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Areas of Management Focus and Performance Indicators

        We focus on the needs of our customers, developing and maintaining close relationships with manufacturers, expanding in current and entering into new markets, and sourcing and developing new and innovative products, while maintaining close attention to operational efficiencies and costs. We are focused on increasing shipping volumes and improving efficiencies to enableachieve higher levels of profitability and earnings growth, in addition toas well as monitoring and managing levels of accounts receivable and inventory. We provide distribution and other services for OEMs, such as Samsung, and LG, and our own proprietary line ofverykool® handsets. Performance indicators that are keyimportant for the monitoring and management of our business include operating and net income, cost of sales and gross margin percentage, operating expenses as a percent of revenues, and overall net sales growth. We make extensive use of our customized information system to closely monitor all aspects of our business, including customer relationship management, intelligent purchasing, inventory control, and inventory flow, line item margin control for every order, and weighted average cost and statistical data for every product, customerproducts, customers and supplier.suppliers, as deemed appropriate. We believe a strong focus on providing better service to customers leads to increased customer satisfaction and retention and potential increases in sales.

        Management spends a significant amount of time traveling to Latin America and Asia with the purpose of spending time with key customers, suppliers and employees. We believe that these relationships are vital to our success and we will continue to dedicate a significant amount of time to this area.

Industry Trends Challenges,and, Risks and Growth Opportunities

        According to a January 20082009 report by Cowen and Company,Deutsche Bank, in 2007,2008, overall worldwide wireless handset sales increased by approximately 16%, and6% in 2008; however, they are forecasted to increase 12%decrease in 20082009 by 10%, before returning to growth in 2010 and 5%2011, with growth estimated at 10% each year. This same report estimates Latin American (excluding Brazil) could decrease 17% in 2009. The two largest areas2009, before returning to growth in 2010 and 2011 at a rate of growth are Africa and Asia Pacific, regions in which we do not currently operate.10% each year. A rapid decline in wireless handset sales growthin the Central and South American markets we serve has and could continue to negatively impact our net sales. Excess supply conditions canand the current economic downturn have and may continue to reduce demand for our products and reduce the market prices of the products we sell and therefore affect our ability to generate net sales, margins and gross profit at expected levels and could continue to affect the value of our inventory. For example, some US regional carrier consolidation resulted inthe second half of 2008 saw a decrease in the value of some ofhandset demand globally as well as in our sales regions and an increase in carrier inventory, carried for that region, which inventory was sold belowboth had a negative impact on our costfinancial results during 2007.2008. Conversely, should manufacturers be unable to respond to an unanticipated increase in demand on a timely basis,

we, along with others in our industry, could experience supply constraints that would affect our ability to deliver products. We are unable to quantify these effects, as it is difficult to predict future supply conditions and demand patterns which affect our ability to meet customer demand or sell handsets at an acceptable gross profit.

Company Specific Trends Challengesand Risks and Growth Opportunities

        Our long-term strategy incorporates overall market growth elements for each aspect of our business, which we hope will result in growth.future growth as global economic conditions recover. Certain of our manufacturers entered into the low-tier handset market during 2007 and continued to market them in 2008, which has had a positive impact on our volumes of handsets sold. However, such low-tier handsets carry lowersold, but a negative impact on gross profit margins, thus negatively impacting our overall gross margin. During 2007, we substantially increased our inventory level in anticipation of and preparation for potential sales. Ourverykool® proprietary line of products, for which we havehad six models selling as of December 31, 2007, showed a ramp-up2008, continued to show orders and sales during of sales in the second half of 2007,2008 and could beis expected to become an importantincreasing part of our overall business in the future. During 2006, 2007 and 2008, ourverykool® products continued to increase product diversification in Central and South America, which should continue to be beneficial as we move forward and work towards profitability again. We have significant control over the

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verykool® line of products, whereas for OEM products we perform distribution and other services to the extent needed by the OEM's.

        In the United States and Mexico, we halted substantially all sales during 2008. Much of our significant United States customer base completed the transitional stage as regional carriers, including some of our customers being acquired in 2007 by AT&T, T-Mobile USA and Verizon Wireless. With our potential United States customer base significantly reduced by the second quarter of 2008, we decided to discontinue this portion of our operations, together with the discontinuation of our operations in Mexico. We substantially completed the discontinuation of these operations by the end of 2008. These two areas accounted for less than 1% of our net sales in 2008, as compared to 13% of our net sales for 2007.

        Generally, our industry was impacted by the economic slowdown impacting the United States and the rest of the world. We believe that some of the countries in the regions we operate, particularly in Central America, have close economic relations with the United States, and have been impacted by the economic situation in the United States during 2008 in particular, as well as, generally globally. We believe this impacted consumer demand for our wireless handsets and accessories in some of the countries we operate, and therefore our overall operations, including net sales, during 2008 were adversely impacted.

Recent Events

        On July 10, 2008, we, received a Nasdaq Staff Deficiency letter indicating that for the last thirty consecutive business days the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued listing on The Nasdaq Stock Market under Nasdaq Marketplace Rule 4450(a)(5). In accordance with Nasdaq Marketplace Rule 4450(e)(2), we were provided an initial period of 180 calendar days, or until January 6, 2009, to regain compliance. The Nasdaq Stock Market has extended the compliance date several times, with the current compliance date being on or about October 12, 2009.

        During the compliance period on or about October 12, 2009, absent the occurrence of any unexpected events, our common stock is expected to continue to trade on The Nasdaq Global Market. If compliance with Nasdaq Marketplace Rule 4450(a)(5) cannot be demonstrated on or about October 12, 2009, the staff of The Nasdaq Stock Market Listing Qualifications department is expected to deliver a written notification to us that our securities will be delisted from The Nasdaq Global Market. If we receive a delisting notice, we may appeal the Nasdaq staff's determination to a Listing Qualifications Panel. Alternatively, we may apply to transfer our securities to The Nasdaq Capital Market or another exchange or trading market. We intend to monitor the bid price of our common stock and consider available options if our common stock does not trade at a level likely to result in our regaining compliance with Nasdaq's minimum bid price rule.

Results of Operations:

Year Ended December 31, 2008 Compared With Year Ended December 31, 2007

Net Sales

        For the year ended December 31, 2008, our net sales from continuing operations of $213.2 million were generally consistent with our net sales from continuing operations of $214.5 million for 2007. Average selling price of wireless handsets sold in 2008 remained relatively constant, as compared to 2007. However, we experienced a 2% decrease in overall wireless handset sales volume, due primarily to the impact of the worsening economic slowdown in the markets we serve, most notably in Central America, during the second half of 2008. The geographic mix of net sales shifted in 2008 as sales in South America increased to more than 76% of net sales, as compared to 66% of net sales in 2007. Sales in Central America decreased to 24% of total net sales in 2008, as compared to 34% in 2007.

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These regional shifts in net sales were the result of the factors discussed below. Further, we discontinued our operations in the United States and Mexico in 2008.

        In South and Central America, we have continued to work to expand our customer base as well as our geographic presence by seeking additional customers and further business with existing customers. In addition, we continued efforts to market and sell our proprietaryverykool® line of products in South and Central America. In South America, net sales were $162.6 million for 2008, a 15% increase from 2007. This increase was primarily due to increased sales in existing countries, most notably Argentina, and the addition during the first half of 2008 of a new carrier relationship in Colombia. In Central America, net sales decreased 31% to $50.6 million for 2008, which was primarily due to the continuing unusually low demand during the third and fourth quarters of 2008. We believe the worsening worldwide economic downturn impacted that region also, especially during the second half of 2008.

Net Sales by Geographic Region

Cost of Sales, Gross Profit and Gross Margin

        For the year ended December 31, 2008, cost of sales was $203.2 million, or 95.3% of net sales, and gross margin was 4.7%, as compared with $202.8 million, or 94.6% of net sales, and 5.4% for gross margin for the year ended December 31, 2007. The increase in our cost of sales both in dollars and as a percentage of net sales and decrease in gross margin were primarily due to inventory write downs, sales of some products at or below cost and the product mix shift, including increased sales of low-margin products. Inventory write downs during 2008 were approximately $2.5 million, or 1.2% of cost of sales, and in addition, we sold product below our cost in order to reduce inventory levels and incurred costs of $3.0 million on these products. These actions primarily resulted from of the abrupt shift in market conditions and resulted in decreased demand, particularly in Central America, in the second half of 2008. We had immaterial inventory write down in 2007. Some of our OEM partners that had previously entered into the low-tier handset range continued to sell a higher amount of low-tier handsets, which had less margin opportunity than mid-tier and high-end handsets sales. Our gross margin continues to be impacted by the change of product and regional mix of our sales, as different products and different regions have varying margins. The worsening economic downturn has also reduced consumer demand for higher-priced and higher-margin products.

        For the year ended December 31, 2008, our gross profit decreased to $10.0 million from $11.7 million, as compared with the year ended December 31, 2007, a decrease of 14%. This decrease in gross profit was primarily the result of the inventory write down of $2.5 million during 2008 as well

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as sales of certain products below cost in efforts to reduce inventory levels and carrying costs. In addition, a decrease in gross margin due to product mix shift, as well as other factors resulting from the general economic downturn, negatively impacted gross profit.

Operating Expense and Operating Loss from Continuing Operations

        For the year ended December 31, 2008, operating expense increased almost 5%, to $13.9 million as compared with last year. As a percentage of net sales from continuing operations, operating expense increased to 6.5% in the year ended December 31, 2008, as compared with 6.2% for last year. The increase in operating expense as a percentage of net sales was primarily due to the increase in marketing activities related to sales of our products, as we continue to create brand awareness at the point of sale. Marketing expenses increased approximately $0.7 million in 2008 as compared to 2007. In addition we had product tooling and engineering expenses related to theverykool® products during 2008 increase $1.1 million in 2008 as compared to 2007. Marketing, tooling and engineering increases were primarily due to the increased penetration and by sales of ourverykool® branded products.            We believe that pursuant to our efforts, and assuming economic conditions improve, future sales and margins could provide gross profits to better cover operational costs. In addition, management continues to review expenses in an effort to better match the operational costs with the future business opportunities. We believe such measures will assist us as we strive to return to profitability. Operating expense for the year ended December 31, 2008 included non-cash expense related to stock options of $94,000, as compared to $143,000 in the year ended December 31, 2007.

        For the year ended December 31, 2008, our operating loss from continuing operations was $3.9 million, as compared with a loss of $1.6 million for the year ended December 31, 2007. As a percentage of net sales, operating loss from continuing operations was 2% for the year ended December 31, 2008, compared to a loss of 1% for the year ended December 31, 2007. The increase in operating loss from continuing operations was a result of the decrease in gross margin and gross profit (related primarily to inventory write downs and product sales below cost) and the increase in operational expenses (most notably relating to marketing, product tooling and engineering) as discussed above.

Operating Expense

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Operating Loss from Continuing Operations

Other Income

        During 2008, we settled an outstanding claim against a former service provider in which we received a gross amount of $655,000, of which $87,000 represented reimbursement for legal fees, and also had a gain from an insurance settlement. During 2007, we received $2.1 million in compensation from our early lease termination and relocation of our corporate headquarters. During 2008, we also incurred $545,000 of interest expense, compared to $901,000 for last year, primarily due to a lower average outstanding balance on our line of credit as well as generally lower borrowing rates. We expect to regularly utilize our revolving line of credit, which will impact our interest expense in future periods, depending on applicable interest rates and amounts drawn from the line.

Loss from Continuing Operations

        During the year ended December 31, 2008, our loss from continuing operations was $6.3 million, as compared to income from continuing operations of $0.7 million for the year ended December 31, 2007. Included in this loss is a non-cash valuation allowance of $3.2 million related to our deferred tax assets (see Note 10—Income Taxes), in addition to the $2.5 million of inventory write downs taken during the year, which enabled us to significantly reduce inventory levels and the associated carrying costs. This loss from continuing operations was also impacted by the decreases in gross margin and gross profit, impacted by sales at or below cost on certain products, increased operational expenses (marketing, product tooling and engineering), and handset units sold increased by 22%, after increasing 65%the impact of the general economic downturn which affected our sales regions. The prior year's income from continuing operations of $0.7 million primarily resulted from the compensation we received from our early lease termination of our former corporate headquarters.

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Loss from Discontinued Operations

        During the second quarter of 2008, we assessed opportunities in 2006. Althoughthe United States and Mexico and decided to implement actions necessary to close sales operations in both of those countries, which we have incorporated growth intosubstantially completed in the second half of the year. For the year ended December 31, 2008, we incurred a loss of $4.1 million from discontinued operations, as compared to a loss of $2.3 million for the year ended December 31, 2007. The loss was a result of very low sales in the U.S. and Mexico during 2008, as we wound down our strategy, there can be no assurances thatbusiness in these areas. As of December 31, 2008, our plans for the discontinued operations were substantially completed; however, we will continue to growrecord adjustments and if so at what levels.expenses through the discontinued operations as necessary.

Net Loss

        During the year ended December 31, 2008, our net loss was $10.4 million, compared to net loss of $1.6 million in the same period in 2007. This loss was primarily related to the factors discussed above, including the inventory write down, marketing, engineering and tolling expense as well as the non-cash valuation allowance for the deferred tax assets.

Results of Operations:

Year Ended December 31, 2007 Compared With Year Ended December 31, 2006

Net Sales

        For the year ended December 31, 2007, our net sales of $244.7$214.5 million were comparable todecreased from our net sales of $240.9$228.8 million for the year ended December 31, 2006. Handsets sold during the year ended December 31, 2007 increased 22%20%, as compared to the same period in 2006; however, this increase was more than offset by a decrease in the average selling price of 17%15%. The geographic mix of net sales slightly shifted for the year ended December 31, 2007, as compared to the same period of 2006. Sales in the United States increased to 12% of net sales for the year ended December 31, 2007, as compared to 5% of net sales for the same period in 2006. In contrast, ourOur net sales in Central America decreased to 31%34% of our net sales for the year ended December 31, 2007, as compared to 34%35% of net sales for the same period of 2006. Our South America region continued to represent the majority of our business, accounting for 58%66% of our net sales for 2007, as compared to 62%65% for 2006. This regional shift in net sales was the result of two primary factors. Product availability in the United States increased in the beginning of 2007, enabling us to purchase more products and sell more products to our customers, which was offset by the impact of the consolidation of the US regional carriers in the later part of 2007, resulting in some of our inventory being sold at prices below our costs, and limiting our existing and potential customer base in the US going forward. The Central America region had excess inventory in the channel during the first quarter of 2007, reducing sales. Thehowever, channel inventory began to return to normalized levels during the second quarter and remained so for the balance of 2007 enabling sales to increase and end the year at nearly one-third of total net sales. In South America, our efforts enabled sales to new customers and new countries as well as additional sales to existing customers. These increases were offset by the decrease in overall average product unit selling price due to our

manufacturing partners entering into the low-tier product segment. This region continues to experience a general increase in handset sales.

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Net Sales by Geographic Region

Cost of Sales, Gross Margin and Gross Profit

        For the year ended December 31, 2007, cost of sales was $233.2$202.8 million, or 95.3%94.6% of net sales, compared with $222.1$211.3 million, or 92.2%92.3% of net sales, for the year ended December 31, 2006. The increase in our total cost of sales as a percentage of revenues was a direct result of various factors, including our increased sales levels on a consolidated basis and increasedshift in product mix, with increased levels of higher-costlower-margin products includingverykool® products, as well as the one-time increased costs related to the sales of certain US inventory during the third quarter of 2007.in net sales. In the Central America region, in the beginning of 2007, a significant decrease in handset demand as a result of industry-wide excess inventory in the channel for that particular region also impacted our ability to sell higher-margin products. During the second quarter and then the balancehalf of 2007, we saw channel inventory generally return to normalized levels in Central America. Our grossGross margin continues to be impacted by the change of product and regional mix of our sales, as different products and different regions can have varying margins. Additionally, our gross margin was further negatively impacted as certain of our manufacturers entered into the low-tier handset range. Lastly, we incurred an increase in losses on the sale of our US inventory, due to acquisitions of some of the US regional carriers in 2007. These acquisitions have had and are expected to continue to have a significant negative impact on our US customer base and future US sales opportunities.

        For the year ended December 31, 2007, our gross profit decreased to $11.5$11.7 million from $18.8$17.5 million, for the same period in 2006, a decrease of 39%33%. The decrease in gross profit was primarily the result of increasedhigher volume of sales in Latin America of low-tier products which(which have lower margins,margins), sold in Central and South America and to higher channel inventory levels, andas well as generally lower sales of handsets in Central America during the first quarter of 2007, and losses taken on sales of certain US inventory in connection with the consolidation of some of the US regional carriers.2007. These factors depressed our gross margin and decreased the opportunity for sales of higher margin products.

Operating Expenses and Operating Income (Loss) from Continuing Operations

        For the year ended December 31, 2007, operating expenses increased 3%decreased 2%, compared to the year ended December 31, 2006. As2006; however, as a percentage of net sales, operating expenses were 6.4%6.2% for the yearsyear ended December 31, 2007 and 5.9% for the year ended December 31, 2006. During the year ended December 31, 2007, we incurred expenses

During the year ended December 31, 2006, we had income from a non-cash change in fair value of derivative liability relating to January 2006 financing-related warrants of $399,000.

Income from Continuing Operations

        During the year ended December 31, 2007, our income from continuing operations was $0.7 million, which was primarily due to the payment received for our early lease termination described above, as compared to the prior year income of $3.1 million. The decrease was caused by the above described factors, including decreased gross margins and gross profits, as well as increased interest expenses during 2007 as compared to 2006.

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Loss from Discontinued Operations

        For the year ended December 31, 2007, we incurred a loss of $2.3 million from discontinued operations, as compared to a loss of $0.6 million for the year ended December 31, 2006. The increased loss was a result of increased sales in the U.S. and Mexico during 2007 as compared to 2006.

Net Income (Loss)

        During the year ended December 31, 2007, our net loss was $1.6 million, compared to net income of $2.5 million in the same period in 2006. This loss was primarily related to the factors discussed above, including our decreased sales in the Central AmericaAmerican region in the first quarter, our reduced gross profit margin, including ana proportional increase in cost of goods sold related to sales of US inventory, and increaseda proportional increase in operational expenses, and investments relating to our proprietary line ofverykool® products, partially offset by other income related to our voluntary lease termination and relocation of our corporate headquarters in San Diego and a positive provision for income taxes.termination. The year ended December 31, 2007 included non-cash expense related to stock options of $271,000,$143,000, as compared to $1.5$1.3 million in the year ended December 31, 2006. In addition, the year ended December 31, 2006 included non-cash income from a derivative liability of $399,000 related to an equity financing.

Year Ended December 31, 2006 Compared With Year Ended December 31, 2005

Net Sales

        For the year ended December 31, 2006 our net sales increased 65% to $240.9 million compared to $145.8 million for the year ended December 31, 2005. Such increase was primarily attributable to a 120% increase in wireless handset volume, partially offset by a 24% decrease in average selling price per unit sold. The number of wireless handsets increased primarily as a result of an overall increase in market demand and the addition of new suppliers and customers. The manufacturers we represent continued to launch new competitively-priced products thereby increasing demand for such products.

        During the year ended December 31, 2006, our geographic mix of net sales shifted significantly as our sales in South America and Central America increased substantially. These two regions represented 95% (62% for South America and 33% for Central America) of our net sales for the year ended December 31, 2006, compared to 69% (50% for South America and 19% for Central America) for the year ended December 31, 2005. This increase was primarily the result of our increased sales and marketing efforts in both of those regions, as well as the general increase in wireless handsets sold in

those regions. Sales in the United States made up the remainder of our sales for the year ended December 31, 2006, declining 75% to $11.4 million, or 5% of net sales, over the year ended December 31, 2005. The decrease in our United States sales resulted from increased competition and product supply constraints from our primary vendors. During the fourth quarter of 2006, we began to see an easing of supply constraints and our sales for the United States more than doubled sequentially over the third quarter of 2006.

Cost of Sales, Gross Profit and Gross Margin

        For the year ended December 31, 2006, cost of sales was $222.1 million, or 92.2% of net sales, compared with $133.7 million, or 91.7% of net sales, for the year ended December 31, 2005. The increase in our cost of sales was a direct result of the increased wireless handset sales volume during the year ended December 31, 2006 compared to the year ended December 31, 2005.

        Our gross profit increased 55% to $18.8 million, as compared to $12.1 million for the year ended December 31, 2005. The increase in gross profit was primarily the result of increased wireless handset sales levels, partially offset by the decrease in gross margin.

        For the year ended December 31, 2006, our gross margin percentage decreased to 7.8% from 8.3% for the year ended December 31, 2005. The decrease in gross margin was primarily the result of the change of product and regional mix of our sales, including higher sales in Central America, as different products and different regions have varying margins.

Operating Expenses and Operating Income from Continuing Operations

        For the year ended December 31, 2006, operating expenses were $15.3 million, an increase of 83%, compared with $8.4 million for the year ended December 31, 2005. As a percentage of net sales, operating expenses were 6.4% and 5.7%, respectively, in each of the years ended December 31, 2006 and 2005. This increase was primarily the result of increased personnel costs in support of overall growth in unit volumes and geographic expansion. During 2006, we opened a new facility in Mexico which has yet to fully realize operational efficiencies. In addition we incurred non-cash compensation expense in 2006 of $1.5 million or 0.6% of net sales, relating to the adoption of Statement of Financial Accounting Standards (SFAS) 123(R) for expensing stock options, compared to no such expense for the fiscal year ended December 31, 2005.

Operating Expenses

        For the year ended December 31, 2006, our operating income from continuing operations was $3.5 million (including a non-cash expense of $1.5 million relating to the effect of adopting Statement of Financial Accounting Standards (SFAS) 123(R)), compared with $3.7 million for the year ended December 31, 2005. As a percentage of net sales, operating income from continuing operations was 1.4% for the year ended December 31, 2006, as compared to 2.6% for the year ended December 31, 2005. The decrease in operating income from continuing operations as a percentage of net sales for the year ended December 31, 2006 was a result of the non-cash expense related to SFAS 123(R) and the decrease in gross margin.

Operating Income from Continuing Operations

Income from Continuing Operations

        For the year ended December 31, 2006, we had income from continuing operations of $2.5 million, or $0.16 per diluted share on net sales of $240.9 million. This is an increase of 9%, compared to the year ended December 31, 2005.

Other Income (Expense)

        For the year ended December 31, 2006, we had other income of $107,000 as compared to an expense of $399,000 for the year ended December 31, 2005. During 2006, we had other income from a change in fair value of a derivative liability of $399,000, and no such derivative liability in the prior year. Interest expense for the year ended December 31, 2006 was $292,000 as compared to $399,000 for the year ended December 31, 2005, the decrease in interest expense is due to our additional cash resources as a result of the fund raising completed during the first quarter of 2006, together with our vendors increased credit lines for our purchases, which supports the increase in our accounts payable to $18.0 million at December 31, 2006 compared to $6.0 million at December 31, 2005.

Net Income

        For the year ended December 31, 2006, we had net income of $2.5 million, or $0.16 per diluted share on net sales of $240.9 million. This is a decrease of 6%, compared to the year ended December 31, 2005. Our net income for the year ended December 31, 2005, included a benefit of $369,000 from discontinued operations. As noted above, income from continuing operations for the year ended December 31, 2006 increased 9% as compared with the prior year.

Financial Condition, Liquidity and Capital Resources

Year ended December 31, 2007

        We generally use cash from our sales of products, lines of credit and salessale of securities to provide the capital needed to support our growth.business.

Year ended December 31, 2008

Cash Provided by Operating Activities

        At December 31, 2008, we had $24.7 million in cash, an increase of $4.1 million from December 31, 2007. During the year ended December 31, 2008, we continued to leverage our bank and vendor lines of credit to fund our operations, in addition to reducing our accounts receivable and inventory levels. The net cash provided by operating activities from continuing operations was $10.6 million for the year ended December 31, 2008, which resulted primarily from substantially decreased inventory and accounts receivable levels. The $9.5 million decrease in inventory at December 31, 2008 in addition to a $0.5 million decrease in prepaid inventory were primarily attributable to our efforts to reduce inventory levels as a result of worldwide economic conditions. Accounts receivable decreased $14.9 million primarily due to decreased sales in the second half of 2008, which we believe was substantially the result of the worldwide economic downturn. Accounts

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payable at December 31, 2008 decreased $9.8 million, compared to December 31, 2007. This decrease was related to our decreased use of our vendors' lines of credit during the year ended December 31, 2008, as we decreased our inventory levels as noted above.

Days of Sales Outstanding

        Days of sales outstanding (the average number of days it takes to collect revenue after a sale is made) at December 31, 2008 was 56 days, compared with 61 days at December 31, 2007. This decrease was due to continuous efforts to keep our customers to the payment terms we provide. Normal payment terms require our customers to pay on a net 30-day or net 60-day basis depending on the customer. We are constantly working with our customers to reduce our days of sales outstanding. The extension of net 60-day terms was required to remain competitive in the regions we currently operate, Central and South America. In an effort to penetrate new markets and reach new customers, we may offer terms beyond our normal terms.

Cash Used in Investing Activities

        The net cash used in investing activities was $312,000 for the year ended December 31, 2008, compared to cash used of $1.4 million for the year ended December 31, 2007. The use of cash during 2008 and 2007 was primarily the result of our investment in tooling and molds for our proprietaryverykool® products.

Net Cash Used in (Provided by) Financing Activities

        The net cash used in financing activities for the year ended December 31, 2008 of $12.5 million was primarily the result of payments on our bank line of credit as a result of less financing needs for our decreased levels of inventory and accounts receivable, compared to 2007, where we had cash provided from financing activities of $1.6 million as a result of funding from our bank line of credit.

Working Capital

        Our net working capital at December 31, 2008 was $25.6 million, compared with $33.4 million at December 31, 2007. This decrease was primarily due to decreases in inventory and accounts receivable, partially offset by the increase in our cash balance, for the year ended December 31, 2008. In addition, the loss from discontinued operations of $4.1 million also reduced our overall working capital.

Year ended December 31, 2007

Cash Used in Operating Activities

        At December 31, 2007, we had $20.8$20.7 million in cash, a decrease of $9.5$9.0 million from December 31, 2006. During the year ended December 31, 2007, we continued to leverage our bank and vendor lines of credit to fund our growth.business. The net cash used inby operating activities was $9.7$9.2 million for the year ended December 31, 2007, which resulted primarily from increased inventory levels and increased accounts receivable. The $9.7$10.3 million increase in inventory at December 31, 2007 included a $0.3 million increase in prepaid inventory. This increase was primarily attributable to the build-up ofverykool® inventory in anticipation of future sales. Additionally, accounts receivable increased $5.8$3.2 million primarily due to increased sales prior to the period end reported. Accounts payable at December 31, 2007 increased $8.6$5.0 million, compared to December 31, 2006. This increase was related to our increaseincreased use of our vendors lines of credit during the year ended December 31, 2007.

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Days of Sales Outstanding

        Days of sales outstanding (the average number of days it takes to collect revenue after a sale is made) at December 31, 2007 were 61 days, compared with 62 days at December 31, 2006. This decrease was due to our continuous efforts to keep our customers to the payment terms we provide. Normal payment terms require our customers to pay on a net 30-day or net 60-day basis depending on the customer. We are constantly working with our customers to reduce our days of sales outstanding.

The extension of net 60-day terms was required to remain competitive in several of the regions we currently operate, most notably in Central and South America. In an effort to penetrate new markets and reach new customers, we may offer terms beyond our normal terms.

Cash Used in Investing Activities

        The net cash used in investing activities was $1.4 million for the year ended December 31, 2007, compared to $343,000$342,000 for the year ended December 31, 2006. This use of cash iswas primarily the result of our investment in tooling and molds for our proprietaryverykool® products.

Net Cash Provided from Financing Activities

        The net cash provided from financing activities for the year ended December 31, 2007 of $1.6 million was primarily the result of borrowings on our bank line of credit and approximately $484,000 from the exercise of employee stock options.options, compared to 2006, where cash provided by financing activities was $30.4 million, including $14.7 million, net of associated offering costs, for the sale of stock and exercise of stock options, with the remainder being from borrowing from our bank line of credit.

Working Capital

        Our net working capital at December 31, 2007 was $33.4 million, compared with $36.7$37.0 million at December 31, 2006. This decrease was primarily due to increases in accounts payable line of credit balance outstanding and inventory for the year ended December 31, 2007, partially offset by the decrease in our cash balance and increased borrowings from our line of credit.

Year ended December 31, 2006

        We generally use cash from our sales of products, lines of credit and sale of securities to provide the capital needed to support our growth.

Cash Used in Operating Activities

        At December 31, 2006, we had $30.2 million in cash, a decrease of $22.5 million from December 31, 2005. During the year ended December 31, 2006, we continued to leverage our bank and vendor lines of credit, in addition to capital raised in the beginning of 2006 to fund our growth. The net cash used by operating activities was $7.5 million for the year ended December 31, 2006, which resulted primarily from increased accounts receivable and increased inventory levels. The $18.0 million increase in accounts receivable at December 31, 2006 was primarily due to increased sales prior to the period end reported. In addition there was also an increase in our inventory, including prepaid inventory, of $4.1 million. These increases were partially offset by an increase in accounts payable of $12.1 million.

        Our discontinued operations provided cash of $15,000 for the year ended December 31, 2006, as compared with cash used of $531,000 for the year ended December 31, 2005. The combined effect of continued and discontinued operations resulted in an increase of cash used in operations to $7.5 million for the year ended December 31, 2006 compared to $6.3 million for the year ended December 31, 2005.

Days of Sales Outstanding

        Days of sales outstanding (the average number of days it takes to collect revenue after a sale is made) at December 31, 2006 were 64 days, compared with 59 days at December 31, 2005. Normal payment terms require our customers to pay on a net 30-day or net 60-day basis depending on the region. We are constantly working with our customers to reduce our days of sales outstanding.

Cash Used in Investing Activities

        Net cash used for investing activities was $343,000 for the year ended December 31, 2006 as compared with $285,000 for the year ended December 31, 2005. The cash used for investing activities related primarily to our new facility in Mexico including warehouse, operations, engineering and sales facilities added during the year ended December 31, 2006.

Net Cash Provided from Financing Activities

        Net cash provided by financing activities was $30.4 million for the year ended December 31, 2006 as compared with $9.1 million for the year ended December 31, 2005. The difference is primarily the result of the January 2006 sale of 2.2 million shares of our common stock and 717,200 warrants (including 57,200 issued to placement agents) to purchase our common stock for net proceeds of $13.4 million. We also received approximately $1.3 million from the exercise of employee stock options in addition to net borrowings, of $15.6 million, on our bank line of credit. We increased the amount drawn on our revolving line of credit to $25.6 million at December 31, 2006 as compared to $10.0 million at December 31, 2005. The increased borrowing was necessary to finance our growth.

Working Capital

        Our net working capital at December 31, 2006 was $36.7 million, compared with $17.0 million at December 31, 2005. This increase was primarily due to our January 2006 sale of common stock and related warrants to purchase our common stock and net income for the year ended December 31, 2006.

Borrowings

        The Company hasUntil April 30, 2008, we had a line of credit from Wells Fargo HSBC Trade Bank N.A., which providesprovided for advances not to exceed 80% of eligible domestic accounts receivable and up to 85% of foreign-insured accounts receivable (depending on the country of the debtor), up to a maximum of $30 million.

        On April 30, 2008, we entered into a Loan, Security and Bulk Purchase Agreement and a Letter of Credit and Security Agreement with Wells Fargo Century, Inc., replacing the then existing asset-based secured credit facility with Wells Fargo HSBC Trade Bank, N.A. Pursuant to the Wells Fargo Century line of credit, we may obtain advances of up to $45,000,000 based on the expected collections of eligible receivables as well as value of our eligible inventory determined in accordance with the Wells Fargo Century line of credit. The outstanding advances may not exceed the lesser of (i) $45,000,000 or (ii) the sum of the value of the eligible receivables and eligible inventory multiplied by their respective advance rates as set forth in the agreement ($26.8 million as of December 31, 2008). The Wells Fargo Century line of credit has a two-year term ending April 2010 and is secured by all of our assets. The interest rate for each borrowing under the Wells Fargo Century line of credit is, at our option, either the Wells Fargo Bank N.A. prime rate minus 0.50% (2.75% at December 31, 2008) or the LIBOR rate plus 2.00% (3.83% at December 31, 2008). We believe we were in compliance with the terms of the Wells Fargo Century line of credit at December 31, 2008. As of December 31, 2007,2008, the majority of our debt was based on foreign-insured accounts receivable.

        Interest is payable on a monthly basis (i) at Wells Fargo's prime rate minus 0.25% (5.25% at March 20, 2008) or (ii) at the one-month LIBOR plus 1.50% (2.61% plus 1.50% at March 20, 2008). The interest rate is floating at Wells Fargo's prime rate or is at LIBOR plus 1.5% if the debt is a fixed amount drawn upon. The line of credit is collateralized by substantially all of our assets, and expires October 1, 2008. In addition to reporting and other non-financial covenants, the line of credit contains certain financial covenants which require us to maintain a tangible net worth of not less than $30 million plus 50% of net profit after tax from January 1, 2007, a pre-tax profit of not less than $1 on a rolling four quarter basis, a quick ratio of not less than one-to-one, a debt-to-net worth ratio of not greater than two-to-one, and an annual net income after taxes of at least $1. At December 31, 2007, the Company did not meet the financial covenants related to pretax profit or net income. The Company received a waiver from Wells Fargo relating to default rights Wells Fargo may have due to the Company failing to meet certain of these financial covenants at December 31, 2007. The Company cannot provide assurance that it will or will not be able to comply with the financial covenants in the future and may seek additional waivers, which may or may not be granted. The Company is expected to request a waiver for the period ended March 31, 2008.

We have no other debt financing payable.

        At December 31, 20072008 and December 31, 2006,2007, the amounts drawn against theour applicable line of credit were $26.8$14.3 million and $25.6$26.8 million, respectively. Credit lines have been important parts of growingoperating our business, and market changes affecting accounts receivable could diminish the borrowing

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base of available funds. At December 31, 20072008 and December 31, 2006,2007, advances were at 96%66% and 92%96% of the available borrowing base. At February 28, 2009, we had $9.5 million drawn against our line of credit, which was 42% of the available borrowing base.

Critical Accounting Policies

        We believe the following critical accounting policies are important to the presentation of our financial condition and results, and require management's judgments to make estimates about the effects of matters that are inherently uncertain.

Revenue Recognition and Allowance for Returns

        Revenues for wireless handset and accessory sales are recognized when (i) shipment of the products to customers has occurred and title has passed, (ii) when collection of the outstanding receivables is probable and (iii) the final price of the products are determined.is determined, which occurs at the time of shipment. Sales are recorded net of discounts, rebates, cooperative arrangements (marketing, training and promotional funds), returns, and allowances. Consideration is given on select sales for cooperative arrangements related to market development, training and special promotions, usually agreed upon in advance. The amount given is generally in the form of a credit memo, which is applied as a reduction of the sale price and such amount is recorded as a current liability. Expenditures made pursuant to the agreed upon activity reduce this liability. To the extent that we incur costs in excess of the established cooperative fund, we recognize that amount as a selling or marketing expense. As part of the sales process, we may perform certain value added services such as programming, software loading and quality assurance testing. These value added services are considered an ancillary component of the sales process and amounts attributable to these processes are included in the unit cost to the customer. Furthermore, these value added services are related to services prior to the shipment of the products, and no value added services are provided after delivery of the products. We recognize a reserve against the related receivables estimates for product returns based on historical experience and other judgmental factors. We evaluate these estimates on an on-going basis and adjust the estimates each period based on actual product return activity. We recognize freight costs billed to our customers in revenue and actual freight costs incurred as a component of cost of sale.sale activity.

Allowance for Doubtful Accounts

        We recognize allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and our historical experience. Credit evaluations are undertaken for all major sales transactions before shipment is authorized. Normal payment terms require payment on a net 30 or 60-day basis depending on the customer. On an ongoing basis, we analyze the payment history of customer accounts, including recent customer purchases. We evaluate aged items in accounts receivable and provide reserves for doubtful accounts. Customer creditworthiness and economic conditions may change, including increasedincreasing the risk of collectibilitycollectability and sales returns, and may require additional provisions, which could negatively impact our operating results.

Inventory Write-Off and Effect on Gross Margin

        We regularly monitor inventory quantities on hand and record a provision for excess and obsolete inventories based primarily on historical usage rates and our estimated forecast of product demand for a period of time, generally three months. Because of obsolescence, we will generally provide a full reserve for the costs of our inventories in excess of our relevant demand forecast for the applicable period. We attempt to control our inventory levels so that we limit inventories in excess of demand for the succeeding several months. However, because we need to place non-cancelable orders with significant lead time and because it is difficult to estimate product demand, we sometimes build inventories in excess of demand for the applicable future periods. If this occurs, we provide a reserve, which may have a negative impact on our reported results of operations and financial condition. Such was the case in the fourth quarter of 2007,during 2008, as we adjusted some of our inventory down to market values.

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Contractual Obligations

        We lease corporate and administrative office facilities, and equipment under non-cancelable operating leases. Certain of these leases contain renewal options. Rent expense under these leases was approximately $558,000, $628,000 $417,000 and $300,000$417,000 for the years ended December 31, 2008, 2007 2006 and 2005,2006, respectively. We also have a revolving line of credit facility, which is shown on our balance sheet as a current liability and the balance was $26.8$14.3 million and $25.6$26.8 million at December 31, 20072008 and 2006,2007, respectively.

        The following is a schedule of aggregate future minimum rental payments required by the above leases. In addition, our future minimum lease requirements include obligations for the retail lease locations we have assigned to a third party, because we remain financially liable should the assignee default on the assigned leases. There are approximately two months of lease payments in escrow that are held by a third party in the event of assignee default. We believe these lease locations are desirable and anticipate that, if necessary, we would be able to find a suitable tenant for these locations within two months after any default by the assignee.

*

the outstanding balance varies daily

**

includes buildings equipment and retail kiosks from discontinued operations, amounts do not reflect lease extension entered March 2008, see Note 7 of the financial statements in this report.equipment

Recently Issued Accounting Pronouncements

Recently adopted:

        In FebruarySeptember 2006, the Financial Accounting Standards Board (FASB)("FASB") issued Statement of Financial Accounting Standards (SFAS) 155 "Accounting for Certain Hybrid Financial Instruments." SFAS 155 amends SFAS 133 to narrow the scope exception for interest-only and principal-only strips on debt instruments to include only such strips representing rights to receive a specified portion of the contractual interest or principal cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose entities (SPE) to hold a passive derivative financial instrument pertaining to beneficial interests that itself is a derivative financial instrument. Generally, FASB Statement of Financial Accounting Standards SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires that a derivative embedded in a host contract that does not meet the definition of a derivative be accounted for separately (referred to as bifurcation) under certain conditions. That general rule notwithstanding, SFAS157,Fair Value Measurements (SFAS No. 133 (prior to amendments made to it by SFAS No. 155) provides a broad exception for interest-only and principal-only strips initially resulting from the separation of rights to receive contractual cash flows of a financial instrument that itself does not contain an embedded derivative that would have been accounted for separately. SFAS 155 amends SFAS 133 to restrict the scope exception to strips that represent rights to receive only a portion of the contractual interest cash flows or of the contractual principal cash flows of a specific debt instrument. Prior to amendments made by SFAS 155, SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," permitted a qualifying SPE to hold only passive derivative financial instruments pertaining to beneficial interests (other than another derivative financial instrument) issued or sold to parties

that hierarchy. In September 2006,February 2008, the FASB issued SFASFASB Staff Position No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans", which improves financial reporting by requiring an employer to recognize the over or under funded status157-2,Effective Date of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year end statement of financial position, with limited exceptions. This Statement amends Statement 87, FASB Statement No. 88, "Employers' Accounting157, which permits a one-year deferral for Settlements and Curtailmentsthe implementation of Defined Benefit Pension Plans and for Termination Benefits", Statement 106, and FASB StatementSFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits". Upon the initial application of this statement and subsequently, and employer should continue157 with regard to apply the provisions in

        In October 2006, the Emerging Issues Task Force (EITF) issued EITF 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That is, Gross versus Net Presentation) to clarify diversity in practice on the presentation of different types of taxes in the financial statements. The Task Force concluded that, for taxes within the scope of the issue, a company may adopt a policy of presenting taxes either gross within revenue or net. That is, it may include charges to customers for taxes within revenues and the charge for the taxes from the taxing authority within cost of sales, or, alternatively, it may net the charge to the customer and the charge from the taxing authority. If taxes subject to EITF 06-3 are significant, a company is required to disclose its accounting policy for presenting taxes and the amounts of such taxes that are recognized on a gross basis. The guidance in this consensus is effective for the first interim reporting period beginning after December 15, 2006 (the first quarter of our fiscal year 2007). The adoption of EITF 06-3 did not have a material impact on our results of operations, financial position or cash flow.

        In February 2007, the FASB issued SFASStatement No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115" ("SFAS 159")." This standard amends FASB Statement No. 115, "Accounting for Certain Investment in Debt and Equity Securities," with respect to accounting for a transfer to the trading category for all entities with available-for-sale and trading securities electing the fair value option. This standard allows companies to elect fair value accounting for many financial instruments and other items that currently are not required to be accounted as such, allows different applications for electing the option for a single item or groups of items, and requires disclosures to facilitate comparisons of similar assets and liabilities that are accounted for differently in relation to the fair value option. SFAS 159 is effective for fiscal years

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beginning after November 15, 2007. If elected, the implementationThe adoption of SFAS 159 isdid not expected to have a material impact on the our consolidatedCompany's results of operations or financial statements.position.

Recently issued:

        The Financial Accounting Standards Board (FASB) has issued FASB Statements No. 141 (revised 2007) ("SFAS 141R"),Business Combinations, and No. 160 ("SFAS 160"),Noncontrolling Interests in Consolidated Financial Statements. These new standards represent the completion of the FASB's first major joint project with the International Accounting Standards Board (IASB). The FASB and the IASB first initiated the joint project that resulted in the new standards because U.S. generally accepted accounting principles and International Financial Reporting Standards (IFRS) differed widely in their approach to accounting for business combinations. The IASB plans to issue its counterpart standards IFRS 3 (revised),Business Combinations, and International Accounting Standard 27 (as revised in 2007),Consolidated and Separate Financial Statements, early next year. The new standards to be issued by the IASB are expected to contain the same fundamental principles as those of the FASB, but will diverge with respect to certain issues.

        In December 2007,SFAS 141(R), the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (SFAS 141(R)). The objectiveretained the fundamental requirements of SFAS 141 (R) is to improve reporting by creating greater consistencyaccount for all business combinations using the acquisition method (formerly the purchase method) and for an acquiring entity to be identified in all business combinations. However, the fair value principles in the accounting and financial reporting of business combinations, resulting in more complete,

comparable and relevant information for investors andrevised Statement are a major change from SFAS 141's cost allocation process, together with other users of financial statements.revisions from past practice. Among numerous changes, SFAS 141 (R)141(R) requires the acquiring entity in a business combination to recognize all (and only)to:

•

Recognize the assets acquired, andthe liabilities assumed, and any noncontrolling interest in the transaction; establishesacquiree at the acquisition-dateacquisition date, measured at their fair valuevalues as of that date, with limited exceptions



•

Recognize and measure the measurement objective for all assetsgoodwill acquired in the business combination or a gain from a bargain purchase



•

Expense acquisition-related costs, such as legal and liabilities assumed; and requiresdue diligence costs, when incurred



•

Recognize any restructuring costs that the acquireracquiring entity expects to discloseincur with respect to the acquired business as an expense, rather than capitalize as part of the acquisition



•

Disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination.

        SFAS 141 (R) includes both core160 amends Accounting Research Bulletin No. 51,Consolidated Financial Statements, and requires all entities to report noncontrolling (minority) interests in subsidiaries within equity in the consolidated financial statements, but separate from the parent shareholders' equity. SFAS 160 also requires any acquisitions or dispositions of noncontrolling interests that do not result in a change of control to be accounted for as equity transactions. Further, the Statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated.

        The final business combinations and noncontrolling interest statements are effective for annual periods beginning on or after December 15, 2008. The Statements should be applied on a prospective basis, except for the presentation and disclosure requirements of SFAS 160, which must be applied retrospectively. Entities are prohibited from adopting the Statements before their effective dates. The Company does not believe adoption of SFAS 141(R) and SFAS 160 will have a material effect on the Company's financial statements.

        In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161) "Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133". SFAS 161 amends and expands the disclosure requirements for derivative instruments and

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hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company does not believe adoption of SFAS 161 will have a material effect on the Company's financial statements.

        In May 2008, the FASB issued Statement of Financial Accounting Standards SFAS No. 162 ("SFAS 162") "The Hierarchy of Generally Accepted Accounting Principles," which identifies the sources of accounting principles and pertinent application guidance, eliminating the needframework for numerous EITF issues and other interpretative guidance, thereby reducingselecting the complexityprinciples to be used in the preparation of existing GAAP.financial statements of nongovernmental entities that are presented in conformity with GAAP (the GAAP hierarchy). SFAS 141 (R)162 is effective as60 days following the SEC's approval of the startPublic Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. Management does not expect adoption of SFAS 162 to have a material impact on the Company's financial statements.

        In May 2008, the FASB issued Statement of Financial Accounting Standards No. 163 ("SFAS 163"), "Accounting for Financial Guarantee Insurance Contracts, an interpretation of FASB Statement No. 60," which requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation, and clarifies how FASB Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosures about financial guarantee insurance contracts. SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption2008, and all interim periods within those fiscal years. Management is not allowed. We are incurrently assessing the process of evaluating this standard and have not yet determined the impact that the adoptioneffect of SFAS 141 (R) will have163 on ourthe Company's financial position, results of operations or cash flows.statements.

        In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements (SFAS 160). SFAS 160 improves the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report non-controlling (minority) interests in subsidiaries in the same way—as equity in the consolidated financial statements. Moreover, SFAS 160 eliminates the diversity that currently exists in accounting for transactions between an entity and non-controlling interests by requiring they be treated as equity transactions. SFAS 160 is effective as of the start of fiscal years beginning after December 15, 2008. Early adoption is not allowed. We are in the process of evaluating this standard and have not yet determined the impact that the adoption of SFAS 160 will have on our financial position, results of operations or cash flows.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

        The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term "market risk" for us refers to the risk of loss arising from adverse changes in interest rates and various foreign currencies. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures.

Interest Rate

        We are exposed to market risk from changes in interest rates on our outstanding revolving line of credit. At December 31, 2007,2008, we had approximately $26.8$14.3 million outstanding, which could be affected by changes in short term interest rates. The interest rate for the revolving line of credit is the prime rate minus 0.25% (5.25%0.50% (2.75% at March 20, 2008)2009) or LIBOR plus 1.50% (2.61% plus 1.50%2.00% (3.22% at March 20, 2008)2009). For every 1% increase in our bank's prime rate or LIBOR, our interest expense would increase by $268,000$143,000 assuming the same $26.8$14.3 million remained outstanding for the entire year.

        The above sensitivity analysis for interest rate risk excludes accounts receivable, accounts payable and accrued liabilities because of the short-term maturity of such instruments. The analysis does not consider the effect this movement may have on other variables including changes in sales volumes that could be indirectly attributed to changes in interest rates. The actions that we would take in response to such a change are also not considered. If it were possible to quantify this impact, the results could well be different than the sensitivity effects shown above.