were deemed in October
2004 and March 2005 to have experienced two 50% changes in ownership during these years. These changes in ownership limit the use of our net operating loss carry-forward to a specific amount each year. We may in the future experience further
ownership change events, which would similarly limit use of any net operating loss carry-forwards that might otherwise be available subsequent to the date of the most recent 50% ownership changes.

Net Loss

For the year ended December 31, 2007, net loss was
$9.0 million compared to a net loss of $6.6 million for the year ended December 31, 2006.

Comparison of Year Ended December 31, 2006 to Year
Ended December 31, 2005

General

We
established record revenues of $95.5 million in 2006 based on strong revenue growth in the second half of the year. We entered 2006 with a declining revenue base due to reduced phone sales in our Asia market that originated in the second half of
2005. This decline continued in the first quarter of 2006, as revenues decreased to $10.5 million. Starting in the second quarter of 2006, revenues rebounded due to improved customer and product diversification. We established record revenues in
Latin America and from our data products, and recorded revenues of $22.8 million, $32.1 million, and $30.1 million in the second, third and fourth quarters of 2006, respectively. The increased revenues from our data products has led to record
product gross margins of 19 percent in the third quarter of 2006, 21 percent in the fourth quarter and 16 percent overall for 2006. The revenue growth in the second half of 2006 combined with the data product mix additionally led to profitability in
the second half of 2006.

Revenues

For the year ended
December 31, 2006, revenues were $95.5 million compared to $94.7 million for the year ended December 31, 2005, representing a 1% increase. In 2006, our revenues were derived principally from three customers, which together represented 57%
of revenues, and individually represented 24%, 19%, and 14% of revenues, respectively, in 2006. In 2005, our revenues were derived principally from two customers, which together represented 80% of revenues and individually represented 59% and 21% of
revenues, respectively, in 2005. Our revenues for the year ended December 31, 2006 consisted of 71% for phone products, 2% for terminal products and 27% for broadband modem products. For the year ended December 31, 2005, our revenues
consisted of 92% for phone products, 2% for terminal products and 6% for broadband modem products.

Cost of Goods Sold

For the year ended December 31, 2006, cost of goods sold was $80.2 million compared to $84.4 million for the year ended December 31, 2005, a decrease of 5%. The
decrease reflects the product mix shift from 6% modem revenue content in 2005 to 27% modem revenue content in 2006, as we typically experience higher average



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selling prices on our data product line. Our cost of materials declined on a per unit basis in 2006 as we were able to re-engineer our products to take
advantage of cost efficient alternate parts, and reduce prices with our suppliers. In 2005 and continuing into 2006, most of our products were manufactured by one vendor WNC. We continue to work toward reduced manufacturing costs on a unit basis. We
anticipate that our vendor will be able to further decrease its costs to us due to its transition from Taiwan to China, and as our purchase volume increases. We are also evaluating additional manufacturing vendors and other vendors to produce
specific hardware and other components used in the manufacturing process in an effort to further reduce cost of goods sold.

Gross Margin

For the year ended December 31, 2006, gross margin as a percentage of revenues was 16% compared to 11% for the year ended December 31, 2005.
The gross margin percentages increase was mainly the result of favorable product mix from our data products during the comparative periods, as we typically experience higher margins from our data products than from our phone products.

Research and Development

For the year ended December 31, 2006,
research and development expenses were $5.9 million compared to $5.5 million for the year ended December 31, 2005, an increase of 7%. As a percentage of revenue, research and development for 2006 and 2005 were 6%. We are presently spending much
of our research and development funds on our next generation phones, and a new line of data and GSM products. In addition, significant modifications to current products are required for each customer and each geographical location where the end user
is located.

Selling, General and Administrative

For
the year ended December 31, 2006, selling, general and administrative expenses were $15.2 million compared to $12.4 million for the year ended December 31, 2005, an increase of 23%. This increase was primarily due to external sales
commissions of $2.6 million in 2006 compared to external sales commissions of approximately $317,000 in 2005. The majority of these commissions were in connection with revenues from Latin America. Other increases were primarily attributed to
increases in wages and benefits of approximately $537,000. As a percentage of revenue, selling, general and administration expenses for 2006 were 16% compared to 13% in 2005. As our revenues increase, we expect our selling, general and
administrative expenses to increase as we continue to grow and build our infrastructure, but decrease as a percentage of revenues.

Impairment of Assets

For the year ended December 31, 2006, an impairment charge of $1.1 million was charged to operating expenses related to production equipment from
our closed down manufacturing operations in Korea.

Other Income (Expense)

For the year ended December 31, 2006, other income (expense) was a net benefit of approximately $266,000. This amount included interest and other income of $1.0 million, offset by approximately $772,000 of
expense associated from debt and financing activities. The majority of the $1.0 million other income benefit was derived from the sale of 392,156 shares of Ubistar common stock, formerly known as Axess Telecom, an unrelated third party. The 392,156
shares of Ubistar common stock were acquired as part of a litigation settlement in 2004.

For the year ended December 31, 2005, other income (expense)
was a net expense of approximately $477,000. This amount included interest and other income of approximately $420,000, offset by approximately $897,000 of expense associated from debt and financing activities. This expense included prepayment
penalties of approximately $230,000 and the expensing of approximately $493,000 for finder fees, note payable discounts, and interest.



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In 2006 an increasing portion of our sales were made on credit terms. We established a working capital facility of up to
$20 million with Silicon Valley Bank. We expect interest expenses to increase in 2007 based on our current debt levels.

Provision for Income Taxes

For the year ended December 31, 2006, an income tax provision of zero was recorded compared to an income tax provision of $2.0 million for the year
ended December 31, 2005.

The income tax provision in 2005 reflected a write-off of a previously established tax asset. We no longer record tax
benefits against net losses and have established a full reserve against all deferred tax assets. In addition, according to Internal Revenue Code regulations, we were deemed in October 2004 and March 2005 to have experienced two 50% changes in
ownership during the past three years. These changes in ownership limit the use of our net operating loss carry-forward to a specific amount each year. We may in the future experience further ownership change events, which would similarly limit use
of any net operating loss carry-forwards that might otherwise be available subsequent to the date of the most recent 50% ownership changes.

Net Loss

For the year ended December 31, 2006, net loss was $6.6 million compared to a net loss of $10.2 million for the year ended December 31, 2005.

Liquidity and Capital Resources

At December 31,
2007, our principal sources of liquidity included cash and cash equivalents of $555,000 compared to $3.7 million at December 31, 2006. In addition, at December 31, 2007, accounts receivable were $20.8 million, compared to $39.0 million at
December 31, 2006. At December 31, 2007, we had negative working capital of $2.9 million compared to working capital of $6.2 at December 31, 2006.

For the year ended December 31, 2007, we generated $10.2 million of cash from operations which was derived from the cash net loss of approximately $7.9 million (net loss offset by non-cash adjustments for the write-off of stock-based
compensation, discount on a note, asset impairment, receivable and inventory provisions, and depreciation and amortization) and changes in operating assets and liabilities of $18.0 million.

Investment activities used approximately $462,000 of cash during the year ended December 31, 2007, primarily for the acquisition of software and equipment offset by
payments made on a note receivable. As of December 31, 2007, we do not have any significant commitments for capital expenditures.

During the year
ended December 31, 2007, cash used by financing activities amounted to $12.7 million, as we repaid $13.1 million of bank financing from December 31, 2006, and received new bank financing of $490,000.

We have experienced losses from operations since 2004. The proceeds from our 2005 secondary public offering provided the working capital necessary to fund the operating
losses. We also structured our supply and customer relationships to minimize our working capital requirements. Under the terms of our manufacturing agreements, our contract manufacturers acquire components and manufacture finished goods to our
specifications; minimizing our investment in inventory. Where possible we require our customers to provide a letter of credit to secure their purchase orders. We then financed those accounts receivables through commercial banking arrangements.

Commencing in 2007 our sales shifted from predominantly Asian countries, where commercial practices use letters of credit, to Latin American countries,
where standard commercial terms are open accounts. Our largest account in 2007 was a customer in Venezuela, which does not provide letters of credit and for which we could not obtain credit insurance or secure accounts receivable financing. Selling
product on open account increases our working capital requirements as we may be called upon to pay our manufacturers before we receive payment



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from our customers. This problem was compounded when the Venezuelan governments exchange control arm, CADIVI, substantially delayed payments in 2007.

The delay in payment caused us to fall behind in payments to our contract manufacturer. By the end of the third quarter WNC our primary contract
manufacturer began withholding shipments and stopped ordering long lead time parts. In October, 2007 we entered into an agreement with Centurion capital, pursuant to which we borrowed $5.6 million from Centurion secured by certain of our accounts
receivable in Venezuela. We subsequently collected the accounts receivable and repaid the Centurion promissory note in 2007.

Since the beginning of the
year in 2008, we have entered into several arrangements to address our working capital needs:



| |  |  | In January 2008, we entered into a distribution agreement with Brightstar Corporation to sell our products in Venezuela. Under the terms of the distribution
agreement our customers submit their purchase orders to Brightstar. Brightstar then submits a purchase order to us, secured by a letter of credit. We can secure accounts receivable financing for the account receivable to Brightstar. Brightstar
assumes the credit risk of the customer in Venezuela. Under this arrangement Brightstar receives a commission for accommodating the sale. This arrangement allows us to secure commercial financing for the receivable that covers product being sold to
Venezuela.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We also entered into a loan transaction with Brightstar; we borrowed $5 million from Brightstar pursuant to the terms of a promissory note dated January 25, 2008.
Our repayment obligations under the promissory note are secured by certain of our accounts receivable from customers in Venezuela. The promissory note bears interest at a rate of 2 percent per month subject to a minimum of 10% interest. Repayment of
principal is due on the earlier of collection of the accounts receivable that secure the note, or one year from the date of issuance. The proceeds of the note were used to make payment to WNC on our delinquent account with the contract manufacturer.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In January 2008, we entered into two new commercial credit agreements with affiliates of Wells Fargo Bank. One of the credit arrangements provides working capital
financing for our accounts receivable which are secured by credit insurance. The other provides working capital financing for our accounts receivable which are secured by letters of credit.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Currently, our working capital is derived from operations. Our only sources of borrowing are our lines of credit with Wells Fargo Bank, which are secured by that portion
of our accounts receivable which are either credit insured or secured by a letter of credit. We intend to use this working capital financing to continue to fulfill orders for our products. For 2007 our gross margin from product sales was 21% of
revenues. We anticipate that gross margin will be in the low twenties for 2008. Accordingly we are currently relying on gross margin from increased product sales to cover our operating expenses. If we fail to generate sufficient product sales we
will not generate sufficient gross margin to cover our operating expenses.

We intend to secure additional working capital through the sale of debt or
equity securities. No arrangements or commitments for any such financing are in place at this time, and we cannot give any assurances about the availability or terms of any future financing.

Because of our continuing net losses and our negative working capital position, our independent auditors, in their report on our financial statements for the year ended
December 31, 2007 expressed substantial doubt about our ability to continue as a going concern.



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Contractual Obligations and Commitments

As of December 31, 2007, we had no off-balance sheet arrangements. The following summarizes our contractual obligations at December 31, 2007 and the effect those obligations are expected to have on our
liquidity and cash flow in future periods (in thousands):



|                              |  |                        |       |                 |   |             |  |             |       |                  |   |     |  |   |    
|----------------------------- |  | ---------------------- | ----- | --------------- | - | ----------- |  | ----------- | ----- | ---------------- | - | --- |  | - | ---
|                              |  | Payments Due by Period
|Contractual Obligations       |  | Total                  |       | Less than1 year |   | 1 to 3years |  | 3 to 5years |       | More than5 years
|Short-term bank financing     |  | $                      | 490   |                 | $ | 490         |  | $           |      |                  | $ |    |  | $ |   
|Operating leases (facilities) |  |                        | 2,396 |                 |   | 528         |  |             | 1,084 |                  |   | 375 |  |   | 409
|                              |  |                        |       |                 |   |             |  |             |       |                  |   |     |  |   |    
|Total                         |  | $                      | 2,886 |                 | $ | 1,018       |  | $           | 1,084 |                  | $ | 375 |  | $ | 409
|                              |  |                        |       |                 |   |             |  |             |       |                  |   |     |  |   |    

We have entered into an employment agreement with H. Clark Hickock that provides for severance payments if he is
terminated without cause. Consequently, if we had released Mr. Hickock without cause as of December 31, 2007, the severance expense due would be valued at approximately $260,000.

We entered into a non-cancelable operating lease for approximately 17,000 square feet of office space for our corporate headquarters and United States operations. The
lease term is 67 months that expires in February 2011 with a 5-year option to renew. The basic monthly rent ranges from $30,000 to $34,000 during the remainder of the 67-month period.

Our principal research and development facility is located in the Gyeonggi Province of South Korea, where we lease approximately 30,000 square feet of office space pursuant to a ten-year lease that expires in August
2015. For 2008, annual rent is approximately $172,000. Annual rent after 2008 is subject to adjustment, based on market conditions.

Recent Accounting
Pronouncements

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes
a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. It applies under other accounting pronouncements that require or permit fair value measurements, the board
having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. This statement is effective for all financial
instruments issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company has not yet determined the effect of SFAS No. 157 on its financial position, operations or cash flows.

In February 2007, FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 amends SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS No. 159
is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS
No. 159 is expected to expand the use of fair value measurement, which is consistent with the Boards long-term measurement objectives for accounting for financial instruments. SFAS No. 159 applies to all entities, including
not-for-profit organizations. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 applies to all entities with available-for-sale and trading securities.
Some requirements apply differently to entities that do not report net income. This statement is effective as of the beginning of each reporting entitys first fiscal year that begins after November 15, 2007. We do not expect SFAS
No. 159 to have a material impact on our financial position, operations or cash flows.



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In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin (ARB) No. 51. SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a
subsidiary, which was previously referred to as the minority interest, and also establishes standards of accounting for the deconsolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those years,
beginning on or after December 15, 2008. Early adoption is prohibited. We do not believe the effect of SFAS No. 160 will affect our consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS 141R), Business Combinations. SFAS No. 141R replaces SFAS 141. This statement retains the
purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It changes the recognition of assets acquired and liabilities assumed
arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. This statement applies prospectively to business combinations for
which the acquisition dates are on or after the start of the first year beginning on or after December 15, 2008. Early adoption is prohibited. We do not believe the effect of SFAS No. 160 will affect our consolidated financial position, results of
operations or cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our investment portfolio is maintained in accordance with our investment policy that defines allowable investments, specifies credit quality standards and limits our
credit exposure to any single issuer. The fair value of our cash equivalents is subject to change as a result of changes in market interest rates and investment risk related to the issuers credit worthiness. Interest rates from our bank credit
facility are based on LIBOR and Wells Fargos Prime Rate at the time our receivables are financed. These rates float as market conditions change, and as such, future financings are subject to market risk. We do not utilize financial contracts
to manage our exposure in our investment portfolio to changes in interest rates. At December 31, 2007, we had approximately $555,000 in cash and cash equivalents, all of which are stated at fair value. Changes in market interest rates would not
be expected to have a material impact on the fair value of our cash and cash equivalents at December 31, 2007, as these consisted of securities with maturities of less than three months.

Foreign Currency Exchange Rate Risk

During the year ended
December 31, 2007, almost all of our revenue was generated outside the United States. In addition, most of our products were purchased from WNC in China. To mitigate the effects of currency fluctuations on the Companys results of
operations, all revenue from our international transactions and all products purchased from WNC were denominated in US dollars.

We do maintain operations
in Korea for which expenses are paid in Korean Won. Accordingly, we do have currency risk resulting from fluctuations between the Korean Won and the U.S. Dollar. At the present time, we do not have any foreign exchange currency contracts to mitigate
this risk. Fluctuations in foreign exchange rates could impact future operating results.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The index to our Consolidated Financial Statements and the Report of
Independent Registered Public Accounting Firm appears in Part IV of this Form 10-K.



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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no
disagreements with our Independent Registered Public Accounting Firm on any matter of accounting principals or financial disclosures.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. Disclosure controls and procedures are
controls and other procedures that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that a company files or submits
under the Exchange Act is accumulated and communicated to the companys management, including its Principal Executive Officer and Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

We maintain disclosure controls and procedures designed to ensure that material information related to our company is recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms.

Under the supervision of our Chief Executive Officer and our Chief Financial Officer, we
evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that
as of December 31, 2007, the design and operation of such disclosure controls and procedures were effective.

(b) Managements Annual Report
on Internal Controls over Financial Reporting.Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).Based on our evaluation under that framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2007.

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

(c) Changes In Internal Controls Over Financial Reporting. No changes were made in our internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that has materially affected, or is likely to materially affect, our internal control over financial reporting.

(d) Limitations On Disclosure Controls And Procedures. Our disclosure controls and procedures are designed to provide reasonable assurances that
material information related to our company is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer have determined that as of December 31, 2007, our disclosure
controls were effective at that reasonable assurance level. Our management, including our Chief Executive Officer and Chief Financial



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

ITEM 9B. OTHER INFORMATION

None.



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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

(a)Identification of Directors. The
information under the caption Election of Directors, appearing in the Proxy Statement to be filed for the 2008 Annual Meeting of Stockholders is incorporated herein by reference.

(b)Identification of Executive Officers. The information under the caption Certain Information with Respect to Executive Officers,
appearing in the Proxy Statement to be filed for the 2008 Annual Meeting of Stockholders is incorporated herein by reference.

(c)Compliance with
Section 16(a) of the Exchange Act. The information under the caption Compliance with Section 16(a) of the Exchange Act, appearing in the Proxy Statement to be filed for the 2008 Annual Meeting of Stockholders is
incorporated herein by reference.

(d)Code of Ethics.The information under the caption Code of Ethics appearing in the Proxy
Statement to be filed for the 2008 Annual Meeting of Stockholders is incorporated herein by reference.

(e) Audit Committee.The
information under the caption Information Regarding the Board and its Standing Committees, appearing in the Proxy Statement to be filed for the 2008 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information under the heading Executive Compensation and Other
Information appearing in the Proxy Statement to be filed for the 2008 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information
under the heading Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters appearing in the Proxy Statement to be filed for the 2008 Annual Meeting of Stockholders is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information under the heading
Certain Relationships and Related Transactions and Director Independence, appearing in the Proxy Statement to be filed for the 2008 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information under the heading Principal Accountant Fees and
Services, appearing in the Proxy Statement to be filed for the 2008 Annual Meeting of Stockholders is incorporated herein by reference.



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PART IV

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Axesstel, Inc.

The audits referred to in our report dated March 21, 2008 relating to the consolidated financial statements of Axesstel, Inc., which is contained in Item 8 of this
Form 10-K included the audit of the amounts in the accompanying financial statement schedule. This financial statement schedule is the responsibility of the Companys management. Our responsibility is to express an opinion on this financial
statement schedule based upon our audits.

In our opinion, such financial statement schedule presents fairly, in all material respects, the information set
forth therein.



/s/    Gumbiner Savett Inc.GUMBINER SAVETT INC.


Santa Monica, California

March 21, 2008



46



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##### Table of Contents

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Index to Consolidated Financial Statements

See Index to Consolidated Financial Statements and financial statement schedules immediately following the signature page to this report on Form 10-K.

2. Index to Financial Statement Schedules

The following
Financial Statement Schedules for the years ended December 31, 2007, 2006 and 2005 should be read in conjunction with the Consolidated Financial Statements, and related notes thereto.



|                                             
|---------------------------------------------
|Schedule                                     
|Schedule IIValuation and Qualifying Accounts

SCHEDULE II

AXESSTEL, INC.

Valuation and Qualifying Accounts

For the Years Ended December 31, 2007, 2006 and 2005 (in thousands):



|                                                   |  |                            |     |                               |   |                        |  |                      |     |  |   |    
|-------------------------------------------------- |  | -------------------------- | --- | ----------------------------- | - | ---------------------- |  | -------------------- | --- |  | - | ---
|                                                   |  | Balance AtBeginningof Year |     | AdditionsCharged toOperations |   | DeductionsFromReserves |  | BalanceAt Endof Year
|Allowance for Sales Returns and Doubtful Accounts: |  |                            |     |                               |   |                        |  |                      |     |  |   |    
|December 31, 2007                                  |  | $                          | 997 |                               | $ | 125                    |  | $                    | 997 |  | $ | 125
|December 31, 2006                                  |  |                            | 500 |                               |   | 497                    |  |                      |    |  |   | 997
|December 31, 2005                                  |  |                            |    |                               |   | 500                    |  |                      |    |  |   | 500
|Warranty Reserve:                                  |  |                            |     |                               |   |                        |  |                      |     |  |   |    
|December 31, 2007                                  |  |                            | 463 |                               |   | 521                    |  |                      | 524 |  |   | 460
|December 31, 2006                                  |  |                            | 558 |                               |   | 365                    |  |                      | 460 |  |   | 463
|December 31, 2005                                  |  |                            | 183 |                               |   | 516                    |  |                      | 141 |  |   | 558
|Reserve for Excess Obsolete Inventories:           |  |                            |     |                               |   |                        |  |                      |     |  |   |    
|December 31, 2007                                  |  |                            | 195 |                               |   | 80                     |  |                      |    |  |   | 275
|December 31, 2006                                  |  |                            |    |                               |   | 195                    |  |                      |    |  |   | 195
|December 31, 2005                                  |  |                            |    |                               |   |                       |  |                      |    |  |   |   

Schedules not listed above have been omitted because they are not applicable or are not required or the
information required to be set forth therein is included in the Consolidated Financial Statements or notes thereto.

(b) Exhibits

See Index to Exhibits immediately following the Consolidated Financial Statements and notes thereto included in this report on Form 10-K.



47



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##### Table of Contents

SIGNATURES

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



AXESSTEL, INC.By:

/s/    H. CLARK
HICKOCKH. Clark HickockChief Executive Officer(Principal Executive Officer)Date: March 28, 2008


POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby severally constitutes and appoints H. Clark Hickock and Patrick Gray, and each of them, his true and lawful attorney-in-fact
and agent, with full power of substitution and re-substitution for him and in his name, place and stead, in any and all capacities to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Commission, granting unto said attorney-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that each said attorneys-in-fact and agents or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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



|                                         |  |                                                                      |  |               
|---------------------------------------- |  | -------------------------------------------------------------------- |  | --------------
|Signature                                |  | Title                                                                |  | Date          
|                                         |  |                                                                     
|/s/    H. CLARK
HICKOCK H. Clark Hickock |  | Chief Executive Officer and Director (Principal Executive Officer)   |  | March 28, 2008
|                                         |  |                                                                     
|/s/    PATRICK
GRAY Patrick Gray         |  | Chief Financial Officer (Principal Financial and Accounting Officer) |  | March 28, 2008
|                                         |  |                                                                     
|/s/    BRYAN B.
MIN Bryan B. Min         |  | Chairman of the Board                                                |  | March 28, 2008
|                                         |  |                                                                     
|/s/    JAI
BHAGAT Jai Bhagat             |  | Director                                                             |  | March 28, 2008
|                                         |  |                                                                     
|/s/    OSMO A. HAUTANEN Osmo A. Hautanen |  | Director                                                             |  | March 28, 2008
|                                         |  |                                                                     
|/s/    SEUNG TAIK YANG Seung Taik Yang   |  | Director                                                             |  | March 28, 2008



48



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##### Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                |  |     
|------------------------------------------------------------------------------- |  | ----
|                                                                                |  | Page
|Consolidated Financial Statements For The Fiscal Year Ended December 31, 2007   |  |     
|Report of Independent Registered Public Accounting Firm of Gumbiner Savett Inc. |  | F-2 
|Consolidated Balance Sheets                                                     |  | F-3 
|Consolidated Statements of Operations                                           |  | F-4 
|Consolidated Statements of Stockholders Equity                                 |  | F-5 
|Consolidated Statements of Cash Flows                                           |  | F-6 
|Notes to Consolidated Financial Statements                                      |  | F-8 



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders

of Axesstel, Inc.

We have audited the consolidated balance sheets of Axesstel, Inc. (a Nevada corporation) and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders
equity, and cash flows for each of the years ended December 31, 2007, 2006 and 2005. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Axesstel, Inc. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years ended December 31, 2007, 2006 and 2005 in conformity with U.S. generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more
fully described in Note 2 to the financial statements, the Company has incurred substantial recurring losses from operations, the Companys current liabilities exceed its current assets, and the Company may not have sufficient working capital
or outside financing available to meet its planned operating activities over the next twelve months. These conditions raise substantial doubt about the Companys ability to continue as a going concern. Managements plans regarding these
matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based
Payments, applying the modified prospective method at the beginning of the year ended December 31, 2006.

/s/
Gumbiner Savett Inc.

GUMBINER SAVETT INC.

March 21, 2008

Santa Monica, California



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##### Table of Contents

AXESSTEL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                   |  |                    |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                                                   |  | As of December 31, |            
|                                                                                                                                                                   |  | 2007               |             |   | 2006 |  
|ASSETS                                                                                                                                                             |  |                    |             |   |      |   |             |  
|Current assets:                                                                                                                                                    |  |                    |             |   |      |   |             |  
|Cash and cash equivalents                                                                                                                                          |  | $                  | 555,301     |   |      | $ | 3,708,909   |  
|Accounts receivable, less allowance for sales returns and doubtful accounts of $125,000 and $997,000 at December 31, 2007 and
2006                                 |  |                    | 20,801,710  |   |      |   | 39,008,789  |  
|Inventory                                                                                                                                                          |  |                    | 2,535,433   |   |      |   | 2,525,885   |  
|Prepayments and other current assets                                                                                                                               |  |                    | 1,295,697   |   |      |   | 2,612,340   |  
|                                                                                                                                                                   |  |                    |             |   |      |   |             |  
|Total current assets                                                                                                                                               |  |                    | 25,188,141  |   |      |   | 47,855,923  |  
|                                                                                                                                                                   |  |                    |             |   |      |   |             |  
|                                                                                                                                                                   |  |                   
|Property and equipment, net                                                                                                                                        |  |                    | 1,694,493   |   |      |   | 1,905,386   |  
|                                                                                                                                                                   |  |                    |             |   |      |   |             |  
|                                                                                                                                                                   |  |                   
|Other assets:                                                                                                                                                      |  |                    |             |   |      |   |             |  
|License, net                                                                                                                                                       |  |                    | 1,609,304   |   |      |   | 2,836,392   |  
|Goodwill                                                                                                                                                           |  |                    |            |   |      |   | 385,564     |  
|Other, net                                                                                                                                                         |  |                    | 871,059     |   |      |   | 1,206,309   |  
|                                                                                                                                                                   |  |                    |             |   |      |   |             |  
|Total other assets                                                                                                                                                 |  |                    | 2,480,363   |   |      |   | 4,428,265   |  
|                                                                                                                                                                   |  |                    |             |   |      |   |             |  
|Total assets                                                                                                                                                       |  | $                  | 29,362,997  |   |      | $ | 54,189,574  |  
|                                                                                                                                                                   |  |                    |             |   |      |   |             |  
|                                                                                                                                                                   |  |                   
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                               |  |                    |             |   |      |   |             |  
|Current liabilities:                                                                                                                                               |  |                    |             |   |      |   |             |  
|Accounts payable                                                                                                                                                   |  | $                  | 22,619,976  |   |      | $ | 20,979,968  |  
|Bank financing                                                                                                                                                     |  |                    | 490,000     |   |      |   | 13,127,450  |  
|Accrued commissions                                                                                                                                                |  |                    | 1,645,099   |   |      |   | 2,077,430   |  
|Accrued royalties                                                                                                                                                  |  |                    | 767,000     |   |      |   | 2,994,000   |  
|Accrued warranties                                                                                                                                                 |  |                    | 460,000     |   |      |   | 463,000     |  
|Accrued expenses and other current liabilities                                                                                                                     |  |                    | 2,105,085   |   |      |   | 1,980,432   |  
|                                                                                                                                                                   |  |                    |             |   |      |   |             |  
|Total current liabilities                                                                                                                                          |  |                    | 28,087,160  |   |      |   | 41,622,280  |  
|                                                                                                                                                                   |  |                    |             |   |      |   |             |  
|                                                                                                                                                                   |  |                   
|Long-term liabilities                                                                                                                                              |  |                    |            |   |      |   | 3,068,940   |  
|                                                                                                                                                                   |  |                    |             |   |      |   |             |  
|                                                                                                                                                                   |  |                   
|Commitments and contingencies                                                                                                                                      |  |                    |             |   |      |   |             |  
|                                                                                                                                                                   |  |                   
|Stockholders equity:                                                                                                                                              |  |                    |             |   |      |   |             |  
|Common stock, par value $0.0001; Authorized 50,000,000 shares; 23,228,982 and 22,866,266 shares issued and outstanding at December 31,
2007 and 2006, respectively |  |                    | 2,323       |   |      |   | 2,287       |  
|Additional paid-in capital                                                                                                                                         |  |                    | 38,939,603  |   |      |   | 38,014,050  |  
|Accumulated other comprehensive income                                                                                                                             |  |                    | 5,472       |   |      |   | 129,443     |  
|Accumulated deficit                                                                                                                                                |  |                    | (37,671,561 | ) |      |   | (28,647,426 | )
|                                                                                                                                                                   |  |                    |             |   |      |   |             |  
|Total stockholders equity                                                                                                                                         |  |                    | 1,275,837   |   |      |   | 9,498,354   |  
|                                                                                                                                                                   |  |                    |             |   |      |   |             |  
|Total liabilities and stockholders equity                                                                                                                         |  | $                  | 29,362,997  |   |      | $ | 54,189,574  |  
|                                                                                                                                                                   |  |                    |             |   |      |   |             |  

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



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##### Table of Contents

AXESSTEL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                    |  |                                 |            |   |      |   |            |      |  |   |             |  
|----------------------------------- |  | ------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|                                    |  | For the Year Ended December 31, |           
|                                    |  | 2007                            |            |   | 2006 |   |            | 2005 | 
|Revenues                            |  | $                               | 82,435,385 |   |      | $ | 95,519,674 |      |  | $ | 94,665,711  |  
|Cost of goods sold                  |  |                                 | 64,849,155 |   |      |   | 80,245,405 |      |  |   | 84,414,640  |  
|                                    |  |                                 |            |   |      |   |            |      |  |   |             |  
|Gross margin                        |  |                                 | 17,586,230 |   |      |   | 15,274,269 |      |  |   | 10,251,071  |  
|                                    |  |                                 |            |   |      |   |            |      |  |   |             |  
|Operating expenses                  |  |                                 |            |   |      |   |            |      |  |   |             |  
|Research and development            |  |                                 | 7,089,665  |   |      |   | 5,877,846  |      |  |   | 5,511,719   |  
|Selling, general and administrative |  |                                 | 18,851,408 |   |      |   | 15,233,668 |      |  |   | 12,415,808  |  
|Impairment of assets                |  |                                 | 385,564    |   |      |   | 1,064,771  |      |  |   |            |  
|                                    |  |                                 |            |   |      |   |            |      |  |   |             |  
|Total operating expenses            |  |                                 | 26,326,637 |   |      |   | 22,176,285 |      |  |   | 17,927,527  |  
|                                    |  |                                 |            |   |      |   |            |      |  |   |             |  
|Operating loss                      |  |                                 | (8,740,407 | ) |      |   | (6,902,016 | )    |  |   | (7,676,456  | )
|                                    |  |                                 |            |   |      |   |            |      |  |   |             |  
|                                    |  |                                 |           
|Other income (expense)              |  |                                 |            |   |      |   |            |      |  |   |             |  
|Interest income and other income    |  |                                 | 1,399,679  |   |      |   | 1,037,750  |      |  |   | 420,409     |  
|Interest expense and other expense  |  |                                 | (1,683,407 | ) |      |   | (771,952   | )    |  |   | (896,945    | )
|                                    |  |                                 |            |   |      |   |            |      |  |   |             |  
|Total other income (expense)        |  |                                 | (283,728   | ) |      |   | 265,798    |      |  |   | (476,536    | )
|                                    |  |                                 |            |   |      |   |            |      |  |   |             |  
|Loss before income tax provision    |  |                                 | (9,024,135 | ) |      |   | (6,636,218 | )    |  |   | (8,152,992  | )
|Income tax provision                |  |                                 |           |   |      |   |           |      |  |   | 2,048,182   |  
|                                    |  |                                 |            |   |      |   |            |      |  |   |             |  
|Net loss                            |  |                                 | (9,024,135 | ) |      |   | (6,636,218 | )    |  |   | (10,201,174 | )
|                                    |  |                                 |            |   |      |   |            |      |  |   |             |  
|Loss per share                      |  |                                 |            |   |      |   |            |      |  |   |             |  
|Basic                               |  | $                               | (0.39      | ) |      | $ | (0.29      | )    |  | $ | (0.51       | )
|                                    |  |                                 |            |   |      |   |            |      |  |   |             |  
|Diluted                             |  | $                               | (0.39      | ) |      | $ | (0.29      | )    |  | $ | (0.51       | )
|                                    |  |                                 |            |   |      |   |            |      |  |   |             |  
|Weighted average shares outstanding |  |                                 |            |   |      |   |            |      |  |   |             |  
|Basic                               |  |                                 | 22,931,750 |   |      |   | 22,721,122 |      |  |   | 20,182,856  |  
|Diluted                             |  |                                 | 22,931,750 |   |      |   | 22,721,122 |      |  |   | 20,182,856  |  

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



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##### Table of Contents

AXESSTEL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



|                                                  |  |              |  |                          |       |  |                      |            |   |                                            |   |          |                    |  |   |                          |   |  |   |             |   |  |   |             |  
|------------------------------------------------- |  | ------------ |  | ------------------------ | ----- |  | -------------------- | ---------- | - | ------------------------------------------ | - | -------- | ------------------ |  | - | ------------------------ | - |  | - | ----------- | - |  | - | ----------- | -
|                                                  |  | Common Stock |  | AdditionalPaid InCapital |       |  | UnearnedCompensation |            |   | AccumulatedOtherComprehensiveIncome (Loss) |   |          | AccumulatedDeficit |  |   | TotalStockholdersEquity |  
|                                                  |  | Shares       |  | Amount                   |       |  |                      |            |  
|Balances at December 31, 2004                     |  | 11,253,466   |  | $                        | 1,125 |  | $                    | 15,757,532 |   |                                            | $ | (779,483 | )                  |  | $ | (45,614                  | ) |  | $ | (11,810,034 | ) |  | $ | 3,123,526   |  
|Stock issued for cash                             |  | 5,484,979    |  | $                        | 549   |  | $                    | 20,632,463 |   |                                            | $ |         |                    |  | $ |                         |   |  | $ |            |   |  | $ | 20,633,012  |  
|Offering costs                                    |  |             |  |                          |      |  |                      | (2,665,220 | ) |                                            |   |         |                    |  |   |                         |   |  |   |            |   |  |   | (2,665,220  | )
|Stock issued for exercise of warrants and options |  | 4,807,992    |  |                          | 480   |  |                      | 1,304,967  |   |                                            |   |         |                    |  |   |                         |   |  |   |            |   |  |   | 1,305,447   |  
|Stock issued for employee compensation            |  | 10,000       |  |                          | 1     |  |                      | 37,999     |   |                                            |   |         |                    |  |   |                         |   |  |   |            |   |  |   | 38,000      |  
|Stock issued to Board of Directors                |  | 90,000       |  |                          | 8     |  |                      | 141,290    |   |                                            |   |         |                    |  |   |                         |   |  |   |            |   |  |   | 141,298     |  
|Debt converted into common stock                  |  | 897,152      |  |                          | 90    |  |                      | 2,689,910  |   |                                            |   |         |                    |  |   |                         |   |  |   |            |   |  |   | 2,690,000   |  
|Unearned compensation                             |  |             |  |                          |      |  |                      |           |   |                                            |   | 286,970  |                    |  |   |                         |   |  |   |            |   |  |   | 286,970     |  
|Cumulative translation adjustment                 |  |             |  |                          |      |  |                      |           |   |                                            |   |         |                    |  |   | 109,416                  |   |  |   |            |   |  |   | 109,416     |  
|Net loss                                          |  |             |  |                          |      |  |                      |           |   |                                            |   |         |                    |  |   |                         |   |  |   | (10,201,174 | ) |  |   | (10,201,174 | )
|                                                  |  |              |  |                          |       |  |                      |            |   |                                            |   |          |                    |  |   |                          |   |  |   |             |   |  |   |             |  
|Balances at December 31, 2005                     |  | 22,543,589   |  | $                        | 2,253 |  | $                    | 37,898,941 |   |                                            | $ | (492,513 | )                  |  | $ | 63,802                   |   |  | $ | (22,011,208 | ) |  | $ | 15,461,275  |  
|                                                  |  |              |  |                          |       |  |                      |            |   |                                            |   |          |                    |  |   |                          |   |  |   |             |   |  |   |             |  
|Stock issued for exercise of options              |  | 297,677      |  | $                        | 31    |  | $                    | 171,540    |   |                                            | $ |         |                    |  | $ |                         |   |  | $ |            |   |  | $ | 171,571     |  
|Stock issued for employee compensation            |  | 10,000       |  |                          | 1     |  |                      | 11,499     |   |                                            |   |         |                    |  |   |                         |   |  |   |            |   |  |   | 11,500      |  
|Stock issued to Board of Directors                |  | 15,000       |  |                          | 2     |  |                      | 20,998     |   |                                            |   |         |                    |  |   |                         |   |  |   |            |   |  |   | 21,000      |  
|Stock-based compensation                          |  |             |  |                          |      |  |                      | 142,295    |   |                                            |   |         |                    |  |   |                         |   |  |   |            |   |  |   | 142,295     |  
|Unearned compensation                             |  |             |  |                          |      |  |                      | (231,223   | ) |                                            |   | 492,513  |                    |  |   |                         |   |  |   |            |   |  |   | 261,290     |  
|Cumulative translation adjustment                 |  |             |  |                          |      |  |                      |           |   |                                            |   |         |                    |  |   | 65,641                   |   |  |   |            |   |  |   | 65,641      |  
|Net loss                                          |  |             |  |                          |      |  |                      |           |   |                                            |   |         |                    |  |   |                         |   |  |   | (6,636,218  | ) |  |   | (6,636,218  | )
|                                                  |  |              |  |                          |       |  |                      |            |   |                                            |   |          |                    |  |   |                          |   |  |   |             |   |  |   |             |  
|Balances at December 31, 2006                     |  | 22,866,266   |  | $                        | 2,287 |  | $                    | 38,014,050 |   |                                            | $ |         |                    |  | $ | 129,443                  |   |  | $ | (28,647,426 | ) |  | $ | 9,498,354   |  
|                                                  |  |              |  |                          |       |  |                      |            |   |                                            |   |          |                    |  |   |                          |   |  |   |             |   |  |   |             |  
|Stock issued for exercise of options              |  | 7,716        |  | $                        |      |  | $                    | 2,006      |   |                                            | $ |         |                    |  | $ |                         |   |  | $ |            |   |  | $ | 2,006       |  
|Stock issued for employee compensation            |  | 10,000       |  |                          | 1     |  |                      | 15,499     |   |                                            |   |         |                    |  |   |                         |   |  |   |            |   |  |   | 15,500      |  
|Stock issued to Board of Directors                |  | 20,000       |  |                          | 2     |  |                      | 30,998     |   |                                            |   |         |                    |  |   |                         |   |  |   |            |   |  |   | 31,000      |  
|Stock issued for cash                             |  | 325,000      |  |                          | 33    |  |                      | 308,717    |   |                                            |   |         |                    |  |   |                         |   |  |   |            |   |  |   | 308,750     |  
|Stock-based compensation                          |  |             |  |                          |      |  |                      | 430,809    |   |                                            |   |         |                    |  |   |                         |   |  |   |            |   |  |   | 430,809     |  
|Unearned compensation                             |  |             |  |                          |      |  |                      | 137,524    |   |                                            |   |         |                    |  |   |                         |   |  |   |            |   |  |   | 137,524     |  
|Cumulative translation adjustment                 |  |             |  |                          |      |  |                      |           |   |                                            |   |         |                    |  |   | (123,971                 | ) |  |   |            |   |  |   | (123,971    | )
|Net loss                                          |  |             |  |                          |      |  |                      |           |   |                                            |   |         |                    |  |   |                         |   |  |   | (9,024,135  | ) |  |   | (9,024,135  | )
|                                                  |  |              |  |                          |       |  |                      |            |   |                                            |   |          |                    |  |   |                          |   |  |   |             |   |  |   |             |  
|Balances at December 31, 2007                     |  | 23,228,982   |  | $                        | 2,323 |  | $                    | 38,939,603 |   |                                            | $ |         |                    |  | $ | 5,472                    |   |  | $ | (37,671,561 | ) |  | $ | 1,275,837   |  
|                                                  |  |              |  |                          |       |  |                      |            |   |                                            |   |          |                    |  |   |                          |   |  |   |             |   |  |   |             |  



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



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##### Table of Contents

AXESSTEL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                            |  |                                 |             |   |      |   |             |      |  |   |             |  
|--------------------------------------------------------------------------- |  | ------------------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                            |  | For the Year Ended December 31, |            
|                                                                            |  | 2007                            |             |   | 2006 |   |             | 2005 | 
|Cash flows from operating activities:                                       |  |                                 |             |   |      |   |             |      |  |   |             |  
|Net loss                                                                    |  | $                               | (9,024,135  | ) |      | $ | (6,636,218  | )    |  | $ | (10,201,174 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                 |             |   |      |   |             |      |  |   |             |  
|Depreciation and amortization                                               |  |                                 | 1,907,008   |   |      |   | 2,798,775   |      |  |   | 3,094,826   |  
|License fee amortization reversal                                           |  |                                 | (1,333,333  | ) |      |   |            |      |  |   |            |  
|Asset impairment                                                            |  |                                 | 385,564     |   |      |   | 1,064,771   |      |  |   |            |  
|Stock-based compensation                                                    |  |                                 | 614,833     |   |      |   | 153,795     |      |  |   | 38,000      |  
|Discount on note                                                            |  |                                 | 391,235     |   |      |   |            |      |  |   |            |  
|Provision for sales returns and losses on accounts receivable               |  |                                 | (871,715    | ) |      |   | 496,715     |      |  |   | 500,000     |  
|Provision for inventory obsolescence                                        |  |                                 | 80,490      |   |      |   | 194,510     |      |  |   |             |  
|Deferred tax assets                                                         |  |                                 |            |   |      |   |            |      |  |   | 1,900,000   |  
|(Increase) decrease in:                                                     |  |                                 |             |   |      |   |             |      |  |   |             |  
|Accounts receivable                                                         |  |                                 | 19,078,794  |   |      |   | (25,809,423 | )    |  |   | (5,419,741  | )
|Inventories                                                                 |  |                                 | (90,038     | ) |      |   | 593,624     |      |  |   | (3,314,019  | )
|Prepayments and other current assets                                        |  |                                 | 1,331,198   |   |      |   | 900,188     |      |  |   | 155,406     |  
|Other assets                                                                |  |                                 | (852,685    | ) |      |   | (224,828    | )    |  |   | (673,286    | )
|Increase (decrease) in:                                                     |  |                                 |             |   |      |   |             |      |  |   |             |  
|Accounts payable                                                            |  |                                 | 1,370,008   |   |      |   | 10,900,699  |      |  |   | (5,611,947  | )
|Accrued expenses and other liabilities                                      |  |                                 | (2,836,618  | ) |      |   | 5,343,931   |      |  |   | (1,135,626  | )
|                                                                            |  |                                 |             |   |      |   |             |      |  |   |             |  
|Total adjustments                                                           |  |                                 | 19,174,741  |   |      |   | (3,587,243  | )    |  |   | (10,466,387 | )
|                                                                            |  |                                 |             |   |      |   |             |      |  |   |             |  
|Net cash provided by (used in) operating activities                         |  |                                 | 10,150,606  |   |      |   | (10,223,461 | )    |  |   | (20,667,561 | )
|                                                                            |  |                                 |             |   |      |   |             |      |  |   |             |  
|Cash flows from investing activities:                                       |  |                                 |             |   |      |   |             |      |  |   |             |  
|Proceeds from note receivable                                               |  |                                 | 294,741     |   |      |   | 54,856      |      |  |   |            |  
|Acquisition of property and equipment                                       |  |                                 | (757,055    | ) |      |   | (1,409,650  | )    |  |   | (2,987,849  | )
|                                                                            |  |                                 |             |   |      |   |             |      |  |   |             |  
|Net cash used in investing activities                                       |  |                                 | (462,314    | ) |      |   | (1,354,794  | )    |  |   | (2,987,849  | )
|                                                                            |  |                                 |             |   |      |   |             |      |  |   |             |  
|Cash flows from financing activities:                                       |  |                                 |             |   |      |   |             |      |  |   |             |  
|Proceeds from issuance of common stock, net of costs                        |  |                                 | 310,756     |   |      |   | 171,571     |      |  |   | 19,273,237  |  
|Proceeds from bank financing                                                |  |                                 | 490,000     |   |      |   | 13,127,450  |      |  |   | 7,239,000   |  
|Repayment of bank financing                                                 |  |                                 | (13,127,450 | ) |      |   | (7,239,000  | )    |  |   | (1,330,000  | )
|Proceeds from borrowings                                                    |  |                                 | 5,190,250   |   |      |   |            |      |  |   |            |  
|Repayment of borrowings                                                     |  |                                 | (5,581,485  | ) |      |   |            |      |  |   |            |  
|                                                                            |  |                                 |             |   |      |   |             |      |  |   |             |  
|Net cash provided by (used in) financing activities                         |  |                                 | (12,717,929 | ) |      |   | 6,060,021   |      |  |   | 25,182,237  |  
|                                                                            |  |                                 |             |   |      |   |             |      |  |   |             |  
|Cumulative translation adjustment                                           |  |                                 | (123,971    | ) |      |   | 65,641      |      |  |   | 109,416     |  
|                                                                            |  |                                 |             |   |      |   |             |      |  |   |             |  
|Net increase (decrease) in cash and cash equivalents                        |  |                                 | (3,153,608  | ) |      |   | (5,452,593  | )    |  |   | 1,636,243   |  
|                                                                            |  |                                 |             |   |      |   |             |      |  |   |             |  
|Cash and cash equivalents at beginning of year                              |  |                                 | 3,708,909   |   |      |   | 9,161,502   |      |  |   | 7,525,259   |  
|                                                                            |  |                                 |             |   |      |   |             |      |  |   |             |  
|Cash and cash equivalents at end of year                                    |  | $                               | 555,301     |   |      | $ | 3,708,909   |      |  | $ | 9,161,502   |  
|                                                                            |  |                                 |             |   |      |   |             |      |  |   |             |  
|Supplemental disclosure of cash flow information:                           |  |                                 |             |   |      |   |             |      |  |   |             |  
|Cash paid during the period for:                                            |  |                                 |             |   |      |   |             |      |  |   |             |  
|Interest                                                                    |  | $                               | 1,654,681   |   |      | $ | 540,513     |      |  | $ | 333,824     |  
|Income tax                                                                  |  | $                               |            |   |      | $ |            |      |  | $ | 213,063     |  



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##### Table of Contents

Supplemental disclosures of non-cash investing and financing activities:

During 2007, we entered into the following transactions:



| |  |  | We reversed capitalized license costs and a long-term contingent liability associated with the 2005 expanded CDMA license of $2,500,000. The license and related fee
was amended in 2007 and there is no contingent liability based on certain milestones being achieved.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During 2006, we entered into the following transactions:



| |  |  | Issued a $960,000 note receivable with a three year term in connection with our sale of fixed assets of $700,000 and other assets of $260,000.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------

During 2005, we entered into the following transactions:



| |  |  | We issued 125,000 shares of common stock to North America Venture Fund II, L.P. and 772,152 shares of common stock to Laurus Master Fund, Ltd. in repayment for
notes payable of $2,690,000 in the aggregate.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We recorded capitalized license costs and a long-term liability associated with an expanded CDMA license of $2,500,000. The liability was contingent on certain
milestones being achieved.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We issued 135,000 shares of common stock to members of the Companys Board of Directors and cancelled 45,000 shares. Combined, these shares are valued at
$141,300.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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##### Table of Contents

AXESSTEL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2007

1. THE COMPANY AND ITS
SIGNIFICANT ACCOUNTING POLICIES

The Company

Axesstel, Inc. (we, Axesstel or the Company) designs, develops, manufactures and markets fixed wireless voice and broadband data products for worldwide telecommunications. We sell our products to
telecommunications service providers in developing countries. The product portfolio includes fixed wireless desktop phones, payphones, voice/data terminals, broadband modems, and 3G gateway devices for access to voice calling and high-speed data
services.

Axesstel was originally formed in July 2000 as a California corporation (Axesstel California) and through a reverse
merger in August 2002 became Axesstel, Inc., a Nevada corporation.

Principles of Consolidation

The consolidated financial statements include the assets, liabilities and operating results of Axesstel and its wholly-owned subsidiaries. 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 period. 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. These bank accounts
are generally guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. At times, cash balances at any single bank may be in excess of the FDIC insurance limit. 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 evaluation of the customers financial condition and payment history. At times, obligations for our foreign customers are
secured either by letters of credit or by credit insurance. Significant management judgment is required to determine the allowance for sales returns and doubtful accounts. Management determines the adequacy of the allowance based on historical
write-off percentages and information collected from individual customers. Accounts receivable are charged off against the allowance when collectibility is determined to be permanently impaired. At December 31, 2007 and December 31, 2006,
the allowance for sales returns and doubtful accounts was $125,000 and $997,000, respectively.



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##### Table of Contents

Inventories

Inventories are stated at the lower of cost or market. We review the components of the inventory on a regular basis for excess or obsolete inventory based on estimated future usage and sales. Management concluded that an inventory reserve
of approximately $275,000 and $195,000 was needed as of December 31, 2007 and December 31, 2006, respectively.

Property and Equipment

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



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

License

License includes the costs of a non-exclusive worldwide software technology license which allows us to manufacture both fixed wireless and mobile CDMA, WCDMA, HSDPA and HSUPA based products and to sell and/or
distribute them worldwide. The license has no fixed termination date. License costs are amortized on a straight-line basis over the estimated economic life of the license, which management has estimated ranges from three 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 approximately four years.

Software Development Costs

Software development costs for products sold (primarily firmware embedded in the Companys
products) incurred after technological feasibility is established are capitalized in accordance with Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed. Significant management judgment is required in determining when technological feasibility has been achieved for a particular product. Capitalized software development costs are amortized when products are available for
general release to customers, using the greater of (a) the ratio that current gross revenues for the products bear to the total current and anticipated future gross revenues for the products or (b) the straight-line method over the
estimated useful life of the products.

SFAS No. 86 and other authoritative literature, interpretations and industry practices
prescribe that technological feasibility is reached when both the software and other components of the products research and development activities are completed. Our engineering processes demonstrate that the research and development
activities of our products are completed simultaneously with the commencement of the manufacturing process. As such, we expense all research and development activities performed up to the commencement of the manufacturing process and have not
capitalized any software costs as of December 31, 2007 and December 31, 2006. Engineering product maintenance costs incurred after the commencement of the manufacturing process are expensed as incurred.



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##### Table of Contents

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 SFAS No. 144, Accounting for the Impairment of Long-Lived Assets.
SFAS No. 144 establishes the accounting for impairment of long-lived tangible and intangible assets other than goodwill and for the disposal of a business. Pursuant to SFAS No. 144, we periodically evaluate, at least annually, whether
facts or circumstances indicate that the carrying value of depreciable assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of 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 costs as a charge to operations at the time it is recognized.

During the year ended
December 31, 2007, we determined that our goodwill was impaired and wrote off the carrying value of approximately $386,000. In the year ended December 31, 2006, we recorded an impairment charge of $1.1 million for long-lived assets
associated with the closure of our Korean manufacturing location prior to the sale of those assets.

Fair Value of Financial Instruments

We measure our financial assets and liabilities in accordance with the requirements of SFAS No. 107, Disclosures About Fair Value of
Financial Instruments. The carrying values of accounts receivable, accounts payable, bank financing, accrued expenses, and other liabilities approximate fair value due to the short-term maturities of these instruments.

Revenue Recognition and Warranty Costs

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 criterion as prescribed by Staff Accounting Bulletin
(SAB) No. 101 (SAB 101), Revenue Recognition in Financial Statements, as amended by SAB No. 104. Generally, the risk of ownership and title pass when product is received by the customers freight forwarder. 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 December 31, 2007 and
2006, the allowance for sales returns and doubtful accounts was $125,000 and $997,000, respectively.

On certain contracts, we provide
warranty replacement units ranging from 1-2 percent of total units shipped. The cost related to the standard warranty replacement units are included in the cost of goods sold and recorded when revenue is recognized. All products are inspected for
quality prior to shipment and we have historically experienced a minimal level of defective units. On other contracts, we do not provide warranty replacement units. In these cases, we provide warranty support to the customer through service centers
operated by third parties under contract with us. Costs for these service centers are recorded to cost of sales when revenue is recognized. During the year ended December 31, 2007, warranty costs amounted to approximately $524,000 and, as of
December 31, 2007, we have established a warranty reserve of approximately $460,000 to cover additional service costs over the life of the warranties. During the year ended December 31, 2006, warranty costs amounted to approximately
$365,000 and, as of December 31, 2006, we had established a warranty reserve of $463,000 to cover additional service costs over the life of the warranties.

Research and Development

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



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##### Table of Contents

Stock-Based Compensation

Adoption of SFAS 123R

Effective January 1, 2006, we adopted SFAS No. 123R (revised 2004), Share-Based
Payment, (SFAS 123R) which establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on accounting for transactions where an entity obtains employee
services in share-based payment transactions. SFAS 123R requires an entity to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and
to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. SFAS 123R supersedes our previous accounting under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25) and SFAS 123, Accounting for Stock Based Compensation, for periods beginning January 1, 2006. In March 2005, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 107 (SAB 107) relating to SFAS 123R. We have applied the provisions of SAB 107 in our adoption of SFAS 123R.

We adopted SFAS 123R using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006. Our Consolidated Financial Statements as of the years ended December 31, 2007
and December 31, 2006 reflect the impact of SFAS 123R. In accordance with the modified prospective transition method, our Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of
SFAS 123R, except for disclosures for comparative purposes.

SFAS 123R requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statements of Operations. Prior to
the adoption of SFAS 123R, we accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123). Under
the intrinsic value method, no stock-based compensation expense had been recognized in our Consolidated Statements of Operations, as all options granted under those plans are intended to have an exercise price equal to or greater than the market
value of the underlying common stock at the date of grant.

As a result of adopting SFAS 123(R), our net loss for the year ended
December 31, 2007 and December 31, 2006 is approximately $431,000 and $142,000 greater respectively, than if we had continued to account for share-based compensation under APB 25. As a result of adopting SFAS 123(R), basic and diluted loss
per share for the years ended December 31, 2007 and December 31, 2006, was reduced by $0.02 and $0.01 per share, respectively.

Compensation
Costs

Results of operations for the years ended December 31, 2007, 2006 and 2005 include stock-based compensation costs of
approximately $615,000, $154,000, and $38,000, respectively. Following is a summary of stock-based compensation costs, by income statement classification (in thousands):



|                                       |  |                          |      |      |   |      |  |   |     
|-------------------------------------- |  | ------------------------ | ---- | ---- | - | ---- |  | - | ----
|                                       |  | Years ended December 31,
|                                       |  | 2007                     |      | 2006 |   | 2005
|Research and development               |  | $                        | 94   |      | $ |     |  | $ |    
|Selling, general and administrative    |  |                          | 521  |      |   | 154  |  |   | 38  
|                                       |  |                          |      |      |   |      |  |   |     
|Total                                  |  |                          | 615  |      |   | 154  |  |   | 38  
|                                       |  |                          |      |      |   |      |  |   |     
|Tax effect on share-based compensation |  |                          |     |      |   |     |  |   |    
|                                       |  |                          |      |      |   |      |  |   |     
|Net effect on net income               |  | $                        | 615  |      | $ | 154  |  | $ | 38  
|                                       |  |                          |      |      |   |      |  |   |     
|Effect on earnings per share:          |  |                          |      |      |   |      |  |   |     
|Basic                                  |  | $                        | 0.03 |      | $ | 0.01 |  | $ | 0.00
|Diluted                                |  | $                        | 0.03 |      | $ | 0.01 |  | $ | 0.00



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##### Table of Contents

Valuation of Stock Option Awards

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. As permitted by SAB 107, we utilized the shortcut approach to estimate the options expected term, which represents the period of time that options granted are expected to be outstanding. Expected volatilities are
based on historical volatility of our stock. We estimated the forfeiture rate based on historical data for forfeitures and we recognize compensation costs only for those equity awards expected to vest. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield in effect at the time of grant. We have never declared or paid dividends and have no plans to do so in the foreseeable future.

The following weighted-average assumptions were utilized for the calculations during each period:



|                            |      |                          |   |      |               |   |      |           |  
|--------------------------- | ---- | ------------------------ | - | ---- | ------------- | - | ---- | --------- | -
|                            |      | Years ended December 31, |  
|                            | 2007 |                          |   | 2006 |               |   | 2005 |          
|Expected life (in years)    |      | 6.00                     |   |      | 6.00          |   |      | 6.00      |  
|Expected volatility         |      | 65                       | % |      | 68% to 84     | % |      | 54% to 70 | %
|Weighted average volatility |      | 65                       | % |      | 75            | % |      | 62        | %
|Forfeiture rate             |      | 12                       | % |      | 12            | % |      |          |  
|Risk-free interest rate     |      | 4.76                     | % |      | 4.30% to 4.99 | % |      | 6.0       | %
|Expected dividend yield     |      |                         |   |      |              |   |      |          |  

Adjusted net loss information

If we had elected to recognize compensation expense based upon the fair value of the share price (determined by the approximate market price at the time
of grant) at the grant date for stock option awards consistent with the methodology prescribed by SFAS No. 123, the Companys net loss and loss per share would be adjusted to the pro forma amounts indicated below:



|                                                                                                                                            |  |                        |             |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ----------- | -
|                                                                                                                                            |  | Year Ended December 31 |            
|                                                                                                                                            |  | 2005                   |            
|Net loss, as reported                                                                                                                       |  | $                      | (10,201,174 | )
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |  |                        | (2,797,675  | )
|                                                                                                                                            |  |                        |             |  
|Pro forma net loss                                                                                                                          |  | $                      | (12,998,849 | )
|                                                                                                                                            |  |                        |             |  
|Loss per share:                                                                                                                             |  |                        |             |  
|Basicas reported                                                                                                                           |  | $                      | (0.51       | )
|Basicpro forma                                                                                                                             |  | $                      | (0.64       | )
|Dilutedas reported                                                                                                                         |  | $                      | (0.51       | )
|Dilutedpro forma                                                                                                                           |  | $                      | (0.64       | )

Income Taxes

We account for income taxes in accordance with SFAS No. 109 Accounting for Income Taxes. As such, deferred income taxes are recognized for the tax consequences in future years of differences between
the tax basis of assets and liabilities and their financial 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 amount expected to be realized. The provision for income taxes represents the tax payable for the period, if any, and the change during the period in deferred tax
assets and liabilities.



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##### Table of Contents

Earnings (loss) per Share

We utilize SFAS No. 128, Earnings per Share. Basic earnings (loss) per share are computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares
outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the
treasury stock method, except for periods of operating loss for which no common shares equivalents are included because their effect would be anti-dilutive. For the years ended December 31, 2007, 2006 and 2005, 3,389,058; 4,581,274 and
3,484,976 potentially dilutive securities are excluded from the computation because they are anti-dilutive.



|                                                                          |  |                          |            |   |      |   |            |      |  |   |             |  
|------------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|                                                                          |  | Years Ended December 31, |           
|                                                                          |  | 2007                     |            |   | 2006 |   |            | 2005 | 
|Numerator:                                                                |  |                          |            |   |      |   |            |      |  |   |             |  
|Net loss attributable to common stockholders                              |  | $                        | (9,024,135 | ) |      | $ | (6,636,218 | )    |  | $ | (10,201,174 | )
|Denominator:                                                              |  |                          |            |   |      |   |            |      |  |   |             |  
|Denominator for basic net income per shareweighted average shares        |  |                          | 22,931,750 |   |      |   | 22,721,122 |      |  |   | 20,182,856  |  
|Effect of dilutive securities:                                            |  |                          |            |   |      |   |            |      |  |   |             |  
|Stock options and warrants                                                |  |                          |           |   |      |   |           |      |  |   |            |  
|                                                                          |  |                          |            |   |      |   |            |      |  |   |             |  
|Dilutive potential common stock                                           |  |                          |           |   |      |   |           |      |  |   |            |  
|                                                                          |  |                          |            |   |      |   |            |      |  |   |             |  
|Denominator for diluted income per shareadjusted weighted average shares |  |                          | 22,931,750 |   |      |   | 22,721,122 |      |  |   | 20,182,856  |  
|Basic loss per share                                                      |  | $                        | (0.39      | ) |      | $ | (0.29      | )    |  | $ | (0.51       | )
|                                                                          |  |                          |            |   |      |   |            |      |  |   |             |  
|Diluted loss per share                                                    |  | $                        | (0.39      | ) |      | $ | (0.29      | )    |  | $ | (0.51       | )
|                                                                          |  |                          |            |   |      |   |            |      |  |   |             |  

Foreign Currency Exchange Gains and Losses

Our reporting currency is the U.S. dollar. The functional currency of our foreign subsidiary is the Korean won. 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 equity. Foreign currency transaction gains and losses are recorded in the statements of operations as a component of other
income (expense).

Comprehensive Income

We adopted SFAS No. 130, Reporting Comprehensive Income. This statement 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. Comprehensive income is as follows:



|                                        |  |                          |            |   |      |   |            |      |  |   |             |  
|--------------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|                                        |  | Years Ended December 31, |           
|                                        |  | 2007                     |            |   | 2006 |   |            | 2005 | 
|Net loss                                |  | $                        | (9,024,135 | ) |      | $ | (6,636,218 | )    |  | $ | (10,201,174 | )
|Other comprehensive loss:               |  |                          |            |   |      |   |            |      |  |   |             |  
|Foreign currency translation adjustment |  |                          | (123,971   | ) |      |   | 65,641     |      |  |   | 109,416     |  
|                                        |  |                          |            |   |      |   |            |      |  |   |             |  
|Comprehensive loss                      |  | $                        | (9,148,106 | ) |      | $ | (6,570,577 | )    |  | $ | (10,091,758 | )
|                                        |  |                          |            |   |      |   |            |      |  |   |             |  



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Certain Risks and Concentrations

We extend credit based on evaluation of the customers financial condition and payment history. At times, obligations for our foreign customers are secured either by letters of credit or by credit insurance.
Significant management judgment is required to determine the allowance for sales returns and doubtful accounts. Based on our risk assessment, at December 31, 2007 and December 31, 2006, the allowance for sales returns and doubtful accounts
was approximately $125,000 and $997,000, respectively. Significant management judgment is required to determine the allowance for sales return and doubtful accounts.

Our products include components subject to rapid technological change. Significant technological change could adversely affect our operating results and subject us to product obsolescence. We have return privileges
with many of our suppliers and other ongoing programs to minimize the adverse effects of technological change.

During 2007, 69% of our
revenues were from three customers, comprised of 32%, 20% and 17%. At December 31, 2007, the amounts due from such customers were $864,000, $11.1 million, and $3.2 million, respectively, which were included in accounts receivable. During 2007,
60% of our revenues were from Venezuela and India, comprised of 43% and 17%, respectively. At December 31, 2007, the amounts due from customers in such countries were $10.5 million and $3.2 million, respectively. During 2007, we purchased the
majority of our products from one manufacturer. At December 31, 2007, the amount due to this manufacturer was $20.0 million.

During
2006, 57% of our revenues were from three customers, comprised of 24%, 19% and 14%. At December 31, 2006, the amounts due from such customers were $15.2 million, $8.6 million and $5.1 million, respectively, which were included in accounts
receivable. During 2006, we purchased the majority of our products from one manufacturer. At December 31, 2006, the amount due to this manufacturer was $9.5 million.

During 2005, 80% of our revenues were from two customers, comprised of 59%, and 21%. At December 31, 2005, the amounts due from such customers were $6.7 million and $4.5 million, respectively, which were included
in accounts receivable. During 2005, we purchased the majority of our products from one manufacturer. At December 31, 2005, the amount due to this manufacturer was $7.5 million.

As of December 31, 2007, we maintained assets of approximately $4.8 million at locations in South Korea. Although this country is considered
politically and economically stable, it is possible that unanticipated events in this foreign country could disrupt our operations.

Shipping and
handling expenses

We include shipping and handling expenses in cost of goods sold. Shipping and handling fees amounted to approximately
$1.7 million, $3.0 million, and $71,000 for the years ended December 31, 2007, 2006, and 2005, respectively.

Reclassifications

Certain reclassifications have been made to the 2006 and 2005 financial statements to conform to the 2007 presentation.

Recent Accounting Pronouncements

In September 2006,
FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value
measurements. It applies under other accounting pronouncements that require or permit fair value measurements, the board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, this statement does not require any new fair value



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measurements. This statement is effective for all financial instruments issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. We do not expect SFAS No. 157 to have a material impact on our financial position, operations or cash flows.

In February 2007, FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 amends SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is expected to expand the use of fair value
measurement, which is consistent with the Boards long-term measurement objectives for accounting for financial instruments. SFAS No. 159 applies to all entities, including not-for-profit organizations. Most of the provisions of SFAS
No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 applies to all entities with available-for-sale and trading securities. Some requirements apply differently to entities that do not
report net income. This statement is effective as of the beginning of each reporting entitys first fiscal year that begins after November 15, 2007. We do not expect SFAS No. 159 to have a material impact on our financial position,
operations or cash flows.

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin (ARB) No. 51. SFAS No. 160 establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary, which was previously referred to as the minority interest, and also establishes standards of accounting for the deconsolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those
years, beginning on or after December 15, 2008. Early adoption is prohibited. We do not believe the effect of SFAS No. 160 will affect our consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS 141R), Business Combinations. SFAS No. 141R replaces SFAS 141. This
statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. This statement applies prospectively to business
combinations for which the acquisition dates are on or after the start of the first year beginning on or after December 15, 2008. Early adoption is prohibited. We do not believe the effect of SFAS No. 160 will affect our consolidated financial
position, results of operations or cash flows.

2. LIQUIDITY AND GOING CONCERN

We have experienced losses from operations since 2004. The proceeds from our 2005 secondary public offering provided the working capital necessary to fund
the operating losses through 2007. We also structured our supply and customer relationships to minimize our working capital requirements. Under the terms of our manufacturing agreements, our contract manufacturers acquire components and manufacture
finished goods to our specifications, minimizing our investment in inventory. Where possible, we require our customers to provide a letter of credit to secure their purchase orders. We then finance those accounts receivables through commercial
banking arrangements.

Commencing in 2007 our sales shifted from predominantly Asian countries, where commercial practices use letters of
credit, to Latin American countries, where standard commercial terms are open accounts. Our largest account in 2007 was a customer in Venezuela, which does not provide letters of credit and for which we could not obtain credit insurance or secure
accounts receivable financing. Accordingly, we could not borrow against our accounts receivable from this customer to pay our contract manufacturer for costs of goods sold. This



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problem was compounded when the Venezuelan governments exchange control arm, CADIVI, substantially delayed payments in 2007. The delay in payment
caused us to fall behind in payments to our contract manufacturer, who imposed shipment delays and stopped ordering long lead time parts in the fourth quarter.

By the end of 2007, we had collected a substantial portion of our accounts receivable. Following the end of the year, we entered into additional arrangements to augment our working capital. However, each of these
arrangements is based on borrowing against our accounts receivable.

We finished the year ended December 31, 2007 with cash and cash
equivalents of approximately $555,000, and a negative working capital of $2.9 million. Currently our only source of borrowing is secured by that portion of our accounts receivable which are either credit insured or secured by a letter of credit. We
intend to use this working capital financing to continue to fulfill orders for our products.

For 2007, our gross margin from product sales
was 21% of revenues. We anticipate that gross margin will be in the low twenties for 2008. Accordingly we are currently relying on gross margin from increased product sales and accounts receivable financing to cover our operating expenses. If we
fail to generate sufficient product sales, we will not generate sufficient gross margin to cover our operating expenses.

Currently, our
working capital is derived from operations. Our only sources of borrowing are our lines of credit with Wells Fargo Bank, which are secured by that portion of our accounts receivable which are either credit insured or secured by a letter of credit.
We intend to use this working capital financing to continue to fulfill orders for our products. For 2007 our gross margin from product sales was 21% of revenues. We anticipate that gross margin will be in the low twenties for 2008. Accordingly we
are currently relying on gross margin from increased product sales to cover our operating expenses. If we fail to generate sufficient product sales we will not generate sufficient gross margin to cover our operating expenses.

We intend to secure additional working capital through the sale of debt or equity securities. No arrangements or commitments for any such financing are
in place at this time, and we cannot give any assurances about the availability or terms of any future financing.

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. As a result of the foregoing, our
independent registered public accounting firm, in its report on our 2007 consolidated financial statements, expressed substantial doubt about our ability to continue 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. PREPAYMENTS AND OTHER CURRENT ASSETS

Prepayments
and other current assets consisted of the following:



|                                 |  |                  |           |                  |   |          
|-------------------------------- |  | ---------------- | --------- | ---------------- | - | ---------
|                                 |  | December 31,2007 |           | December 31,2006
|Prepaid taxes                    |  | $                | 232,678   |                  | $ | 173,452  
|Prepaid financing fees           |  |                  |          |                  |   | 100,000  
|Prepaid insurance                |  |                  | 164,875   |                  |   | 222,346  
|Prepaid rent                     |  |                  | 228,935   |                  |   | 162,243  
|Prepaid tooling                  |  |                  | 105,320   |                  |   | 85,176   
|Supplier advances                |  |                  | 48,017    |                  |   | 1,518,878
|Note receivable, current portion |  |                  | 309,297   |                  |   | 294,742  
|Other                            |  |                  | 206,575   |                  |   | 55,503   
|                                 |  |                  |           |                  |   |          
|                                 |  | $                | 1,295,697 |                  | $ | 2,612,340
|                                 |  |                  |           |                  |   |          



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4. INVENTORIES

Inventories consisted of the following:



|                                                  |  |                  |           |   |                  |   |           |  
|------------------------------------------------- |  | ---------------- | --------- | - | ---------------- | - | --------- | -
|                                                  |  | December 31,2007 |           |   | December 31,2006 |  
|Raw materials                                     |  | $                | 2,481,014 |   |                  | $ | 710,724   |  
|Work in process                                   |  |                  | 7,889     |   |                  |   | 27,469    |  
|Finished goods                                    |  |                  | 321,530   |   |                  |   | 1,982,202 |  
|                                                  |  |                  |           |   |                  |   |           |  
|                                                  |  |                  | 2,810,433 |   |                  |   | 2,720,395 |  
|Less reserves for excess and obsolete inventories |  |                  | (275,000  | ) |                  |   | (194,510  | )
|                                                  |  |                  |           |   |                  |   |           |  
|                                                  |  | $                | 2,535,433 |   |                  | $ | 2,525,885 |  
|                                                  |  |                  |           |   |                  |   |           |  

5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:



|                               |  |                  |            |   |                  |   |            |  
|------------------------------ |  | ---------------- | ---------- | - | ---------------- | - | ---------- | -
|                               |  | December 31,2007 |            |   | December 31,2006 |  
|Machinery and equipment        |  | $                | 1,664,797  |   |                  | $ | 1,317,669  |  
|Office furniture and equipment |  |                  | 739,774    |   |                  |   | 694,759    |  
|Software                       |  |                  | 3,055,170  |   |                  |   | 2,691,288  |  
|Leasehold improvements         |  |                  | 356,380    |   |                  |   | 355,350    |  
|                               |  |                  |            |   |                  |   |            |  
|                               |  |                  | 5,816,121  |   |                  |   | 5,059,066  |  
|Accumulated depreciation       |  |                  | (4,121,628 | ) |                  |   | (3,153,680 | )
|                               |  |                  |            |   |                  |   |            |  
|                               |  | $                | 1,694,493  |   |                  | $ | 1,905,386  |  
|                               |  |                  |            |   |                  |   |            |  

6. OTHER ASSETS

Other assets consisted of the following:



|                                   |  |                  |         |                  |   |          
|---------------------------------- |  | ---------------- | ------- | ---------------- | - | ---------
|                                   |  | December 31,2007 |         | December 31,2006
|Deposits                           |  | $                | 156,774 |                  | $ | 215,070  
|Note receivable, long-term portion |  |                  | 241,976 |                  |   | 551,272  
|Patents and trademarks, net        |  |                  | 472,309 |                  |   | 439,967  
|                                   |  |                  |         |                  |   |          
|                                   |  | $                | 871,059 |                  | $ | 1,206,309
|                                   |  |                  |         |                  |   |          

7. LICENSE

CDMA and WCDMA Licenses

In November 2000, we entered into a Subscriber Unit License Agreement (the
Agreement) pursuant to which we obtained a non-exclusive license of CDMA (Code Division Multiple Access) technology, which has enabled us to manufacture and sell certain fixed wireless CDMA based products and to purchase certain
components and equipment from time to time.

In February 2005, we entered into an amendment to the Agreement to expand the scope of the
license and to allow us to make, use and sell certain mobile CDMA based products in addition to fixed wireless CDMA based products currently offered. The cost associated with the amendment to this Agreement was $2,500,000. The license agreement was
amended on October 2, 2007. This amendment expands the scope of our license to include rights to make, use and sell products utilizing WCDMA technology. The cost associated with this amendment is



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$5.5 million. Of that amount, $500,000 is payable in quarterly installments of $125,000 commencing on November 2, 2007, and $5.0 million is due in
quarterly installments of $500,000 upon commencement of the manufacturing or marketing our products as mobile rather than fixed wireless. In addition, this amendment clarifies that the accrued license fee of $2,500,000 as of
September 30, 2007 is due in equal quarterly installments of $250,000 upon commencement of the manufacturing or marketing of our products as mobile rather than fixed wireless. We do not presently intend to manufacture or market
mobile solutions. Accordingly, we have reflected a net decrease in our license and corresponding long term liability as a result of the increase in our license of $500,000 for the portion of the October 2007 amendment and a decrease of $2.5 million
from the February 2005 amendment as further clarified in the October 2007 amendment.

HSDPA and HSUPA Licenses

In 2007, we entered into a worldwide license agreement which allows us to manufacture and sell certain HSDPA (High-Speed Downlink Package Access) and
HSUPA (High-Speed Uplink Packet Access) based products. At December 31, 2007, the license fee was $200,000. This license fee may grow to $900,000 based on certain milestones being successfully completed.

All of our licenses have no fixed termination date and we have assigned an estimated life ranging from three to ten years. The license consisted of the
following:



|                         |  |                  |            |   |                  |   |            |  
|------------------------ |  | ---------------- | ---------- | - | ---------------- | - | ---------- | -
|                         |  | December 31,2007 |            |   | December 31,2006 |  
|License                  |  | $                | 3,700,000  |   |                  | $ | 5,500,000  |  
|Accumulated amortization |  |                  | (2,090,696 | ) |                  |   | (2,663,608 | )
|                         |  |                  |            |   |                  |   |            |  
|                         |  | $                | 1,609,304  |   |                  | $ | 2,836,392  |  
|                         |  |                  |            |   |                  |   |            |  

Amortization expense related to these licenses amounted to $760,421, $838,200 and $796,529 for
years ended December 31, 2007, 2006, and 2005, respectively. During 2007, we reversed amortization expense of $1,333,333 and recorded that amount to other income due to the license fee amendment. Estimated future amortization expense related to
licenses at December 31, 2007 is as follows:



|      |  |              |      
|----- |  | ------------ | -----
|      |  | In Thousands
|2008  |  | $            | 616  
|2009  |  |              | 438  
|2010  |  |              | 380  
|2011  |  |              | 100  
|2012  |  |              | 75   
|      |  |              |      
|Total |  | $            | 1,609
|      |  |              |      

8. GOODWILL AND OTHER INTANGIBLES

We account for goodwill and other intangibles in accordance with SFAS No. 142 Goodwill and Other Intangible Assets and have elected to
test them for impairment annually. These tests will be performed more frequently if there are triggering events. We completed our testing for the year ended December 31, 2007 using the method discussed in SFAS No. 142 and determined that
our goodwill of $385,564 was impaired due to recent market and technology changes. We recorded this impairment charge to operations. Management concluded that no other impairment charges were required at December 31, 2007.



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9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:



|                                    |  |                  |           |                  |   |          
|----------------------------------- |  | ---------------- | --------- | ---------------- | - | ---------
|                                    |  | December 31,2007 |           | December 31,2006
|Customer advances                   |  | $                | 286,806   |                  | $ | 14,000   
|Lease liability                     |  |                  | 78,781    |                  |   | 96,131   
|Accrued payroll, taxes and benefits |  |                  | 497,762   |                  |   | 902,170  
|Accrued freight                     |  |                  | 170,000   |                  |   | 344,000  
|Accrued interest                    |  |                  |          |                  |   | 244,964  
|Accrued legal and professional fees |  |                  | 597,000   |                  |   | 143,998  
|Accrued operating expenses          |  |                  | 474,736   |                  |   | 235,169  
|                                    |  |                  |           |                  |   |          
|                                    |  | $                | 2,105,085 |                  | $ | 1,980,432
|                                    |  |                  |           |                  |   |          

10. LONG-TERM LIABILITIES

Long-term liabilities consisted of the following:



|                      |  |                  |   |                  |   |          
|--------------------- |  | ---------------- | - | ---------------- | - | ---------
|                      |  | December 31,2007 |   | December 31,2006
|Accrued license fee   |  | $                |  |                  | $ | 2,500,000
|Note payable          |  |                  |  |                  |   | 346,950  
|Accrued interest      |  |                  |  |                  |   | 28,940   
|Accrued payroll taxes |  |                  |  |                  |   | 193,050  
|                      |  |                  |   |                  |   |          
|                      |  | $                |  |                  | $ | 3,068,940
|                      |  |                  |   |                  |   |          

11. BANK FINANCING

As of December 31, 2007 and December 31, 2006, we had outstanding bank loans of $490,000 and $13.1 million from Silicon Valley Bank (SVB), secured by our accounts receivable and other assets. The $13.1
million loan balance from December 31, 2006 has since been repaid, and the loan balance from December 31, 2007 of $490,000 reflects financing activities from 2007. The outstanding principal balance of the loans bear interest ranging from
LIBOR rate plus 2.5% to SVBs Prime Rate plus 2.5%, and are due upon receipt of the related receivable.

12. INCOME TAXES

The following table presents the current and deferred income tax provision (benefit) for federal, state and foreign income taxes:



|                                            |  |      |            |   |      |   |            |      |  |   |            |  
|------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                            |  | 2007 |            |   | 2006 |   |            | 2005 | 
|Current tax provision:                      |  |      |            |   |      |   |            |      |  |   |            |  
|Federal                                     |  | $    |           |   |      | $ |           |      |  | $ | 141,805    |  
|State                                       |  |      |           |   |      |   |           |      |  |   | 6,377      |  
|Foreign                                     |  |      |           |   |      |   |           |      |  |   |           |  
|                                            |  |      |            |   |      |   |            |      |  |   |            |  
|                                            |  | $    |           |   |      | $ |           |      |  | $ | 148,182    |  
|                                            |  |      |            |   |      |   |            |      |  |   |            |  
|Deferred tax provision (benefit):           |  |      |            |   |      |   |            |      |  |   |            |  
|Federal                                     |  |      | (3,230,000 | ) |      |   | (4,514,000 | )    |  |   | (2,189,000 | )
|State                                       |  |      | (812,000   | ) |      |   | (676,000   | )    |  |   | (395,000   | )
|Valuation allowance                         |  |      | 4,042,000  |   |      |   | 5,190,000  |      |  |   | 4,484,000  |  
|                                            |  |      |            |   |      |   |            |      |  |   |            |  
|                                            |  |      |           |   |      |   |           |      |  |   | 1,900,000  |  
|                                            |  |      |            |   |      |   |            |      |  |   |            |  
|Total provision (benefit) for income taxes: |  | $    |           |   |      | $ |           |      |  | $ | 2,048,182  |  
|                                            |  |      |            |   |      |   |            |      |  |   |            |  



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Current income taxes (benefits) are based upon the years income taxable for federal, state and
foreign tax reporting purposes. Deferred income taxes (benefits) are provided for certain income and expenses, which are recognized in different periods for tax and financial reporting purposes.

Deferred tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the period in which the differences are expected to affect taxable income.

Our policy is not to record deferred income taxes on the undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign
operations.

Significant components of our net deferred tax asset or liability at December 31, 2007 and 2006 are as follows:



|                                |  |      |             |   |      |   |             |  
|------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                |  | 2007 |             |   | 2006 |  
|Net operating loss              |  | $    | 14,212,000  |   |      | $ | 9,646,000   |  
|Compensation                    |  |      | 63,000      |   |      |   | 688,000     |  
|Accrued warranty                |  |      | 183,000     |   |      |   | 170,000     |  
|Inventory                       |  |      | 110,000     |   |      |   | 71,000      |  
|Bad debt reserve                |  |      | 50,000      |   |      |   | 367,000     |  
|Accumulated depreciation        |  |      | 847,000     |   |      |   | 232,000     |  
|Royalties                       |  |      |            |   |      |   | 563,000     |  
|SFAS 123R                       |  |      | 228,000     |   |      |   | 52,000      |  
|Contributions                   |  |      | 136,000     |   |      |   | 119,000     |  
|Credits                         |  |      | 449,000     |   |      |   | 328,000     |  
|                                |  |      |             |   |      |   |             |  
|Total gross deferred tax assets |  |      | 16,278,000  |   |      |   | 12,236,000  |  
|Valuation allowance             |  |      | (16,278,000 | ) |      |   | (12,236,000 | )
|                                |  |      |             |   |      |   |             |  
|Net deferred tax assets         |  | $    |            |   |      | $ |            |  
|                                |  |      |             |   |      |   |             |  

In assessing the realizability of deferred tax assets at December 31, 2007 and 2006,
management considered whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income and tax planning strategies in making this assessment. Based on our
analysis, we concluded not to retain a deferred tax asset since it is uncertain whether we can utilize this asset in future periods. Therefore, we have established a full reserve against this asset. The valuation allowance increased to $16,278,000
representing an increase of $4,042,000 during 2007.

A reconciliation of the expected tax computed at the U.S. statutory federal income tax
rate to the total benefit for income taxes at December 31, 2007, 2006 and 2005 follows:



|                                     |  |      |            |   |      |   |            |      |  |   |            |  
|------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                     |  | 2007 |            |   | 2006 |   |            | 2005 | 
|Expected tax at 34%                  |  | $    | (3,068,206 | ) |      | $ | (1,504,211 | )    |  | $ | (2,308,289 | )
|Change in valuation allowance        |  |      | 4,042,000  |   |      |   | 5,190,000  |      |  |   | 4,484,000  |  
|Deferred true ups, not benefited     |  |      |           |   |      |   | (3,546,183 | )    |  |   |           |  
|State income tax, net of federal tax |  |      | (390,044   | ) |      |   | (124,247   | )    |  |   | (301,039   | )
|Non-deductible expenses              |  |      | (273,672   | ) |      |   | (13,481    | )    |  |   | 131,033    |  
|Research credits                     |  |      | (92,000    | ) |      |   |           |      |  |   |           |  
|Other                                |  |      | (218,078   | ) |      |   | (1,878     | )    |  |   | 42,477     |  
|                                     |  |      |            |   |      |   |            |      |  |   |            |  
|Provision (benefit) for income taxes |  | $    |           |   |      | $ |           |      |  | $ | 2,048,182  |  
|                                     |  |      |            |   |      |   |            |      |  |   |            |  



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##### Table of Contents

At December 31, 2007, we had federal and state net operating loss carryforwards of approximately
$38,721,000 and $17,953,000, respectively. The federal and state loss carryforwards begin to expire in 2023 and 2013 respectively, unless previously utilized.

We also had federal and state research credit carryforwards of approximately $208,000 and $366,000 respectively. The federal research credit carryforwards will begin expiring in 2010 unless previously utilized. The
state research credit will carry forward indefinitely.

Pursuant to Internal Revenue Code Section 382, the use of our net operating loss
carryforwards will be limited if a cumulative change in ownership of more than 50% has occurred within a three-year period.

We have
determined that more likely than not the net deferred tax asset will not be realized under SFAS 109. Accordingly, the Company has established a valuation allowance in the amount of $16,278,000 at December 31, 2007.

On July 13, 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement
No.109 (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in an entitys financial statements in accordance with SFAS No. 109, Accounting for Income Taxes, and prescribes a
recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under FIN 48, the impact of an uncertain income tax position on the income tax return must be
recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. FIN 48 is
effective for fiscal years beginning after December 15, 2006.

We adopted FIN 48, Accounting for Uncertainty in Income Taxes on
January 1, 2007. We recognized no cumulative effect adjustment as a result of adopting FIN 48. At January 1, 2007 and December 31, 2007, we have no unrecognized tax benefits

Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2007, we have
no accrued interest and penalties related to uncertain tax positions.

A reconciliation of the beginning and ending balances of the total
amounts of gross unrecognized tax benefits including accrued interest and penalty is as follows (in millions):



|                                                     |  |   |  
|---------------------------------------------------- |  | - | -
|Gross unrecognized tax benefits at January 1, 2007   |  | $ | 
|Gross increases for tax positions of prior years     |  |   | 
|Gross decreases for tax positions of prior years     |  |   | 
|Gross increases for tax positions of current year    |  |   | 
|Settlements                                          |  |   | 
|Lapse of statute of limitations                      |  |   | 
|Gross unrecognized tax benefits at December 31, 2007 |  | $ | 

We are subject to taxation in the U.S., California, and Korea. Our tax year for 2004 and forward
are subject to examination by the U.S. and California tax authorities due to the carry-forward of unutilized research and development credits. The tax years 2004 to 2007 remain open to examination by the major taxing jurisdictions to which we are
subject. We are not currently under examination by any tax authority.



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##### Table of Contents

13. STOCKHOLDERS EQUITY

Common Stock - 2007 Activity

In 2007, employee stock options for 7,716 shares of our common stock were exercised at a price
of $.26 resulting in proceeds of approximately $2,000.

In 2007, we issued 10,000 shares of our common stock to an employee and 20,000
shares to members of our Board of Directors. All were valued at $1.55 per share, the fair market value at the time of grant.

In 2007, we
issued 325,000 shares of our unregistered common stock to Centurion Credit Resources, LLC pursuant to a securities purchase agreement for debt financing. The shares were valued at $.95 per share, the fair market value at the time of grant.

Common Stock - 2006 Activity

We
issued to a finder 50,000 shares of our common stock for services rendered in connection with the January 2004 financing. Pursuant to an advisor agreement, we agreed to issue to the finder a total of 150,000 shares of common stock on the following
schedule: 50,000 shares in January 2004 upon the closing of the financing, and an additional 50,000 shares in each of January 2005 and January 2006. The value of these shares was recorded in 2004.

In 2006, we issued 10,000 shares of our common stock at its fair market value of $1.15 per share to an employee.

In 2006, we cancelled 30,000 shares of our common stock valued at $1.58 per share issued to a former Board member and issued 45,000 shares of our common
stock valued at $1.52 per share to a member of our Board of Directors. The newly issued 45,000 shares vest over a three-year period.

In
2006, employee stock options for 247,677 shares of our common stock were exercised at prices ranging from $.26 to $1.30 per share resulting in proceeds of approximately $172,000.

Common Stock - 2005 Activity

In January 2005, stock warrants and employee stock options for 939,710
shares of our stock were exercised at prices ranging from $.07 to $.26 per share resulting in proceeds of approximately $160,000.

In
January 2005, we issued 125,000 shares of its common stock at the conversion price of $2.00 per share to North America Ventures Fund II, L.P. in connection with the conversion of 25% of the investors convertible term note of $1,000,000, funded
in January 2004.

In February 2005, we issued to a finder 50,000 shares of our common stock for services rendered in connection with the
Companys January 2004 financing. Pursuant to an advisor agreement, we agreed to issue to the finder a total of 150,000 shares of common stock on the following schedule: 50,000 shares in January 2004 upon the closing of the financing, and an
additional 50,000 shares in each of January 2005 and January 2006.

In February 2005, we issued 22,152 shares of its common stock at the
conversion price of $3.16 per share to Laurus Master Fund, Ltd. (Laurus) in connection with the payment of a portion of the principal related to the investors convertible term note of $3,000,000, funded in March 2004, and payment
of a portion of the principal related to the investors convertible term note of $1,000,000, funded in August 2004.

In February 2005,
we issued 270,271 shares of the Companys common stock to three private equity funds managed by ComVentures, a venture capital firm based in Palo Alto, California, at a price of $3.70 per share for aggregate proceeds of $1.0 million.



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##### Table of Contents

In February 2005, stock warrants for 3,323 shares of our stock were exercised at a price of $3.16 per
share resulting in proceeds of approximately $11,000.

In March 2005, we issued 4,714,708 shares of its common stock in an underwritten
public offering, and issued and sold an additional 3,285,561 shares of common stock upon the exercise of warrants and employee stock options. The public offering price was $4.00 per share and less underwriter discounts and commissions of $.26 per
share, resulted in net proceeds of $3.74 per share to the Company. Net proceeds for this offering, less legal and other transaction costs, was approximately $15.9 million.

In March 2005, we issued 500,000 shares of our common stock to three private equity funds managed by ComVentures, a venture capital firm based in Palo
Alto, California, at a price of $4.00 per share for aggregate proceeds of $2.0 million.

In March 2005, employee stock options for 101,801
shares of our common stock were exercised at prices ranging from $.07 to $.26 per share resulting in proceeds of approximately $17,000.

In
March 2005, we issued 750,000 shares of its common stock at the conversion price of $3.16 per share to Laurus in connection with the payment of a portion of the principal related to the investors convertible term note of $3,000,000, funded in
March 2004, resulting in proceeds of $2.4 million.

In April 2005, employee stock options for 18,920 shares of our common stock were
exercised at prices ranging from $.26 to $.60 per share resulting in proceeds of approximately $11,000.

In May 2005, we issued 10,000
shares of our common stock at its fair market value of $3.80 per share to an employee.

In May 2005, employee stock options for 20,356
shares of our common stock were exercised at prices ranging from $.26 to $.60 per share resulting in proceeds of approximately $10,000.

In
June 2005, we cancelled 30,000 shares of our restricted common stock valued at $3.10 per share issued to a former member of the board of directors.

In June 2005, stock warrants and employee stock options for 135,868 shares of our stock were exercised at prices ranging from $.07 to $2.00 per share resulting in proceeds of approximately $122,000.

In July 2005, employee stock options for 115,205 shares of our stock were exercised at prices ranging from $.26 to $2.84 per share resulting in proceeds
of approximately $166,000.

In August 2005, employee stock options for 112,915 shares of our stock were exercised at prices ranging from
$.26 to $2.84 per share resulting in proceeds of approximately $130,000.

In September 2005, employee stock options for 14,333 shares of
our stock were exercised at prices ranging from $.60 to $2.20 per share resulting in proceeds of approximately $13,000.

In November 2005,
we issued 90,000 shares of our common stock to two members of our Board of Director at $2.38 per share.

In November 2005, employee stock
options for 10,000 shares of our stock were exercised at $.26 per share resulting in proceeds of approximately $3,000.

In December 2005,
we issued 45,000 shares of our common stock to a member of our Board of Director at $1.58 per share. In addition, we cancelled 15,000 shares of its common stock valued at $3.10 per share issued to a former Board member.



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##### Table of Contents

Stock Option Activity

Prior to the adoption of the 2004 Equity Plan, we adopted three stock option plans which were approved by the Board of Directors, reserving a total of 2,893,842 shares, which are referred to as the Prior Plans. The
Prior Plans were adopted on September 16, 2002 (911,671 shares), March 5, 2003 (982,171 shares) and September 29, 2003 (1,000,000 shares), of which options to purchase 2,857,000 shares of common stock had been granted under these
plans Each of these plans provides for the issuance of non-statutory stock options to employees, directors and consultants, with an exercise price equal to the fair market value of the Companys common stock on the date of grant. All options
granted under the Prior Plans vest quarterly over three years. As of September 2004, no additional options may be granted under the Prior Plans. Options with respect to 917,024 shares are outstanding under the Prior Plans as of December 31,
2007.

In September 2004, the Board of Directors adopted the 2004 Equity Incentive Plan (the 2004 Equity Plan). The
stockholders approved the plan in October 2004 with an effective date for such approval in November 2004. Under the 2004 Equity Plan, we had initially reserved for issuance an aggregate of 4,093,842 shares. The Companys Prior Plans are no
longer available for new grants, and the initial share reserve under the 2004 Equity Plan will adjust downward to the extent that shares are issued upon exercise of options under the Prior Plans. Subject to a maximum of 11,593,842 shares that can be
subject to the 2004 Equity Plan in the aggregate, the number of shares subject to the 2004 Equity Plan will increase each year by the least of:



| |  |  | three percent of the then outstanding shares;
| | - |  | ---------------------------------------------



| |  |  | 750,000 shares; or
| | - |  | ------------------



| |  |  | a number of shares determined by the Board.
| | - |  | -------------------------------------------

Awards under the 2004 Equity Plan may be granted to any of our employees, directors or consultants or those of our affiliates. Awards may consist of stock options (both incentive stock options and non-statutory stock options), stock awards,
stock appreciation rights, and cash awards. We granted to certain of our employees options to purchase 50,000 shares of common stock under the plan in 2007, 1,705,000 in 2006, and 1,120,500 in 2005.

A summary of Axesstels stock option activity and related information is as follows:



|                              |  |            |   |      |                          |      |         |           |   |                          |   |         |  |            |                          |  |   |     
|----------------------------- |  | ---------- | - | ---- | ------------------------ | ---- | ------- | --------- | - | ------------------------ | - | ------- |  | ---------- | ------------------------ |  | - | ----
|                              |  | 2007       |   | 2006 |                          | 2005
|Option Summary                |  | Options    |   |      | Wt AverageExercise Price |      | Options |           |   | Wt AverageExercise Price |   | Options |  |            | Wt AverageExercise Price
|Outstanding-beginning of year |  | 4,051,999  |   |      | $                        | 2.16 |         | 2,883,701 |   |                          | $ | 2.54    |  | 4,107,429  |                          |  | $ | 1.28
|Granted                       |  | 50,000     |   |      | $                        | 2.05 |         | 1,705,000 |   |                          | $ | 1.52    |  | 1,120,500  |                          |  | $ | 3.40
|Exercised                     |  | (7,716     | ) |      | $                        | 0.26 |         | (247,677  | ) |                          | $ | 0.69    |  | (2,037,605 | )                        |  | $ | 0.38
|Forfeited/Expired             |  | (1,184,500 | ) |      | $                        | 1.73 |         | (289,025  | ) |                          | $ | 3.35    |  | (306,623   | )                        |  | $ | 3.24
|                              |  |            |   |      |                          |      |         |           |   |                          |   |         |  |            |                          |  |   |     
|Outstanding-end of year       |  | 2,909,783  |   |      | $                        | 2.34 |         | 4,051,999 |   |                          | $ | 2.16    |  | 2,883,701  |                          |  | $ | 2.54
|                              |  |            |   |      |                          |      |         |           |   |                          |   |         |  |            |                          |  |   |     

The weighted-average grant-date fair value of options granted during the year 2007 was $1.30. The
total intrinsic value of options exercised during the year ended December 31, 2007 was approximately $12,000.



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##### Table of Contents

The following table summarizes the number of option shares, the weighted average exercise price, and
weighted average life (by years) by price range for both total outstanding options and total exercisable options as of December 31, 2007.



|               |  |                   |  |                          |      |      |     |             |           |                          |   |     
|-------------- |  | ----------------- |  | ------------------------ | ---- | ---- | --- | ----------- | --------- | ------------------------ | - | ----
|               |  | Total Outstanding |  | Total Exercisable       
|Price Range    |  | # of Shares       |  | Wt AverageExercise Price |      | Life |     | # of Shares |           | Wt AverageExercise Price
|$0.26 to $0.99 |  | 227,116           |  | $                        | 0.57 |      | 4.7 |             | 227,116   |                          | $ | 0.57
|$1.00 to $1.99 |  | 966,500           |  | $                        | 1.57 |      | 8.6 |             | 600,177   |                          | $ | 1.40
|$2.00 to $2.99 |  | 641,667           |  | $                        | 2.36 |      | 6.1 |             | 591,667   |                          | $ | 2.39
|$3.00 to $4.68 |  | 1,074,500         |  | $                        | 3.40 |      | 7.2 |             | 1,074,500 |                          | $ | 3.40
|               |  |                   |  |                          |      |      |     |             |           |                          |   |     
|               |  | 2,909,783         |  | $                        | 2.34 |      | 7.2 |             | 2,493,460 |                          | $ | 2.42
|               |  |                   |  |                          |      |      |     |             |           |                          |   |     

The intrinsic value of exercisable options at December 31, 2007 was approximately $600.

A summary of the status of the Companys nonvested shares as of December 31, 2007, and changes during the year ended
December 31, 2007, is presented below:



|                               |  |           |   |  |                                      |     
|------------------------------ |  | --------- | - |  | ------------------------------------ | ----
|Nonvested Shares               |  | Shares    |   |  | Weighted-AverageGrant-DateFair
Value
|Nonvested at January 1, 2007   |  | 1,665,198 |   |  | $                                    | 1.02
|Granted                        |  | 50,000    |   |  |                                      | 1.30
|Vested                         |  | (539,000  | ) |  |                                      | .96 
|Forfeited/Expired              |  | (759,875  | ) |  |                                      | .98 
|                               |  |           |   |  |                                      |     
|Nonvested at December 31, 2007 |  | 416,323   |   |  | $                                    | 1.22
|                               |  |           |   |  |                                      |     

As of December 31, 2007, there was approximately $493,000 of total unrecognized compensation
cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 1.9 years. The recognized compensation cost for the year ended December 31,
2007 was approximately $431,000.

Stock Warrant Activity

The Company did not issue any warrants in 2005, 2006 or 2007. A summary of Axesstels warrant activity and related information is as follows:



|                              |  |         |  |                          |      |         |          |   |                          |   |         |  |            |                          |  |   |     
|----------------------------- |  | ------- |  | ------------------------ | ---- | ------- | -------- | - | ------------------------ | - | ------- |  | ---------- | ------------------------ |  | - | ----
|                              |  | 2007    |  | 2006                     |      | 2005   
|Warrant Summary               |  | Warrant |  | Wt AverageExercise Price |      | Warrant |          |   | Wt AverageExercise Price |   | Warrant |  |            | Wt AverageExercise Price
|Outstanding-beginning of year |  | 479,275 |  | $                        | 2.70 |         | 601,275  |   |                          | $ | 2.56    |  | 3,321,662  |                          |  | $ | 0.62
|Granted                       |  |        |  | $                        |     |         |         |   |                          | $ |        |  |           |                          |  | $ |    
|Exercised                     |  |        |  | $                        |     |         |         |   |                          | $ |        |  | (2,720,387 | )                        |  | $ | 0.24
|Forfeited/Expired             |  |        |  | $                        |     |         | (122,000 | ) |                          | $ | 2.00    |  |           |                          |  | $ |    
|                              |  |         |  |                          |      |         |          |   |                          |   |         |  |            |                          |  |   |     
|Outstanding-end of year       |  | 479,275 |  | $                        | 2.70 |         | 479,275  |   |                          | $ | 2.70    |  | 601,275    |                          |  | $ | 2.56
|                              |  |         |  |                          |      |         |          |   |                          |   |         |  |            |                          |  |   |     



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##### Table of Contents

The following table summarizes the number of warrants, the weighted average exercise price, and weighted
average life (by years) by price for both total outstanding warrants and total exercisable warrants as of December 31, 2007.



|               |  |                   |  |                          |      |      |     |            |         |                          |   |     
|-------------- |  | ----------------- |  | ------------------------ | ---- | ---- | --- | ---------- | ------- | ------------------------ | - | ----
|               |  | Total Outstanding |  | Total Exercisable       
|Price          |  | # ofShares        |  | Wt AverageExercise Price |      | Life |     | # ofShares |         | Wt AverageExercise Price
|$0.07          |  | 65,974            |  | $                        | 0.07 |      | 4.3 |            | 65,974  |                          | $ | 0.07
|$2.00 to $2.99 |  | 200,000           |  | $                        | 2.80 |      | 0.8 |            | 200,000 |                          | $ | 2.80
|$3.00 to $3.99 |  | 213,301           |  | $                        | 3.42 |      | 2.5 |            | 213,301 |                          | $ | 3.42
|               |  |                   |  |                          |      |      |     |            |         |                          |   |     
|               |  | 479,275           |  | $                        | 2.70 |      | 2.0 |            | 479,275 |                          | $ | 2.70
|               |  |                   |  |                          |      |      |     |            |         |                          |   |     

14. SEGMENT INFORMATION

The Company operates and tracks its results in one operating segment. The Company tracks revenues and assets by geographic region, but does not manage operations by region.

Revenues by geographic region based on customer locations for the years ended December 31, 2007, 2006 and 2005 were as follows:



|                                |  |      |            |      |   |            |  |   |           
|------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|                                |  | 2007 |            | 2006 |   | 2005      
|Revenues                        |  |      |            |      |   |            |  |   |           
|Asia and Pacific Rim            |  | $    | 18,670,977 |      | $ | 37,542,635 |  | $ | 68,909,960
|Latin America                   |  |      | 47,882,684 |      |   | 53,610,255 |  |   | 25,223,126
|Europe, Middle East, and Africa |  |      | 15,849,424 |      |   | 4,299,339  |  |   | 388,125   
|United States and Canada        |  |      | 32,300     |      |   | 67,445     |  |   | 144,500   
|                                |  |      |            |      |   |            |  |   |           
|Total revenues                  |  | $    | 82,435,385 |      | $ | 95,519,674 |  | $ | 94,665,711
|                                |  |      |            |      |   |            |  |   |           

15. QUARTERLY FINANCIAL DATA (UNAUDITED)

The summary quarterly financial data for 2007 and 2006 consists of the following:



|                                  |  |             |            |   |             |   |            |             |  |   |             |   |  |   |            |  
|--------------------------------- |  | ----------- | ---------- | - | ----------- | - | ---------- | ----------- |  | - | ----------- | - |  | - | ---------- | -
|                                  |  | 1st Quarter |            |   | 2nd Quarter |   |            | 3rd Quarter |  |   | 4th Quarter |  
|2007                              |  |             |            |   |             |   |            |             |  |   |             |   |  |   |            |  
|Revenues                          |  | $           | 25,189,776 |   |             | $ | 28,025,951 |             |  | $ | 15,433,041  |   |  | $ | 13,786,617 |  
|Gross margin                      |  |             | 4,571,503  |   |             |   | 6,579,343  |             |  |   | 3,513,716   |   |  |   | 2,921,668  |  
|Net income (loss)                 |  |             | (1,248,935 | ) |             |   | 272,834    |             |  |   | (3,003,719  | ) |  |   | (5,044,315 | )
|Basic earnings (loss) per share   |  | $           | (0.05      | ) |             | $ | 0.01       |             |  | $ | (0.13       | ) |  | $ | (0.22      | )
|                                  |  |             |            |   |             |   |            |             |  |   |             |   |  |   |            |  
|Diluted earnings (loss) per share |  | $           | (0.05      | ) |             | $ | 0.01       |             |  | $ | (0.13       | ) |  | $ | (0.22      | )
|                                  |  |             |            |   |             |   |            |             |  |   |             |   |  |   |            |  
|2006                              |  |             |            |   |             |   |            |             |  |   |             |   |  |   |            |  
|Revenues                          |  | $           | 10,510,388 |   |             | $ | 22,792,911 |             |  | $ | 32,078,444  |   |  | $ | 30,137,931 |  
|Gross margin                      |  |             | 268,824    |   |             |   | 2,600,704  |             |  |   | 6,135,077   |   |  |   | 6,269,664  |  
|Net income (loss)                 |  |             | (3,414,174 | ) |             |   | (3,586,354 | )           |  |   | 225,437     |   |  |   | 138,873    |  
|Basic earnings (loss) per share   |  | $           | (0.15      | ) |             | $ | (0.16      | )           |  | $ | 0.01        |   |  | $ | 0.01       |  
|                                  |  |             |            |   |             |   |            |             |  |   |             |   |  |   |            |  
|Diluted earnings (loss) per share |  | $           | (0.15      | ) |             | $ | (0.16      | )           |  | $ | 0.01        |   |  | $ | 0.01       |  
|                                  |  |             |            |   |             |   |            |             |  |   |             |   |  |   |            |  



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##### Table of Contents

16. COMMITMENTS AND CONTINGENCIES

Operating Leases

USA: In May 2004, we entered into a non-cancelable operating lease for 13,120
square feet of office space for our corporate headquarters and U.S. operations. The premise is located at 6815 Flanders Drive, San Diego, California. In May 2005, we entered into an agreement to extend this operating lease and expand the square
footage of the lease to a total of 17,101 square feet. The amended lease term is 67 months with remaining monthly payments ranging from approximately $30,000 to $34,000, plus a five year option to renew. The amended lease commenced in August 2005.

Korea: In August 2005, we entered into a ten year operating lease for approximately 2,800 square meters (approximately 30,000 square feet)
of office space for our Korean research and development center. The premise is located in the Gyeonggi Province. The lease calls for annual lease payments to be made in advance in December of each year in an amount equal to two percent of the
Building Value as defined in the lease. For 2008, annual rent is approximately $172,000. The Building Value and resulting rent per square meter is subject to adjustment after 2008 based on market conditions.

Minimum annual lease payments are approximately as follows:



|                         |  |             |          
|------------------------ |  | ----------- | ---------
|Year Ending December 31, |  | TotalAmount
|2008                     |  | $           | 528,000  
|2009                     |  |             | 521,000  
|2010                     |  |             | 563,000  
|2011                     |  |             | 222,000  
|2012                     |  |             | 153,000  
|Thereafter               |  |             | 409,000  
|                         |  |             |          
|                         |  | $           | 2,396,000
|                         |  |             |          

Rent expense is charged ratably over the lives of the leases using the straight line method. Rent
expense for each of the years ended December 31, 2007, 2006 and 2005 amounted to approximately $1.1 million, $976,000, and $720,000, respectively.

Employment and Separation Agreements

We entered into an employment agreement with H. Clark Hickock that provides severance
payments if he is terminated without cause. Consequently, if we had released Mr. Hickock without cause as of December 31, 2007, the severance expense due would be approximately $260,000.

We have entered into a separation and general release agreement with Mike H.P. Kwon (see Note 17) that provided separation payments to Mr. Kwon.
Concurrently with that agreement, Mr. Kwon loaned the net proceeds of those payments back to the company. At December 31, 2007, the amount due under the loan was approximately $270,000.

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 December 31,
2007, the Company is not a party to any such litigation which management believes would have a material adverse effect on the Companys financial position or results of operations.



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17. RELATED PARTY TRANSACTIONS

On May 16, 2006, we entered into a separation and general release agreement (Separation Agreement) with Mike H.P. Kwon pursuant to which his employment as our chief executive officer and his
Employment Agreement dated as of January 5, 2004 were terminated. Under the Separation Agreement and in exchange for a general release of claims, Mr. Kwon was entitled to receive a lump sum payment of $540,000, less applicable taxes
(Separation Payment), and all outstanding stock options and other equity awards issued to Mr. Kwon were vested in full and, became immediately exercisable and will remain so for the remainder of the respective terms of each such
award. Concurrent with the effectiveness of the Separation Agreement, Mr. Kwon loaned to Axesstel the principal sum of $346,950, an amount equal to the Separation Payment less applicable withholding taxes, under the terms of a promissory note
dated May 16, 2006 (Note). At December 31, 2007, the remaining portion due under the Note was approximately $270,000. The balance under the Note has been paid in the first quarter of 2008.

18. SALE OF KOREAN FACTORY EQUIPMENT AND PROPERTY LEASE

Effective July 31, 2006, we entered into an agreement for the sale of substantially all of the assets of our Korean manufacturing facility. Under the terms of the Installment Sale Agreement (Agreement) between Axesstel
Korea, Inc., a Korean company and our wholly-owned subsidiary (Subsidiary), and Park JongHeun, an individual and former employee of Subsidiary (Park), our Subsidiary sold to Park certain assets, including tangible personal
property and associated software and warranty rights. Under the Agreement, Park will pay us $960,000 in thirty-five equal monthly installments commencing November 1, 2006. Park has also agreed to assume certain contract rights and obligations,
which include the obligations under a real property lease and Subsidiarys obligations with respect to its employees involved in the factory operations.

19. SUBSEQUENT EVENTS

Following the end of the fiscal year, we entered into several arrangements to address our working
capital needs.

In January 2008, we entered into two agreements with Brightstar Corporation which were intended to improve our liquidity
and capital resources. We entered into a distribution agreement with Brightstar to sell our products in Venezuela. Under the terms of the distribution agreement, our customers submit their purchase orders to Brightstar. Brightstar then submits a
purchase order to us, secured by a letter of credit. We can secure accounts receivable financing for the account receivable to Brightstar. Brightstar assumes the credit risk of the customer in Venezuela. Under this arrangement, Brightstar receives a
commission for accommodating the sale. This arrangement allows us to secure commercial financing for the receivable that covers product being sold to customers in Venezuela.

We also entered into a loan transaction with Brightstar; we borrowed $5 million from Brightstar pursuant to the terms of a promissory note dated January
25, 2008. Our repayment obligations under the promissory note are secured by certain of our accounts receivable from customers in Venezuela. The promissory note bears interest at a rate of 2 percent per month subject to a minimum of 10% interest.
Repayment of principal is due on the earlier of collection of the accounts receivable that secure the note, or one year from the date of issuance. The proceeds of the note were used to make payment to WNC on our delinquent account with the contract
manufacturer.

In January 2008, we entered into two new commercial credit agreements with affiliates of Wells Fargo Bank. One of the credit
arrangements provides working capital financing for our accounts receivable which are secured by credit insurance. The other provides working capital financing for our accounts receivable which are secured by letters of credit.

Effective March 13, 2008, we entered into an employment agreement with H. Clark Hickock to serve as our Chief Executive Officer and also appointed him as
a member of our Board of Directors. Under the terms of the



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agreement Mr. Hickock will receive (i) an annual base salary of $330,000 and (ii) a performance bonus opportunity targeted at $231,000 annually. Mr. Hickock
will also be eligible to participate in our employee benefit programs. Prior to his appointment, Mr. Hickock had served as Axesstels Chief Operating Officer since April 2005.

Mr. Hickock succeeds Mike H.P. Kwon both as a member of our Board of Directors and as our Chief Executive Officer. We entered into a separation and
general release agreement dated March 13, 2008 with Mike H.P. Kwon pursuant to which his employment as our chief executive officer and his Employment Agreement dated as of November 12, 2007 was terminated. Mr. Kwon, Axesstels founder, will
continue his employment as a non-executive employee through the end of March 2008 and thereafter will provide consulting services to Axesstel as a strategic advisor supporting corporate development and strategic relationships.



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EXHIBIT INDEX



|           |  |                                                                                                                                                                
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Document Description                                                                                                                                           
|3.1        |  | Articles of Incorporation of the registrant, as amended(1)                                                                                                     
|           | 
|3.2        |  | Amended and Restated Bylaws of the registrant(1)                                                                                                               
|           | 
|4.1        |  | Specimen Common Stock Certificate(2)                                                                                                                           
|           | 
|4.2        |  | Form of Common Stock Purchase Warrant, exercise price $1.00, dated January 8, 2004(3)                                                                          
|           | 
|4.3        |  | Form of Common Stock Purchase Warrant, exercise price $2.00 subject to adjustment, dated January 8, 2004(3)                                                    
|           | 
|4.4        |  | Common Stock Purchase Warrant issued March 16, 2004, by the registrant to Laurus Master Fund, Ltd(3)                                                           
|           | 
|4.5        |  | Form of Common Stock Purchase Warrant issued to finder and its assignees, dated March 11, 2004, in connection with the March 2004 Convertible Note Financing(4)
|           | 
|4.6        |  | Common Stock Purchase Warrant dated as of August 18, 2004 between the registrant and Laurus Master Fund, Ltd.(5)                                               
|           | 
|4.7        |  | Stock Purchase Agreement dated October 12, 2004 between the registrant and certain investors affiliated with ComVentures(6)                                    
|           | 
|4.8        |  | Warrant to Purchase Common Stock dated October 1, 2003 issued to The Search for Value, Inc.(7)                                                                 
|           | 
|4.9        |  | Warrant to Purchase Common Stock dated October 1, 2003 issued to Newport Capital Consultants(7)                                                                
|           | 
|4.10       |  | Stock Purchase Agreement dated February 2, 2005 between the registrant and certain investors affiliated with ComVentures(7)                                    
|           | 
|4.11       |  | Form of Warrant Agreement to Mike H.P. Kwon and Satori Yukie(8)                                                                                                
|           | 
|10.1       |  | Centerpark Plaza Office Lease with Mullrock Umbrella, LLC, dated May 28, 2004(9)                                                                               
|           | 
|10.2       |  | Centerpark Plaza Office Lease with R&D Portfolio Holdings, LLC, dated June 2, 2005(1)                                                                          
|           | 
|10.3       |  | Lease Agreement between TBK Electronics Corp. and registrant, dated July 13, 2005(9)                                                                           
|           | 
|10.4       |  | Lease between Axesstel Korea, Inc. and Seongnam Industry Promotion Foundation, dated August 29, 2005(1)                                                        
|           | 
|10.5       |  | Form of Indemnity Agreement for directors and executive officers of the registrant(8)                                                                          
|           | 
|10.6       |  | Separation Agreement with Marv Tseu dated November 20, 2007(11)                                                                                                
|           | 
|10.7       |  | Employment Agreement with Mike H.P. Kwon dated November 12, 2007(11)                                                                                           
|           | 
|10.8       |  | Separation Agreement with Mike H.P. Kwon dated March 13, 2008(12)                                                                                              
|           | 
|10.9       |  | Employment Agreement with Clark Hickock dated March 13, 2008*(12)                                                                                              
|           | 
|10.10      |  | Letter Agreement with Patrick Gray dated February 11, 2004*(4)                                                                                                 
|           | 
|10.11      |  | Employment Agreement with Stephen Sek dated October 20, 2006*(10)                                                                                              
|           | 
|10.12      |  | 2001 Stock Option Plan*(8)                                                                                                                                     
|           | 
|10.13      |  | Form Notice of Grant of Stock Option (2001 Stock Option Plan)*(8)                                                                                              
|           | 
|10.14      |  | Form Stock Option Agreement (2001 Stock Option Plan)*(8)                                                                                                       
|           | 
|10.15      |  | Form Notice of Grant of Stock Option (September 2002, March 2003 and September 2003 Option Pools)*(8)                                                          



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|           |  |                                                                                                                                                     
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Document Description                                                                                                                                
|           | 
|10.16      |  | Form Stock Option Agreement (September 2002, March 2003 and September 2003 Option Pools)*(8)                                                        
|           | 
|10.17      |  | Table of Stock Option Grants under 2001 Stock Option Plan And Prior Plans*(2)                                                                       
|           | 
|10.18      |  | 2004 Equity Incentive Plan*(8)                                                                                                                      
|           | 
|10.19      |  | Form of Stock Option Agreement (2004 Equity Incentive Plan)*(13)                                                                                    
|           | 
|10.20      |  | Form of Stock Award Agreement (2004 Equity Incentive Plan)*(13)                                                                                     
|           | 
|10.21      |  | Form of Subscription Agreement dated February 2003(7)                                                                                               
|           | 
|10.22      |  | Subscriber Unit License Agreement between Axesstel California and Qualcomm Incorporated dated November 14, 2000, as amended+(14)                    
|           | 
|10.23      |  | Component Supply Agreement between QUALCOMM CDMA Technologies Asia-Pacific PTE LTD. and Axesstel-California, dated February 28, 2001, as amended+(2)
|           | 
|10.24      |  | DMSS5100 Software Agreement between QUALCOMM Incorporated and Axesstel-California, dated December 5, 2002, as amended+(2)                           
|           | 
|10.25      |  | DMSS5010 Software Agreement between QUALCOMM Incorporated and Axesstel-California, dated November 26, 2003+(2)                                      
|           | 
|10.26      |  | AMSS6500 Software Agreement between QUALCOMM Incorporated and Axesstel-California, dated April 11, 2004+(2)                                         
|           | 
|10.27      |  | USB Driver Software Tools Limited Use Agreement between the registrant and QUALCOMM Incorporated dated October 21, 2004(2)                          
|           | 
|21.1       |  | Subsidiaries of the registrant(15)                                                                                                                  
|           | 
|23.1       |  | Consent of Gumbiner Savett Inc.                                                                                                                     
|           | 
|24.1       |  | Power of Attorney (included on signature page)                                                                                                      
|           | 
|31.1       |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                  
|           | 
|31.2       |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                  
|           | 
|32.1       |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                      



|(1) | Incorporated by reference to exhibits to Registrants Form 10-QSB for the period ending July 1, 2005, filed on August 15, 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to exhibits to Registrants Form SB-2 filed on February 4, 2005.
|--- | ------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to exhibits to Registrants Form 10-QSB for the period ending March 31, 2004, filed on May 24, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to exhibits to Registrants Form 10-QSB/A for the period ending March 31, 2004, filed on September 7, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to exhibits to Registrants Form 8-K filed on August 20, 2004.
|--- | ----------------------------------------------------------------------------------------

|(6) | Incorporated by reference to exhibits to Registrants Form 8-K filed on October 15, 2004.
|--- | -----------------------------------------------------------------------------------------

|(7) | Incorporated by reference to exhibits to Registrants Form SB-2 filed on February 4, 2005.
|--- | ------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to exhibits to Registrants Form SB-2/A filed on October 29, 2004.
|--- | --------------------------------------------------------------------------------------------

|(9) | Incorporated by reference to exhibits to Registrants Form 10-QSB for the period ending June 30, 2004 filed on August 16, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(10) | Incorporated by reference to exhibits to Registrants Form 8-K filed on October 26, 2006.
|---- | -----------------------------------------------------------------------------------------

|(11) | Incorporated by reference to exhibits to Registrants Form 8-K filed on November 21, 2007.
|---- | ------------------------------------------------------------------------------------------

|(12) | Incorporated by reference to exhibits to Registrants Form 8-K filed on March 17, 2008.
|---- | ---------------------------------------------------------------------------------------

|(13) | Incorporated by reference to exhibits to Registrants Form 8-K filed on January 12, 2005.
|---- | -----------------------------------------------------------------------------------------

|(14) | Incorporated by reference to exhibits to Registrants Form 10-KSB/A for the period ending December 31, 2003, filed on August 16, 2004.
|---- | --------------------------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference to exhibits to Registrants Form 10-KSB for the period ending December 31, 2005, filed on March 31, 2006.
|---- | -----------------------------------------------------------------------------------------------------------------------------------



|* | Management contract, or compensatory plan or arrangement.
|- | ---------------------------------------------------------

|+ | Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission
and are marked by an asterisk.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------