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license or to modify or replace its products with non-infringing products, which would otherwise mitigate such damages and losses. Further, we may not be able to participate in intellectual property litigation involving a manufacturer and may not be able toor influence any ultimate resolution or outcome that may adversely impact our sales, if a court enterssuch as an injunction or other restrictions that negatively impactsrelating to our proprietaryverykool® products.

        Further,        In addition, it may be possible for a third party to obtain and use our or our manufacturers' proprietary information or develop similar technology relating to ourverykool® verykool® products independently. In addition,Furthermore, effective patent, copyright, trademark and trade secret protection may be unavailable or limited, including in certain foreign countries. Unauthorized use of our or our manufacturers' intellectual property rights by third parties and the cost of any litigation necessary to enforce our or our manufacturers' intellectual property rights could have an adverse impact on our business.

Our sales and inventory risk may be materially affected by fluctuations in regional demand patterns and economic factors for which we cannot plan.

        The demand for our products and services has fluctuated and may continue to vary substantially within the regions served by us. We believe the roll-out of third generation, or 3G, cellularwireless telephone systems and other new technologies havehas had and will continue to have ana beneficial effect on overall subscriber growth and wireless handset replacement demand. Thedemand, both factors that tend to favor our business plan. However, the continued worldwide economic slow-downslowdown has impacted the regions served by us, led to changes in promotional programs offered by wireless carriers or customer preferences may lowerand lowered consumer demand for our products, and create higher levelsall of inventories which could decreasehave been negative factors for our gross and operating margins. We could face amargins, particularly in 2008. In 2008, we also faced substantial inventory risk, due to depreciation and equipment price erosion if our products are not soldresulting in a timely manner. During 2008, we experienced such an adverse impact on, including decreased margin potential, andthe sale of some products were sold at a considerable loss.loss, and in 2009, we suffered a one-time loss on discontinued inventory. Though we have seen an increase in the demand for handsets beginning in the third quarter of 2009, there can be no assurance that this trend will continue and it is difficult to predict future demand patterns.

All of our revenues from continuing operations during the fiscal year ended December 31, 20082009 were generated outside of the United States in countries that may have volatile currencies or other risks.

        AllWe now engage in all of our significant sales activities are in territories and countries outside of the United States, particularlyspecifically in Central and South American countries, most significantly Argentina. TheAmerica. All our sales transactions are completed in U.S. dollars and therefore may be impacted by changes in the strength of the U.S. dollar. Further, the fact that we distribute a substantial amount of our products outsideinto a number of territories and countries other than the United States exposes us to, among other things, increased credit risks, currency fluctuations, customs duties, import quotas and other trade restrictions, potentially greater and more unpredictable inflationary and currency pressures, and shipping delays. Changes may occur in social, political, regulatory and economic conditions or in laws and policies governing foreign trade and investment in the territories and countries where we currently distribute products. United States laws and regulations relating to investment and trade in foreign countries could also change to our detriment. Any of these factors could have material adverse effects on our business and operations.

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Also, although we purchase and sell products and services in U.S. dollars and do not engage in exchange swaps, futures or options contracts or other hedging techniques, fluctuations in currency exchange rates could reduce demand for products sold in United StatesU.S. dollars. We cannot predict the effect that future exchange rate fluctuations will have on our operating results or financial position. We may in the future engage in currency hedging transactions, which could result in our incurring significant additional financial risks, including expensesincreased costs and losses.losses resulting from these transactions.

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We may not be able to adequately respond to rapid technological changes in the wireless handset industry, which could cause us to lose customers.

        The technology relating to wireless handsets changes rapidly, resulting in product obsolescence or short product life cycles. We are required to anticipate future technological changes in our industry and to continually identify, obtain and market new products in order tothat will satisfy evolving industry and customer requirements. While our top vendors have historically kept their products competitive, and we aim to keep our proprietary products competitive in terms of technological changes, there is no guarantee they or we will continue to do so, which could materially affect our business. Competitors or manufacturers of wireless handsets may market products which have perceived or actual advantages over products that we handlemarket or which otherwise render those products obsolete or less marketable. We have made and continue to make significant capital investments in accordance with evolving industry and customer requirements, including maintaining levels of inventories of currently popular products that we believe are necessary based on current market conditions. This utilization of capital for product development and inventory buildup of this nature increases our risk of loss due to possible product obsolescence. Furthermore, if we do not adequately anticipate future technological changes, we may not have established adequate relationships with suppliers or performed appropriate product development. These factors all pose significant risks of loss of customers, decreased sales and impairment of inventory assets.

Substantial defaults by our customers on accounts receivables could have a significant negative impact on our cash flow and financial condition.

        We currently offer and intend to offer open account terms to certain of our customers, both large and small, which may subject us to credit risks, particularly to the extent that our receivables represent sales to a limited number of customers or are concentrated in particular geographic markets. Although we have an accounts receivable insurance policy, this policy carries a substantial deductible and may not cover our liability in all instances. We also have anrely on our accounts receivable-based credit facility in order to reduce our working capital requirements. The extent of our ability to use our accounts receivable-based credit facility is dependent on the amount of and collection cycle of our accounts receivable. Adverse changes in our ability to use accounts receivable financing could have a material adverse effect on our financial position, cash flows and results of operations.

We rely on our suppliers to provide favorable terms, including payment terms, in order for us to make appropriate product purchases, and without such terms, our ability to procure products could be impacted.

        Much of our business is dependent on our ability to obtain adequate supplies of currently popular products on favorable pricing and other terms. Our ability to fund our product purchases is dependent on our principal suppliers providing favorable payment terms that allow us to maximize the efficiency of our capital usage. The payment terms we receive from our suppliers are dependent on several factors, including, but not limited to, our payment history with the supplier, the suppliers' credit granting policies, contractual provisions, our overall credit rating as determined by various credit rating agencies, industry conditions, our recent operating results, financial position and cash flows, and each supplier's ability to obtain credit insurance on amounts that we owe them. Adverse changes in any of these factors, certain of which may not be wholly in our control, could have a material adverse effect on our business and operations.

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We rely on our information technology systems to function efficiently, without interruptions, and if it does not, customer relationships could be harmed.

        We have focused on the application of our information technology systems to provide customized services to wireless handset manufacturers and carriers. Our ability to meet our customers' technical and performance requirements is highly dependent on the effective functioning of our information

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technology systems, which may experience interruptions, including aspects provided byinterruptions of related services from third-party providers which may be beyond our control. These business interruptions could cause us to fall below acceptable performance levels pursuantfail to our customers'meet customer requirements and could result in a negative impact on, including the loss of the related business relationship.relationships. Some of our information technology systems are managed and operated by third partythird-party providers. All information technology systems, both internal and external, are potentially vulnerable to damage or interruption from a variety of sources, including, without limitation, computer viruses, security breaches, energy blackouts, natural disasters, terrorism, war and telecommunication failures, as well as third-party provider failures. We have implemented various measures to manage our risks related to system and network disruptions, but a systems failure or security breach or other problem with our information technology systems could negatively impact our operations and financial results.

We dependface risks related to our dependence on third parties to manufacture the products we distribute, including our proprietary verykool® products, and, accordingly, we rely on their quality control procedures.products.

        Product manufacturers typically provide limited or no warranties on thetheir products, whether directly to us or directly to the end consumer. We generally pass through any warranties received from our manufacturers to our customers, and in absence of such warrantywarranties, we are solely responsible for the products. If a product we distribute from a manufacturer has quality or performance problems, our ability to provide satisfactory products to our customers could be disrupted and our reputation could be impaired. In addition, as theverykool® products are manufactured exclusively for us, we carry the financial risk of the inventory, and there can be no assurance that we willWe also may not be able to sell these products before payment is due andour manufactures or at prices above our cost. EitherThese risks are magnified for ourverykool® products, which are manufactured exclusively for us, and for which we carry greater financial risk of the inventory. Any of these risks could have a negative impact on our business and operations.

The wireless handset industry is intensely competitive and we may not be able to continue to compete against well establishedwell-established competitors with greater financial and other resources.

        We compete for sales of wireless handsets and accessories and expect that we will continue to compete, with numerous well-established carriers, distributors and manufacturers, including our own suppliers. Many of our competitors possess greater financial and other resources than we do and may market similar products or services directly to our customers. Distribution of wireless handsets and accessories has generally had low barriers to entry. As a result, additional competitors may choose to enter our industry in the future. The markets for wireless handsets and accessories are characterized by intense price competition and significant price erosion over the life of a product. Many of our competitors have the financial resources to withstand substantial price competition and to implement extensive advertising and promotional programs, both generally and in response to efforts by additional competitors to enter into new markets or introduce new products. Our ability to continue to compete successfully will depend largely on our ability to maintain our current industry relationships, with both manufacturers and carrier customers. We may not be successful in anticipating and responding to competitive factors affecting our industry or these relationships, including new or changing outsourcing requirements, the entry of additional well-capitalized competitors, introduction of new products, which may be introduced, changes in consumer preferences, demographic trends, international, national, regional and local economic conditions, and competitors' discount pricing and promotion strategies. As wireless telecommunications markets mature, and as we seek to enter into new markets in the Central and South American region and offer new products, in the future, the competition that we face may change and grow more intense.

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We rely on trade secret laws and agreements with our key employees and other third parties to protect our proprietary rights, and there is no assurance that these laws or agreements adequately protect our rights.which may not afford adequate protection.

        We rely on trade secret laws to protect our proprietary knowledge, particularly our database of customers and suppliers, and business terms such as pricing, and the information and technology related to ourverykool® brand. In general, we also have non-disclosure agreements with our key employees and

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limit access to and distributiondisclosure of our trade secrets and other proprietary information. These measures may prove difficult to enforce and may not prove adequate to prevent misappropriation of our proprietary information.

We are dependent on a small number of personnel.

        Our success depends in large part on the abilities and continued service of our executive officers, particularly Joseph Ram, our CEO and largest stockholder, and other key employees. In 2009 we experienced the departure of two executive officers, and we are currently seeking to hire a permanent Chief Financial Officer. We may be unable to replace senior management with qualified individuals or retain the services of other key employees. The loss of executive officers or other key personnel could impede our ability to fully and timely implement our business plan and future growth strategy. In addition, in order to support our continued growth, we will be required to effectively recruit, develop and retain additional qualified management. Competition for such personnel is intense, and there can be no assurance that we will be able to successfully attract, assimilate or retain sufficiently qualified personnel. The failure to retain and attract necessary personnel could also delay or prevent us from executing our planned growth strategy.

We may become subject to law suitslawsuits alleging medical risks associated with our wireless handsets, and the cost of these suitswhich could be substantial, and divert funds from our business.substantial.

        Lawsuits or claims have been filed or made against manufacturers of wireless handsets alleging possible medical risks, including brain cancer, associated with the electromagnetic fields emitted by wireless handsets. There has been only limited relevant research in this area, and this research has not been conclusive as to what effects, if any, exposure to electromagnetic fields emitted by wireless handsets has on human cells. Substantially all of our revenues are derived, either directly or indirectly, from sales of wireless handsets. We may become subject to lawsuits filed by plaintiffs alleging various health risks from our products. If any future studies find possible health risks associated with the use of wireless handsets, or if any damages claim against us or a business partner is successful, it could have a material adverse effect on our business. Even an unsubstantiated perception that health risks exist could adversely affect our ability or the ability of our customers to market wireless handsets.

Risks Related To Our Common Stock

OurThe market for our common stock is volatile and our stock price could be volatile and could decline, resulting in a substantial loss on your investment.decline.

        An active trading market for our common stock may not be sustained, which could affect the ability of our stockholders to sell their shares and could depress the market price of their shares. The stock market in general, andincluding the market for telecommunications-related stocks in particular, has been highly volatile. For example, the closing price of our common stock has fluctuated between $1.85$2.51 and $0.10 from January 1, 20082009 through March 20, 2009.19, 2010.

        As a result, theThe market price of our common stock has been and is likely to remain volatile, and investors in our common stock may experience a decrease in the value of their stock, including decreases unrelated to our operating performance or prospects.prospects, resulting in a substantial loss on their investment.

If the trading price of our common stock remains below $1.00 for an extended period of time, our common stockWe may among other things, be delisted from The Nasdaq GlobalNASDAQ Stock Market or Nasdaq markets altogether adversely affecting the value of our common stock.if we do not satisfy continued listing requirements.

        Between January 1,In 2008 and March 20, 2009, our common stock share price fluctuated between $1.85 and $0.10 per share, and on March 20, 2009 closed at $0.18 per share. Under Nasdaq Market Rules, among other things, if our share price is under $1.00 per share for an extended period of time, our stock could be delistedwe faced potential delisting from The NasdaqNASDAQ Global Market be transferredfor failure to a listing on The Nasdaq Capital Market, or be delisted from the Nasdaq markets altogether.

        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 belowmaintain 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),listing. If in the future we were provided an initial period of 180 calendar days, or until January 6, 2009,fail to regain compliance. The Nasdaq Stock Market has extended the compliance date several timescomply with the current compliance date being on or about October 12, 2009.continued listing standards of The NASDAQ Global Market, including the minimum bid price requirement, our common stock would be delisted from that market.

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        During the compliance period on or about October 12, 2009, absent 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 bewe are delisted from The NasdaqNASDAQ Global Market. If we receive a delisting notice, we may appeal the Nasdaq staff's determination to a Listing Qualifications Panel. Alternatively,Market, we may apply to transfer our securitiescommon stock to The NasdaqNASDAQ Capital Market. However, our application may not be granted if we do not satisfy the applicable listing requirements for The NASDAQ Capital Market or another exchange or trading market. We intend to monitorat the bid pricetime of the application. Even if we successfully transfer our common stock and consider available options ifto The NASDAQ Capital Market, but are unable to satisfy the minimum bid price requirement or any of the other continued listing standards of The NASDAQ Capital Market, our common stock does not trade at a level likelywould be delisted from The NASDAQ Capital Market.

If our common stock were delisted from The NASDAQ Stock Market, you may find it difficult to result indispose of your shares and our regaining compliance with Nasdaq's minimum bidshare price rule.may be adversely affected.

        If our common stock were to be delisted from The NasdaqNASDAQ Global Market orand we could not satisfy the Nasdaq markets altogether, we may seek quotation on a regional stock exchange or other exchange or market, if available. Such listing could reduce the market liquidity for our common stock. If our common stock is not eligible for quotation on another exchange or market,standards of The NASDAQ Capital Market, trading of our common stock couldmost likely would be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. Such trading would reduce the market liquidity of our common stock. As a result, an investor would find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock, which would likely cause a decrease inthereby negatively impacting the valueshare price of our common stock.

        Further, ifIf our common stock were to beis delisted from The NASDAQ Global Market and we could not satisfy the Nasdaq markets,listing standards of The NASDAQ Capital Market and ourthe trading price remainedremains below $5.00 per share, trading in our common stock might also become subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which require additional disclosure by broker-dealers in connection with any trade involving a stock defined as a "penny stock." In addition, manystock" (generally, any equity security not listed on a national securities exchange or quoted on The NASDAQ Stock Market that has a market price of less than $5.00 per share, subject to certain exceptions). Many brokerage firms are reluctant to recommend low-priced stocks to their clients. Further,Moreover, various regulations and policies may restrict the ability of shareholders to borrow against or "margin" low-priced stocks, and declines in ourthe stock price below certain levels may trigger unexpected margin calls. Additionally, because brokers' commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher-pricedhigher priced stocks, the current price of ourthe common stock couldcan result in an individual shareholder paying transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher. This factor may also limit the willingness of institutions to purchase our common stock. Finally, the additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from facilitating trades in our common stock. All of these risksstock, which could severely limit the market liquidity of our commonthe stock and the ability of investors to trade our common stock, thereby negatively impacting the share price.price of our common stock.

The ability of our stockholders to control our policies or effect a change in control of our company is limited, which may not be in our stockholders' best interests.

        Some provisions of our charter and bylaws and the General Corporation Law of Maryland, under which we are incorporated, may delay or prevent a change in control of our company or other transactions that could provide our common stockholders with a premium over the then-prevailing market price of our common stock or that might otherwise be in the best interests of our stockholders. These include the ability of our Board of Directors to authorize the issuance of preferred stock without stockholder approval, which preferred stock may have voting provisions that could delay or prevent a change in control or other transaction that might involve a premium price or otherwise be in the best interests of our stockholders. Maryland law imposes restrictions on some business combinations and requires compliance with statutory procedures before some mergers and acquisitions can occur. These provisions of Maryland law may have the effect of discouraging offers to acquire us even if the acquisition would be advantageous to our stockholders.

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Stockholders have been and may be diluted as a result of past or future offerings or other financings or equity grants.

        We have and may in the future raise additional capital through one or more public offerings, private placements or other financings involving our securities and have made or may make stock option and other equity incentive grants. As a result of these financings or grants, ownership interests in us may be diluted, potentially substantially.

Our largest stockholder may have strategic interests that differ from those of our other stockholders, and can significantly influence important corporate matters.

        As of March 20, 2009, Joseph Ram,19, 2010, our Chief Executive Officer Joseph Ram, beneficially owned approximately 30% of our outstanding common stock. As a result, Mr. Ram may be able to significantly influence corporate actions relating to:

•

controlling the composition of our board of directors;



•

controlling our management and policies;



•

determining the outcome of significant corporate transactions, including changes in control that may not be beneficial to other stockholders; and



•

acting in his own interest, which may conflict with, or be different from, the interests of other stockholders.

Item 1B.    Unresolved Staff CommentsComments—None.

        None.

Item 2.    Properties.

        Our corporate headquarters is located in San Diego, California. We provide our distribution and other value addedvalue-added services from our sales and operations center in Miami, Florida, which also serves as our sales and executive office for Central and South America. These facilities are occupied pursuant to operating leases. The table below summarizes information about our sales and operations centers:

        We believe that these facilities are adequate for our current requirements and that suitable alternative or additional space will be available as needed for alternative space or to accommodate future expansion of our operations.

Item 3.    Legal Proceedings.

        In the normal course of our business, we may be a party to legal proceedings. Except as disclosed below, we are not currently a party to any material legal proceedings other than ordinary routine litigation incidental to our business.

        The discussions of "Securities Class Actions," "Derivative Action" and "LG Litigation" in Item 8, Note 8 to our Consolidated Audited Financial Statements, are incorporated by reference herein.

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Securities Class Actions

        In the securities class action, captionedIn Re: InfoSonics Corporation Securities Litigation, Lead Case No. 06 CV 1231, pending before Judge Sammartino        We may become involved in certain other legal proceedings and claims which arise in the United States District Court for the Southern Districtnormal course of California, Plaintiffs filed a third amended consolidated complaint on May 23, 2008 against the Company and certain of its officers and directors. The two prior complaints (including claims therein based on defendants' restatement of first quarter 2006 earnings) were dismissed in part by the Court, with leave to amend. The third amended consolidated complaint alleges violations of Section 10(b) of the Exchange Act and associated Rule 10b-5, Section 20(a) and Section 20A in connection with the announcement of the Company's restatement of first quarter 2006 earningsbusiness. Other than as described above and in connection with allegedly false and/or misleading statements relatedNote 8 to the Company's distributionour Consolidated Audited Financial Statements, as of the VK Mobile phone. Plaintiffs seek a declaration that their action is a proper class action pursuant to Rule 23(a) and (b)(3), unspecified damages, prejudgment and post-judgment interest, attorneys' fees, expert witness fees, other costs, and other unspecified relief. The plaintiffs purport to represent a class of purchasers of the Company's stock during the period February 6, 2006 to August 9, 2006.

        On August 8, 2008, the parties entered into a Memorandum of Understanding to resolve the case. On October 17, 2008, the parties entered a Stipulation and Agreement of Settlement (the "Securities Settlement") of the case, which provides the securities class action settlement is contingent on preliminary and final Court approval, as well as settlement of the derivative action noted below, among other contingencies, and provides for, among other things, a dismissal with prejudice of the lawsuit, releases of the defendants, and a payment by the Company or its insurer of $3.8 million to plaintiffs (inclusive ofDecember 31, 2009, we did not have any plaintiffs' attorneys fees, to be determined by the Court). The Securities Settlement further provides that defendants deny any liability or responsibility for the claims made and make no admission of any wrongdoing. On January 20, 2009, the Court entered an order certifying the class, preliminarily approving the settlement and providing for notice to the class. The Court set the hearing for final approval of the settlement for April 23, 2009. On February 10, 2009, the Company's insurer funded the full settlement payment.

Derivative Action

        In the derivative action, captionedIn Re InfoSonics Corporation Derivative Litigation, Lead Case No. 06 CV 1336, pending before Judge Sammartino in the United States District Court for the Southern District of California, plaintiffs filed a consolidated complaint on November 6, 2006 purportedly on behalf of the Company against certain of its officers and directors, and the Company as a nominal defendant. The consolidated complaint alleges claims for violations of Section 14(a) of the Exchange Act, Sections 25402 and 25403 of the California Corporations Code, disgorgement under the Sarbanes-Oxley Act of 2002, breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, rescission, a constructive trust, and an accounting, in connection with the Company's restatement of first quarter 2006 earnings and in connection with allegations of wrongdoing with respect to granting, exercising, accounting and reporting of the stock options that the Company granted in December 2005. Plaintiffs seek unspecified damages, declaratory relief regarding the Sarbanes-Oxley Act of 2002, Section 14(a) of the Exchange Act, and the legality of stock options, a constructive trust, restitution, disgorgement, modification of certain corporate governance and internal procedures, extraordinary equitable and/or injunctive relief, costs, and such other relief as is just and proper. On September 4, 2007, the Court granted defendants' motion to dismiss for failure to make a demand on the board, and also granted with prejudice the motion to dismiss the Sarbanes-Oxley claim.

        On August 6, 2008, the parties entered into a Memorandum of Understanding to resolve the derivative case. On October 17, 2008, the parties entered into a Stipulation and Agreement of Settlement (the "Derivative Settlement"), which provides the Derivative Settlement is contingent on preliminary and final Court approval of this settlement and the securities settlement noted above, among other contingencies, and provides for, among other things, a dismissal with prejudice of the

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lawsuit, releases of the defendants, corporate governances changes and a payment by the Company or its insurer of plaintiffs' attorneys fees to be ordered by the Court up to a maximum of $350,000. It is anticipated that the settlement payment will be funded entirely by the Company's insurer. The Derivative Settlement further provides that defendants deny any liability or responsibility for the claims made and make no admission of any wrongdoing. On January 20, 2009, the Court entered an order preliminarily approving the Derivative Settlement and setting the hearing for final approval of the settlement for April 23, 2009.significant litigation outstanding.

Item 4.    Submission of Matters to a Vote of Security Holders.Reserved

        None.

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

        Our common stock commenced trading on June 17, 2004 on the American Stock Exchange under the symbol "IFO." Effective August 3, 2006, our Common Stock ceased trading on the American Stock Exchange and commenced trading on The NASDAQ Stock Market under the symbol "IFON," where it has traded since such date.

        As of March 20, 200919, 2010 the closing price of our common stock on The NASDAQ Global Market was $0.16$0.98 and there were approximately nine shareholders of record.

        We have not paid any cash dividends and do not expect to pay any cash dividends in the foreseeable future. We are also prohibited from paying cash dividends pursuant to our line of credit agreement.facility. For complete details see Item 8, Note 6 into the accompanying Consolidated Audited Financial Statements and "Borrowings" in Item 7. Liquidity7 of this report.

Unregistered Issuances

        In October 2008, the Companywe issued 100,000 shares of unregistered common stock in exchange for a temporary change to a revenue sharing agreement. For complete details see Item 8, Note 9 into the accompanying Consolidated Audited Financial Statements.Statements

Issuer Repurchases of Equity Securities.

        On December 15, 2008, we announced a share buyback program, authorizing up to $500,000 to be used for stock repurchases. As of December 31, 2009 and December 31, 2008, we had purchased in aggregate, 826,661 and 54,537 shares, respectively, at a total cost of $499,994 and $16,955, respectively. During the twelve months ended December 31, 2009, the Company retired 826,661 shares of stock. The retirement reduced treasury stock and increased the accumulated deficit by $499,168.

        During the twelve months ended December 31, 2009, we repurchased 772,124 shares of our common stock at a total cost (including brokerage commissions) of $483,040 at an average price per share of $0.63. During December 2008, we repurchased 54,537 shares of our common stock at a total cost (including brokerage commissions) of $16,955, at an average price per share of $0.31. Such shares

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were purchased by us in the open market in accordance with Commission Rule 10b-18. We have authorized the repurchase of up to $500,000 worth of shares of our common stock under this previously announced plan.

Table During fiscal 2009, we retired 826,661 shares of Contentsstock.

        The following table summarizes information regarding shares repurchased during the quartertwelve months ended December 31, 2009 and 2008:

Item 6.    Selected Financial Data.

Not Applicable.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

        This discussion and analysis of financial condition and results of operations should be read in conjunction with the "Selected Financial Data" and our accompanying Consolidated Audited Financial Statements and related notes, as well as the "Risk Factors" and other information contained in this Annual Report.annual report. Our management's discussion and analysis of financial condition and results of operations are based upon, among other things, our Consolidated Audited Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with GAAP requires us to, among other things, make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent liabilities at the financial statement dates and the reported amounts of revenues and expenses during the reporting periods. On an on-going basis, weWe review our estimates and assumptions.assumptions on an ongoing basis. Our estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations, although they could. Our critical accounting policies, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined below in "Critical Accounting Policies".Policies." All references to results of operations in this discussion are references to results of continuing operations, unless otherwise noted.

Overview

        We are one of the premier distributors and providers of wireless handsets and accessories in Central and South America. We provide end-to-end handset and wireless terminal solutions for carriers in both Central and South America. We distribute products of original equipment manufacturers (OEMs), including Samsung and others. We are also involved in designing, sourcing and distributing a proprietary line of products under our ownverykool® brand, which includes entry level,entry-level, mid-tier and high-end products.

        As an integral part of our customers' supply chain, we perform value addedvalue-added services and solutions, including product approval and certification, light assembly, warehousing, logistics services (packing,

        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 both our total 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,write-downs, sales of some products at or below cost and thea product mix shift, including increased sales of low-margin products. Inventory write downswrite-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 downwrite-downs 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 bewas impacted by the change of product and regional mix of our sales, as different products and different regions have varying margins.sales. 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, asa decrease of 14% compared with the year ended December 31, 2007, a decrease of 14%.2007. This decrease in gross profit was primarily the result of the inventory write down of $2.5 million inventory write-down 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 a product mix shift, as well as other factors resulting from the general economic downturn, negatively impacted gross profit.

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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.2007. 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.2007. The increase in operating expense as a percentage of net sales was primarily duerelated to the increase in marketing activities related to sales of our products, as we continuecontinued 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 duerelated to the increased penetration and by sales of ourverykool® branded-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$127,000, 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 downswrite-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

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incurred $545,000 of interest expense, compared to $901,000 for last year,2007, 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 awas the non-cash valuation allowance of $3.2 million related to our deferred tax assets (see Note 10—Income Taxes),described above, in addition to the $2.5 million of inventory write downswrite-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 the impact of the general economic downturn whichthat affected our sales regions. The prior year's incomeIncome from continuing operations of $0.7 million in 2007 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 the United States and Mexico and decided to implement actions necessary to close sales operations in both of those countries, which we substantially 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 business in these areas. As of December 31, 2008, our plans for the discontinued operations were substantially completed; however, we will continue to record adjustments and expenses through the discontinued operations as necessary.

Net Lossloss

        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,

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including the inventory write down,write-down, marketing, engineering and tolling expense, as well as the non-cash valuation allowance for the deferred tax assets.

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 $214.5 million decreased from our net sales of $228.8 million for the year ended December 31, 2006. Handsets sold during the year ended December 31, 2007 increased 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 15%. The geographic mix of net sales slightly shifted for the year ended December 31, 2007, as compared to the same period of 2006. Our net sales in Central America decreased to 34% of our net sales for the year ended December 31, 2007, as compared to 35% of net sales for the same period of 2006. Our South America region continued to represent the majority of our business, accounting for 66% of our net sales for 2007, as compared to 65% for 2006. The Central America region had excess inventory in the channel during the first quarter of 2007, however, 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.

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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 $202.8 million, or 94.6% of net sales, compared with $211.3 million, or 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 a shift in product mix, with increased levels of lower-margin products 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 impacted our ability to sell higher-margin products. During the second half of 2007, we saw channel inventory generally return to normalized levels in Central America. Gross margin was further negatively impacted as certain of our manufacturers entered into the low-tier handset range.

        For the year ended December 31, 2007, our gross profit decreased to $11.7 million from $17.5 million, for the same period in 2006, a decrease of 33%. The decrease in gross profit was primarily the result of higher volume of sales of low-tier products (which have lower margins), sold in Central and South America and to higher channel inventory levels, as well as generally lower sales of handsets in Central America during the first quarter of 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 decreased 2%, compared to the year ended December 31, 2006; however, as a percentage of net sales, operating expenses were 6.2% for the year ended December 31, 2007 and 5.9% for the year ended December 31, 2006. During the year ended December 31, 2007, we incurred expenses related primarily to our investments in facilities, marketing, engineering and product and market development, predominantly attributable to our proprietaryverykool® product line. We believe such investments are necessary to grow our business, including theverykool® product line. The year ended December 31, 2007 included non-cash expense related to stock options of $143,000, as compared to $1.3 million in the year ended December 31, 2006.

        For the year ended December 31, 2007, our operating loss from continuing operations was $1.6 million, primarily due to the reasons discussed above, including the greater sales of lower-tier, lower-margin products in Central and South America, compared with income of $4.0 million for the year ended December 31, 2006, a decrease of 139%, that shifted us from income in 2006 to a loss in

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2007. As a percentage of net sales, operating loss from continuing operations was 0.7% for the year ended December 31, 2007, compared to 1.8% of operating income for the year ended December 31, 2006. The shift from operating income to an operating loss from continuing operations was generally the result of the decrease in net sales and in gross margin discussed above.

Operating Expenses

Operating Income (Loss) from Continuing Operations

Other Income

        During the year ended December 31, 2007, we had other income total of $1.2 million, as compared to $115,000 for the same period of 2006. During the year ended December 31, 2007, we had income of $2.1 million from a voluntary early lease termination and relocation of our corporate headquarters in San Diego. We incurred $901,000 of interest expense for the year ended December 31, 2007, compared to interest expense of $284,000 for the same period of 2006. This increase was due primarily to the increase in levels ofverykool® inventory and overall higher levels of accounts receivable during the year, requiring greater credit-line usage. 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 American region in the first quarter, our reduced gross profit margin, including a proportional increase in cost of goods sold and a 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. The year ended December 31, 2007 included non-cash expense related to stock options of $143,000, as compared to $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.

Financial Condition, Liquidity and Capital Resources

        We generally use cash from our salessale of products, lines of credit (bank and vendor) and the sale of securities and exercise of stock options (from time to time) to provide the capital needed to support our business. As of December 31, 2009, we did not have any material commitments for capital expenditures. We believe that we have sufficient liquidity (cash and available borrowings) to continue our operations for the next 12 months.

Year ended December 31, 2009

Cash Provided by (Used In) Operating Activities

        At December 31, 2009, we had $18.4 million in cash, a decrease of $6.3 million from December 31, 2008, and we had $25.5 million outstanding under our bank credit facility, an increase of $11.2 million from December 31, 2008. During the twelve months ended December 31, 2009, we used cash and continued to leverage our credit facility to fund our operations. The increase in our use of the credit facility was directly related to the significantly increased levels of accounts receivable and our taking advantage of purchase discounts during the twelve months ended December 31, 2009. The net cash used in operating activities was $16.9 million for the twelve months ended December 31, 2009 compared to net cash provided from operating activities of $16.8 million for 2008. The change resulted primarily from significantly increased accounts receivable and decreased accrued expenses, but was offset by a smaller decrease in accounts payable compared to the change in 2008. Trade accounts receivable increased by $19.3 million and accounts payable and accrued expenses decreased by $3.0 million from December 31, 2008. The increase in accounts receivable was primarily due to the sales activity towards the later part of 2009 and the standard payment terms of sales we provide our customers. The decrease in accounts payable and accrued expenses at December 31, 2009 compared to December 31, 2008 was primarily due to our taking advantage of beneficial purchasing terms offered by other vendors and partners in the ordinary course in 2009. Accounts receivable other decreased by $3.2 million and inventory decreased by $1.0 million from December 31, 2008.

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, 2009 was 66 days, compared with 56 days at December 31, 2008. This increase was due to several customers making payments shortly after the year end, as more than 80% of our accounts receivable at December 31, 2009 were still within current terms provided to our customers. Normal payment terms require our customers to pay on a net 30-day or net 60-day basis, depending on the customer. The extension of net 60-day terms was required to remain competitive in the regions in which 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.

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Net Cash Used in Investing Activities

        The net cash used in investing activities was $154,000 for the year ended December 31, 2009, compared to cash used of $312,000 for the year ended December 31, 2008. The use of cash during 2009 and 2008 was primarily the result of our investment in tooling and molds for our proprietaryverykool® products.

Net Cash Provided by (Used in) Financing Activities

        The net cash provided by financing activities for the year ended December 31, 2009 of $10.7 million as a result of $11.2 million funding from our credit facility. This source of funding was offset by the net repurchase of $483,000 shares of our common stock. 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 credit facility due to less financing needs for our decreased levels of inventory and accounts receivable.

Working Capital

        Our net working capital at December 31, 2009 was $24.4 million, compared with $25.6 million at December 31, 2008. This slight decrease was primarily due to an increase in amounts drawn on our bank credit facility and a decrease in cash and cash equivalents, offset by a significant increase in accounts receivable and a decrease in accounts payable and accrued expenses for the year ended December 31, 2009.

Borrowings

        On April 30, 2008, we entered into a Loan, Security and Bulk Purchase Agreement and a Letter of Credit and Security Agreement (collectively, the "Agreement") with Wells Fargo Century, Inc. (the "Lender"), replacing the then existing asset-based secured credit facility with Wells Fargo HSBC Trade Bank, N.A. Pursuant to the Agreement, the Lender may advance up to $45,000,000 to us based on the expected collections of eligible receivables as well as value of our eligible inventory determined in accordance with the Agreement. 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 ($29.1 million at December 31, 2009). At December 31, 2009, the majority of our debt was based on foreign accounts receivable, a majority of which is insured. This credit facility has a two-year term ending April 2010 and is secured by all of our assets. The terms automatically roll over annually; however, the terms and conditions of such credit facility (including, without limitations, rates, eligibility, borrowing base and maximum line) may change. The interest rate for each borrowing under the credit facility is, at our option, either the Wells Fargo Bank N.A. prime rate minus 0.50% (3.25% less 0.50% at December 31, 2009) or the LIBOR rate plus 2.00% (0.25% plus 2.00% at December 31, 2009). As of December 31, 2009, we were in compliance with the covenants of the credit facility.

        At December 31, 2009 and December 31, 2008, amounts drawn against the credit facility were $25.5 million and $14.3 million, respectively. Credit lines have been an important part of operating and growing our business, and market changes affecting accounts receivable have, and will in the future, diminish or increase the borrowing base of available funds under our current credit line. At December 31, 2009 and December 31, 2008, advances were at 88% and 66% of the available borrowing base. At February 28, 2010, we had no balance against our line of credit.

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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 facilities 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. Thismillion. The decrease was related to our decreased use of our vendors' lines of credit facilities 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 offacilities due to less financing needs for our decreased levels of inventory and accounts receivable, compared to 2007, wherewhen we had cash provided from financing activities of $1.6 million as a result of funding from our bank line of credit.credit facilities.

Working Capital

        Our net working capital at December 31, 2008 was $25.6 million, compared with $33.4 million at December 31, 2007. ThisThe 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 $20.7 million in cash, a decrease of $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 business. The net cash used by operating activities was $9.2 million for the year ended December 31, 2007, which resulted primarily from increased inventory levels and increased accounts receivable. The $10.3 million increase in inventory at December 31, 2007 was primarily attributable to the build-up ofverykool® inventory in anticipation of future sales. Additionally, accounts receivable increased $3.2 million primarily due to increased sales prior to the period end reported. Accounts payable at December 31, 2007 increased $5.0 million, compared to December 31, 2006. This increase was related to our increased 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.

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 $342,000 for the year ended December 31, 2006. This use of cash was 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, 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 $37.0 million at December 31, 2006. This decrease was primarily due to increases in accounts payable 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.

Borrowings

        Until April 30, 2008, we had a line of credit from Wells Fargo HSBC Trade Bank N.A., which provided 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, 2008, the majority of our debt was based on foreign-insured accounts receivable.

        We have no other debt financing payable.

        At December 31, 2008 and December 31, 2007, the amounts drawn against our applicable line of credit were $14.3 million and $26.8 million, respectively. Credit lines have been important parts of operating our business, and market changes affecting accounts receivable could diminish the borrowing

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base of available funds. At December 31, 2008 and December 31, 2007, advances were at 66% and 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 is determined, which occurs at the time

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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 uponagreed-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 addedvalue-added services such as programming, software loading and quality assurance testing. These value addedvalue-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 addedvalue-added services are related to services prior to the shipment of the products, and no value addedvalue-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-goingongoing 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 activity.sale.

Allowance for Doubtful Accounts

        We recognize allowancesallowance 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 3030-day or net 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 increasing the risk of collectability 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 during 2008, as we adjusted some of our inventory down to market values.

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Contractual Obligations and Off-Balance Sheet Arrangements

        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 $534,000, $558,000, $628,000 and $417,000$628,000 for the years ended December 31, 2009, 2008 2007 and 2006,2007, respectively. We also have a line of credit facility, which is shown on our balance sheet as a current liability and the balance was $14.3$25.5 million and $26.8$14.3 million at December 31, 2009 and 2008, and 2007, respectively.

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        The following is a schedule of aggregate future minimum rental payments required by the above leases.

Recently Issued Accounting Pronouncements

Recently adopted:

        In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 157,Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurement. SFAS No. 157 also emphasizes        We have no off-balance sheet arrangements that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under SFAS No. 157, fair value measurementshave or are disclosed by level within that hierarchy. In February 2008, the FASB issued FASB Staff Position No. 157-2,Effective Date of FASB Statement No. 157, which permits a one-year deferral for the implementation of SFAS No. 157 with regard to nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. The Company adopted SFAS No. 157 for the fiscal year beginning January 1, 2008, except for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis for which delayed application is permitted until our fiscal year beginning January 1, 2009. The adoption of the remaining provisions of SFAS No. 157 is not expectedreasonably likely to have a material impactcurrent or future effect on the Company's consolidatedour financial statements.

        In February 2007, the FASB issued Statement 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 Investmentcondition, changes 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 itemcondition, revenues 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