##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-KSB/A

(Amendment No. 2)



---



(Mark One)

|x | ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------



For the Fiscal Year ended December 31, 2003



OR



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------



For the transition period from
 to



---



AXESSTEL, INC.

(name of small business issuer as specified in its charter)



---



|                       |  |                        |  |                                   
|---------------------- |  | ---------------------- |  | ----------------------------------
|Nevada                 |  | 001-32160              |  | 91-1982205                        
|State of Incorporation |  | Commission File Number |  | IRS Employer Identification Number



6815
Flanders Drive, Suite 210, San Diego, California 92121

(address of principal executive offices)



(858) 625-2100

(Registrants telephone number, including area code)



---



Securities registered under Section 12(b) of the Act:
None

Name of Each Exchange on Which to be so Registered: None

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



Common Stock

(Title of Class)



---



Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 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 ̈



Check here if the disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form,
and no disclosure will be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this 10-KSB or any amendment to this Form
10-KSB. ̈



State issuers revenues for its most recent fiscal year: $11,375,993.



State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to
the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) As of March 25, 2004,
approximately $5.4 million.



As of August 2, 2004, there
were 8,179,451 shares of our common stock issued and outstanding.



Transitional Small Business Disclosure format (check one):



 ̈Yes    x  No



---

##### Table of Contents

EXPLANATORY NOTE



This Amendment No. 2 on Form 10-KSB/A (i) amends and adds disclosure to Items 1-3 in Part I and Items 5-8 in
Part II; (ii) amends and adds disclosure for Items 9-12 and 14 of Part III, which disclosures were previously incorporated in Form 10-KSB by reference to the Companys definitive proxy statement filed April 21, 2004; (iii) amends Item 13 in
Part III, and adds and amends certain exhibits referred to therein, and (iv) includes an updated report on controls and procedures in Item 8A of Part II. No revisions have been made to the audited Consolidated Balance Sheets, Consolidated
Statements of Operations and Comprehensive Income (Loss), Consolidated Statements of Stockholders Equity (Deficit) or Consolidated Statements of Cash Flow included herein. Except for (a) the cover page and (b) disclosure in Item 8A concerning
managements evaluation of disclosure controls and procedures, this report does not reflect any events or circumstances occurring after March 30, 2004 (the original filing date of the Companys Form 10-KSB for the year ended December 31,
2003) with respect to Parts I and II and Item 13 of Part III, or after April 21, 2004 (the filing date of the Companys definitive proxy statement incorporated by reference in the original Form 10-KSB) with respect to Items 9-12 and 14 of Part
III.



---

##### Table of Contents

---



TABLE OF CONTENTS



|         |  |                                                                |  |   
|-------- |  | -------------------------------------------------------------- |  | --
|Part I   |  |                                                                |  |   
|         |  |                                                               
|Item 1.  |  | Description of Business                                        |  | 1 
|         |  |                                                               
|Item 2.  |  | Description of Property                                        |  | 14
|         |  |                                                               
|Item 3.  |  | Legal Proceedings                                              |  | 14
|         |  |                                                               
|Item 4.  |  | Submission of Matters to a Vote of Shareholders                |  | 14
|         |  |                                                               
|Part II  |  |                                                                |  |   
|         |  |                                                               
|Item 5.  |  | Market for Common Equity and Related Shareholder Matters       |  | 15
|         |  |                                                               
|Item 6.  |  | Managements Discussion and Analysis or Plan of Operation      |  | 16
|         |  |                                                               
|Item 7.  |  | Financial Statements and Supplementary Data                    |  | 21
|         |  |                                                               
|Item 8.  |  | Changes in and Disagreements With Accountants                  |  | 45
|         |  |                                                               
|Item 8A. |  | Controls and Procedures                                        |  | 46
|         |  |                                                               
|Part III |  |                                                                |  |   
|         |  |                                                               
|Item 9.  |  | Directors and Executive Officers of Axesstel                   |  | 48
|         |  |                                                               
|Item 10. |  | Executive Compensation                                         |  | 51
|         |  |                                                               
|Item 11. |  | Security Ownership of Certain Beneficial Owners and Management |  | 54
|         |  |                                                               
|Item 12. |  | Certain Relationships and Related Transactions                 |  | 55
|         |  |                                                               
|Item 13. |  | Exhibits and Reports on Form 8-K                               |  | 56
|         |  |                                                               
|Item 14. |  | Principal Accountant Fees and Services                         |  | 56



Except where
the context otherwise requires, all references in this Registration to (a) the Registrant, the Company, Axesstel, we or our refer to Axesstel, Inc., a Nevada corporation, (b) the
Web refer to the World Wide Web.





---

##### Table of Contents

---



PART I



ITEM 1. DESCRIPTION OF BUSINESS



Company
Structure.



Axesstel, Inc., a California
corporation (Axesstel California), was founded by Mike HP Kwon. Axesstel California was incorporated in California in July, 2000 and since its inception has focused on developing, designing, manufacturing and marketing carrier-grade
subscriber terminals such as fixed wireless telephones, wireless hybrid products and enhanced wireless devices for the telecommunications market, as well as the performance of engineering services to network operator-based customers.



On August 31, 2002, Axesstel California was acquired by Miracom
Industries, Inc., a Nevada corporation (Miracom), pursuant to a Corporate Combination Agreement under which Miracom issued to the former shareholders of Axesstel California approximately 5.6 million shares of our common stock in exchange
for the assignment of approximately 98% of the issued and outstanding capital stock of Axesstel California (at an exchange rate of .302591758 shares of common stock for one share of Axesstel California common stock). In connection with this
acquisition, Miracom also assumed all of Axesstel Californias outstanding options and warrants, which were adjusted in accordance with the exchange ratio. Miracom assumed options exercisable for 2,068,959 shares of stock and warrants
exercisable for 2,333,038 shares of stock.



Immediately prior to the acquisition, Miracom effectuated a one-for-twenty nine reverse stock split of its outstanding shares of common stock; and as a result, the former shareholders of Axesstel California held approximately 95% of
Miracoms common stock after the issuance of shares in the acquisition. In September 2002, Miracom changed its name to Axesstel, Inc. and adopted the business plan of Axesstel California as its exclusive business. At the time of the
acquisition, Mr. Kwon owned 41.9% of the outstanding shares of Axesstel California. TBK, ADDCOM, and Qualcomm, Inc. were also principal stockholders of Axesstel California, owning 13.1%, 10.9% and 10.9%, respectively, of the outstanding shares of
Axesstel California at that time.



Axesstel California
established Axesstel Korea, a wholly-owned subsidiary corporation organized under the laws of Korea in July 2000 and established a branch office in Korea in July 2002 to engage in research and development activities and to outsource the manufacture
of telecommunications products and parts.



In December
2002, in order to accelerate technology development and productivity, we acquired Entatel, Ltd., a Korea-based company, mainly engaged in developing, manufacturing and selling telecommunication products pursuant to a stock purchase agreement. The
agreement was consummated in early 2003. In April 2003, Entatel was re-named Axesstel R&D Center, Ltd.



In November 2003, we established a wholly owned subsidiary, Axesstel Technologies, Inc., in California, in order to engage in research and development
activities and to provide technical services to customers.



Our Business.



Axesstel, headquartered in San Diego, California, is
comprised of two groups: a San Diego-based organization and a Korea-based development and design facility. The San Diego office is chiefly composed of marketing, sales, operations, general research, finance and administration. It is responsible for
all customer-facing activities, such as marketing communications, product planning, product management and customer support, along with sales and business development activities on a worldwide basis.



From San Diego, Axesstel directs its global partners and business activities.
Axesstels products are based upon Qualcomms Code Division Multiple Access, or CDMA, technology, which allows Axesstel to focus its



1



---

##### Table of Contents

---



sales resources and efforts exclusively on CDMA operators worldwide. The territories currently targeted by Axesstel include North America, Latin America, the Caribbean, Africa, Eastern Europe, and Asia (with particular emphasis on India,
Pakistan and China).



The Axesstel Korea office is
entirely dedicated to the design and production of advanced CDMA wireless products for Axesstel. This office, located in Seoul, South Korea, takes advantage of Koreas expert development, low-cost manufacturing and high-quality engineering
talent. Recently expanded to approximately 60 engineers, through the acquisition of Entatel, a wireless R&D company, this office focuses on terminal design activities and leverages Koreas leadership role in CDMA product development. Our
Korean office is conveniently located to a variety of strategic manufacturing and production partners, which allows Axesstel to load-balance its production and optimize its orders, based upon customer demand, quick turn-around, low-volume production
and scheduled large-volume production runs.



Products.



Axesstels product and development activities fall into three primary
categories: Wireless Local Loop (WLL) subscriber products, wireless hybrid products, and strategic Original Design & Manufacturing (ODM) product development.



The first category, Axesstels WLL products based upon CDMA technology, represent a mature technology and are primarily
directed towards developing countriesareas where a traditional copper-based telephony infrastructure is insufficient or impractical. We estimate that only 20% of the world population has access to basic telephony. Product portfolio includes a
variety of fixed wireless desktop phones and data terminals.



During 2003, Axesstel shipped products based on CDMAone (IS-95A/B) protocol standard. Axesstel invested engineering resources in the design and development of CDMA2000 (1xRTT) products in 2003, and expects to begin commercial shipping of
the upgraded version in 2004.



As predicted, the telecom
infrastructure market appears to be recovering, and Axesstel sees great potential in its new line of CDMA2000 1x based products and its CDMA2000 1xEV-DO data terminals and modems. For the first time, 1xEV-DO will provide users with broadband speeds
(up to 2.4 Mbps) wirelessly in wide-area coverage. This third generation, or 3G, technology is just now being deployed commercially and in trials. Preliminary results are extremely positive, as evidenced by Verizon Wireless committing to a national
1xEV-DO network deployment as well as other wireless carriers planning to incorporate Qualcomms CDMA2000 1xEV-DO as their 3G data standard.



Of importance to Axesstels distribution and marketing strategy, 1xEV-DO is particularly advantageous in regions as an alternative to wired broadband
(e.g., DSL and cable) and in regions where wired broadband access is simply unavailable despite the need and demand for such services. Axesstel is working closely with carriers who are deploying 1xEV-DO in order to develop the 3G terminal that best
meets their commercial needs.



Axesstels hybrid
solutions, such as the product Axesstel developed for Verizons landline operations (VerizonAvenue) was among the first to integrate CDMA20001x phone, GPSone (E911) and DSS 900 MHz cordless in a single handset. In this multi-million dollar,
fully-funded development project, Axesstel successfully completed the development of the handset exclusively for Verizon. At this time, Verizon has officially placed the service launch on hold. No further information pertaining to the product
announcement is available.



Axesstel continues to define and
develop the next generation of hybrid product solutions which will have the capability to integrate advanced technologies such as Wi-FI (802.11), VoIP (Voice Over Internet Protocol) and other carrier-grade standards. Axesstel is exploring a variety
of alternatives for the development and marketing of new hybrid products.



2



---

##### Table of Contents

---



The final business category, strategic ODM development, provided the majority of our revenue in fiscal year 2003. Axesstel has used the funding from ODM projects in the past to support the development of its WLL
products. However, Axesstel believes that the ODM market is experiencing consolidation and rapid changes making it less attractive to Axesstel. Therefore, management has elected to focus Axesstels resources on the WLL and hybrid businesses as
they are expected to generate the bulk of our revenues in 2004. This shift in focus aligns our marketing resources and engineering capabilities behind our core product business units.



Distribution Methods and Inventory.



Axesstel manages and conducts its own sales directly to CDMA operators and ODM customers worldwide. All of Axesstels annual sales for 2003 were
generated through its own sales and marketing efforts.



During
2003, Axesstel was able to improve its reach by opening new customer accounts, participating in large telecommunications operators bids and strengthening its sales alliance network by partnering selectively with leading infrastructure vendors.
Axesstel expects to see solid results from those efforts in 2004. Where and when necessary, Axesstel partners with in-country logistics partners to facilitate import and manage support services. Axesstel is in the process of exploring partnerships
whereby it will gain local in-country know-how, sales access and support, especially in China and India, to help ensure a safe and effective entry into new markets.



Due to Axesstels product customization and lower risk business model, it does not engage in financing terms or build
up of inventory, thereby largely removing product and inventory-related obsolescence exposure. Axesstel does, however, expend considerable amounts on new product development. Axesstel will continue to invest in internal direct sales resources and
distribution alliance partners. As Axesstels business increases it expects to secure larger bank and strategic credit lines to reduce inventory lead times and component sourcing requirements.



Axesstel has earned ISO9001:2000 certification through its quality and
control processes implemented by the Axesstel R&D Center, Ltd.



Marketing Strategy.



We believe that
Axesstel is the only manufacturer focused exclusively on WLL CDMA products in North America which has full in-house engineering (from design through development and certification) and is a QUALCOMM CDMA licensee.



Axesstel products are currently deployed in 12 countries worldwide and in
service with more than 14 carriers. In addition, there are samples being actively tested in another 16 countries.



In developing countries, Qualcomms CDMA standard is making significant headway in becoming the wireless infrastructure of choice, not only for
mobile applications, but also for basic voice and data telephone services. This is particularly true in markets that are adopting 2.5 generation and 3rd generation wireless standards, given the high capacity and low cost of deployment of CDMA2000
over competing standards such as GSM/GPRS and TDMA.



Although
no assurances can be given, as next-generation wireless networks are deployed, Axesstel expects to expand its Qualcomm licensing agreement to include CDMA2000 1xRTT and CDMA2000 1xEV-DO products and to supplement its current WLL product line with
products based upon the CDMA2000 standard by the first half of 2004.



3



---

##### Table of Contents

---



As Axesstel broadens its product portfolio from simple WLL desktop phones to include wireless broadband data modems and hybrid solutions, it is also expanding its reach and distribution in select and targeted markets.
Axesstel is committed to the WLL market and to addressing the needs of wireless carriers as they deploy CDMA2000 networks and is leveraging its partnerships and relationships with wireless infrastructure manufacturers to offer innovative and turnkey
solutions.



The hybrid market is gaining interest as new
technologies mature and carriers attempt to combine and leverage multiple network assets (both wireless and wireline) as evidenced by the Verizon contract. Axesstel is committed to identifying product and customer opportunities.



Customers.



Critical to Axesstels strategy and long-term success is its customer base. Axesstel focused in 2003 on developing
large anchor accounts and plans to expand those activities in 2004. We believe CDMA is becoming the standard for fixed wireless and WLL applications especially in green-field operations and developing regions of the world where WLL is essential to
basic telephony access. In the year ended December 31, 2003, two customers accounted for an aggregate of 75% of our net sales. However, due to a shift in our business focus towards WLL, we anticipate that the percentage of our revenues from these
customers will decrease significantly. Our new customers related to the WLL business are expected to be limited to a few telecommunications carriers, so our dependence on a limited number of customers is expected to continue.



Axesstel reported a number of new contracts in 2003 including a substantial
commitment from Telecard of Pakistan. Axesstel expects to announce new significant carrier partnerships in 2004 based on the sales pipeline that is being developed today.



Competition.



The telecommunication market is extremely competitive and is characterized by rapid technological change, new product development, product obsolescence
and evolving industry standards. In addition, price competition is intense and the market prices and margins of our products decline as competitors begin making similar products. Axesstel competes mainly in the WLL segment of the
telecommunications market. Our primary competitors are large, well-funded companies such as LG, Telular, Westech, and Pantech-Curitel.



The make up of our competitive landscape is due in part to the nascent stage of the WLL industry and the high degree of customization required to serve
each customer. Accordingly, other large telecommunications companies such as Samsung, Nokia and Motorola have elected to focus their resources on the traditional mass market mobile phone business. This dynamic has allowed Axesstel to gain a solid
foothold in the WLL market.



Supply Chain.



Axesstel maintains close relationships with our component supply chain
partners. Axesstel utilizes a variety of component agents/brokers to source the majority of our components, which averages between 200-300 items per phone unit.



Axesstel is developing a dual-sourcing strategy for key components such as memory, LCD, and plastics. The only exception to this program is the chipset
device (Qualcomms Mobile Subscriber Modem), which is sole-sourced directly from Qualcomm. Presently, there is a worldwide shortage for these chipsets due to high overall demand of CDMA based products. At times, this shortage has caused delays
in Axesstel receiving this product and has affected our production schedules. This constraint is being addressed by linking our customer forecasts and manufacturing capacity with Qualcomms chipset supply. In addition, as one of Axesstels
significant stockholders, Qualcomm has expressed a willingness to work with us in meeting our future sourcing needs. If Axesstel experiences significant delays in the future, it will severely impact our operations and detrimentally affect our
ability to produce and deliver product to our customers.



4



---

##### Table of Contents

---



Research and Development.



The wireless
telecommunications industry is characterized by rapid technological change, requiring a continuous effort to enhance and develop product. Our research and development team was greatly enhanced during the past year as we focused additional resources
for the development of our WLL products. Research and development expenses for 2003 and 2002 were approximately $1.3 million and $.2 million, respectively.



Intellectual Property.



We operate in an industry where innovations, investment in new ideas and protection of resulting intellectual property rights are important to success. We
rely on a variety of intellectual property protections for our products and technologies, including patent, copyright, trademark and trade secret laws, and contractual obligations, and we pursue a policy of vigorously enforcing such rights. In 2003,
we filed five non-provisional applications and four additional provisional patents and we will continue to apply for intellectual property protection and licensing opportunities as appropriate.



In November 2000, Axesstel California entered into a Subscriber Unit
License Agreement with Qualcomm Incorporated whereby Axesstel California was granted a worldwide nonexclusive license to Qualcomms Code Division Multiple Access (CDMA) technology to make, sell and lease (a) CDMA telephones solely for WLL
applications or (b) CDMA modem cards for wireless applications. In addition to the license fees paid to Qualcomm, Qualcomm was granted shares of common stock pursuant to this License Agreement (which were exchanged for 605,183 shares of our common
stock upon our acquisition of Axesstel California). The License Agreement may be terminated by Qualcomm upon an uncured material breach of the License Agreement by us.



Our policy is to enter into nondisclosure agreements with each employee and consultant or third party to whom any of our
proprietary information is disclosed. These agreements prohibit the disclosure of confidential information to others, both during and subsequent to employment or the duration of the working relationship. These agreements could however be breached
and we may not have adequate remedies for any breach. Our procedures for protecting trade secrets may not prevent them from becoming known or independently developed by competitors.



Government Regulations.



Our products are incorporated into commercial wireless communications systems that are subject to regulation domestically by the FCC and internationally
by other government agencies. Although the equipment operators (and not Axesstel) 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.



Axesstel is also subject to a variety of local, state, federal and foreign governmental regulations relating to the storage, discharge, handling,
emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture our products. The failure to comply with current or future regulations could result in the imposition of substantial fines on us, suspension of
production, alteration of our manufacturing processes or cessation of operations.



It is Axesstels belief that we operate our business in material compliance with applicable government regulations.



5



---

##### Table of Contents

---



Risk Factors Relating To Our Business.



In
addition to the other information in this prospectus or incorporated in this prospectus by reference, you should consider carefully the following factors in evaluating us and our business before purchasing the common stock offered by this
prospectus:



Our success depends on the growth and availability of
wireless telecommunications services in the markets we target.



Currently, some of our largest potential markets are developing countries and regions where the demand for basic telephone service has started to grow significantly only in recent years, such as India, Pakistan, China, Central and South
America, Eastern Europe and North Africa. In these countries and regions, the relatively low cost of developing and constructing wireless communications infrastructure as compared to traditional wireline infrastructure may make wireless an
attractive alternative to wireline. Our success depends to a large extent on the continued growth and increased availability of cellular and other wireless telecommunications services in these countries and regions and the availability of such
services at competitive prices.



However, these countries
and regions may decline to construct wireless systems, or construction may be delayed, for a variety of reasons, including government regulation, general economic factors, the availability of funding and other competitive factors. These factors may
also limit or delay purchases of equipment used to provide telephone services, such as our products. If system construction and equipment purchases in these countries are not made or are delayed, the demand for our products in these countries will
be limited or delayed. Similarly, if the use of wireless telecommunications services in these countries and regions is not cost effective, or if our target customers are unable to afford our products or services, the demand for our products or
services may be limited, which could materially and adversely affect our business operations and financial condition.



While wireless telecommunication systems in the United States are more developed than in many other markets that we target, continued expansion of
wireless infrastructure and demand for cellular fixed wireless products in the United States is also important for the growth of our business. As is the case with conditions in other target markets, there is no guarantee that wireless
telecommunications systems will continue to develop and if our potential customers in the U.S. cannot afford our products or services, the demand for our products or services may be limited, which could materially and adversely affect our business
operations and financial condition.



Unfavorable economic events in our
target markets could lead to lower sales of our products.



Sales of our products depend on the growth of the cellular fixed wireless telecommunications industry in general and increased demand for Cellular Fixed Wireless products worldwide. Based upon observed trends, we believe that the market for
Cellular Fixed Wireless terminals and cellular desktop phones (collectively Fixed Wireless Terminals or FWTs) will experience substantial growth over the next five years. We have identified significant growth opportunities in
India, Pakistan, China, Central and South America, Eastern Europe and North Africa. Each of these markets will develop at a different pace, and the sales cycle for these regions are likely to be several months or quarters.



In addition, unfavorable general economic conditions in any market will have
a negative effect on sales in that market. Because economic conditions in one region often affect conditions globally, unfavorable general economic conditions in one market or region might result in damage to industry growth and demand in other
markets as well. In connection with the recent and present global economic conditions and the war on terror, our prospects for continued growth have been accordingly reduced in the near term.



6



---

##### Table of Contents

---



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



We believe that our success depends, in part, on our ability to obtain and enforce intellectual property protection for our technology. It is possible
that any of our existing patents, or any patents that we may obtain in the future, will expire, be challenged, invalidated or circumvented. If we lose or cannot enforce patent protection for our technology and products, our competitive position will
be significantly harmed because it would be much easier for competitors to sell products similar to ours. Alternatively, a competitor may independently develop and/or patent technologies that are substantially equivalent to or superior to our
technology. If this happens, our patents will not provide protection and our competitive position will 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 patents
and other intellectual property rights. In addition, if we develop new products or enhancements to existing products we cannot assure you that we will be able to obtain patents to protect them. Even if we do get patents for 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. Although we believe our products are superior to those of competitors, it is easier for competitors to sell products similar to ours in countries where we do not have meaningful patent protection. This could result in a
loss of potential sales.



The intense
competition in the cellular fixed wireless telecommunications industry could prevent us from achieving or sustaining profitability.



Recently, we have seen an increase in the number of competitors using docking station products. A docking station is an accessory product that enables a
user with a cellular phone to easily connect it to phone(s), a fax machine or a computer modem, and therefore, simulate the functionality of certain of our products. Docking Station Products have a competitive advantage from a pricing standpoint
because the user already owns a cellular phone.



The market for
cellular fixed wireless products is extremely competitive, and we may not be able to successfully compete with other companies already in the market and new companies that enter the market. The major national and international companies in this
market are:



| |  | Telular Corporation;
| | - | --------------------



| |  | Westech Korea, Inc.; and
| | - | ------------------------



| |  | LG Electronics.
| | - | ---------------



Many of our competitors have greater resources than us in many areas critical to succeeding in the industry, including:



| |  | financial resources;
| | - | --------------------



| |  | manufacturing capabilities;
| | - | ---------------------------



| |  | name recognition;
| | - | -----------------



| |  | research and development capabilities;
| | - | --------------------------------------



| |  | technical expertise;
| | - | --------------------



| |  | sales and marketing staffs; and
| | - | -------------------------------



| |  | distribution channels.
| | - | ----------------------



7



---

##### Table of Contents

---



Based in part on these advantages, our competitors may succeed in developing products that are more effective, desirable and/or cheaper than ours or that render our products and technology obsolete. They also may have
better and more efficient marketing and distribution structures than we do. In addition, the market for our products is driven by large OEMs with significant capital resources, certain of which have manufactured similar products in the past. If
these OEMs again decide to make the products themselves, they would be able to dedicate significantly more resources towards exploiting market opportunities than we can dedicate, and this could materially and adversely affect our sales.



If our products are not compatible with existing technologies, our growth may be
limited.



Our ability to increase our sales is dependent
on our products being compatible with the technologies in place or being developed in our targeted markets. Many developing countries and regions have not yet developed telecommunications systems, including wireless systems, or updated their
existing systems. Imbedded telecommunications systems may be outdated and may not be able to support our products. If our products do not work with or are not compatible with the telecommunications systems available to our potential customers, our
products may not gain acceptance and our growth will be limited.



We may not be able to obtain the funding we need to operate our business.



Our ability to continue operations depends on having adequate funds to cover our expenses. Our current operating plan provides for significant expenditures for research and development of new products, development of
new markets for our products, and marketing programs for our products. Based on our current operating plan, we believe that our existing capital resources will allow us to maintain our current and planned operations.



However, we caution you that our cash requirements may vary and are
difficult to predict. We target markets in developing countries for product sales, and the nature of these markets makes it difficult to predict revenues. Events that we cannot anticipate, economic and political factors, and our customers
ability to execute their plans, may result in order cancellations which may increase our capital needs. Thus, our actual cash requirements may be greater than we currently anticipate.



Accordingly, we may not have adequate funds to cover our expenses. If
this were the case, we would need to find other financing sources to provide the necessary funds, such as public or private sales of our equity or debt securities. We cannot assure you that if we needed additional funds we would be able to obtain
them on terms we find acceptable. If we could not obtain the necessary financing we would be forced to cut back operations, which might include the scaling back or elimination of research and development programs.



Our revenues may increase or decrease significantly due to our reliance on a limited
number of customers for most of our product sales.



We
have traditionally relied on a limited number of customers for a substantial percentage of our net sales. In the year ended December 31, 2003, two customers accounted for an aggregate of 75% of our net sales. However, due to the shift in our
business focus towards WLL, we anticipate that the percentage of our revenues derived from these customers will decrease significantly.



We do anticipate that a substantial percentage of our revenues from our WLL business will be derived from a limited number of large orders from
telecommunications carriers in the countries and regions in which we intend to focus. The inability to obtain, the loss of or a significant reduction in, orders by such customers as a result of competitive products, market conditions or other
factors, would adversely impact our business, financial condition and results of operations. Furthermore, the concentration of our revenues in a limited number of large customers may cause significant fluctuations in our future annual and quarterly
operating results.



8



---

##### Table of Contents

---



Our operating results may fluctuate greatly from quarter to quarter, which may cause the price of our common stock to be volatile.



Our quarterly operating results may fluctuate greatly due to numerous factors, including:



| |  | our anticipated reliance on large volume orders from only a few customers for most of our product sales;
| | - | --------------------------------------------------------------------------------------------------------



| |  | variations in our distribution channels;
| | - | ----------------------------------------



| |  | the mix of products we sell;
| | - | ----------------------------



| |  | general economic conditions in our target markets;
| | - | --------------------------------------------------



| |  | the timing of final product approvals from any major distributor or end user;
| | - | -----------------------------------------------------------------------------



| |  | the timing of orders from and shipments to major customers;
| | - | -----------------------------------------------------------



| |  | the timing of new product introductions by us or our competitors;
| | - | -----------------------------------------------------------------



| |  | changes in the pricing policies of our suppliers;
| | - | -------------------------------------------------



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



| |  | the timing of personnel hirings;
| | - | --------------------------------



| |  | market acceptance of our new products or enhanced versions of our existing products; and
| | - | ----------------------------------------------------------------------------------------



| |  | our customers ability to obtain letters of credit to support orders.
| | - | ---------------------------------------------------------------------



These quarterly fluctuations may cause volatility in the price of our common stock.



Technology changes rapidly in our industry and our future success will depend on our
ability to keep pace with these changes and meet the needs of our customers.



The telecommunications equipment industry is characterized by rapid technological advances, evolving industry standards, changing customer needs and frequent new product introductions and enhancements. The fixed
wireless telecommunications industry also is experiencing significant technological change. The introduction of products embodying new technologies and the emergence of new industry standards could render our existing products and technology
obsolete and unmarketable.



To succeed, we must timely
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 customers. We may not be successful in developing and marketing new
products and enhancements or we may experience difficulties that prevent development of products and enhancements in a timely manner. The cost of buying additional licenses that are needed to develop new products or the cost of developing our own
technologies may also be prohibitive or may result in an increase in the price of our products. Such an increase could limit our ability to sell our products to customers and gain acceptance in the marketplace. In addition, our products may fail to
meet the needs of the marketplace or achieve market acceptance. Any of these circumstances would seriously harm our results and financial condition.



Our results depend on our ability to develop and introduce new products into existing and emerging markets and to reduce the costs to produce existing products.



The process of developing new technology is complex and
uncertain, and if we fail to accurately predict the changing needs of our customers and emerging technological trends, our results and financial condition may suffer. We must commit significant resources, including those contracted from third
parties, to develop new products before knowing whether our investments will result in products the market will accept.



9



---

##### Table of Contents

---



The success of new products is dependent on several factors, including proper new product definition, component costs, timely completion and introduction of these products, differentiation of new products from those
of our competitors, and market acceptance of these products. There can be no assurance that we will successfully identify new product opportunities, develop and bring new products to market in a timely manner, and achieve market acceptance of our
products, or that products and technologies developed by others or new industry standards will not render our products or technologies obsolete or noncompetitive. Furthermore, we may not successfully execute on new product opportunities because of
technical hurdles that we or our contractors fail to overcome in a timely fashion. This could result in competitors providing a solution before we do, and loss of market share, revenues and earnings.



We have made significant investments in research and development for new
products, services and technologies. Significant revenue from these investments may not be achieved for a number of years, if at all. Moreover, these products and services may never be profitable, and even if they are profitable, operating margins
for these businesses are not expected to be as high as the margins historically experienced for our other products.



We must devote substantial resources to research and development to remain competitive and we may not have the resources to do so.



For us to be competitive, we must continue to dedicate substantial
resources to research and development of new products and enhancements of current and future products. We cannot assure you that we will have sufficient resources to fund the necessary research and development or that our research and development
efforts will be successful.



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



In the telecommunications equipment and other high technology industries, litigation increasingly has been used 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 have a significant negative impact on our business and financial condition.



In order to succeed we must develop markets for our products and we
may be unable to do so.



Our ability to achieve
profitability depends on our ability to develop both domestic and international markets for our products and on our ability to gain acceptance of our products by these markets. To date, we have only been able to devote limited resources towards our
sales and marketing efforts. We cannot assure you that we will be able to devote additional resources to sales and marketing or that we can develop adequate markets or generate enough sales to achieve and sustain profitability.



If our target customers are unable to afford our products, then our revenues may not grow
as anticipated.



Our targeted geographic areas for
expansion include third world and developing countries where the populations generally have limited financial resources. Our ability to sell our products to customers in these regions depends in part on the ability of such potential customers to
afford our products or to obtain and maintain the necessary credit to purchase our products. If our target customers do not have the financial resources to purchase our products, or if they are unable to obtain and maintain credit to purchase our
products, we may be unable to increase the sales of our products and our business and results of operations could be materially and adversely impacted.



10



---

##### Table of Contents

---



Sales cycles to major customers can be long, which makes it difficult to forecast our results.



It typically takes us between three and six months to complete a sale to a major customer account, but it can take us up to a year or longer. It is
therefore difficult to predict the quarter in which a particular sale will occur and to forecast our sales. The period between our initial contact with a potential customer and its purchase of our products is relatively long due to several factors,
including:



| |  | our need to educate potential customers about the uses, capabilities and benefits of our WLL terminals;
| | - | -------------------------------------------------------------------------------------------------------



| |  | the adoption of new technologies does not occur rapidly in our targeted geographic areas; and
| | - | ---------------------------------------------------------------------------------------------



| |  | our targeted customers may have limited financial resources to allocate towards new technologies.
| | - | -------------------------------------------------------------------------------------------------



Any delay or failure to complete sales in a particular quarter could reduce our revenues in that quarter. If our sales cycle
unexpectedly lengthens in general or for one or more large orders, it would adversely affect the timing of our revenues.



Our dependence on third parties for our product distribution may limit our ability to generate revenue if these parties do not actively promote our products.



We utilize third parties such as resellers, distributors
and makers of complementary technology to complement our full-time sales staff in promoting sales of our products. If these third parties do not actively promote our products, our ability to generate revenue may be limited. We cannot control the
amount and timing of resources that these third parties devote to marketing activities on our behalf. Some of these business relationships are formalized in agreements which can be terminated with little or no notice and may be subject to amendment.
We also may not be able to negotiate acceptable distribution relationships in the future and cannot predict whether current or future distribution relationships will be successful.



Failure of critical suppliers to deliver sufficient quantities of parts in a timely and cost-effective manner could adversely impact our
operations.



We use numerous vendors to supply parts,
components and subassemblies for the manufacture of our products. It is not always possible to maintain multiple qualified suppliers for all of our parts, components and subassemblies. As a result, certain key parts, such as chipsets, may be
available only from a single supplier or a limited number of suppliers. On occasion, we have experienced problems in obtaining adequate and reliable quantities of various parts and components from certain key suppliers, which limits our ability to
manufacture our products. Our results of operations may be materially and adversely impacted if we cannot obtain sufficient parts to meet our requirements in a timely and cost effective manner. We presently are experiencing a delay in receiving the
necessary chips from Qualcomm because of the excess of demand over supply Qualcomm is experiencing. This is reducing and may continue to reduce our ability to meet customer demand for our product, potentially leading them to buy from other
suppliers.



We rely on third parties to manufacture OEM products and
others to manufacture components for our products.



We
rely on subcontractors, including one of our investors, to manufacture OEM products and product components, such as cellular transceivers and radio modules, and to assemble our products, such as cellular fixed wireless terminals. In the past, we
experienced delays in receiving subcontracted components and assembled products that resulted in delays in our ability to deliver products. We may experience similar delays in the future.



Our inability to obtain sufficient quantities of raw materials and key components when required, or to develop alternative
sources of supply if required in the future, could result in delays or reductions in product shipments and increased costs for affected parts. In addition, production capacity restraints at our subcontractors



11



---

##### Table of Contents

---



facilities could prevent us from meeting production obligations. Delays in product deliveries for any reason or our failure to deliver products could significantly harm customer relationships and result in the loss of potential sales and
subject us to substantial penalties.



Quality control problems could harm
our sales.



We believe that our products currently meet
high standards of quality. We have instituted quality-monitoring procedures and we are ISO-9001 compliant. All of our major subcontractors also have quality control procedures in place and are ISO-9001 compliant. However, we and/or our
subcontractors may experience quality control problems in the future. If this occurs, the quality of our products could suffer, which could significantly harm product sales.



If customers place orders to purchase customized products and are unable to complete the purchase, we may carry inventory which we
are unable to sell.



In order to increase our
sales, it may be necessary to customize our products for certain of our customers. The customization of our products may result in completed products which are inoperable for or undesirable to other customers. Due to the financial and other resource
limitations to which our targeted customers may be subject, there is a risk that our orders may be cancelled without receipt of payment. If after a product is customized for a customer the order is cancelled, we may be unable to sell the customized
product from our inventory and our revenues and results of operations may be adversely affected.



We operate in developing markets, which may subject us to volatile conditions not present in the United States.



Developing countries and regions are some of our largest potential markets. As we expand our operations in these countries, our business and performance
could be negatively affected by a variety of factors and conditions that businesses operating in the United States generally do not contend with, such as:



| |  | foreign currency exchange fluctuations and instability of foreign currencies;
| | - | -----------------------------------------------------------------------------



| |  | varying foreign governmental regulations and regulatory authority requirements;
| | - | -------------------------------------------------------------------------------



| |  | political or economic instability and volatility in particular countries or regions;
| | - | ------------------------------------------------------------------------------------



| |  | limited protection for intellectual property;
| | - | ---------------------------------------------



| |  | difficulties in staffing and managing international operations; and
| | - | -------------------------------------------------------------------



| |  | difficulties in collecting accounts receivable.
| | - | -----------------------------------------------



Our business has been exposed to risks due to civil and political unrest in third world countries such as Haiti. If civil and political conditions in
Haiti worsen, or if instability develops in other countries within our geographic focus, our operations and financial condition could be negatively affected. In addition, we have been exposed to and our business has been negatively affected by,
foreign currency fluctuations to which our customers have been subject. However, as our international operations grow, foreign exchange fluctuations and foreign currency inflation may pose greater risks for us and we may be required to develop and
implement additional strategies to manage these risks. If we are not successful in managing these risks, our business and financial condition could be seriously harmed.



12



---

##### Table of Contents

---



We depend on attracting and retaining skilled employees, which may be difficult due to the competitive employment market.



If we lose any of our key, highly skilled technical, managerial and marketing personnel due to the intense competition in the technology industry, our
operations may suffer. As a result, our future success depends in part on our ability to identify, attract, retain and motivate such personnel. In particular, we have experienced, and we expect to continue to experience, difficulty in hiring and
retaining highly skilled engineers with appropriate qualifications to support our rapid growth and expansion. Competition for qualified engineers is intense, especially in San Diego where our headquarters are located. Engineers are attracted towards
opportunities to work on the newest technologies. If we are unable to provide such opportunities, or if we lose the services of a significant number of our engineers and we cannot hire and integrate additional engineers, it could disrupt our ability
to develop our products and implement our business strategy.



Sales of
common stock issuable on the exercise of outstanding options and warrants may depress the price of the common stock.



As of December 31, 2003, there were options and warrants granted to our employees, directors and consultants to purchase approximately 6.2 million shares
of the Companys common stock, of which options and warrants for approximately 5.4 million shares were exercisable at that time. The exercise prices for the exercisable options and warrants range from $.07 to $3.50 per share, with a weighted
average exercise price of $0.40. Options to purchase the remaining approximately 800,000 shares will become exercisable over the next three years. The exercise prices for the options that are not yet exercisable have a weighted average exercise
price of $1.45. In the future we may issue additional shares of common stock, convertible securities, options and warrants. The issuance of shares of common stock issuable upon the exercise of convertible securities, options or warrants could cause
substantial dilution to holders of common stock. It also could negatively affect the terms on which we could obtain equity financing.



There is a limited public market for our common stock. As a result, our stockholders may be unable to readily sell their common stock or may experience higher
transaction costs resulting from pricing inefficiencies.



Historically, there has been a limited public market for the shares of our common stock. Our common stock is currently quoted on the OTC Electronic Bulletin Board and investors may find it more difficult to obtain accurate price quotations
of our common stock than they would if the stock were quoted on the Nasdaq SmallCap Market. This means that our investors may not be able to sell their stock readily and there may be inefficiencies in the pricing of our stock that could result in
broader spreads between the bid and the ask prices.



Since our common
stock is listed on the OTC Electronic Bulletin Board, which can be a volatile market, our investors may realize a loss on the disposition of their shares.



Our common stock is quoted on the OTC Electronic Bulletin Board, which is a more limited trading market than the Nasdaq
SmallCap Market. Timely and accurate quotations of the price of our common stock may not always be available and trading volume in this market is relatively small. Consequently, the activity of trading only a few shares may affect the market and
result in wide swings in price and in volume. The price of our common stock may fall below the price at which an investor purchased shares, and an investor may receive less than the amount invested if the investor sells its shares. Our shares of
common stock may be subject to sudden and large falls in value, and an investor could experience the loss of the investors entire investment.



13



---

##### Table of Contents

---



If the market price of our common stock continues to be volatile, the value of our stock may decline.



The market price of our common stock has been, and may continue to be, volatile, which means the value of your Axesstel stock may fluctuate. Factors that
are difficult to predict and which contribute to volatility and may have other significant impacts on the market price of our common stock include:



| |  | quarterly revenue,
| | - | ------------------



| |  | statements and ratings by financial analysts,
| | - | ---------------------------------------------



| |  | overall market performance, and
| | - | -------------------------------



| |  | announcements by our competitors concerning new product developments.
| | - | ---------------------------------------------------------------------



Nevada law and our charter documents may inhibit a potential takeover bid that would be beneficial to common stockholders.



Nevada law and our articles of incorporation may inhibit potential
acquisition bids for our common stock at a price greater than the market price of the common stock. We are subject to the anti-takeover provisions of the Nevada Revised Statutes, which could delay, deter or prevent a change of control of the Company
or make this type of transaction more difficult.



Employees.



As of December 31, 2003, Axesstel had approximately 80 employees in the
United States and Korea, approximately 60 of which are based in Korea, primarily for product design and development of software and hardware requirements within our products.



ITEM 2. DESCRIPTION OF PROPERTY



We own no real property. The following is a summary of our property and related lease obligations:



Axesstel entered into a 60-month lease contract (from December 1, 2002 to November 30, 2006) for approximately 5,500 square feet of office space located
at 6305 Lusk Blvd., San Diego, CA 92121 with Stanley R. and Elise C. Smith Trust on October 15, 2001. The security deposit was $9,400. The monthly payment for 2003 was $9,682 which was subsequently adjusted to $9,972 beginning December 2003.



Axesstel also entered into additional sublease
agreement with Intel Corporation for approximately 2,600 square feet of office space located at 15373 Innovation Drive, Suite 200, San Diego, CA 92128. The lease is from November 5, 2003 to August 31, 2004. The monthly payment is $3,886.



Axesstel amended the lease in its Seoul offices as of February
11, 2003. Axesstel entered into a contract to lease approximately 17,000 square feet of office space located at Ace Techno Tower 5-Cha, Suite # 706, 707, 708, 709, and 710 with Nasco, Inc. for two years (until February 10, 2005). The security
deposit was approximately $140,000 with monthly payments of approximately $14,000.



Each of our facilities are covered by appropriate levels of insurance and we believe them to be suitable for their respective uses and adequate for our present needs.



ITEM 3. LEGAL PROCEEDINGS



There are no legal proceedings pending or, to our knowledge, threatened as of March 30, 2004.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS



None.



14



---

##### Table of Contents

---



PART II



ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS



Through December 31, 2003, the Companys common stock has traded on the over-the-counter electronic bulletin board in the United States, under the
trading symbol AXES. Trading volume and high/low/bid prices for the past two years are disclosed in the following table, as reported by Yahoo Finance. Such quotations represent inter-dealer prices without retail markup, markdown or
commission and may not necessarily represent actual transactions.



|               |  |      |      |     |   |     
|-------------- |  | ---- | ---- | --- | - | ----
|               |  | High |      | Low
|Year 2002      |  |      |      |     |   |     
|First Quarter  |  | $    | 1.85 |     | $ | 0.80
|Second Quarter |  |      | 2.25 |     |   | 0.80
|Third Quarter  |  |      | 1.05 |     |   | 0.55
|Fourth Quarter |  |      | 3.00 |     |   | 0.90
|               |  |     
|Year 2003      |  |      |      |     |   |     
|First Quarter  |  | $    | 3.50 |     | $ | 1.20
|Second Quarter |  |      | 4.65 |     |   | 1.10
|Third Quarter  |  |      | 4.52 |     |   | 2.00
|Fourth Quarter |  |      | 3.25 |     |   | 1.55



On December 31, 2003,
the shareholders list for the Companys common shares showed approximately 250 registered shareholders and 6,699,168 shares issued and outstanding.



The Company has not declared any dividends on its common stock since its incorporation and does not anticipate that it will do so in the
foreseeable future. The present policy of the company is to retain future earnings for use in its operations and expansion of its business.



Common Stock-2003 Activity



In May 2003, the Company issued 92,500 shares of the Companys common stock at the price of $2.00 per share to accredited individuals and entities
for cash totaling $185,000. This issuance was made in reliance on Section 4(2) of the Securities Act.



In May 2003, the Company issued 300,000 shares (total value: $675,000) of the Companys common stock for the acquisition of one hundred percent of
the issued and outstanding capital stock of Entatel, pursuant to a Stock Purchase Agreement made in December 2002. This issuance was made in reliance on Section 4(2) of the Securities Act.



In June 2003, the Company issued 100,000 shares of its common stock
valued at $3.00 per share to an employee. This issuance was made in reliance on Section 4(2) of the Securities Act.



In November 2003, the Company issued 9,622 shares of the Companys common stock valued at $3.50 per share in connection with a settlement agreement
with a consultant for consulting services rendered. This issuance was made in reliance on Section 4(2) of the Securities Act.



In November 2003, the Company issued a total of 19,230 shares of its common stock to two employees valued at $1.30 per share. This issuance was made in
reliance on Section 4(2) of the Securities Act.



In
November 2003, the Company issued a total of 90,000 shares of its common stock valued at $2.80 per share to three members of the Board of Directors. This issuance was made in reliance on Section 4(2) of the Securities Act.



15



---

##### Table of Contents

---



Common Stock-2002 Activity



For the year
ended December 31, 2002, giving effect to a one-to-twenty nine reverse split, the Company issued 20,690 shares of common stock for debts assumed by a certain shareholder totaling $250,627 and 57,425 shares for payment of outstanding debts totaling
$229,604. This issuance was made in reliance on Section 4(2) of the Securities Act.



For the year ended December 31, 2002, the Company issued 57,000 common shares for conversion of notes totaling $157,375 and 141,789 shares of common stock for services valued at $204,510. This issuance was made in
reliance on Section 4(2) of the Securities Act.



In August 2002, in connection with the acquisition of Axesstel California, we issued to the former shareholders of Axesstel California approximately 5.6 million shares of our common stock in exchange for the assignment to us of
approximately 98% of the issued and outstanding capital stock of Axesstel California (at an exchange rate of .302591758 shares of our common stock for one share of Axesstel California common stock). In connection with this acquisition, we also
assumed all of Axesstel Californias outstanding options and warrants, which were adjusted in accordance with the exchange ratio such that an option or warrant to purchase one share of Axesstel California common stock became an option or
warrant to purchase .302591758 shares of our common stock. This issuance was made in reliance on Section 4(2) of the Securities Act and Rule 506 promulgated thereunder.



In September 2002, 100,000 shares and warrants to purchase 200,000 shares, respectively, were granted for consultant
services rendered. This issuance was made in reliance on Section 4(2) of the Securities Act.



In October 2002, the Company entered into a contract for legal services with a legal consultant in Korea, in consideration for 10,000 shares of the
Companys common stock. This issuance was made in reliance on Section 4(2) of the Securities Act.



ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



Forward-Looking Statements



This Annual Report on Form 10-KSB contains certain forward looking statements including expectations of market conditions, challenges and plans, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is
subject to the safe harbor provisions created by that statute. The words anticipate, expect, plan, intend and similar expressions are intended to identify such statements. Although the forward-looking
statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known to us. Consequently, such statements are subject to risks and uncertainties, including, but not
limited to those discussed herein and, in particular, under the caption Risk Factors Relating To Our Business beginning on page 6 that could cause actual results to differ materially from those projected.



The following discussion should be read in conjunction with the financial
statements and related notes included elsewhere in this Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results anticipated in these
forward-looking statements as a result of factors including, but not limited to, those under Risk Factors Relating to Our Business beginning on page 6 and elsewhere in this Report.



Company Overview



Axesstel California was formed approximately 3.5 years ago, and has performed wireless engineering development
services, while at the same time, concentrating its efforts in developing its own wireless subscriber



16



---

##### Table of Contents

---



products and solutions. On August 31, 2002, Axesstel California was acquired by Miracom Industries, Inc., a Nevada corporation (Miracom) pursuant to a Corporate Combination Agreement under which Miracom issued to the former
shareholders of Axesstel California approximately 5.6 million shares of our common stock in exchange for the assignment of approximately 98% of the issued and outstanding capital stock of Axesstel California. Following the acquisition, the former
shareholders of Axesstel California held approximately 95% of our common stock. The acquisition was accounted for as a reverse acquisition because former shareholders of Axesstel California owned a majority of our outstanding stock subsequent to the
acquisition. For accounting purposes, Axesstel California is deemed to have acquired Miracom, and therefore the financial statements of the Company included in this report represent the financial results of Axesstel California only for the period of
January 1, 2002 to August 30, 2002; and the financial results of the Company and Axesstel California for the post-acquisition period from August 31, 2002 through December 31, 2002, and for the 2003 fiscal year.



In 2003, this focus in our product business led to increased expenditures in
research and development, and selling, general, and administrative expense. This investment has allowed Axesstel to introduce many additional products in the marketplace during the year. Management believes this investment will lead to rapid growth
in our product revenue in 2004.



RESULTS OF OPERATIONS



The following table sets forth, as a percentage of total net sales, the
consolidated statement of operations data for the periods indicated:



|                                     |  |       |   |  |       |  
|------------------------------------ |  | ----- | - |  | ----- | -
|                                     |  | 2003  |   |  | 2002  |  
|Net sales                            |  | 100.0 | % |  | 100.0 | %
|Cost of sales                        |  | 65.6  |   |  | 43.3  |  
|                                     |  |       |   |  |       |  
|Gross profit                         |  | 34.4  |   |  | 56.7  |  
|Operating expenses:                  |  |       |   |  |       |  
|Research and development             |  | 11.3  |   |  | 2.0   |  
|Selling, general and administrative  |  | 48.2  |   |  | 45.4  |  
|                                     |  |       |   |  |       |  
|Total operating expenses             |  | 59.5  |   |  | 47.4  |  
|                                     |  |       |   |  |       |  
|Income (loss) from operations        |  | (25.1 | ) |  | 9.3   |  
|Total other income (loss)            |  | (1.2  | ) |  | 1.6   |  
|                                     |  |       |   |  |       |  
|Income (loss) before income taxes    |  | (26.3 | ) |  | 10.9  |  
|Provision (benefit) for income taxes |  | (7.1  | ) |  | 3.0   |  
|                                     |  |       |   |  |       |  
|Net income (loss)                    |  | (19.2 | ) |  | 7.9   |  
|                                     |  |       |   |  |       |  



FISCAL YEAR ENDED DECEMBER 31, 2003
COMPARED TO FISCAL YEAR ENDED

DECEMBER 31, 2002



Net Revenue and Gross Profit



Axesstels net revenue increased $3.3 million during 2003, representing a 40.7% increase from the previous year. Substantially all of this increase
was from revenues derived from our engineering service group. During the year, we received funding from strategic network operators to perform Original Design and Manufacturing (ODM) product development.



Gross profit decreased from 56.7% to 34.4% during 2003. This decrease
resulted primarily from two main factors. One of the factors was a gross profit decrease from approximately 14% in 2002 to approximately 1% in 2003, from the Companys product revenue due to lower than expected volume and changes in the sales
mix to



17



---

##### Table of Contents

---



lower margin products. At the end of 2003, we transformed our manufacturing to a new lower-cost contract manufacturer partner and we expect our margins for these products to increase in the future. The second factor leading to decreased
gross margins is our treatment of our engineering service revenue. In 2003, Axesstel recorded $3.4 million of cost of sales for this revenue resulting in gross margins of approximately 54%. In 2002, Axesstel recorded $0 of cost of sales for
engineering services, or 100% gross margin, as we were unable to segregate costs for our engineering service efforts and recorded these costs as operating expenses.



Selling, General and Administrative Expenses



Selling, general and administrative expenses (SG&A) increased 49.2% from $3.7 million in 2002 to $5.5 million in 2003,
and as a percentage of sales, from 45.4% in 2002 to 48.2% in 2003. This increase in SG&A is primarily attributed to the increase in the number of employees included in SG&A, increased wages and benefits, the acquisition of Entatel at the end
of 2002, and increased legal and outside consulting fees. Management believes that these expenses represent an investment in our overall infrastructure and will enable us to continue our overall growth.



Research and Development Expenses



Research and development expenses (R&D) increased from $.2 million in
2002 to $1.3 million in 2003. As a percentage of revenue, this represents an increase from 2.0% to 11.3%. This significant increase represents a planned and strategic investment in our technical skills as we continued to strengthen our research and
development capabilities throughout the year. Management believes that this additional investment in research and development is necessary at this point in order to capture a larger market share and produce the highest quality CDMA wireless
products.



Other Income (expense)



Other income (expense) decreased from a benefit of $.1 million to an expense
of $.1 million from 2002 to 2003. The majority of this impact was primarily related to the write-down of certain assets originating from the Miracom acquisition in 2002.



Income Tax Expense



Income before income taxes decreased from income of $.9 million to a loss of $3.0 million from 2002 to 2003. This directly impacted income tax from an
expense of $.2 million in 2002 to a benefit of $.8M in 2003.



Liquidity and
Capital Resources



During 2003, Axesstel funded its
operations principally on the cash flows generated through operations. Most of the cash has been spent on research and development and computer software as we continue to build our technological capabilities as well as hire additional engineering
and support employees.



Axesstels cash decreased by
approximately $.4 million during 2003 and working capital decreased by approximately $3.8 million as we continued to invest in the activities noted above and fund the loss incurred in 2003.



Axesstel does not anticipate making any significant capital purchases for the
year 2004.



Sale of $1,000,000 Unsecured
Convertible Term Note



In January 2004, we
completed the sale and issuance of an unsecured convertible term note in the original principal amount of $1 million to North America Venture Fund II, L.P., an accredited investor. Interest accrues



18



---

##### Table of Contents

---



on the note at the rate of 3% above prime, subject to certain adjustments. The principal and accrued interest due under the note are convertible by North America into shares of our common stock at a conversion price of $2.00 per share. All
unpaid principal and accrued interest, if not sooner converted, is due on January 8, 2005.



Sale of 1,360,000 Shares of Common Stock and Warrants to Purchase 1,632,000 Shares of Common Stock



In January 2004, we sold to seven accredited investors in a private
placement an aggregate of 1,360,000 shares of our common stock at a price of $2.00 per share for gross proceeds of $2,720,000. In connection with the private placement, we also issued to the investors warrants to purchase an aggregate of 1,632,000
shares of our common stock. Warrants for 860,000 of the shares have an exercise price of $1.00 per share and are exercisable until July 8, 2004. Warrants for 500,000 of the shares have an exercise price of $1.00 per share and are exerciseable until
January 8, 2005. The other warrants for 272,000 shares have an exercise price of $2.00 per share, subject to an increase to $3.30 per share upon the completion of certain milestones, and are exercisable beginning on the first date on which the
achievement of the milestones can be determined and expire 18 months after that date.



For services rendered in connection with this financing, we agreed to issue to a finder a total of 150,000 shares of our common stock. We issued 50,000 shares to the finder in January 2004, and we agreed to issue to
the finder an additional 50,000 shares in each of January 2005 and January 2006. We also paid to the finder a fee of $136,000, representing 5% of the gross proceeds in this financing.



Sale of $3,000,000 Secured Convertible Term Note



In March 2004, we completed the sale and issuance of a $3 million
secured convertible promissory note to Laurus Master Fund, Ltd., an accredited investor, pursuant to a securities purchase agreement. Interest accrues on the note at a rate of 3% above prime, subject to certain adjustments. In no event will the
interest rate on the note be lower than 7% or greater than 10%.



Under the terms of the note, we are obligated to make monthly payments of principal and interest. We have the option to pay these monthly payments in cash or in shares of our common stock (so long as the closing price
of the common stock is greater than $3.38 for ten consecutive trading days preceding the payment date). If we elect to pay in stock, we must issue to Laurus an amount of shares equivalent to the amount of the monthly payment due divided by $3.16. If
we elect to pay in cash, we must pay 102% of the amount of the monthly payment due.



We may pay the monthly payment in shares of our common stock only so long as there is an effective registration statement on file covering the resale of such shares. We have the option to convert all or a portion of
the outstanding principal of the note into shares of common stock if the closing price of the common stock is greater than $3.70 for ten consecutive trading days. However, the number of shares issued upon such conversion cannot exceed 30% of the
aggregate dollar trading volume of the common stock for the 22 trading days immediately preceding the payment date. The investor has the option, at any time, to convert all or a portion of the note into shares of our common stock at $3.16 per share.



The note is secured by a blanket lien on
substantially all of our assets pursuant to a security agreement executed by us in connection with the note. If an event of default occurs under the security agreement, Laurus has the right to accelerate payments under the note and to take
possession of our assets, in addition to other remedies.



We also issued to Laurus a warrant exercisable for 100,000 shares of common stock that is exercisable until March 11, 2011. The exercise price of the warrant is as follows: (i) $3.31 per share for the first 50,000 shares, $3.59 per share
for the next 25,000 shares, and $3.88 per share for the remaining 25,000 shares. However, Laurus is not entitled to receive shares upon exercise of the warrant, upon payment of principal and interest or upon conversion of the promissory note if such
receipt would cause Laurus to hold in excess of 4.99 % of the



19



---

##### Table of Contents

---



outstanding shares of our common stock on the date of issuance of such shares. In connection with this financing, we paid Laurus Capital Management, LLC, manager of the investor, a fee of $108,000, which represented 3.6% of the principal of
the convertible note.



For services rendered in
connection with this financing, we issued to a finder a warrant to purchase 47,468 shares of our common stock at an exercise price of $3.16 per share. The warrant is exercisable for five years after the date of issuance. We also paid to the finder a
fee of $150,000, representing 5% of the gross proceeds from this financing.



If a registration statement covering the resale of the shares of common stock obtainable upon conversion of the note and exercise of the warrants held by Laurus and the finder is not declared effective on or before
June 9, 2004, we are obligated to pay to Laurus as liquidated damages $30,000, representing 1% of the original principal amount of the note, for each 30 day period (pro-rated for partial periods) that the registration statement is not effective.



Our current plans indicate that we
will require approximately $2 million in additional capital to fund our operations until our operations become self-funding, which is expected to occur during the third quarter of 2004. The availability of additional capital will depend on a number
of factors, some of which are outside our control. These include general market conditions, conditions in the private equity markets where we have historically raised capital, the then-current market price of our common stock, our ability to enter
into major contracts for the sale of our products, and our perceived future prospects.



CRITICAL ACCOUNTING POLICIES



The discussion and analysis of Axesstels financial condition and results of operations are based upon its 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 its Board of Directors, Axesstel has
identified two accounting policies that it believes are key to an understanding of its financial statements. These are important accounting policies that require managements most difficult, subjective judgments.



Capitalized Software Costs



We capitalize software development for sale or lease in accordance with SFAS
86, Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed. Software costs incurred subsequent to the determination of the technical feasibility of the software product are capitalized. Significant
management judgment is required in determining whether technological feasibility has been achieved for a particular software product. Capitalization ceases and amortization begins when the software product is available for general release to
customers. Capitalized software development costs are and projected revenues are reviewed quarterly to determine if any impairment in value has occurred that would require an adjustment in the carrying value or change in expected useful lives under
the guidelines established under SFAS No. 86. We have capitalized $1,033,909 of software development costs as of December 31, 2003. Amortization is expected to begin during the first fiscal quarter of 2004. The amortization period for the software
costs capitalized is the economic life of the related products.



Valuation of Long-Lived and Intangible Assets and Goodwill



We assess the impairment of intangibles, long-lived assets and goodwill 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 the following:



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



20



---

##### Table of Contents

---



| |  | 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, 2003, we recognized impairment costs of $160,000. Net intangible assets, long-lived assets, and goodwill amounted to $7,383,027 as
of December 31, 2003. Significant management judgment is required in determining whether an indicator of impairment exists and projecting and discounting cash flows.



ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



21



---

##### Table of Contents

---



INDEPENDENT AUDITORS REPORT



To
the Board of Directors and Stockholders

of Axesstel, Inc.



We have audited the consolidated balance sheet of Axesstel, Inc. (a Nevada corporation) and subsidiaries as of December 31, 2003, and the related
consolidated statements of operations and comprehensive loss, stockholders equity, and cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.



We
conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Axesstel, Inc and
subsidiaries as of December 31, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.



Gumbiner, Savett, Finkel, Fingleson & Rose, Inc.

Santa Monica, CA



March 18, 2004



22



---

##### Table of Contents

---



INDEPENDENT AUDITORS REPORT



To
the Board of Directors

Axesstel, Inc. and Subsidiaries

San
Diego, California



We have audited the accompanying
consolidated balance sheet of Axesstel, Inc. and subsidiaries as of December 31, 2002, and the related consolidated statements of operations and comprehensive income (loss), stockholders equity (deficit), and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.



We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Axesstel, Inc. and subsidiaries as of December 31, 2002, and the
consolidated results of their operations and their consolidated cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.



KENNY H. LEE CPA GROUP, INC.



February 28, 2003



23



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

December 31, 2003 and 2002



ASSETS



|                                     |  |      |           |      |   |          
|------------------------------------ |  | ---- | --------- | ---- | - | ---------
|                                     |  | 2003 |           | 2002
|Current assets                       |  |      |           |      |   |          
|Cash and cash equivalents            |  | $    | 376,336   |      | $ | 768,665  
|Accounts receivable                  |  |      | 1,408,888 |      |   | 1,322,022
|Prepayments and other current assets |  |      | 612,687   |      |   | 381,217  
|                                     |  |      |           |      |   |          
|Total current assets                 |  |      | 2,397,911 |      |   | 2,471,904
|                                     |  |     
|Property and equipment, net          |  |      | 1,463,266 |      |   | 1,380,554
|                                     |  |     
|Other assets                         |  |      |           |      |   |          
|Security deposits                    |  |      | 158,418   |      |   | 174,990  
|Deferred tax assets                  |  |      | 880,000   |      |   |         
|License fee                          |  |      | 3,000,000 |      |   | 1,700,000
|Development costs                    |  |      | 1,033,909 |      |   | 217,164  
|Goodwill                             |  |      | 522,453   |      |   | 296,889  
|Other intangible assets, net         |  |      | 324,981   |      |   |         
|                                     |  |      |           |      |   |          
|Total other assets                   |  |      | 5,919,761 |      |   | 2,389,043
|                                     |  |      |           |      |   |          
|Total assets                         |  | $    | 9,780,938 |      | $ | 6,241,501
|                                     |  |      |           |      |   |          







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



24



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

December 31, 2003 and 2002



LIABILITIES AND STOCKHOLDERS EQUITY



|                                                                                                                                                                |  |      |            |   |      |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | -
|                                                                                                                                                                |  | 2003 |            |   | 2002 |  
|Current liabilities                                                                                                                                             |  |      |            |   |      |   |           |  
|Accounts payable                                                                                                                                                |  | $    | 1,479,466  |   |      | $ |          |  
|Due to Qualcomm, Inc.                                                                                                                                           |  |      | 1,300,000  |   |      |   |          |  
|Note payable                                                                                                                                                    |  |      | 200,000    |   |      |   |          |  
|Current obligations under capital leases                                                                                                                        |  |      | 221,040    |   |      |   | 202,462   |  
|Deferred tax liability                                                                                                                                          |  |      |           |   |      |   | 117,277   |  
|Fund raising advances                                                                                                                                           |  |      | 1,720,000  |   |      |   |          |  
|Accrued expenses and other current liabilities                                                                                                                  |  |      | 810,524    |   |      |   | 1,694,790 |  
|                                                                                                                                                                |  |      |            |   |      |   |           |  
|Total current liabilities                                                                                                                                       |  |      | 5,731,030  |   |      |   | 2,014,529 |  
|                                                                                                                                                                |  |     
|Long-term liabilities                                                                                                                                           |  |      |            |   |      |   |           |  
|Obligations under capital leases, excluding current installments                                                                                                |  |      |           |   |      |   | 107,831   |  
|                                                                                                                                                                |  |      |            |   |      |   |           |  
|Total long-term liabilities                                                                                                                                     |  |      |           |   |      |   | 107,831   |  
|                                                                                                                                                                |  |     
|Stockholders equity                                                                                                                                            |  |      |            |   |      |   |           |  
|Common stock, par value $0.001; Authorized 50,000,000 shares; 6,699,168 and 6,077,816 shares issued and outstanding at December 31, 2003 and
2002, respectively |  |      | 6,699      |   |      |   | 6,078     |  
|Additional paid-in capital                                                                                                                                      |  |      | 6,400,803  |   |      |   | 4,296,012 |  
|Accumulated other comprehensive loss                                                                                                                            |  |      | (37,694    | ) |      |   | (43,055   | )
|Accumulated deficit                                                                                                                                             |  |      | (2,319,900 | ) |      |   | (139,894  | )
|                                                                                                                                                                |  |      |            |   |      |   |           |  
|Total stockholders equity                                                                                                                                      |  |      | 4,049,908  |   |      |   | 4,119,141 |  
|                                                                                                                                                                |  |      |            |   |      |   |           |  
|Total liabilities and stockholders equity                                                                                                                      |  | $    | 9,780,938  |   |      | $ | 6,241,501 |  
|                                                                                                                                                                |  |      |            |   |      |   |           |  





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



25



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Years Ended December 31,



|                                                   |  |      |            |   |      |   |           |  
|-------------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | -
|                                                   |  | 2003 |            |   | 2002 |  
|Net revenues                                       |  |      |            |   |      |   |           |  
|Wireless subscriber product sales                  |  | $    | 4,122,013  |   |      | $ | 4,066,787 |  
|Wireless engineering development service           |  |      | 7,253,980  |   |      |   | 4,020,000 |  
|                                                   |  |      |            |   |      |   |           |  
|                                                   |  |      | 11,375,993 |   |      |   | 8,086,787 |  
|Cost of goods sold                                 |  |      |            |   |      |   |           |  
|Wireless subscriber product sales                  |  |      | 4,067,376  |   |      |   | 3,498,651 |  
|Wireless engineering development service           |  |      | 3,391,537  |   |      |   |          |  
|                                                   |  |      |            |   |      |   |           |  
|Gross profit                                       |  |      | 3,917,080  |   |      |   | 4,588,136 |  
|Research and development                           |  |      | 1,290,556  |   |      |   | 162,909   |  
|Selling, general and administrative expenses       |  |      | 5,480,009  |   |      |   | 3,673,237 |  
|                                                   |  |      |            |   |      |   |           |  
|Operating income (loss)                            |  |      | (2,853,485 | ) |      |   | 751,990   |  
|                                                   |  |      |            |   |      |   |           |  
|Other income (expense)                             |  |      |            |   |      |   |           |  
|Interest income and other income                   |  |      | 230,749    |   |      |   | 204,564   |  
|Loss from sale of marketable securities            |  |      |           |   |      |   | (41,987   | )
|Loss from write down and disposition of assets     |  |      | (318,244   | ) |      |   |          |  
|Interest expense and other expense                 |  |      | (50,201    | ) |      |   | (35,210   | )
|                                                   |  |      |            |   |      |   |           |  
|Total other income (expense)                       |  |      | (137,696   | ) |      |   | 127,367   |  
|                                                   |  |      |            |   |      |   |           |  
|Income (loss) before income taxes                  |  |      | (2,991,181 | ) |      |   | 879,357   |  
|Provision (benefit) for income taxes               |  |      | (811,175   | ) |      |   | 243,731   |  
|                                                   |  |      |            |   |      |   |           |  
|Net income (loss)                                  |  |      | (2,180,006 | ) |      |   | 635,626   |  
|                                                   |  |     
|Other comprehensive income (loss)                  |  |      |            |   |      |   |           |  
|Foreign currency translation adjustment            |  |      | 5,361      |   |      |   | (43,055   | )
|                                                   |  |      |            |   |      |   |           |  
|Comprehensive income (loss)                        |  | $    | (2,174,645 | ) |      | $ | 592,571   |  
|                                                   |  |      |            |   |      |   |           |  
|Basic earnings (loss) per common share             |  | $    | (0.34      | ) |      | $ | 0.09      |  
|                                                   |  |      |            |   |      |   |           |  
|Diluted earnings (loss) per common share           |  | $    | (0.34      | ) |      | $ | 0.06      |  
|                                                   |  |      |            |   |      |   |           |  
|Weighted average number of common shares - basic   |  |      | 6,417,376  |   |      |   | 6,879,120 |  
|                                                   |  |      |            |   |      |   |           |  
|Weighted average number of common shares - diluted |  |      | 6,417,376  |   |      |   | 9,869,321 |  
|                                                   |  |      |            |   |      |   |           |  





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



26



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

For the Years Ended December 31,



|                                                        |  |              |   |  |                          |       |   |                                            |   |           |                    |  |   |                                   |   |  |   |            |   |  |   |            |  
|------------------------------------------------------- |  | ------------ | - |  | ------------------------ | ----- | - | ------------------------------------------ | - | --------- | ------------------ |  | - | --------------------------------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                        |  | Common Stock |   |  | AdditionalPaid-inCapital |       |   | AccumulatedOtherComprehensiveIncome (Loss) |   |           | AccumulatedDeficit |  |   | TotalStockholdersEquity(Deficit) |  
|                                                        |  | Shares       |   |  | Amount                   |       |   |                                            |   |          
|Balance at December 31, 2001                            |  | 6,554,487    |   |  | $                        | 656   |   |                                            | $ | 222,171   |                    |  | $ |                                  |   |  | $ | (602,523   | ) |  | $ | (379,696   | )
|Stock issued for acquisitions and others                |  | 3,617,236    |   |  |                          | 3,617 |   |                                            |   | 106,311   |                    |  |   |                                   |   |  |   | (172,997   | ) |  |   | (63,069    | )
|Stock issued for services                               |  | 737,334      |   |  |                          | 73    |   |                                            |   | 61,959    |                    |  |   |                                   |   |  |   |            |   |  |   | 62,032     |  
|One-to-twenty nine reverse split                        |  | (7,044,733   | ) |  |                          | (482  | ) |                                            |   | (274,332  | )                  |  |   |                                   |   |  |   |            |   |  |   | (274,814   | )
|Stock issued for debts assumed by certain shareholder   |  | 20,690       |   |  |                          | 21    |   |                                            |   | 250,606   |                    |  |   |                                   |   |  |   |            |   |  |   | 250,627    |  
|Stock issued for payment of outstanding debts           |  | 57,425       |   |  |                          | 57    |   |                                            |   | 229,547   |                    |  |   |                                   |   |  |   |            |   |  |   | 229,604    |  
|Stock issued for conversion of debts                    |  | 57,000       |   |  |                          | 57    |   |                                            |   | 157,318   |                    |  |   |                                   |   |  |   |            |   |  |   | 157,375    |  
|Stock issued for consultant services                    |  | 141,789      |   |  |                          | 142   |   |                                            |   | 204,368   |                    |  |   |                                   |   |  |   |            |   |  |   | 204,510    |  
|Stock issued for conversion of Series A preferred stock |  | 1,331,404    |   |  |                          | 1,331 |   |                                            |   | 1,838,669 |                    |  |   |                                   |   |  |   |            |   |  |   | 1,840,000  |  
|Stock issued for conversion of Series B preferred stock |  | 605,184      |   |  |                          | 605   |   |                                            |   | 1,499,395 |                    |  |   |                                   |   |  |   |            |   |  |   | 1,500,000  |  
|Cumulative translation adjustment                       |  |              |   |  |                          |       |   |                                            |   |           |                    |  |   | (43,055                           | ) |  |   |            |   |  |   | (43,055    | )
|Net income                                              |  |              |   |  |                          |       |   |                                            |   |           |                    |  |   |                                   |   |  |   | 635,626    |   |  |   | 635,626    |  
|                                                        |  |              |   |  |                          |       |   |                                            |   |           |                    |  |   |                                   |   |  |   |            |   |  |   |            |  
|Balance at December 31, 2002                            |  | 6,077,816    |   |  | $                        | 6,077 |   |                                            | $ | 4,296,012 |                    |  | $ | (43,055                           | ) |  | $ | (139,894   | ) |  | $ | 4,119,140  |  
|                                                        |  |              |   |  |                          |       |   |                                            |   |           |                    |  |   |                                   |   |  |   |            |   |  |   |            |  
|Stock issued for services                               |  | 109,622      |   |  |                          | 110   |   |                                            |   | 299,970   |                    |  |   |                                   |   |  |   |            |   |  |   | 300,080    |  
|Stock issued for acquisition                            |  | 300,000      |   |  |                          | 300   |   |                                            |   | 674,700   |                    |  |   |                                   |   |  |   |            |   |  |   | 675,000    |  
|Stock issued for cash                                   |  | 92,500       |   |  |                          | 92    |   |                                            |   | 184,908   |                    |  |   |                                   |   |  |   |            |   |  |   | 185,000    |  
|Stock issued for employee compensation                  |  | 119,230      |   |  |                          | 120   |   |                                            |   | 324,880   |                    |  |   |                                   |   |  |   |            |   |  |   | 325,000    |  
|Stock warrants granted for consulting services          |  |              |   |  |                          |       |   |                                            |   | 620,333   |                    |  |   |                                   |   |  |   |            |   |  |   | 620,333    |  
|Cumulative translation adjustment                       |  |              |   |  |                          |       |   |                                            |   |           |                    |  |   | 5,361                             |   |  |   |            |   |  |   | 5,361      |  
|Net loss                                                |  |              |   |  |                          |       |   |                                            |   |           |                    |  |   |                                   |   |  |   | (2,180,006 | ) |  |   | (2,180,006 | )
|                                                        |  |              |   |  |                          |       |   |                                            |   |           |                    |  |   |                                   |   |  |   |            |   |  |   |            |  
|Balance at December 31, 2003                            |  | 6,699,168    |   |  | $                        | 6,699 |   |                                            | $ | 6,400,803 |                    |  | $ | (37,694                           | ) |  | $ | (2,319,900 | ) |  | $ | 4,049,908  |  
|                                                        |  |              |   |  |                          |       |   |                                            |   |           |                    |  |   |                                   |   |  |   |            |   |  |   |            |  



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



27



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,



|                                                                                                   |  |      |            |   |      |   |            |  
|-------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                   |  | 2003 |            |   | 2002 |  
|Cash flows from operating activities:                                                              |  |      |            |   |      |   |            |  
|Net income (loss)                                                                                  |  | $    | (2,180,006 | ) |      | $ | 635,626    |  
|                                                                                                   |  |      |            |   |      |   |            |  
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |      |            |   |      |   |            |  
|Depreciation                                                                                       |  |      | 447,490    |   |      |   | 208,368    |  
|Amortization                                                                                       |  |      | 82,491     |   |      |   |           |  
|Impairment of goodwill                                                                             |  |      | 160,000    |   |      |   |           |  
|Loss from sale of marketable securities                                                            |  |      |           |   |      |   | 41,987     |  
|Loss from write down and disposition of assets                                                     |  |      | 318,244    |   |      |   |           |  
|Issuance of stock for services                                                                     |  |      | 300,080    |   |      |   | 62,032     |  
|Issuance of stock for employee compensation                                                        |  |      | 325,000    |   |      |   |           |  
|Stock warrants granted for consulting services                                                     |  |      | 620,332    |   |      |   | 204,510    |  
|Deferred tax assets                                                                                |  |      | (880,000   | ) |      |   |           |  
|(Increase) decrease in                                                                             |  |      |            |   |      |   |            |  
|Accounts receivable                                                                                |  |      | (86,866    | ) |      |   | (1,209,740 | )
|Prepayments and other current assets                                                               |  |      | (231,470   | ) |      |   | (350,434   | )
|Inventories                                                                                        |  |      |           |   |      |   | 31,990     |  
|Prepaid and other assets                                                                           |  |      | (143,428   | ) |      |   | (173,061   | )
|Increase (decrease) in                                                                             |  |      |            |   |      |   |            |  
|Accounts payable                                                                                   |  |      | 1,479,466  |   |      |   | (229,751   | )
|Accrued expenses and other liabilities                                                             |  |      | (890,796   | ) |      |   | 1,881,255  |  
|                                                                                                   |  |      |            |   |      |   |            |  
|Total adjustments                                                                                  |  |      | 1,500,543  |   |      |   | 467,156    |  
|                                                                                                   |  |      |            |   |      |   |            |  
|Net cash provided by operating activities                                                          |  |      | (679,463   | ) |      |   | 1,102,782  |  
|                                                                                                   |  |      |            |   |      |   |            |  
|Cash flows from investing activities:                                                              |  |      |            |   |      |   |            |  
|Acquisition of property and equipment                                                              |  |      | (806,482   | ) |      |   | (101,050   | )
|Acquisition of license                                                                             |  |      |           |   |      |   | (200,000   | )
|Additions to development costs                                                                     |  |      | (816,745   | ) |      |   | (217,164   | )
|Proceeds from sales of marketable securities                                                       |  |      |           |   |      |   | 63,859     |  
|                                                                                                   |  |      |            |   |      |   |            |  
|Net cash used in investing activities                                                              |  |      | (1,623,227 | ) |      |   | (454,355   | )
|                                                                                                   |  |      |            |   |      |   |            |  
|Cash flows from financing activities:                                                              |  |      |            |   |      |   |            |  
|Issuance of stock for cash                                                                         |  |      | 185,000    |   |      |   |           |  
|Fund raising advances                                                                              |  |      | 1,720,000  |   |      |   |           |  
|Repayment of note payable, convertible                                                             |  |      |           |   |      |   | (147,000   | )
|Increase in obligations under capital leases                                                       |  |      |           |   |      |   | 583,640    |  
|Principal repayments under capital lease obligations                                               |  |      |           |   |      |   | (273,347   | )
|                                                                                                   |  |      |            |   |      |   |            |  
|Net cash provided by financing activities                                                          |  |      | 1,905,000  |   |      |   | 163,293    |  
|                                                                                                   |  |      |            |   |      |   |            |  
|Cumulative translation adjustment                                                                  |  |      | 5,361      |   |      |   | (43,055    | )
|Net increase (decrease) in cash and cash equivalents                                               |  |      | (392,329   | ) |      |   | 768,665    |  
|Cash and cash equivalents at beginning of year                                                     |  |      | 768,665    |   |      |   |           |  
|                                                                                                   |  |      |            |   |      |   |            |  
|Cash and cash equivalents at end of year                                                           |  | $    | 376,336    |   |      | $ | 768,665    |  
|                                                                                                   |  |      |            |   |      |   |            |  



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



28



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)

For the Years Ended December 31,



|                                                  |  |   |         |  |   |        
|------------------------------------------------- |  | - | ------- |  | - | -------
|Supplemental disclosure of cash flow information: |  |   |         |  |   |        
|Cash paid during the year for:                    |  |   |         |  |   |        
|Interest                                          |  | $ | 19,996  |  | $ |       
|                                                  |  |   |         |  |   |        
|Income tax                                        |  | $ | 387,713 |  | $ | $64,100
|                                                  |  |   |         |  |   |        



Supplemental disclosures of noncash
investing and financing activities:



During 2003, the
Company acquired all of the issued and outstanding capital stock of Entatel, Ltd. in exchange for 300,000 shares of the Companys common stock.



The following summarizes the changes in the Companys financial statements as a result of the transaction:



|                  |  |   |        
|----------------- |  | - | -------
|Goodwill          |  | $ | 385,564
|Workforce         |  |   | 247,472
|Other assets, net |  |   | 41,964 
|                  |  |   |        
|Total             |  | $ | 675,000
|                  |  |   |        



During 2003, the
Company acquired an additional license for $1,300,000, payable throughout 2004.



During 2003, the Company recognized impairment of goodwill amounting to $160,000.



During 2002, the Company had the following transactions:



|                                                        |  |   |          
|------------------------------------------------------- |  | - | ---------
|Stock issued for conversion of Series A preferred stock |  | $ | 1,840,000
|Stock issued for conversion of Series B preferred stock |  |   | 1,500,000
|                                                        |  |   |          
|                                                        |  | $ | 3,340,000
|                                                        |  |   |          





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



29



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



December 31, 2003



1. THE COMPANY AND ITS SIGNIFICANT
ACCOUNTING POLICIES



The Company



Axesstel, Inc. (Axesstel or the Company), a Nevada
Corporation, develops, designs, manufactures and markets carrier-grade subscriber terminals such as fixed wireless telephones, wireless hybrid products and enhanced wireless devices for the telecommunication market. The Company also performs
engineering services to their Network Operator based customers.



Axesstel was originally formed in July 2000 as a California Corporation. On July 16, 2002, the Company entered into a Corporate Combination Agreement (the Agreement) with Miracom Industries, Inc., which was executed
and accepted as effective August 22, 2002. Pursuant to the Agreement, Miracom Industries, Inc. acquired 98% of Axesstel and the Company became a wholly owned subsidiary of Miracom Industries, Inc. At the same time, Miracom Industries, Inc. changed
its name to Axesstel, Inc. with its main office located in California. All outstanding options of Miracom Industries, Inc. became fully vested upon execution of the agreement.



The Company established a wholly owned - subsidiary named Axesstel Korea, Ltd. in Korea in July 2000 and a
branch office in Korea in July 2002, in order to engage in research and development activities and to outsource the manufacture of its telecommunication products and parts.



In December 2002, in order to accelerate technology development and productivity, the Company acquired Entatel, Ltd.
(Entatel), a Korea-based company, mainly engaged in developing, manufacturing and selling telecommunication products pursuant to a stock purchase agreement. Pursuant to the Agreement, the Company acquired one hundred percent of the
issued and outstanding capital stock of Entatel, in exchange for 300,000 shares of the Companys common stock. The acquisition consummated in 2003 and was accounted for under the purchase method of accounting, pursuant to SFAS No. 141,
Business Combinations (See details under financial statement note #5). In April 2003, Entatel was re-named Axesstel R&D Center Co., Ltd.



In November 2003, the Company established a wholly owned subsidiary, Axesstel Technologies, Inc., in California,
in order to engage in research and development activities and to provide technical services to customers.



Principles of Consolidation



The Companys consolidated financial statements include the assets, liabilities and operating results of Axesstel and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in
consolidation.



Revenue Recognition



Revenues from product sales are generally recognized when products are
shipped. The Company does not provide a specific return policy. When products are returned, the Company normally exchanges the products or provides credits to the customers. The returned products are directly shipped to the supplier and the Company
receives new products or credits from the supplier. The Company provides allowances for potential returns and credit losses when necessary. Management believes that no allowance is needed as of December 31, 2003.



30



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements(Continued)



December 31, 2003



Revenues from engineering services are recorded as milestones are reached according to the contract
and agreed to by the customer. For 2002, no costs were allocated to engineering service revenues since the Company mainly utilized engineering services which were already in place and are included in operating expenses.



Comprehensive Income



The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income. This statement establishes standards for reporting comprehensive income and its components in a financial statement. 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.



Research and Development



Costs incurred in research and development activities are expensed as
incurred. Software development costs are capitalized when technological feasibility of the software is established (See note #3).



Cash and Cash Equivalents



For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents.



Property and Equipment



Property and equipment are recorded at cost.



Depreciation is provided using the straight-line method over the following
estimated useful lives of the respective assets, as follows:



|                        |  |                                         
|----------------------- |  | ----------------------------------------
|Machinery and equipment |  | 5 to 6 years                            
|                        | 
|Office equipment        |  | 3 to 6 years                            
|                        | 
|Furniture and fixtures  |  | 6 to 7 years                            
|                        | 
|Leasehold improvements  |  | Life of lease, or useful life if shorter



Impairment of Long-Lived Assets



Effective January 1, 2002, the Company adopted the
provisions of SFAS No. 144 Accounting for the Impairment of Long-Lived Assets. The adoption of SFAS 144 did not have a material effect on the consolidated financial statements of the Company. SFAS 144 establishes the accounting for impairment
of long-lived tangible and intangible assets other than goodwill (See Note #3) and for the disposal of a business. Pursuant to SFAS 144, the Company periodically evaluates, at least annually, whether facts or circumstances indicate that the carrying
value of its 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



31



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements(Continued)



December 31, 2003



determined to be impaired, the loss is measured based on various valuation techniques, including a discounted value of estimated future cash flows. The
Company reports an impairment cost as a charge to operations at the time it is recognized.



Fair Value of Financial Instruments



The Company measures its financial assets and liabilities in accordance with the requirements of Statements of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments.
The carrying values of accounts receivable, accounts payable, note payable, accrued expenses and other liabilities, and obligations under capital leases approximate fair value due to the short-term maturities of these instruments.



Stock-Based Compensation



SFAS No. 123, Accounting for Stock-Based Compensation,
establishes and encourages the use of the fair value based method of accounting for stock-based compensation arrangements under which compensation cost is determined using the fair value stock-based compensation determined as of the date of grant
and is recognized over the periods in which the related services are rendered. The statement also permits companies to elect to continue using the current intrinsic value accounting method specified in Accounting Principles Bulletin
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, to account for stock-based compensation issued to employees. The Company has elected to use the intrinsic value based method and has disclosed the pro forma
effect of using the fair value based method to account for its stock-based compensation.



If the Company 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 awards under these
plans consistent with the methodology prescribed by SFAS No. 123, the Companys net income and earnings per share would be reduced to the pro forma amounts indicated below for the years ended December 31, 2003 and 2002



|                                                                                                                                            |  |                        |            |   |      |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ---------- | - | ---- | - | -------- | -
|                                                                                                                                            |  | Year Ended December 31 |           
|                                                                                                                                            |  | 2003                   |            |   | 2002 |  
|Net income (loss), as reported                                                                                                              |  | $                      | (2,180,006 | ) |      | $ | 635,626  |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                        | (327,207   | ) |      |   | (127,457 | )
|                                                                                                                                            |  |                        |            |   |      |   |          |  
|Pro forma net income (loss)                                                                                                                 |  | $                      | (2,507,213 | ) |      | $ | 508,169  |  
|                                                                                                                                            |  |                        |            |   |      |   |          |  
|Earnings (loss) per share:                                                                                                                  |  |                        |            |   |      |   |          |  
|Basic  as reported                                                                                                                         |  | $                      | (0.34      | ) |      | $ | 0.09     |  
|Basic  Pro forma                                                                                                                           |  | $                      | (0.39      | ) |      | $ | 0.07     |  
|Diluted  as reported                                                                                                                       |  | $                      | (0.34      | ) |      | $ | 0.06     |  
|Diluted  Pro forma                                                                                                                         |  | $                      | (0.39      | ) |      | $ | 0.05     |  



For purposes of
computing the pro forma disclosures required by SFAS No. 123, the fair value of each option granted to employees and directors is estimated using the Black Scholes option-pricing model with the following weighted-average assumptions for the year
ended December 31, 2003: dividend yields of 0%, expected volatility of 133%, risk-free interest rate of 0.93%, and expected lives of 10 years.



The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock price volatility. Because the Companys employee stock options have characteristics significantly



32



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements(Continued)



December 31, 2003



different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in
managements opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.



Income Taxes



The Company accounts for income taxes in accordance with Statement of Financial Accounting Standard (SFAS) No. 109, Accounting for Income
Taxes.



In accordance with SFAS No. 109, 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 report 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.



Earnings (Loss) per Share



The Company utilizes SFAS No. 128, Earnings per Share. Basic earnings (loss) per share are computed by dividing earnings (loss) available to common shareholders 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 the number of additional common shares that would have been outstanding if the potential common shares had
been issued and if the additional common shares were dilutive. Potential common shares includes stock that would be issued on exercise of outstanding options and warrants reduced by the number of shares which could be purchased from the related
exercise proceeds and conversion of preferred stock. For 2003, 6,204,971 potentially dilutive securities are excluded from the computation because they are anti-dilutive.



Foreign Currency Exchange Gains and Losses



The reporting currency for the Company is the United States dollar. The functional currency of the Companys foreign subsidiaries is the Korean
won. The subsidiaries 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 shareholders equity. Foreign currency transaction gains and losses are recorded in the statements of
operations and comprehensive income (loss) as a component of general and administrative expense.



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.



Certain Risks and Concentrations



Ongoing customer credit evaluations are performed by the Company and collateral is not required. The Companys products include components subject to
rapid technological change. Significant technological change



33



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements(Continued)



December 31, 2003



could adversely affect the Companys operating results and subject the Company to product returns. While the Company has ongoing programs to minimize
the adverse effect of such changes and considers technological change in estimating its allowances, such estimates could change in the future.



During 2003, three customers accounted for 40%, 35% and 23% of the Companys revenue, respectively. At December 31, 2003, the amounts due from such
customers were $0, $1,358,888, and $50,000, respectively, which were included in accounts receivable. During 2003, the Company purchased substantially all of its products from one supplier. At December 31, 2003, the amount due to this supplier was
$1,279,215, which was included in accounts payable.



During
2002, three customers accounted for 34%, 31% and 19% of the Companys revenue, respectively. At December 31, 2002, the amount due from these customers was $750,000, which was included in accounts receivable. During 2002, the Company purchased
approximately 92% of its products from one supplier. At December 31, 2002, no amount was due to this supplier.



As of December 31, 2003, the Company maintained net assets of approximately $1,200,000 at its location in Korea. Although this country is considered
politically and economically stable, it is possible that unanticipated events in this foreign country could disrupt the Companys operations.



Reclassifications



Certain reclassifications have been made to the 2002 financial statements to conform to the 2003 presentation.



Recently Issued Accounting Pronouncements



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment of FASB Statement No. 123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the
fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosure in both annual and interim financial statements. Certain
of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these financial statements.



2. PROPERTY AND EQUIPMENT



Property and equipment at December 31, 2003 and 2002 consisted of the following:



|                                                     |  |      |           |      |   |          
|---------------------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                                     |  | 2003 |           | 2002
|Machinery and equipment, including computer software |  | $    | 1,243,843 |      | $ | 1,289,807
|Office equipment                                     |  |      | 555,901   |      |   | 325,683  
|Furniture and fixtures                               |  |      | 29,190    |      |   | 26,693   
|Leasehold improvements                               |  |      | 42,120    |      |   | 18,059   
|                                                     |  |      |           |      |   |          
|                                                     |  | $    | 1,871,054 |      | $ | 1,660,242
|Less: Accumulated depreciation                       |  |      | 407,788   |      |   | 279,688  
|                                                     |  |      |           |      |   |          
|                                                     |  | $    | 1,463,266 |      | $ | 1,380,554
|                                                     |  |      |           |      |   |          



34



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements(Continued)



December 31, 2003



3. OTHER ASSETS



Other assets consisted of security deposits, licensing fee, development costs, goodwill and other intangibles as of December 31, 2003 as follows:



Licensing Fee



In November 2000, the Company entered into a Subscriber Unit License
Agreement (the Agreement) with Qualcomm, Inc. and obtained a license of CDMA (Code Division Multiple Access) technology, Qualcomms intellectual property, to manufacture and sell Subscriber Units and to purchase certain
components and equipment from time to time under regular price orders.



The Agreement called for an Up-Front License Fee of $3,000,000, payable with 2,000,000 shares of Axesstels Series B Preferred Stock amounting to $1,500,000 and five variable installment payments for the remaining
$1,500,000 maturing no later than 360 days after the effective date, with no interest. The Company paid $200,000 towards these installments.



Pursuant to the Agreement, amended in March 2002, the definition of the license was modified. This license fee was considered as fully paid by the
$200,000 cash payment and the issuance of 2,000,000 shares of Preferred Stock.



In August 2002, the Series B Preferred Stock was converted into 605,184 shares of common stock.



In December 2003, the Agreement was again amended to provide new modifications to the license and an additional cost of $1,300,000 for the upgrades. This
payable balance is due over the next twelve months.



Development Costs



Software and related costs are capitalized under SFAS No.
86, Accounting for the Costs of Computer Software to Be Sold or Leased or Otherwise Marketed. Software costs incurred subsequent to the determination of the technological feasibility of the software products are capitalized. Significant
management judgment is required in determining whether technological feasibility has been achieved for a particular software product. Capitalization ceases and amortization of capitalized costs begins when the software product is available for
general release to customers. Capitalized software costs and projected product revenues are reviewed quarterly to determine if any impairment in value has occurred that would require an adjustment in the carrying value or change in expected useful
lives under the guidelines established under SFAS No. 86.



As
of December 31, 2003, the Company capitalized $1,033,909 ($217,164 at December 31, 2002) as development costs. For the year ended December 31, 2003, none of the development costs were amortized as no revenues have been realized from the related
products. Revenues are anticipated to commence during the first quarter of 2004.



Goodwill and Other Intangibles



The Company
adopted SFAS No. 142 Goodwill and Other Intangible Assets as of January 1, 2002. SFAS No. 142 requires, among other things, the discontinuance of amortization of goodwill and other indefinite lived assets. In addition, the standard
requires the reassessment of the useful lives of existing recognized intangibles



35



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements(Continued)



December 31, 2003



and the testing for impairment of goodwill and other intangibles. The Company has elected to test annually for impairment. These tests will be performed more
frequently if there are triggering events. The Company has completed its testing for the year ended December 31, 2003 using the method discussed in SFAS No. 142 and has determined that there has been impairment of $160,000. Impairment costs, when
recognized, are recorded as a charge to operations.



For the
year ended December 31, 2002, the Company amortized goodwill amounting to $21,336. As of December 31, 2003 and 2002, the net goodwill amounted to $522,453 and $296,889, respectively.



For the year ended December 31, 2003, the Company recorded $247,742 of workforce acquired as part of the Entatel acquisition
(See note #5) and amortized $82,491 of this intangible. As of December 31, 2003 and 2002, the net other intangibles amounted to $164,981 and $0, respectively.



Also included in other intangibles are workforce bonuses amounting to $160,000 and $0, as of December 31, 2003 and 2002, respectively.



4. TAXES ON INCOME



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



|                                           |  |      |            |   |      |   |        
|------------------------------------------ |  | ---- | ---------- | - | ---- | - | -------
|                                           |  | 2003 |            |   | 2002
|Current tax provision (benefit):           |  |      |            |   |      |   |        
|Federal                                    |  | $    | (50,000    | ) |      | $ | 50,000 
|State                                      |  |      | 65,585     |   |      |   | 14,100 
|Foreign                                    |  |      | 108,017    |   |      |   |       
|                                           |  |      |            |   |      |   |        
|                                           |  |      | 123,602    |   |      |   | 64,100 
|                                           |  |      |            |   |      |   |        
|Deferred tax provision (benefit):          |  |      |            |   |      |   |        
|Federal                                    |  |      | (998,950   | ) |      |   | 143,550
|State                                      |  |      | (54,827    | ) |      |   | 36,081 
|                                           |  |      |            |   |      |   |        
|                                           |  |      | (1,053,777 | ) |      |   | 179,631
|                                           |  |      |            |   |      |   |        
|Change in valuation allowance              |  |      | 119,000    |   |      |   |       
|                                           |  |      |            |   |      |   |        
|Total provision (benefit) for income taxes |  | $    | (811,175   | ) |      | $ | 243,731
|                                           |  |      |            |   |      |   |        



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.



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



36



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements(Continued)



December 31, 2003



Significant components of the Companys net deferred tax asset or liability are as follows:



|                                            |  |      |           |  
|------------------------------------------- |  | ---- | --------- | -
|                                            |  | 2003 |          
|Net operating loss carryforwards            |  | $    | 1,465,000 |  
|Capitalized development costs               |  |      | (397,000  | )
|Depreciation                                |  |      | (62,000   | )
|Other                                       |  |      | (7,000    | )
|                                            |  |      |           |  
|                                            |  |      | 999,000   |  
|Valuation allowance for deferred tax assets |  |      | (119,000  | )
|                                            |  |      |           |  
|                                            |  | $    | 880,000   |  
|                                            |  |      |           |  



In assessing the
realizability of deferred tax assets, $880,000 at December 31, 2003, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not 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.



A
reconciliation of the expected tax computed at the U.S. statutory federal income tax rate to the total provision (benefit) for income taxes follows:



|                                                     |  |      |            |  
|---------------------------------------------------- |  | ---- | ---------- | -
|                                                     |  | 2003 |           
|Expected tax at 34%                                  |  | $    | (1,017,000 | )
|International tax rate differences                   |  |      | (195,000   | )
|State income tax, net of federal tax                 |  |      | (40,000    | )
|Non-deductible expenses                              |  |      | 226,000    |  
|Effect of valuation allowance on deferred tax assets |  |      | 119,000    |  
|Other                                                |  |      | 96,000     |  
|                                                     |  |      |            |  
|Provision (benefit) for income taxes                 |  | $    | (811,000   | )
|                                                     |  |      |            |  



At December 31, 2003,
the Company had net operating loss carryforwards of approximately $4,050,000 for federal tax purposes, expiring through 2023. In addition, the Company had net operating loss carryforwards of approximately $1,002,000 for state tax purposes, expiring
through 2013.



5. BUSINESS COMBINATIONS



Entatel Acquisition



In December 2002, in order to accelerate technology development and productivity, the Company acquired Entatel, Ltd.
(Entatel), a Korea-based company, mainly engaged in developing, manufacturing and selling telecommunication products pursuant to a stock purchase agreement. Pursuant to the Agreement, the Company acquired one hundred percent
(100%) of the issued and outstanding capital stock of Entatel, in exchange for 300,000 shares (valued at $2.25 per share) of the Companys common stock. The acquisition was accounted for under the purchase method of accounting, pursuant to SFAS
No. 141, Business Combination issued in June 2001. The purchase transaction consummated in early 2003.



37



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements(Continued)



December 31, 2003



The assets acquired consisted of:



|                 |  |   |        
|---------------- |  | - | -------
|Goodwill         |  | $ | 385,564
|Workforce        |  |   | 247,472
|Other net assets |  |   | 41,964 
|                 |  |   |        
|                 |  | $ | 675,000



The amount allocated
to the workforce is being amortized over a three year period.



Miracom
Acquisition



In August 2002, in accordance with the
Corporate Combination Agreement, the Company completed the acquisition which was accounted for under the purchase method of accounting, pursuant to SFAS No. 141, Business Combinations issued in June 2001. Goodwill of $320,000
resulted from the transaction.



Pursuant to the
Agreement, Miracom Industries, Inc. (Miracom) acquired through a tender offer 98% of the issued and outstanding capital stock of Axesstel, Inc. (Axesstel), a California corporation, in exchange for the issuance of
5,553,818 shares (valued at $0.001 per share) of Miracoms common stock. Axesstel became a majority owned subsidiary of Miracom, and Axesstels shareholders received 0.302591758 shares of common stock of Miracom for each share of
Axesstels common stock they owned immediately prior to closing of the transaction.



Miracom also assumed each outstanding option and warrant for the purchase of Axesstels common stock. The number of shares subject to each
outstanding option or warrant was adjusted so that each option or warrant to purchase one share of Axesstels common stock was an option or warrant to purchase 0.302591758 share of Miracoms common stock. Pursuant to the
Agreement, Miracom assumed 2,068,959 (exercise price: 1,641,706 shares - $0.26 per share, 427,253 shares - $0.07 per share) outstanding options and 2,333,038 (exercise price: $0.07 per share) outstanding warrants. As of December 31,
2003, no stock options or warrants were exercised.



6. COMMITMENTS



Leases



The Company has entered into non-cancelable operating leases expiring
through November 2006 for office space in the U.S.A. and in Korea. One of the leases contains a provision for fixed rent increase, not more than three percent per annum, along with an increase in certain operating expenses.



Rent expense charged to operations for the year ended December 31, 2003 and
2002 was $328,298 and $164,416, respectively.



Future minimum
lease payments under the non-cancelable operating leases as of December 31, 2003 are as follows:



|                             |  |                |        
|---------------------------- |  | -------------- | -------
|Year Ending December 31,     |  | OperatingLease
|2004                         |  | $              | 355,375
|2005                         |  |                | 160,945
|2006                         |  |                | 109,697
|                             |  |                |        
|Total minimum lease payments |  | $              | 626,017
|                             |  |                |        



38



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements(Continued)



December 31, 2003



7. SHAREHOLDERS EQUITY



Common Stock-2003 Activity



In May 2003, the Company issued 92,500 shares of the Companys common stock at the price of $2.00 per share to individuals and entities for cash
totaling $185,000.



In May 2003, the Company issued
300,000 shares (total value: $675,000) of the Companys common stock for the acquisition of one hundred percent of the issued and outstanding capital stock of Entatel, pursuant to a Stock Purchase Agreement made in December 2002.



In June 2003, the Company issued 100,000 shares of
its common stock for employee compensation at the price of $3.00, totaling $300,000.



In November 2003, the Company issued 9,622 shares of the Companys common stock at the price of $3.50 per share for a settlement agreement with a consultant for consulting services rendered, totaling $33,677.



In November 2003, the Company issued 19,230 shares of
its common stock for employee compensation at the price of $1.30 per share, totaling $24,999.



In November 2003, the Company issued 90,000 shares of its common stock at the price of $2.80 per share to members of the Board of Directors, totaling
$252,000.



For the year ended December 31, 2003, the
Company issued 220,000 shares of its stock warrants, with exercise prices of $2.80 and $3.50 per share, for consulting services. These warrants have been valued at $549,000, and are charged to operations over the expected period of services to be
provided.



Common Stock-2002 Activity



For the year ended December 31, 2002, after a one-to-twenty nine reverse
split, the Company issued 20,690 shares of common stock for debts assumed by a certain shareholder totaling $250,627 and 57,425 shares for payment of outstanding debts totaling $229,604.



For the year ended December 31, 2002, the Company issued 57,000 common shares for conversion of notes totaling $157,375 and
141,789 shares of common stock for services rendered at $204,510.



In August 2002, 4,400,000 shares of Series A Preferred Stock were converted into 1,331,404 shares of common stock at the rate of 0.302591758, pursuant to the Corporation Combination Agreement dated July 16, 2002.



In September 2002, 100,000 shares and 200,000 shares of stock warrants,
respectively, were granted for consultant services rendered of $52,000 and $104,000 respectively.



In October 2002, the Company entered into a contract for legal services with a legal consultant in Korea, in consideration for 10,000 shares of the
Companys common stock. As of December 31, 2002, the issuance of the common stock was in progress, and the transaction was presented under Other Liabilities of Liabilities and Stockholders Equity.



39



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements(Continued)



December 31, 2003



Stock Option and Warrant Activity



In August 2002, the Company assumed options exercisable for
2,068,959 shares of common stock and warrants exercisable for 2,333,038 shares of common stock in connection with the acquisition of Axesstel by Miracom. The vesting of all such granted options were accelerated, such that 100% of these options are
completely vested.



In September 2002, the Company
established a stock option plan, under which shares of common stock are reserved for issuance to employees, officers, directors and consultants. Under the Plan, the Company may grant up to 911,671 (15% of total outstanding shares) non-statutory
options. Pursuant to the plan, the Company granted 191,500 options for the purchase of the Companys common stock to its employees, officers, directors and consultants for the year ended December 31, 2003. The options granted vest over 3 year
period.



In March 2003, the Company established a new
stock option plan. Under the Plan, the Company may grant up to 982,171 (approximately 15% of current total outstanding shares) option rights. Pursuant to this plan, the Company granted 431,000 stock options for the purchase of the Companys
common stock to its employees, officers, directors and consultants for the year ended December 31, 2003. The options granted vest over 3 year period.



In September 2003, the Company established an additional stock option plan pursuant to which options to purchase a total of 1,000,000 shares of common
stock may be granted to the Companys employees, officers, directors and consultants. The options granted under this stock option plan vest over a three-year period. As of December 31, 2003, no options authorized under the plan have been
granted to the Companys employees, officers, directors and consultants.



The Company has adopted the disclosure only provisions of SFAS No. 148, which is an amendment to SFAS No. 123. The Company applies Accounting Principles
Bulletin (APB) Option No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its plans and generally does not recognize compensation expense for its stock-based compensation plans, 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.



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



|                              |  |           |   |         |            |      |         |           |            |   |     
|----------------------------- |  | --------- | - | ------- | ---------- | ---- | ------- | --------- | ---------- | - | ----
|                              |  | FY 2003   |   | FY 2002
|Option Summary:               |  | Options   |   |         | Wt Average |      | Options |           | Wt Average
|Outstanding-beginning of year |  | 2,787,643 |   |         | $          | 0.40 |         |          |            | $ |    
|Granted                       |  | 622,500   |   |         | $          | 1.97 |         | 2,787,643 |            | $ | 0.40
|Exercised                     |  |          |   |         | $          |     |         |          |            | $ |    
|Forfeited                     |  | (58,150   | ) |         | $          | 1.84 |         |          |            | $ |    
|                              |  |           |   |         |            |      |         |           |            |   |     
|Outstanding-end of year       |  | 3,351,993 |   |         | $          | 0.67 |         | 2,787,643 |            | $ | 0.40
|                              |  |           |   |         |            |      |         |           |            |   |     



40



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements(Continued)



December 31, 2003



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, 2003.



|               |  |                   |  |                          |      |      |     |             |           |                          |   |     
|-------------- |  | ----------------- |  | ------------------------ | ---- | ---- | --- | ----------- | --------- | ------------------------ | - | ----
|               |  | Total Outstanding |  | Total Exercisable       
|Price range    |  | # of Shares       |  | Wt AverageExercise Price |      | Life |     | # of Shares |           | Wt AverageExercise Price
|$0.00 to $0.50 |  | 2,068,959         |  | $                        | 0.22 |      | 8.7 |             | 2,068,959 |                          | $ | 0.22
|$0.51 to $1.00 |  | 542,533           |  | $                        | 0.60 |      | 8.7 |             | 241,866   |                          | $ | 0.60
|$1.01 to $2.00 |  | 503,167           |  | $                        | 1.77 |      | 9.1 |             | 163,389   |                          | $ | 1.81
|$2.01 to $3.50 |  | 237,334           |  | $                        | 2.37 |      | 9.1 |             | 72,536    |                          | $ | 2.40
|               |  |                   |  |                          |      |      |     |             |           |                          |   |     
|Total:         |  | 3,351,993         |  | $                        | 0.67 |      | 8.8 |             | 2,546,750 |                          | $ | 0.42
|               |  |                   |  |                          |      |      |     |             |           |                          |   |     



For the year ended
December 31, 2003, the Company issued warrants to purchase 220,000 shares of stock, with exercise prices of $2.80 and $3.50 per share, for consulting services. These warrants have been valued at $549,000, and are charged to operations over the
expected period of services to be provided.



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



|                              |  |           |  |           |      |         |           |           |   |     
|----------------------------- |  | --------- |  | --------- | ---- | ------- | --------- | --------- | - | ----
|                              |  | FY 2003   |  |           |      | FY 2002 |           |          
|Warrant Summary:              |  | Warrant   |  | WtAverage |      | Warrant |           | WtAverage
|Outstanding-beginning of year |  | 2,633,038 |  | $         | 0.13 |         | 2,333,038 |           | $ | 0.07
|Granted                       |  | 220,000   |  | $         | 2.86 |         | 300,000   |           | $ | 0.60
|Exercised                     |  |          |  | $         |     |         |          |           | $ |    
|Forfeited                     |  |          |  | $         |     |         |          |           | $ |    
|                              |  |           |  |           |      |         |           |           |   |     
|Outstanding-end of year       |  | 2,853,038 |  | $         | 0.34 |         | 2,633,038 |           | $ | 0.13
|                              |  |           |  |           |      |         |           |           |   |     



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, 2003.



|       |  |                   |  |                          |      |      |     |             |           |                          |   |     
|------ |  | ----------------- |  | ------------------------ | ---- | ---- | --- | ----------- | --------- | ------------------------ | - | ----
|       |  | Total Outstanding |  | Total Exercisable       
|Price  |  | # of Shares       |  | Wt AverageExercise Price |      | Life |     | # of Shares |           | Wt AverageExercise Price
|$0.07  |  | 2,333,038         |  | $                        | 0.07 |      | 8.4 |             | 2,333,038 |                          | $ | 0.07
|$0.60  |  | 300,000           |  | $                        | 0.60 |      | 8.7 |             | 300,000   |                          | $ | 0.60
|$2.80  |  | 200,000           |  | $                        | 2.80 |      | 8.8 |             | 200,000   |                          | $ | 2.80
|$3.50  |  | 20,000            |  | $                        | 3.50 |      | 8.5 |             | 20,000    |                          | $ | 3.50
|       |  |                   |  |                          |      |      |     |             |           |                          |   |     
|Total: |  | 2,853,038         |  | $                        | 0.34 |      | 8.5 |             | 2,853,038 |                          | $ | 0.34
|       |  |                   |  |                          |      |      |     |             |           |                          |   |     



8. 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.



41



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements(Continued)



December 31, 2003



Net revenue by geographic region based on customer locations for the year ended December 31, 2003 and
2002 as follows:



|                 |  |               |            |               |   |          
|---------------- |  | ------------- | ---------- | ------------- | - | ---------
|                 |  | Dec. 31, 2003 |            | Dec. 31, 2002
|Net revenue      |  |               |            |               |   |          
|United States    |  | $             | 7,422,880  |               | $ | 5,340,770
|Pacific Rim/Asia |  |               | 3,953,113  |               |   | 1,540,103
|Latin America    |  |               |           |               |   | 1,204,994
|Other            |  |               |           |               |   | 920      
|                 |  |               |            |               |   |          
|                 |  | $             | 11,375,993 |               | $ | 8,086,787
|                 |  |               |            |               |   |          



9. SUBSEQUENT EVENTS



Sale of $1,000,000 Unsecured Convertible
Term Note



In January 2004, the Company completed
the sale and issuance of an unsecured convertible term note in the original principal amount of $1 million to North America Venture Fund II, L.P., an accredited investor. Interest accrues on the note at the rate of 3% above prime, subject to certain
adjustments. The principal and accrued interest due under the note are convertible by North America into shares of the Companys common stock at a conversion price of $2.00 per share. All unpaid principal and accrued interest, if not sooner
converted, is due on January 8, 2005.



Sale of
1,360,000 Shares of Common Stock and Warrants to Purchase 1,632,000 Shares of Common Stock



In January 2004, the Company sold to seven accredited investors in a private placement an aggregate of 1,360,000 shares of its common stock at a price of
$2.00 per share for gross proceeds of $2,720,000. In connection with the private placement, the Company also issued to the investors warrants to purchase an aggregate of 1,632,000 shares of its common stock. Warrants for 860,000 of these shares have
an exercise price of $1.00 per share and are exercisable until July 8, 2004. Warrants for 500,000 of these shares have an exercise price of $1.00 per share and are exercisable until July 8, 2005. Warrants for the other 272,000 shares have an
exercise price of $2.00 per share, subject to an increase to $3.30 per share upon the completion of certain milestones, and are exercisable beginning on the first date on which the achievement of the milestones can be determined and expire 18 months
after that date.



For services rendered in connection
with this financing, the Company agreed to issue to a finder a total of 150,000 shares of its common stock. The Company issued 50,000 shares to the finder in January 2004, and agreed to issue to the finder an additional 50,000 shares in each of
January 2005 and January 2006. The Company also paid to the finder a fee of $136,000, representing 5% of the gross proceeds in this financing.



Supply Agreement with Telecard



In February 2004, the Company secured a $10 million agreement with Telecard, Pakistans only CDMA operator, to supply its low-cost WLL terminal
models offering voice communication and messaging with unique billing software. This is complementary to the $6.75 million supply agreement entered into in December 2003.



42



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements(Continued)



December 31, 2003



Sale of $3,000,000 Secured Convertible Term Note



In March 2004, the Company completed the sale and issuance of a $3
million secured convertible promissory note to Laurus Master Fund, Ltd., an accredited investor, pursuant to a securities purchase agreement. Interest accrues on the note at a rate of 3% above prime, subject to certain adjustments. In no event will
the interest rate on the note be lower than 7% or greater than 10%.



Under the terms of the note, the Company is obligated to make monthly payments of principal and interest. The Company has the option to pay these monthly payments in cash or in shares of its common stock (so long as
the closing price of the common stock is greater than $3.38 for ten consecutive trading days preceding the payment date). If the Company elects to pay in stock, it must issue to Laurus an amount of shares equivalent to the amount of the monthly
payment due divided by $3.16. If the Company elects to pay in cash, it must pay 102% of the amount of the monthly payment due.



The Company may pay the monthly payment in shares of its common stock only so long as there is an effective registration statement on file covering the
resale of such shares. The Company has the option to convert all or a portion of the outstanding principal of the note into shares of common stock if the closing price of the common stock is greater than $3.70 for ten consecutive trading days.
However, the number of shares issued upon such conversion cannot exceed 30% of the aggregate dollar trading volume of the common stock for the 22 trading days immediately preceding the payment date. The investor has the option, at any time, to
convert all or a portion of the note into shares of the Companys common stock at $3.16 per share.



The note is secured by a blanket lien on substantially all of the Companys assets pursuant to a security agreement executed by the Company in
connection with the note. If an event of default occurs under the security agreement, Laurus has the right to accelerate payments under the note and to take possession of the Companys assets, in addition to other remedies.



The Company also issued to Laurus Master Fund a warrant exercisable for
100,000 shares of common stock that is exercisable until March 11, 2011. The exercise price of the warrant is as follows: (i) $3.31 per share for the first 50,000 shares, $3.59 per share for the next 25,000 shares, and $3.88 per share for the
remaining 25,000 shares. However, Laurus is not entitled to receive shares upon exercise of the warrant, upon payment of principal and interest or upon conversion of the promissory note if such receipt would cause Laurus to hold in excess of 4.99 %
of the outstanding shares of the Companys common stock on the date of issuance of such shares. In connection with this financing, the Company paid Laurus Capital Management, LLC, manager of the purchaser, a fee of $108,000, which represented
3.6% of the principal of the convertible note.



For
services rendered in connection with this financing, the Company issued to a finder a warrant to purchase 47,468 shares of its common stock at an exercise price of $3.16 per share. The warrant is exercisable for five years after the date of
issuance. The Company also paid to the finder a fee of $150,000, representing 5% of the gross proceeds from this financing.



If a registration statement covering the resale of the shares of common stock obtainable upon conversion of the note and exercise of the warrants held by
Laurus and the finder is not declared effective on or before June 9, 2004, the Company is obligated to pay to Laurus as liquidated damages $30,000, representing 1% of the original principal amount of the note, for each 30 day period (pro-rated for
partial periods) that the registration statement is not effective.



43



---

##### Table of Contents

---



AXESSTEL, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements(Continued)



December 31, 2003



Fixed Wireless Terminal Supply Agreement



In March 2004, the Company, secured a CDMA2000 1x advanced fixed
wireless terminal supply agreement with a major service provider with operations in ten Latin America countries. The minimum amount to be purchased under this agreement for the next 12 months is $10 million.



44



---

##### Table of Contents

---



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS



a) Previous independent accountants



(i)
Effective November 3, 2003, Axesstel, Inc. (Registrant), confirmed with its auditors, Kenny H. Lee CPA Group (Kenny Lee), that the firm would no longer be representing the Registrant as its accountants. As of that date, the
Company was informed by Kenny Lee that they declined to stand for re-election as the Companys auditors.



(ii) Kenny H. Lee CPA Group last reported on Registrants financial statements as of February 28, 2003. Registrants financial statements for
the fiscal year ended December 31, 2001, as audited by Kenny Lee, included an independent auditors report containing an explanatory paragraph describing the uncertainty as to the Companys ability to continue as a going concern.
Registrants financial statements for the fiscal year ended December 31, 2002, as audited by Kenny Lee, contained no paragraph regarding any uncertainty as to the Companys ability to continue as a going concern.



(iii) The change of independent accountants was ratified by the Board of
Directors of Axesstel, Inc. on November 3, 2003.



(iv) During
Axesstels two most recent fiscal years and the subsequent interim period through November 3, 2003, there were no disagreements with Kenny Lee on any matter of accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which, if not resolved, to Kenny Lees satisfaction, would have caused it to make reference to the subject matter of the disagreement in connection with its report. However, Kenny Lees reports on the Companys
consolidated financial statements for the year ended December 31, 2001 contained an explanatory paragraph describing the uncertainty as to the Companys ability to continue as a going concern. No such paragraph was included in the financial
statements for the year ended December 31, 2002.



(v)
During the two most recent fiscal years and the subsequent interim period through November 3, 2003, there have been no reportable events (as defined in Regulation S-B Item 304(a)(1)(iv)).



| | (a) | During the previous two fiscal years and the subsequent interim period through November 3, 2003, Kenny Lee did not advise Axesstel that the internal controls necessary for the
registrant to develop reliable financial statements do not exist.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | During the previous two fiscal years and the subsequent interim period through November 3, 2003, Kenny Lee did not advise Axesstel that any information had come to their attention
which had led them to no longer be able to rely on managements representation, or that had made Kenny Lee unwilling to be associated with the financial statements prepared by management.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | During the previous two fiscal years and the subsequent interim period through November 3, 2003, Kenny Lee did not advise Axesstel that the scope of any audit needed to be expanded
significantly or that more investigation was necessary.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | During the previous two fiscal years and the subsequent interim period through November 3, 2003, Kenny Lee did not advise Axesstel that there was any information which the
accountants concluded would materially impact the fairness and reliability of either (i) a previously issued audit report or the underlying financial statements, or (ii) the financial statements issued or to be issued covering the fiscal period(s)
subsequent to the date of the most recent financial statements covered by an audit report (including information that, unless resolved to the accountants satisfaction, would prevent it from rendering an unqualified audit report on those
financial statements).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(vi) The Registrant
has requested that Kenny H. Lee CPA Group furnish it with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of such letter, dated November 14, 2003, was filed as Exhibit 16.1 to the Form 8-K of the
Registrant filed on December 9, 2003.



45



---

##### Table of Contents

---



(b) New independent accountants



The Registrant
has engaged Gumbiner, Savett, Finkel, Fingleson & Rose, Inc. (Gumbiner) as its new independent accountant on November 3, 2003. Prior to November 3, 2003 the Registrant had not consulted with Gumbiner regarding (i) the application of
accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Registrants consolidated financial statements, and no written report or oral advice was provided to the
Registrant by Gumbiner concluding there was an important factor to be considered by the Registrant in reaching a decision as to an accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement,
as that term is defined in Item 304(a)(1)(iv) of Regulation S-B and the related instructions to Item 304 of Regulation S-B, or a reportable event, as that term is defined in Item 304(a)(1)(iv) of Regulation S-B.



ITEM 8A.
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 Financial 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. Prior to filing this Amendment No. 2 to Form 10-KSB, our former Principal Financial Officer resigned, and was replaced by David Morash, our Chief Operating Officer, who is
serving as Chief Financial Officer on an interim basis.



Under the supervision of our Chief Executive Officer and our interim Chief Financial Officer, we re-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 interim Chief Financial Officer concluded that as of December 31, 2003, the design and operation of such disclosure controls and procedures were effective, but for the
weaknesses discussed below.



These weaknesses included
the following: a lack of effective documentation for stock options and other compensatory equity grants; the absence of a procedure to obtain from officers and directors information required to be disclosed about such persons; the absence or
ineffectiveness of a rule compliance checking procedure for SEC filings; and a lack of effective record keeping and compliance assistance for reports required under Section 16(a) of the Exchange Act.



In addition, our audit committee was advised of a number of conditions
involving matters relating to significant deficiencies in the design or operation of our internal controls. Some of these conditions were identified as material weaknesses. Material weaknesses and significant deficiencies represent deficiencies in
the design or operation of internal control that could adversely affect our ability to record, process, summarize and report financial data consistent with the assertions of management in the Companys financial statements, with a material
weakness constituting a greater deficiency than a significant deficiency. The material weaknesses were identified as the Companys ability to classify costs by expense category and by project; specifically in the area of research and
development, product development, and engineering services. During the audit process, the Company was able to use their accounting records to redistribute these costs to the correct expense classifications. Our independent accountants indicated that
the identified material weaknesses did not affect the auditors report on our financial statements for the year ended December 31, 2003.



46



---

##### Table of Contents

---



We have implemented a number of remedial steps to address the disclosure control and procedure and internal control deficiencies noted. These include:



| |  | The hiring of David Morash as President and Chief Operating Officer, and Mr. Morashs interim assumption of the duties of Chief Financial Officer. Mr. Morash has significant
experience as a chief financial officer, having served in such positions for a number of public companies.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The hiring of a Controller with significant experience as a controller of a larger public company that had international and domestic subsidiaries.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The hiring of a General Counsel with significant experience as in-house counsel for both public and private companies.
| | - | ----------------------------------------------------------------------------------------------------------------------



| |  | A substantial internal review of stock option and equity grants, and an ongoing process of completing the documentation for such grants.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| |  | A more substantial review of SEC filings by a disclosure committee consisting of the Vice President of Finance, the Controller and the General Counsel.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The implementation of improved disclosure controls and procedures, including the collection of officer and director questionnaires, the implementation of a Section 16(a) filing and
tracking procedure, and increased involvement of the General Counsel and outside legal counsel in corporate matters.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | A simplification of the organizational structure within the Company.
| | - | --------------------------------------------------------------------



| |  | The implementation of a cost accounting system to report research and development, product development, and engineering service expense to improve financial reporting and analysis.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(b) Changes In Internal
Controls Over Financial Reporting. No significant changes were made in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fiscal quarter ended December 31, 2003.



(c) Limitations On Disclosure Controls And Procedures. Our
management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud, even as the same are
improved to address the deficiencies noted above. 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.



47



---

##### Table of Contents

---



PART III



ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF AXESSTEL



The directors and executive officers, their ages, positions held and duration as a director, as of April 21, 2004 are as follows:



|                     |  |     |  |                                                   |  |              
|-------------------- |  | --- |  | ------------------------------------------------- |  | -------------
|Name                 |  | Age |  | Position and Offices                              |  | DirectorSince
|Mike HP Kwon         |  | 39  |  | Chairman of the Board and Chief Operating Officer |  | 2002         
|Satoru Yukie         |  | 48  |  | President and Vice Chairman of the Board          |  | 2002         
|Jin Yong (Jason) Kim |  | 39  |  | Executive Vice President and Director             |  | 2002         
|John Chough          |  | 37  |  | Chief Financial Officer                           |  | N/A          
|Craig Hagopian       |  | 39  |  | Chief Marketing Officer                           |  | N/A          
|David Morash         |  | 59  |  | Chief Operating Officer and Director              |  | 2004         
|Jai Baghat           |  | 56  |  | Director                                          |  | 2003         
|Seung Taik Yang      |  | 63  |  | Director                                          |  | 2003         
|Haydn Hsieh          |  | 49  |  | Director                                          |  | 2004         



The terms of all directors
will expire at the next annual meeting of stockholders, or when their successors are elected and qualified. Directors are elected each year, and all directors serve one-year terms. Officers serve at the pleasure of the Board of Directors. There are
no arrangements or understandings between us or any other person pursuant to which he was or is to be selected as a director, executive officer or nominee. We have entered into employment agreements with each of our executive officers, which are
described in Part III, Item 11 below under the heading Employment Agreements.



Biographical Information



Mike Kwon, Chief Executive Officer and Chairman of the Board



An experienced and seasoned wireless veteran, Mr. Mike Kwon founded Axesstel California in July 2000. He has served as an officer and director of Axesstel since September 2002, when Axesstel California became a
subsidiary of Axesstel. Prior to founding Axesstel California, Mr. Kwon was the Vice President of Sales at Neopoint, Inc. from 1998 to 2000. Prior to Neopoint, Mr. Kwon founded Digital Line, Inc., and served as CEO from 1996 to 1998. At Digital
Line, Mr. Kwon identified business opportunities for the resale of analog mobile phones. Mr. Kwon received his Bachelor of Arts in Business Administration from Rutgers University.



Satoru Yukie, President and Vice Chairman of the Board



Joining Axesstel in May 2002, Mr. Satoru Yukie oversees all aspects of Axesstel, including the development,
manufacturing and marketing of products. Prior to joining the Company, Mr. Yukie was the founder and Chief Executive Officer of Accetio, Inc. from 2001 to 2002. At Accetio, Mr. Yukie led their broadband wireless terminal and gateway solution
strategy. For the twenty years prior to founding Accetio, Mr. Yukie held various positions at Sony Corporation of American, Sony Electronics and Sony Corporation (Japan). These positions entailed leading business units in the consumer electronics
and telecommunications industries, including strategic business planning, international business development, marketing, product management and sales management. Mr. Yukie was responsible for successfully introducing the first CDMA phones to
numerous countries worldwide. Mr. Yukie earned a Bachelor of Arts in Engineering with a specialization in Control Engineering from Sophia University in Tokyo and an MBA from California Coast University.



Jason Kim, Executive Vice President and Director



Mr. Jason Kim joined Axesstel California upon its formation in July
2000. He has served as an officer and director of Axesstel since September 2002, when Axesstel California became a subsidiary of Axesstel. Mr. Kims



48



---

##### Table of Contents

---



primary function is to supervise and coordinate Axesstels internal function and logistical planning of product cycle development. Prior to joining Axesstel, Mr. Kim worked for SK Telecom from 1995 to 1999 and HanHwa Information System
from 1985 to 1989. Mr. Kim received a Bachelor of Arts in Electrical Engineering from Kon-Kook University in Korea.



John Chough, Chief Financial Officer



Mr. John Chough joined Axesstel California in January 2001 as Director of Finance and Operations. He has served as Chief Financial Officer of Axesstel
since September 2002, when Axesstel California became a subsidiary of Axesstel. Mr. Chough brings to Axesstel years of experience from Bain & Company, specializing in telecom and financial sector consultancy. Prior to Bain & Company, Mr.
Chough served as Chief Operating Officer of ISOFT Corporation, a Korea based mobile Internet solutions and applications company. Mr. Chough earned his Bachelor of Arts with distinction in Economics and Mathematics from Cornell University and his MBA
with concentrations in finance and international business from Columbia University.



Craig Hagopian, Chief Marketing Officer



Mr. Craig Hagopian joined Axesstel California in May 2002. He has served as an officer of Axesstel since September 2002, when Axesstel California became a subsidiary of Axesstel. Prior to joining Axesstel, he served
as the Chief Alliance Strategist for AIR2LAN, a leading regional broadband wireless Internet provider. At AIR2LAN, he was responsible for top line revenue growth, customer acquisition strategy and business alignment from a pure fixed wireless
deployment to a market mobility service offering. For the past 15 years, Mr. Hagopian has held various high technology and sales and marketing positions at AIR2LAN, EPSON America and MCI WorldComs SkyTel Communications. Mr. Hagopian received a
Bachelor of Science in Finance from the University of Southern California.



David Morash, Chief Operating Officer and Director



Mr. David Morash has served as an officer and director of Axesstel since February 2004. Prior to joining Axesstel, Mr. Morash served as Executive Vice President and Chief Financial Officer of REMEC, Inc. from 2001 to
2003. From 2000 to 2001 Mr. Morash served as Executive Vice President and Chief Financial Officer at Wireless Knowledge and held various positions, including senior management positions, at Safeskin Corporation from 1994 to 2000. Mr. Morash holds an
MBA from Columbia Graduate School of Business and a Bachelor of Arts from Columbia College.



Jai Baghat, Director



Jai Baghat has served as a director of Axesstel since September 2003. In 2000, he founded AIR2LAN, a premier broadband service provider, and currently serves as its Chairman and Chief Executive Officer. Previous to this, Mr. Baghat was a
co-founder of SkyTel Communications, Inc. and served as its Vice Chairman and CEO prior to its recent merger with MEI WorldCom. Mr. Baghat also serves as Chairman of License Exempt sector of Wireless Communications Association
International, a national trade association representing the broadband wireless industry. Recently, Mr. Baghat was on the Southern Governors Association Advisory Committee on Research, Development and Technology. Mr. Baghat has served as
Chairman, as well as a board member of the Personal Communications Industry Association, and American Mobile Satellite Corporation (now Motient). He currently serves on the boards of several wireless communications based companies including:
MeshNetworks, Inc., a mobile wireless Internet technology company; JP Mobile, a Dallas, Texas based company that designs and markets advanced messaging software and solutions for handheld devices and wireless communications devices; and, SmartSynch,
Inc., a wireless data solutions company. He serves as a strategic advisor to JP Mobile, and as Chairman of the Board of Smart Synch. Mr. Baghat obtained a Master of Science in Electrical Engineering from Howard University and a Bachelor of Science
in Electrical Engineering from Bits Pican in India.



49



---

##### Table of Contents

---



Seung Taik Yang, Director



Seung Taik
Yang has served as a director of Axesstel since September 2003. Mr. Yang is currently the president of Tongmyong University of Information Technology in Busan, Korea. From March 2001 to July 2002, he served as the Minister of Information and
Communications for the Republic of Korea. Prior to serving as the Minister of Information and Communications, Mr. Yang was a chair professor at Kwangwoon University and at the Information and Communications University. In 1998, he established the
Information and Communications University and became its first president. Between 1992 and 1998, he was president of ETRI, served as commissioner of the Korean Communications Commission, and was a member of the Presidential Council for Science and
Technology. From 1986 to 1992, he was the founding president of Korea Informatics Telesis, Inc. and Korea Telecomm International, both of which are subsidiaries of Korea Telecom. Dr. Yang earned his Bachelor of Science Degree in Electrical
Engineering at Seoul National University in Korea. He received his Master of Science in Electrical Engineering at Virginia Polytechnic Institute and achieved his Doctorate in Electrical Engineering at the Polytechnic Institute of Brooklyn.



Haydn Hsieh, Director



Haydn Hsieh has served as a director of Axesstel since April 2004. Mr.
Hsieh is currently the President and Chief Executive Officer of Wistron NeWeb Corp. a substantial beneficial owner of our common stock and our primary contract manufacturer. He is also the Chairman of Acer Enrich Technology Corp. He has held various
positions within Acer Inc. Group since 1981. Mr. Hsieh holds a Bachelor of Electrical Engineering from Ta-Tung Institute of Technology and a Masters in Business Administration from National ChengChi University.



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Securities Exchange Act of 1934 requires the
Companys executive officers, directors and persons beneficially owning more than 10% of the Companys common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. The Company has
undertaken an extensive review of the Section 16(a) reports filed on behalf of each person subject to Section 16(a) prior to December 31, 2003, to determine whether all of their reportable transactions in the Companys common stock were timely
reported and to ensure proper reporting of all of their beneficial holdings. The review revealed that there were a number of holdings and transactions that were not timely reported and the Company has undertaken to assist the subject persons to file
the necessary forms. The Company has also developed new procedures to ensure improved compliance with Section 16(a) on an on-going basis.



Based solely on copies of such forms furnished as provided above, to the Companys knowledge all reports required under Section 16(a) during the most
recent fiscal year or prior years, except for the following:



| |  | Mike HP Kwon, Hong Joon (John) Chough and Satoru Yukie, each an officer and/or director, each filed late a Form 3 disclosing his holdings as of the date he became an officer and/or
director.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Bobby Cha, Hong Joon (John) Chough, Craig Hagopian, Jin Yong (Jason) Kim and Satoru Yukie , each an officer and/or director, each failed to file one Form 4 during the fiscal year
ended December 31, 2002, disclosing one transaction, an option grant. Form 5s reporting such transactions are intended to be filed as soon as practicable.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Jai Bhagat, Seung Taik Yang, Craig Hagopian and Kwang Ho (Kenny) Lee, each a director or officer, each failed to file a Form 3 disclosing his holdings as of the date he became a
director or officer. Form 5s reporting such holdings are intended to be filed as soon as practicable.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Jai Bhagat, Seung Taik Yang and Kwang Ho (Kenny) Lee, each a director, each failed to file a Form 4 during the fiscal year ended December 31, 2003, disclosing one transaction, a
grant of common stock. Form 5s reporting such transactions are intended to be filed as soon as practicable.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



50



---

##### Table of Contents

---



| |  | Qualcomm, Inc., TBK/Bong Keun Kim and Guardtec, Inc., each a beneficial owner of greater than ten percent of our common stock, each failed to file a Form 3 as of the date it became
a beneficial owner of greater than ten percent of our common stock. Form 5s reporting such holdings are intended to be filed as soon as practicable.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Audit Committee Financial Expert



As of April 21, 2004, our Board of Directors has not yet designated an audit committee financial expert as that term is defined in Item 401(e)(2)
of Regulation S-B. The board considers it desirable to have an audit committee financial expert on the audit committee, and intends to identify and appoint a qualified candidate as soon as practicable.



Code of Ethics



We have adopted a Code of Ethics for Directors, Officers and Employees, a code of ethics that applies to all
employees, including our executive officers. A copy of our Code of Ethics for Directors, Officers and Employees is filed with the Securities and Exchange Commission as Exhibit 14.1 to this annual report. In the event that we make any amendments to,
or grant any waivers of, a provision of the Code of Ethics for Directors, Officers and Employees that applies to the principal executive officer, principal financial officer, or principal accounting officer that requires disclosure under applicable
SEC rules, we intend to disclose such amendment or waiver and the reasons therefore on a Form 8-K or on our next periodic report.



ITEM 10. EXECUTIVE COMPENSATION



Compensation of Directors



Directors
who are not Axesstel employees do not receive any cash compensation for serving on our Board of Directors. We reimburse non-employee directors for reasonable costs and expenses incurred in attending Board of Directors meetings. Directors who
are not employees of the Company have received grants of 30,000 shares of Company common stock at the beginning of such directors term. These grants vest as to 10,000 shares on the date of the first board meeting attended, and an additional
10,000 shares on each anniversary thereof.



Directors
who are Axesstel employees receive no additional compensation for serving on the Board of Directors.



51



---

##### Table of Contents

---



Summary Compensation Table



The
following Summary Compensation Table sets forth as to our Chief Executive Officer and the other four most highly compensated Executive Officers (the named executive officers) all compensation awarded to, earned by, or paid to the named executive
officers for all services rendered in all capacities to us and our subsidiaries for the years ended December 31, 2003, 2002 and 2001, except as may otherwise be specifically noted.



Summary Compensation Table



|                                       |  |              |  |                     |                       |                              |     |                                   |  |                                   |              |  |                  
|-------------------------------------- |  | ------------ |  | ------------------- | --------------------- | ---------------------------- | --- | --------------------------------- |  | --------------------------------- | ------------ |  | -----------------
|                                       |  |              |  | Annual Compensation |                       | Long-Term CompensationAwards
|Name and Principal Position            |  | Fiscal Year  |  | Base Salary ($)     |                       | Bonus ($)                    |     | Other Annual Compensation ($) (1) |  | Securities Underlying Options (#)
|Mike Kwon Chief
Executive Officer      |  | 200320022001 |  | $$$                 | 303,000165,000120,000 |                              | $$$ |                                |  | $$$                               | 15,4907,102 |  | 1,227,171620,439
|                                       |  |              |  |                     |                      
|Satoru Yukie President                 |  | 20032002     |  | $$                  | 270,000150,000        |                              | $$  |                                 |  | $                                 |             |  | 1,294,367       
|                                       |  |              |  |                     |                      
|Jason Kim Executive Vice President     |  | 200320022001 |  | $$$                 | 195,000125,00090,000  |                              | $$$ |                                |  | $$$                               | 7,489      |  | 234,315299,132   
|                                       |  |              |  |                     |                      
|John Chough Chief Financial Officer    |  | 200320022001 |  | $$$                 | 115,00090,00075,000   |                              | $$$ |                                |  | $$$                               |           |  | 111,098172,476   
|                                       |  |              |  |                     |                      
|Craig Hagopian Chief Marketing Officer |  | 20032002     |  | $$                  | 160,000125,000        |                              | $$  | 25,000                           |  | $$                                |             |  | 181,295          

---

|(1) | Other annual compensation consists of automobile allowance.
|--- | -----------------------------------------------------------



None of the named executive officers received any grants of options or stock appreciation rights during the year ended December 31, 2003.



52



---

##### Table of Contents

---



Options



The following table provides
the specified information concerning unexercised options held as of December 31, 2003, by the named executive officers. None of the named executive officers exercised any options during the last fiscal year.



FY-End Option and Warrant Values



|               |  |                             |                |                   |               |                                                                 |                |                                                          |               |   |           |  |   |        
|-------------- |  | --------------------------- | -------------- | ----------------- | ------------- | --------------------------------------------------------------- | -------------- | -------------------------------------------------------- | ------------- | - | --------- |  | - | -------
|Name           |  | Shares Acquired on Exercise |                | Value Realized(2) |               | Number of Securities Underlying Unexercised Options at 12/31/03 |                | Value of Unexercised in the Money Options at 12/31/03(1)
|               |  |                             | Exercisable(3) |                   | Unexercisable |                                                                 | Exercisable(3) |                                                          | Unexercisable
|Mike Kwon      |  |                            |                |                  |               | 1,788,103                                                       |                | 59,507                                                   |               | $ | 4,203,261 |  | $ | 113,063
|Satoru Yukie   |  |                            |                |                  |               | 1,246,534                                                       |                | 47,833                                                   |               | $ | 3,009,909 |  | $ | 90,882 
|Jason Kim      |  |                            |                |                  |               | 495,579                                                         |                | 37,868                                                   |               |   | 1,110,096 |  |   | 71,949 
|John Chough    |  |                            |                |                  |               | 261,309                                                         |                | 22,265                                                   |               |   | 585,332   |  |   | 42,303 
|Craig Hagopian |  |                            |                |                  |               | 164,212                                                         |                | 17,083                                                   |               |   | 367,834   |  |   | 32,457 

---

|(1) | With respect to each named executive officer, the value is calculated by determining the difference between the fair market value of the securities underlying the options at
December 31, 2003, which is based on the closing selling price of the common stock of the Company on December 31, 2003 of $2.50 as reported on the OTC Bulletin Board, and the exercise price of the named executive officers options.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Value realized is calculated by subtracting the aggregate exercise price of the options exercised from the aggregate market value of the shares of common stock acquired on the date
of exercise.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | All options to purchase shares of common stock are subject to vesting over three years.
|--- | ---------------------------------------------------------------------------------------



Employment Arrangements



The Company had not entered into any written employment contracts or arrangements with any executive officers employed by the Company as of December 31,
2003.



53



---

##### Table of Contents

---



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The following table sets forth certain information regarding the ownership of the our common stock as of April 21, 2004, by: (i) each director and
director-nominee; (ii) each person who is known by us to be the beneficial owner of more than five percent of the outstanding common stock; (iii) each of the named executive officers; and (iv) all our executive officers and directors as a group.
Except as otherwise indicated in the footnotes, all information with respect to share ownership and voting and investment power has been furnished to us by the persons listed. Except as otherwise indicated in the footnotes, each person listed has
sole voting power with respect to the shares shown as beneficially owned.



|                                                                               |  |                                  |     |  |                    |  
|------------------------------------------------------------------------------ |  | -------------------------------- | --- |  | ------------------ | -
|Name and Address of Beneficial Owner (1)                                       |  | Number ofSharesBeneficiallyOwned |     |  | Percent ofClass(2) |  
|Mike Kwon                                                                      |  | 4,267,239                        | (3) |  | 43.58              | %
|Satoru Yukie                                                                   |  | 1,259,367                        | (3) |  | 13.62              | %
|TBK/Bong Keun Kim                                                              |  | 1,028,811                        |     |  | 12.88              | %
|Guardtec, Inc. 9F. E-space B/D, 212-26 Guro-dong, Guro-gu Seoul, Korea 152-050 |  | 605,183                          |     |  | 7.58               | %
|Qualcomm, Inc. 5775 Morehouse Dr. San Diego, CA 92121                          |  | 605,183                          |     |  | 7.58               | %
|Jason Kim                                                                      |  | 608,620                          | (3) |  | 7.17               | %
|John Chough                                                                    |  | 267,282                          | (3) |  | 3.24               | %
|Craig Hagopian                                                                 |  | 174,628                          | (3) |  | 2.14               | %
|Seung Taik Yang                                                                |  | 30,000                           | (4) |  | *                  |  
|Jai Bhagat                                                                     |  | 30,000                           | (4) |  | *                  |  
|Kenny Lee                                                                      |  | 30,000                           | (4) |  | *                  |  
|All executive officers and directors as a group (8 persons)                    |  | 6,708,803                        | (3) |  | 55.72              | %

---

|* | Less than one percent.
|- | ----------------------



|(1) | Except as otherwise indicated, the address for each beneficial owner is 6815 Flanders Drive, Suite 210, San Diego, California 92121.
|--- | ------------------------------------------------------------------------------------------------------------------------------------



|(2) | Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has
sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 7,987,451 shares outstanding on April 21, 2004, adjusted as required by rules promulgated by the SEC.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Includes shares issuable upon exercise of options and warrants within 60 days of April 21, 2004 as follows: Mr. Kwon, 1,804,068; Mr. Yukie, 1,259,367; Mr. Kim, 505,739; Mr. Chough,
267,282; Mr. Hagopian, 174,628; and all executive officers and directors as a group, 4,052,751.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Includes 20,000 shares subject to repurchase within 60 days of April 21, 2004.
|--- | ------------------------------------------------------------------------------



54



---

##### Table of Contents

---



Equity Incentive Plans



The
following table describes our equity compensation plans, which were established by resolutions of the Board of Directors, as of December 31, 2003:



|                                                           |  |                            |     |  |                                                                                         |     |  |                                                                              |      |                                                                                                                                       |          
|---------------------------------------------------------- |  | -------------------------- | --- |  | --------------------------------------------------------------------------------------- | --- |  | ---------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------------------------------- | ---------
|Plan Category                                              |  | Number ofShares Issued (a) |     |  | Number of Shares tobe Issued UponExercise ofOutstanding Options,Warrants and
Rights (b) |     |  | Weighted AverageExercise Price ofOutstanding Options,Warrants and
Rights (c) |      | Number of SharesRemaining Availablefor Future Issuanceunder EquityCompensation
Plans(excluding securitiesreferenced incolumn (b)) (d)
|Equity compensation plans approved by our stockholders     |  | 0                          |     |  | 2,068,959                                                                               | (1) |  | $                                                                            | 0.22 |                                                                                                                                       | 0        
|Equity compensation plans not approved by our stockholders |  | 338,852                    | (3) |  | 4,136,072                                                                               | (2) |  | $                                                                            | 0.69 |                                                                                                                                       | 1,610,808

---

|(1) | Includes options to purchase 2,068,959 shares of common stock with a weighted average exercise price of $0.22 per share, all of which options were granted pursuant to the
shareholder-approved 2001 Stock Option Plan of Axesstel California and assumed by the Company in connection with the Corporate Combination Agreement between Miracom and Axesstel California.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Includes (i) options to purchase 1,283,034 shares of common stock granted pursuant to the Companys stock option plans established by the Board of Directors in September 2002,
March 2003 and September 2003 with a weighted average exercise price of $1.39 per share; (ii) 320,000 shares of common stock subject to warrants issued to various consultants in 2002 and 2003 with a weighted average exercise price of $2.50 per
share; and (iii) 200,000 shares of common stock subject to a warrant with an exercise price of $.60 per share issued to Jimmy Sung, our President and Chairman prior to our acquisition of Axesstel California, in September 2002 for services rendered.
Also includes (i) 1,122,671 shares of common stock subject to a warrant issued to Mike HP Kwon with an exercise price of $0.07 per share, (ii) 1,210,367 shares of common stock subject to a warrant issued to Satoru Yukie with an exercise price of
$0.07 per share, both of which warrants were assumed by the Company in connection with the Corporate Combination Agreement between Miracom and Axesstel California.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Includes (i) 9,622 shares of common stock at the price of $3.50 per share issued to a consultant pursuant to a settlement agreement in November 2003; (ii) 19,230 shares of common
stock at the price of $1.30 per share issued to various employees in November 2003; (iii) 90,000 shares of common stock at the price of $2.80 per share issued to members of the Board of Directors in November 2003; (iv) 100,000 shares of common stock
issued for services rendered to various consultants in September 2002; (v) 100,000 shares of common stock issued at the price of $3.00 per share to an employee in June 2003; and (v) 20,000 shares of common stock issued for services rendered to two
legal consultants in Korea.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Mr. Haydn Hsieh, a director, is also the President and Chief Executive Officer of our primary manufacturer, Wistron NeWeb Corp. It is anticipated that
payments to Wistron NeWeb will exceed $60,000 during 2004.



Kenny H. Lee acted in the capacity of a director of our company from approximately September 2003 through March 2004. The Board of Directors approved an invitation for Mr. Lee to join our Board of Directors and serve on our audit committee
in December 2002, and Mr. Lee accepted such invitation in June 2003. While Mr. Lee was not elected formally to the position of director by our shareholders or Board of Directors in 2003, he was formally appointed by the Board of Directors to
serve on and chair the audit committee effective October 1, 2003. In November 2003, we issued 30,000 shares of common stock to Mr. Lee in consideration of his services as director, consistent with the terms of his invitation to join the board. Such
shares were to vest 10,000 shares upon Mr. Lees first attendance at a board meeting, which occurred in September 2003, and 10,000 shares on each anniversary thereafter. Mr. Lee is the Chief Executive Officer and Managing Director of Kenny H.
Lee CPA Group, Inc., which served as our independent accountant for the fiscal year ended December 31, 2002, and until November 3, 2003. During the period from January 1, 2002 to December 31, 2003, Kenny H. Lee CPA



55



---

##### Table of Contents

---



Group billed us for $32,697 in fees. During the period from January 1, 2003 to November 3, 2003, Kenny H. Lee CPA Group billed us for a total of $27,060 in fees. Effective as of November 3, 2003, we dismissed Kenny H. Lee CPA Group as our
independent accountant, as further described in Part II, Item 8 above.



We entered into a license agreement with Qualcomm Incorporated, a significant shareholder, whereby we license Qualcomms CDMA technology for use in our products. During the period from January 1, 2003 to March
31, 2004, we paid Qualcomm $46,000.



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K



(a) Exhibits:



|              |  |                                                                                                                                                                                                                                   
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                                                           
|2.1           |  | Corporate Combination Agreement by and between Miracom Industries, Inc. and Axesstel, Inc. effective July 16, 2002, incorporated herein by reference to the Registrants Form 8-K filed
with the Commission on September 16, 2002.
|3.1           |  | Articles of Incorporation of the Registrant, as amended**                                                                                                                                                                         
|3.2           |  | Amended and Restated Bylaws of the Registrant, as amended**                                                                                                                                                                       
|4.1           |  | Specimen Common Stock Certificate**                                                                                                                                                                                               
|10.1          |  | Form of Indemnity Agreement for directors and executive officers of the Registrant**                                                                                                                                              
|10.2          |  | Lease Agreement for Office Space by and between Axesstel and Smith Trust dated October 15, 2001**                                                                                                                                 
|10.3         |  | Subscriber Unit License Agreement by and between Axesstel, Inc. and Qualcomm Incorporated dated November 14, 2000, as amended*                                                                                                    
|10.4         |  | Supply Agreement by and between TeleCard Limited and Axesstel dated November 2003*                                                                                                                                                
|10.5         |  | Supply Agreement by and between TeleCard Limited and Axesstel dated November 2003*                                                                                                                                                
|14.1          |  | Code of Ethics For Directors, Officers and Employees*                                                                                                                                                                             
|21.1          |  | Subsidiaries of the Registrant**                                                                                                                                                                                                  
|24.1          |  | Power of Attorney is contained on the signature page attached hereto.                                                                                                                                                             
|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*                                                                                                   

---

| | Confidential treatment requested.
|- | ---------------------------------

|* | Filed Herewith
|- | --------------

|** | Previously Filed
|-- | ----------------



(b) Reports on Form 8-K



On November 18, 2003, the Registrant filed a Form 8-K with the Securities and Exchange Commission reporting on Item 4 and Item 7 a change in its
independent auditors. The Registrant filed a Form 8-K/A amending the Item 4 and Item 7 disclosures on December 9, 2003.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



Principal Accountant Audit Fees and Services Fees



The following tables describe fees for professional audit services and fees for other services rendered by Kenny H. Lee CPA Group, Inc., our principal
accountant from January 1, 2002 to September 2003, and by Gumbiner, Savett, Finkel, Fingelson & Rose, Inc. (Gumbiner), our principal accountant from September 2003 to December 31 2003.



56



---

##### Table of Contents

---



The following table sets forth the aggregate fees billed from January 1, 2002 to December 31, 2002 by Kenny H. Lee CPA Group, Inc:



|                   |  |   |       
|------------------ |  | - | ------
|Audit Fees         |  | $ | 24,812
|Audit Related Fees |  | $ | 0     
|Tax Fees           |  | $ | 5,000 
|All Other Fees     |  | $ | 2,885 
|Total              |  | $ | 32,697



The following
table sets forth the aggregate fees billed from January 1, 2003 to September 2003 by Kenny H. Lee CPA Group, Inc:



|                   |  |   |       
|------------------ |  | - | ------
|Audit Fees         |  | $ | 22,060
|Audit Related Fees |  | $ | 0     
|Tax Fees           |  | $ | 5,000 
|All Other Fees     |  | $ | 0     
|Total              |  | $ | 27,060



The following
table sets forth the aggregate fees billed from September 2003 to December 31, 2003 by Gumbiner:



|                   |  |   |       
|------------------ |  | - | ------
|Audit Fees         |  | $ | 12,500
|Audit Related Fees |  | $ | 0     
|Tax Fees           |  | $ | 0     
|All Other Fees     |  | $ | 0     
|Total              |  | $ | 12,500



Audit Committee
Pre-Approval Policies and Procedures



Our Audit
Committees policy is to pre-approve all audit and permissible non-audit services provided by our independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is
generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services. The independent auditor and management are required to periodically report to the Audit Committee regarding the extent of
services provided by the independent auditor in accordance with this pre-approval. The chair of the Audit Committee is also authorized, pursuant to delegated authority, to pre-approve additional services of up to $25,000 per engagement on a
case-by-case basis, and such approvals are communicated to the full Audit Committee at its next meeting.



57



---

##### Table of Contents

---



SIGNATURES



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



AXESSTEL, INC.By:

/s/    Mike HP KwonMike HP KwonChairman of the Board of Directors (Principal Executive Officer)Date: August 13, 2004




KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby severally constitutes and appoints Mike HP Kwon and David Morash, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution 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.



In accordance with 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/    Mike HP KwonMike HP Kwon                 |  | Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)                                  |  | August 13, 2004
|                                                |  |                                                                                                                              
|/s/    David MorashDavid Morash                 |  | President, Chief Operating Officer, Interim Chief Financial Officer and Director (Principal Financial and Accounting Officer) |  | August 13, 2004
|                                                |  |                                                                                                                              
|/s/    Jin Yong (Jason) KimJin Yong (Jason) Kim |  | Executive Vice President and Director                                                                                         |  | August 13, 2004
|                                                |  |                                                                                                                              
|/s/    Jai BhagatJai Bhagat                     |  | Director                                                                                                                      |  | August 13, 2004
|                                                |  |                                                                                                                              
|/s/    Seung Taik YangSeung Taik Yang           |  | Director                                                                                                                      |  | August 13, 2004



58



---

##### Table of Contents

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                   
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                                                           
|2.1           |  | Corporate Combination Agreement by and between Miracom Industries, Inc. and Axesstel, Inc. effective July 16, 2002, incorporated herein by reference to the Registrants Form 8-K filed
with the Commission on September 16, 2002.
|3.1           |  | Articles of Incorporation of the Registrant, as amended**                                                                                                                                                                         
|3.2           |  | Amended and Restated Bylaws of the Registrant, as amended**                                                                                                                                                                       
|4.1           |  | Specimen Common Stock Certificate**                                                                                                                                                                                               
|10.1          |  | Form of Indemnity Agreement for directors and executive officers of the Registrant**                                                                                                                                              
|10.2          |  | Lease Agreement for Office Space by and between Axesstel and Smith Trust dated October 15, 2001**                                                                                                                                 
|10.3         |  | Subscriber Unit License Agreement by and between Axesstel, Inc. and Qualcomm Incorporated dated November 14, 2000, as amended*                                                                                                    
|10.4         |  | Supply Agreement by and between TeleCard Limited and Axesstel dated November 2003*                                                                                                                                                
|10.5         |  | Supply Agreement by and between TeleCard Limited and Axesstel dated November 2003*                                                                                                                                                
|14.1          |  | Code of Ethics For Directors, Officers and Employees*                                                                                                                                                                             
|21.1          |  | Subsidiaries of the Registrant**                                                                                                                                                                                                  
|24.1          |  | Power of Attorney is contained on the signature page attached hereto.                                                                                                                                                             
|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*                                                                                                   

---

| | Confidential treatment requested.
|- | ---------------------------------

|* | Filed Herewith
|- | --------------

|** | Previously Filed
|-- | ----------------