Telanetix,Inc - FORM 10-Q/A

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q/A

Amendment No. 1

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2011

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 000-51995

TELANETIX, INC.

(Exact name of registrant as specified in its charter)

Delaware		77-0622733
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

11201 SE 8th Street, Suite 200 Bellevue, Washington		98004
(Address of principal executive offices)		(Zip Code)

(206) 621-3500

(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o Nox

As of August 10, 2011, 4,820,098 shares (post reverse stock split) of the issuer's common stock, par value $0.0001 per share, were outstanding. The common stock is the issuer's only class of stock currently outstanding.

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Telanetix, Inc.

Quarterly Report on Form 10-Q

For the Three Months Ended June 30, 2011

TABLE OF CONTENTS

		Page

EXPLANATORY NOTE

FORWARD LOOKING STATEMENTS

PART I - FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS	4
Item 2.	MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	30
Item 4.	CONTROLS AND PROCEDURES	30

PART II - OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS	31
Item 1A.	RISK FACTORS	31
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	31
Item 3.	DEFAULTS UPON SENIOR SECURITIES	31
Item 4.	(REMOVED AND RESERVED)	31
Item 5.	OTHER INFORMATION	31
Item 6.	EXHIBITS	31

SIGNATURES		32
EXHIBIT INDEX		33

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EXPLANATORY NOTE

We are filing this Amendment No. 1 (this “Amendment”) to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 (the “Form 10-Q”) for the purpose of correcting certain disclosure in Note 4 to our financial statements and in Management Discussion and Analysis of Financial Condition and Results of Operations related to our obligations under a registration rights agreement. In the Form 10-Q we erroneously reported that we had reached agreement to terminate a registration rights agreement between us and certain affiliates of Hale Capital Partners L.P. We did not terminate the agreement, but subsequent to the end of the quarter we did reach agreement to extend certain deadlines under the registration rights agreement as described in this Amendment. The language has been corrected on page 10 and page 22 of this Amendment. Except as set forth above, this Amendment does not reflect events occurring after the filing of the Form 10-Q (i.e., occurring after August 12, 2011) or modify or update those disclosures that may be affected by subsequent events.

In this report, unless the context indicates otherwise, the terms "Telanetix," "Company," "we," "us," and "our" refer to Telanetix, Inc., a Delaware corporation, and its wholly-owned subsidiaries.

On June 1, 2011, the Company affected a 1 to 75 reverse stock split of its common stock and preferred stock. The number of shares outstanding has been adjusted retrospectively to reflect the reverse stock split in all periods presented. Also, the exercise price and the number of common shares issuable under the Company’s share-based compensation plans and the authorized and issued share capital have been adjusted retrospectively to reflect the reverse stock split.

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or the "Securities Act," and Section 21E of the Securities Exchange Act of 1934 or the "Exchange Act." In some cases, you can identify forward looking statements by terms such as "may," "intend," "might," "will," "should," "could," "would," "expect," "believe," "anticipate," "estimate," "predict," "potential," or the negative of these terms. These terms and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected, including those set forth under the heading "Risk Factors" and elsewhere in, or incorporated by reference into, this report.

The forward-looking statements in this report are based upon management's current expectations, which management believes are reasonable. We cannot assess the impact of each factor on our business or the extent to which any factor or combination of factors, or factors we are unaware of, may cause actual results to differ materially from those contained in any forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements. These statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including:

·	new competitors and new technologies may further increase competition;

·	our operating costs may increase beyond our current expectations and we may be unable to fully implement our current business plan;

·	our ability to obtain future financing or funds when needed;

·	our ability to successfully obtain a diverse customer base;

·	our ability to protect our intellectual property through patents, trademarks, copyrights and confidentiality agreements;

·	our ability to attract and retain a qualified employee base;

·	our ability to respond to new developments in technology and new applications of existing technology before our competitors;

·	acquisitions, business combinations, strategic partnerships, divestures, and other significant transactions may involve additional uncertainties; and

·	our ability to maintain and execute a successful business strategy.

You should consider carefully the statements under "Item 1A. Risk Factors" in Part II of this report and other sections of this report, which address factors that could cause our actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect our business, operating results and financial condition. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements.

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PART I--FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

TELANETIX, INC.

Condensed Consolidated Balance Sheets

	June 30, 2011			December 31, 2010
	(Unaudited)
ASSETS
Current assets
Cash	$	2,078,418		$	2,330,111
Accounts receivable, net		1,906,380			1,590,022
Inventory		238,565			182,924
Prepaid expenses and other current assets		439,426			530,548
Total current assets		4,662,789			4,633,605
Property and equipment, net		2,287,274			2,641,731
Goodwill		7,044,864			7,044,864
Purchased intangibles, net		10,078,337			11,178,337
Other assets		426,402			583,632
Total assets	$	24,499,666		$	26,082,169

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable	$	1,690,772		$	1,609,488
Accrued liabilities		2,489,076			2,326,465
Deferred revenue		1,046,719			1,016,021
Income tax payable		33,400			225,000
Current portion of capital lease obligations		314,632			404,710
Current portion of long-term debt		2,400,000			1,200,000
Total current liabilities		7,974,599			6,781,684
Non-current liabilities
Deferred revenue, net of current portion		212,902			253,798
Capital lease obligations, net of current portion		142,390			116,251
Long-term debt, net of current portion		5,547,311			5,291,539
Total non-current liabilities		5,902,603			5,661,588
Total liabilities		13,877,202			12,443,272
Stockholders' equity (deficit)
Common stock, $.0001 par value; Authorized: 8,000,000 shares; Issued and outstanding: 4,820,098 and 4,594,262 at June 30, 2011 and December 31, 2010, respectively (1)		482			34,457
Additional paid in capital		43,854,008			43,569,588
Warrants		56,953			56,953
Accumulated deficit		(33,288,979	)		(30,022,101	)
Total stockholders' equity (deficit)		10,622,464			13,638,897
Total liabilities and stockholders' equity (deficit)	$	24,499,666		$	26,082,169

--------------------------------

(1) Prior year disclosures adjusted for the impact of the 1 for 75 reverse stock split as discussed in Note 2.

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

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TELANETIX, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three months ended June 30,							Six months ended June 30,
	2011				2010			2011			2010

Revenues		$	6,994,902		$	7,285,612		$	13,929,303		$	14,946,308

Cost of revenues			2,991,432			3,014,694			5,861,829			6,195,951

Gross profit			4,003,470			4,270,918			8,067,474			8,750,357

Operating expenses
Selling and marketing			1,727,112			1,806,783			3,475,405			3,383,105
General and administrative			1,839,118			1,890,672			3,740,197			3,852,539
Research, development and engineering			464,625			694,395			943,135			1,433,713
Depreciation			159,070			147,011			311,884			290,552
Amortization of purchased intangibles			550,000			550,000			1,100,000			1,100,000
Total operating expenses			4,739,925			5,088,861			9,570,621			10,059,909

Operating loss			(736,455	)		(817,943	)		(1,503,147	)		(1,309,552	)

Other income (expense)
Interest income			64			198			197			262
Interest expense			(919,411	)		(787,656	)		(1,763,928	)		(1,576,158	)
Change in fair market value of derivative liabilities			—			5,040,381			—			790,648
Total other income (expense)			(919,347	)		4,252,923			(1,763,731	)		(785,248	)

Income (loss) from continuing operations before taxes			(1,655,802	)		3,434,980			(3,266,878	)		(2,094,800	)

Income tax expense			—			—			—			—

Income (loss) from continuing operations			(1,655,802	)		3,434,980			(3,266,878	)		(2,094,800	)

Loss from discontinued operations			—			(71,346	)		—			(269,733	)

Net income (loss)		$	(1,655,802	)	$	3,363,634		$	(3,266,878	)	$	(2,364,533	)

Net income (loss) per share – basic and diluted
Continuing operations		$	(0.35	)	$	8.11		$	(0.70	)	$	(4.94	)
Discontinued operations			—			(0.17	)		—			(0.64	)
Net income (loss) per share(1)		$	(0.35	)	$	7.94		$	(0.70	)	$	(5.58	)

Weighted average shares outstanding – basic and diluted(1)			4,753,091			423,578			4,674,115			423,578

(1) Prior year disclosures adjusted for the impact of the 1 for 75 reverse stock split as discussed in Note 2.

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

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TELANETIX, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended June 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(3,266,878	)	$	(2,364,533	)
Adjustments to reconcile net loss to cash provided by operating activities:
Provision for doubtful accounts		(8,342	)		(87,187	)
Depreciation		893,616			882,557
Loss from discontinued operations		—			269,733
(Gain) loss on disposal of fixed assets		(4,678	)		165,570
Amortization of deferred financing costs		145,383			57,484
Amortization of intangible assets		1,100,000			1,100,000
Stock based compensation		250,445			291,162
Amortization of note discounts		1,011,339			1,236,758
Non-cash interest expense		444,432			-
Change in fair value of derivative liabilities		—			(790,648	)
Changes in assets and liabilities:
Accounts receivable		(308,016	)		242,812
Inventory		(55,641	)		(41,119	)
Prepaid expenses and other assets		102,970			(508,703	)
Accounts payable and accrued expenses		52,295			629,508
Accrued interest		—			218,930
Deferred revenue		(10,198	)		74,414
Net cash provided by operating activities		346,727			1,376,738

Cash flows from investing activities:
Purchase of property and equipment		(312,171	)		(381,490	)
Proceeds from disposal of fixed assets		7,938			26,503
Net cash used by investing activities		(304,233	)		(354,987	)

Cash flows from financing activities:
Payments on capital leases		(294,187	)		(423,778	)

Net cash used by financing activities		(294,187	)		(423,778	)

Cash flows from discontinued operations:
Net cash used by operating activities of discontinued operations		—			(126,235	)
Net used by discontinued operations		—			(126,235	)

Net (decrease) increase in cash		(251,693	)		471,738
Cash at beginning of the period		2,330,111			493,413
Cash at end of the period	$	2,078,418		$	965,151

Supplemental disclosures of cash flow information:
Interest paid	$	162,774		$	62,990

Non-cash investing and financing activities:
Property and equipment acquired through capital leases	$	230,248		$	169,517

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

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TELANETIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business

The Company is an IP communications company. Through its AccessLine-branded VoIP Services, the Company provides customers with a range of business phone services and applications. At the core of these business phone services are proprietary software components, all of which are developed internally and loaded on standard commercial grade servers. AccessLine phone services can be delivered with a variety of hosted features configured to meet the application needs of the customer. By delivering business phone service to the market in this manner, the Company's VoIP Services offer flexibility to customers and can serve a variety of business sizes.

AccessLine offers the following hosted VoIP Services: Digital Phone System (DPS), SIP Trunking Service and individual phone services. DPS replaces a customer's existing telephone lines with a VoIP alternative. It is sold as a complete solution where the Company bundles software applications and hosted network services with business-class phone equipment which is manufactured by third parties. This service is targeted at small businesses looking for a fully integrated solution that does not require expert assistance to install; the customer has the ability to select the number of locations, number of phone stations (up to 100), number of phone lines, and types of phones and phone numbers.

SIP Trunking Service is for larger businesses that already have their own PBX equipment and is targeted at those businesses with large calling volumes looking for cost effective alternatives to traditional carrier offerings. SIP Trunking Service does not include user equipment such as business phones, and can support businesses with hundreds of employees.

As part of its individual phone service product offerings, AccessLine offers a variety of other phone services, including, conferencing calling services, toll-free services, an automated attendant service with afterhours answering service that routes calls based on specific business needs, find-me and follow-me services, a full featured voice mail system that instantly contacts a customer via an email or cell phone text message the moment such customer receives a new voice mail or fax, and the ability to manage faxes online.

The Company's revenues principally consist of: monthly recurring fees, activation, and usage fees from the communication services and solutions outlined above. There are some ancillary one-time equipment charges associated with the Company’s DPS solution.

2. Basis of Presentation

The accompanying unaudited financial statements, consisting of the consolidated balance sheet as of June 30, 2011, the consolidated statements of operations for the three and six months ended June 30, 2011 and 2010, and the consolidated statements of cash flows for the six months ended June 30, 2011 and 2010, have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes typically found in the audited consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K. In the opinion of management, all adjustments (primarily consisting of normal recurring adjustments) considered necessary for a fair statement have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010.

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include those related to the allowance for doubtful accounts; valuation of inventories; valuation of goodwill, intangible assets and property and equipment; valuation of stock based compensation expense; the valuation of conversion features; and other contingencies. On an on-going basis, management evaluates these estimates. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions. Operating results for the three and six months ended June 30, 2011, are not necessarily indicative of the results that may be expected for the full fiscal year ending December 31, 2011.

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On June 1, 2011, the Company affected a 1 for 75 reverse stock split of its common stock and preferred stock. As a result, the number of shares outstanding has been adjusted retrospectively to reflect the reverse stock split in all periods presented. Also, the exercise price and the number of common shares issuable under the Company’s share-based compensation plans and the authorized and issued share capital have been adjusted retrospectively to reflect the reverse stock split.

Liquidity:

The Company's cash balance as of June 30, 2011 was $2.1 million. At that time, the Company had accounts receivable of $1.9 million and a working capital deficit of $3.3 million. However, current liabilities include certain items that will likely settle without future cash payments or otherwise not require significant expenditures by the Company including: deferred revenue of $1.0 million (primarily deferred up front customer activation fees), deferred rent of $0.1 million and accrued vacation of $0.5 million. The aforementioned items represent $1.6 million of total current liabilities as of June 30, 2011.

Current liabilities as of June 30, 2011 also include debt payments on the 2010 Notes, due to our majority shareholder, of $2.4 million. Additionally, based on an amendment in August 2011 (see Note 5), interest of $593,393 is also due to be paid on a monthly basis through June 2012. Any substantial inability to execute our business plan could negatively impact our ability to make payments in accordance with the contractual terms. Further, the 2010 Notes include financial covenants the Company must meet on a quarterly basis. The Company was not in compliance with certain covenants at June 30, 2011. The Company received a waiver for the violations and is not considered in default. Any potential inability to maintain compliance with the financial covenants or successfully obtain a waiver, if a violation occurs, could result in an event of default as defined in the agreement and negatively impact the Company’s ability to finance its operations.

The Company does not anticipate being in a positive working capital position in the next twelve months. However, if the Company continues to generate revenue and gross profit consistent with its growth in 2010 and maintain control of its variable operating expenses, the Company believes that its existing capital, together with anticipated cash flows from operations, will be sufficient to finance its operations through at least July 1, 2012.

Reclassifications:

Certain previously reported amounts have been reclassified to conform to the current year’s presentation. The reclassifications had no effect on previously reported net losses.

Recent Accounting Pronouncements:

In January 2010, the FASB issued guidance which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. See Note 5 – Fair Value Measurement for a discussion regarding Level 1, 2 and 3 fair-value measurements. The guidance is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

In December 2010, FASB issued ASU 2010-28, "Intangibles-Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task Force)." ASU 2010-28 provides amendments to Topic 350 that modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. As a result, goodwill impairments may be reported sooner than under current practice. ASU 2010-28 is effective for fiscal years and interim periods within those years, beginning after December 15, 2010, with early adoption not permitted. The adoption of ASU 2010-28 did not have a material impact on the Company's consolidated results of operation and financial condition.

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3. Discontinued Operation

During the three and six months ended June 30, 2010 the Company incurred $0.1 million and $0.3 million, respectively, in discontinued operations related to the wind down of the Company's telepresence video conferencing product line.

4. Recapitalization

Debenture Repurchase

On June 30, 2010, the Company entered into a securities purchase agreement with the holders of its outstanding debentures in the principal amount of $29.6 million. Under the terms of the agreement, the Company repurchased all of its outstanding debentures in exchange for payment of $7.5 million in cash, the holders of the Company's debentures exchanged all outstanding warrants they held for shares of the Company's common stock and the Company issued to such holders an additional number of shares of common stock, such that the holders collectively beneficially owned approximately 221,333 shares of common stock immediately following the completion of the transactions contemplated by the agreement. The Company paid the $7.5 million from the proceeds of its senior secured note private placement described below.

After giving effect to the transactions contemplated by the debenture repurchase described above and the transactions contemplated by the senior secured note private placement described below, the Company currently has $10.5 million of senior secured notes outstanding and all of its previously issued debentures, which had a principal amount of $29.6 million, were cancelled.

Senior Secured Note Private Placement

On June 30, 2010, the Company entered into a securities purchase agreement (the "Hale Securities Purchase Agreement") with affiliates of Hale Capital Management, LP (collectively, "Hale"), pursuant to which in exchange for $10.5 million, the Company issued to Hale $10.5 million of senior secured notes (the "2010 notes"), and 3,833,356 shares of its common stock. The carrying value assigned to the debt and equity was based on the relative fair value of each component as determined by a third party valuation specialist. The allocation between debt and equity resulted in a $5.7 million debt discount which will be amortized over the term of the 2010 notes using the effective interest method. A summary of the material terms of the 2010 notes is set forth in Note 5—2010 Notes, below.

Under the terms of the Hale Securities Purchase Agreement, the Company agreed to conduct a rights offering. In connection with the rights offering, depending on the amount of capital it raises, the Company and Hale agreed that the Company would either redeem up to $3.0 million of principal of the 2010 notes or that Hale would exchange up to $3.0 million of principal of the 2010 notes for shares of the Company's common stock. See "Note 5," below.

In August 2011, the independent directors of the Company approved, and the Company and Hale entered into a settlement agreement, pursuant to which (1) Hale released the Company from any obligation to conduct the rights offering, and (2) the Company released Hale from its "backstop" obligation to convert up to $3.0 million of the 2010 notes into common stock. As a result of the amendment, the principal amount of the 2010 notes outstanding remained at approximately $10.5 million, plus interest that was accrued to principal through June 30, 2011. In addition, under the settlement agreement, Hale granted the Company the right to defer cash payment of the interest on up to $3 million of principal (plus associated “PIK Interest”) through July 31, 2012 and have the amounts added to principal. The Company's scheduled payment obligations under the 2010 notes, assuming that it pays all of the interest current, will be approximately $250,000 per month through June 30, 2012 and will average approximately $415,000 per month for the remaining 24 months until maturity.

The Company agreed to a number of provisions in the Hale Securities Purchase Agreement that protect Hale's investment, including:

Most Favored Nation. For so long as the 2010 notes are outstanding and until Hale ceases to own at least 10% of the Company's outstanding common stock, if the Company (i) issues debt on terms that are more favorable than the terms of the 2010 notes, or (ii) issues common stock, preferred stock, equivalents or any other equity security on terms more favorable than those set out in the Hale Securities Purchase Agreement, then the terms of the 2010 notes and/or the Hale Securities Purchase Agreement shall automatically be amended such that Hale receives the benefit of the more favorable terms.

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Right of First Refusal. For so long as the 2010 notes are outstanding and until Hale ceases to own at least ten percent of the Company's outstanding common stock, Hale shall have a right of first refusal on any subsequent placement that the Company makes of common stock or common stock equivalents or any securities convertible into or exchangeable or exercisable for shares of its common stock.

Fundamental Transactions. For so long as the 2010 notes are outstanding and thereafter for as long as any of the Hale purchasers continue to own at least 20% of the common stock that they purchased under the Hale Securities Purchase Agreement, the Company cannot effect a transaction in which it consolidates or merges with another entity, conveys all or substantially all of its assets, permit another person or group to acquire more than 50% of its voting stock, or reorganize or reclassify its common stock without the consent of a majority in interest of the Hale purchasers. Additionally, the Company cannot effect such a transaction without obtaining the foregoing requisite consent if such transaction would trigger the most favored nation provision in the Hale Securities Purchase Agreement described above or if such transaction would otherwise involve the issuance of any equity securities or the incurrence of debt at a price that is less than the price paid in connection with the transaction consummated pursuant under the Hale Securities Purchase Agreement.

Post Closing Adjustment Shares. If at any time prior to July 2, 2012, the Company is required to make payment on certain identified contingent liabilities up to an aggregate amount of $769,539, then it will issue additional shares of common stock to Hale, such that the total percentage ownership of its fully diluted common stock immediately after the payment of such liabilities will equal the same percentage ownership that Hale would have had if the contingent payable had been paid prior to the closing under the Hale Securities Purchase Agreement.

Registration Rights Agreement

In connection with the Hale Securities Purchase Agreement, the Company entered into a registration rights agreement with Hale pursuant to which the Company agreed to file a registration statement with the SEC for the resale of the shares issued and issuable to Hale under the Hale Securities Purchase Agreement. The Company filed the registration statement with the SEC on September 30, 2010. The registration rights agreement contains penalty provisions in the event that the Company fails to secure the effectiveness of the registration statement by November 29, 2010, fails to file other registration statements the Company is required to file under the terms of the registration rights agreement in a timely manner or if the Company fails to maintain the effectiveness of any registration statement it is required to file under the terms of the registration rights agreement until the shares issued to Hale are sold or can be sold under Rule 144 without restriction or limitation (including volume restrictions) and without the requirement that the Company be in compliance with Rule 144(c)(1). In the event of any such failure, and in addition to other remedies available to Hale, the Company agreed to pay Hale as liquidated damages an amount equal to 1% of the purchase price for the shares to be registered in such registration statement. Such payments are due on the date we fail to comply with our obligation and every 30th day thereafter (pro rated for periods totaling less than 30 days) until such failure is cured. The registration statement covering the resale of the shares issued to Hale has not been declared effective. Hale and the Company have agreed to amend the term “Initial Effectiveness Deadline” set forth in Section 1(o) of the Registration Rights Agreement to read in its entirety as follows “Initial Effectiveness Deadline” means November 30, 2011.

Impact of Debenture Repurchase and Senior Secured Note Private Placement

In connection with the Hale Securities Purchase Agreement, on July 2, 2010, the Company received gross proceeds of $10.5 million. The Company incurred expenses of approximately $1.5 million in connection with the transactions contemplated by the Hale Securities Purchase Agreement, resulting in net proceeds of approximately $9.0 million. The Company used $7.5 million of these proceeds to repurchase its outstanding debentures and allotted the remaining $1.5 million for working capital purposes, including advertising and distribution programs for its Digital Phone Service products.

Merriman Curhan Ford acted as the Company's financial advisor in the transaction and was paid a fee of $682,500 in connection with the transaction. The Company also issued to Merriman Curhan Ford warrants to purchase 31,152 shares of its common stock. The warrants are exercisable at $2.889 per share for a period of 5 years.

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Stock Award Agreements

As a condition to the completion of the transactions contemplated by the Hale Securities Purchase Agreement, on July 2, 2010, the Company entered into stock award agreements with its employees who had earned compensation under its senior management incentive plans that had yet to be paid. The stock award agreements were entered into to eliminate all accrued and unpaid incentive compensation owed to those employees. Under the terms of the stock award agreements, each employee received 30% of his or her accrued incentive compensation in cash, which amounts were being withheld to pay applicable withholding taxes, and the balance in unregistered shares of the Company's common stock, calculated on the basis of one share being issued for every $2.889 of incentive compensation owed. In the aggregate, the Company paid $147,230 in cash and issued 118,912 shares of its common stock to employees in cancellation of $490,768 of earned and unpaid incentive compensation.

Tax Impact of the Recapitalization

During the quarter ended September 30, 2010, the Company recorded a one-time tax gain related to the Recapitalization. The provision relates to state income taxes resulting from the tax gain on debt restructure. For Federal purposes, the Company expects the net operating loss carryforwards to fully offset the debt restructure gain, resulting in no tax expense for Federal income tax purposes. Excluding the debt restructure gain, the Company continues to incur losses from operations. Accordingly, the Company expects to continue to record a full valuation allowance against its remaining net deferred tax assets until the Company sustains an appropriate level of taxable income through improved operations. In October 2010, the State of California revised its laws to suspend the use of net operating loss carryovers for the 2010 and 2011 tax years. The estimated impact of this law change resulted in California state income tax expense of approximately $225,000 in 2010.

5. The 2010 Notes

The following summarizes other terms of the 2010 notes are as follows:

Term. The 2010 notes are due and payable on July 2, 2014.

Interest. Interest accrues at a rate equal to the prime rate as published in The Wall Street Journal as of the first business day of each interest period plus 4.75% per annum and is payable at the end of each month, with the first payment due on July 31, 2010. Through June 30, 2011, the Company had the option to defer the monthly interest payments otherwise due and have the amount of interest deferred added to the principal balance of the 2010 notes.

Principal Payment. In July 2011 and continuing for the 11 months thereafter, principal payments of $200,000 per month are due on the last day of each month. Thereafter, the Company is required to pay principal in a monthly amount equal to the sum of (a) $316,667 and (b) the quotient determined by dividing the (i) aggregate amount of interest added to the principal amount by (ii) 24. Any remaining principal amount, if not paid earlier, is due and payable on July 2, 2014.

Early Redemption. As discussed in more detail below under the heading entitled, "Rights Offering," the Company has the right to redeem up to $3 million of the 2010 notes prior to maturity. In August 2011, the Company and Hale amended the Hale Securities Purchase Agreement to (1) cancel the Company's obligation to conduct the rights offering, and (2) cancel Hale's obligation to convert up to $3.0 million of the 2010 notes into common stock. As a result of the amendment, the principal amount of the 2010 notes outstanding remained at approximately $10.5 million, plus interest that was accrued to principal through July 31, 2011. The Company's scheduled payment obligations under the 2010 notes will be approximately $250,000 per month through June 30, 2012 and average approximately $415,000 per month for the remaining 24 months until maturity.

See "Rights Offering," below.

No Conversion Rights. The 2010 notes are not convertible other than in connection with the rights offering. See "Rights Offering," below.

Security. The 2010 notes are secured by all of the Company's assets under the terms of a pledge and security agreement that the Company and its subsidiaries entered into with Hale. Each of the Company's subsidiaries also entered into guarantees in favor of Hale, pursuant to which each subsidiary guaranteed the complete payment and performance by the Company of its obligations under the 2010 notes and related agreements.

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Covenants. The 2010 notes impose certain covenants on the Company, including: restrictions against incurring additional indebtedness, creating any liens on its property, entering into a change in control transaction, redeeming or paying dividends on shares of its outstanding common stock, entering into certain related party transactions, changing the nature of its business, making or investing in a joint venture, disposing of any of its assets outside of the ordinary course of business, effecting any subsequent offering of debt or equity, amending its articles of incorporation or bylaws, limiting its ability to enter into lease arrangements.

Events of Default. The 2010 notes define certain events of default, including: failure to make a payment obligation under the 2010 notes, failure to pay other indebtedness when due if the amount exceeds $250,000, bankruptcy, entry of a judgment against the Company in excess of $250,000 which are not discharged or covered by insurance, failure to observe other covenants of the 2010 notes or related agreements (subject to applicable cure periods), breach of representation or warranty, failure of Hale's security documents to be binding and enforceable, and casualty loss of any of the Company's assets that would have a material adverse effect on its business, and failure to meet 80% of quarterly financial targets from its annual operating budget, including cash, revenues and EBITDA. In the event of default, additional default interest of 4% will accrue on the outstanding balance. In addition, in the event of default, the Company may be required to redeem all or any portion of the 2010 notes at a price equal to 125% of the sum of the principal amount that such holder requests that it redeems plus accrued but unpaid interest on such principal amount plus any accrued and unpaid late charges with respect to such principal and interest. The Company was not in default for the three and six months ending June 30, 2011.

Change of Control. The Company is required to obtain the consent of the holders of the 2010 notes representing at least a majority of the aggregate principal amount of the 2010 notes then outstanding in order to enter into a change of control transaction. If such consent is obtained, the holders of the 2010 notes may require the Company to redeem all or any portion of such notes at a price equal to 125% of the sum of the principal amount that such holder requests that it redeems plus accrued but unpaid interest on such principal amount plus any accrued and unpaid late charges with respect to such principal and interest.

Rights Offering, Under the terms of the Hale Securities Purchase Agreement, the Company agreed to conduct a rights offering pursuant to which it would distribute at no charge to holders of its common stock non-transferable subscription rights to purchase up to an aggregate of 1,038,414 shares of common stock at a subscription price of $2.889 per share. Under the terms of the 2010 notes, the Company agreed to use the gross proceeds of the rights offering to redeem an aggregate of up to $3 million of principal amount of such notes. To the extent the gross proceeds of the rights offering are less than $3 million, the Company and Hale agreed that Hale would exchange the principal amount to be redeemed (up to $3 million) for shares of our common stock at an exchange price equal to the subscription price of the subscription rights. The Company paid Hale an aggregate of $60,000 in consideration of the foregoing. In addition, the Company agreed to pay Hale upon completion of the rights offering an amount of cash equal to the accrued and unpaid interest in respect of the principal amount of the senior secured notes redeemed or exchanged for shares of common stock in connection with the rights offering.

In August 2011, the independent directors of the Company approved, and the Company and Hale entered into a settlement agreement, pursuant to which (1) Hale released the Company from any obligation to conduct the rights offering, and (2) the Company released Hale from its "backstop" obligation to convert up to $3.0 million of the 2010 notes into common stock. As a result of the amendment, the principal amount of the 2010 notes outstanding remained at approximately $10.5 million, plus interest that was accrued to principal through June 30, 2011. In addition, under the settlement agreement, Hale granted the Company the right to defer cash payment of the interest on up to $ 3 million of principal (plus associated “PIK Interest”) through July 31, 2012 and have the amounts added to principal. The Company's scheduled payment obligations under the 2010 notes, assuming that it pays all of the interest current, will be approximately $250,000 per month through June 30, 2012 and will average approximately $415,000 per month for the remaining 24 months until maturity.

The following table summarizes information relative to the 2010 Notes at June 30, 2011:

	June 30, 2011
Face value of debt	$	10,500,000
Plus: accreted interest		871,495
Less: unamortized debt discounts		(3,424,184	)
2010 Notes, net of discounts		7,947,311
Less current portion		(2,400,000	)
2010 Notes, long term portion	$	5,547,311

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Aggregate annual principal payments of long-term debt for the periods ending December 31st are stated below:

2011	$	1,200,000
2012	$	3,502,213
2013	$	4,604,426
2014	$	2,064,856
Total	$	11,371,495

The value assigned to the debt and related discount and equity associated with issuance of the Recapitalization were calculated by an independent valuation using relative fair values.

6. Fair Value Measurements

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the authoritative guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require us to develop our own assumptions. This hierarchy requires companies to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

On July 2, 2010, in connection with the Recapitalization, the Company repurchased all if it’s then-outstanding debentures and converted all of its then-outstanding warrants that were issued in connection with such debentures. As a result, the Company eliminated the beneficial conversion feature derivative liability. Prior to the recapitalization the Company recorded a liability related beneficial conversion features, which was revalued at fair value at the end of each quarter with the gain or loss being recognized in the consolidated statement of operations. See Note 7 – Convertible Debentures.

7. Convertible Debentures

As discussed in Note 4 – Recapitalization, on July 2, 2010, the Company repurchased all of the debentures that were subject of the Amendment Agreement and all of the Company’s warrants there were subject of the Amendment Agreement were cancelled. The terms of the debentures, prior to their cancellation, was as follows:

Term. The convertible debentures were due and payable on June 30, 2014.

Interest. When originally issued, interest accrued at the rate of 12.0% per annum and was payable monthly, commencing on August 1, 2008. In December 2008, the parties agreed to amend the interest payment provisions to eliminate monthly interest payments and to provide that interest was payable quarterly at the rate of (i) 0% per annum from October 1, 2008 until September 30, 2009, (ii) 13.5% per annum from October 1, 2009 until September 30, 2012 and (iii) 18% per annum from October 1, 2012 until maturity. In May 2009, the parties again agreed to amend the interest payment provisions to reduce the interest rate to 0% through June 30, 2011 and then to 5% per annum thereafter.

Principal Payment. The principal amount of the convertible debenture, if not paid earlier, was due and payable on June 30, 2014.

Payments of Interest. Interest payments, as amended in May 2009, were due quarterly on January 1, April 1, July 1 and October 1, commencing on October 1, 2011. Interest payments are required to be paid in cash.

Early Redemption. The Company had the right to redeem the convertible debentures before their maturity by payment in cash of the then outstanding principal amount plus (i) accrued but unpaid interest, (ii) an amount equal to all interest that would have accrued if the principal amount subject to such redemption had remained outstanding through the maturity date and (iii) all liquidated damages and other amounts due in respect of the debenture. To redeem the convertible debentures the Company was required to meet certain equity conditions. The payment of the convertible debentures would occur on the 10th day following the date the Company gave the holders notice of the Company's intent to redeem the convertible debentures. The Company agreed to honor any notices of conversion received from a holder before the pay off date of the convertible debentures.

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Voluntary Conversion by Holder. When originally issued, the debentures were convertible at any time at the discretion of the holder at a conversion price per share of $93.75, subject to adjustment including full-ratchet, anti-dilution protection. The conversion price was reduced to $30.00 with the December 2008 amendment and further reduced to $22.50 with the May 2009 amendment.

Forced Conversion. Subject to compliance with certain equity conditions, the Company also has the right to force conversion if the VWAP for its common stock exceeded 200% of the then effective conversion price for 20 trading days out of a consecutive 30 trading day period. Any forced conversion is subject to the Company meeting certain equity conditions and is subject to a 4.99% cap on the beneficial ownership of the Company’s shares of common stock by the holder and its affiliates following such conversion.

Covenants. The convertible debentures imposed certain covenants on the Company, including restrictions against incurring additional indebtedness, creating any liens on the Company’s property, amending its certificate of incorporation or bylaws, redeeming or paying dividends on shares of its outstanding common stock, and entering into certain related party transactions. The convertible debentures defined certain events of default, including without limitation failure to make a payment obligation, failure to observe other covenants of the convertible debenture or related agreements (subject to applicable cure periods), breach of representation or warranty, bankruptcy, default under another significant contract or credit obligation, delisting of the Company's common stock, a change in control, failure to be in compliance with Rule 144(c)(1) for more than 20 consecutive days, or more than an aggregate of 45 days in any 12 month period, or if any other conditions exist for such a period of time that the holder is unable to sell the shares issuable upon conversion of the debenture pursuant to Rule 144 without volume or manner of sale restrictions, or failure to deliver share certificates in a timely manner. In the event of default, the holders of the convertible debentures had the right to accelerate all amounts outstanding under the debenture and demand payment of a mandatory default amount equal to 130% of the amount outstanding plus accrued interest and expenses.

Under the terms of the Amendment Agreement in May 2009, the Company also agreed to add certain covenants to the PIPE Debentures, including a requirement to maintain at least $300,000 in cash at all times while the PIPE Debentures are outstanding, to sustain a level of gross revenue each quarter equal to at least 80% of the average gross revenue for the trailing two quarters, and commencing with the period ended June 30, 2009, to maintain a positive adjusted EBITDA in each rolling two quarter period. For example, ending June 30, 2010, the sum of the three-month adjusted EBITDA of the three months ended December 31, 2009 and the three months ended June 30, 2010 must be at least $0.00 or greater. Adjusted EBITDA is calculated by taking the Company’s net income for the applicable period, and adding to that amount the sum of the following: (i) any provision for (or less any benefit from) income taxes, plus (ii) any deduction for interest expense, net of interest income, plus (iii) depreciation and amortization expense, plus (iv) non-cash expenses (such as stock-based compensation and warrant compensation), plus (v) expenses related to changes in fair market value of warrant and beneficial conversion features, plus (vi) expenses related to impairment of tangible and intangible assets. The Company was in compliance with all covenants at June 30, 2010.

Security. The Company’s performance of its obligations under the convertible debentures was secured by all of the Company's assets under the terms of the amended and restated security agreement the Company and its subsidiaries entered into with the holders of the June 2008 debentures. Each of the Company's subsidiaries also entered into guarantees in favor of the investors, pursuant to which each subsidiary guaranteed the complete payment and performance by the Company of its obligations under the debentures and related agreements.

The unamortized discounts on the convertible debentures issued in December 2006, August 2007 and March 2008 were carried forward as discounts on the convertible debentures issued in June 2008, and will be amortized to interest expense through June 30, 2014. The discounts on the convertible debentures issued in August 2008 and December 2008 will be amortized to interest expense through June 30, 2014. The change in the fair market value of the beneficial conversion feature liability as a result of the decrease of the conversion price of the debentures from $30.00 to $22.50 per the Amendment Agreement was recorded as additional debt discount of $4.0 million on May 8, 2009. See Note 4 – Securities Amendment Agreement.

As discussed above under the caption “interest”, when originally issued, interest accrued at the rate of 12.0% per annum and was payable monthly, commencing on August 1, 2008. In December 2008, the parties agreed to amend the interest payment provisions to eliminate monthly interest payments and to provide that interest was payable quarterly at the rate of (i) 0% per annum from October 1, 2008 until September 30, 2009, (ii) 13.5% per annum from October 1, 2009 until September 30, 2012 and (iii) 18% per annum from October 1, 2012 until maturity. In May 2009, the parties again agreed to amend the interest payment provisions to reduce the interest rate to 0% through June 30, 2011 and then to 5% per annum thereafter. The Company recorded interest expense for the three and six months ended June 30, 2010, at the effective interest rate of the convertible debentures during that period.

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For each reporting period that the convertible debentures were outstanding, the Company assessed the value of its convertible debentures which were accounted for as derivative financial instruments indexed to and potentially settled in its own stock. At June 30, 2010, the Company determined that the beneficial conversion feature in the convertible debentures represented an embedded derivative liability. Accordingly, the Company bifurcated the embedded conversion feature and accounted for it as a derivative liability because the conversion price and ultimate number of shares can be adjusted if the Company subsequently issues common stock at a lower price and it was deemed possible the Company could have to net cash settle the contract if there were not enough authorized shares to issue upon conversion.

The convertible debentures contained embedded derivative features, which were accounted for at fair value as a compound embedded derivative at June 30, 2010. This compound embedded derivative included the following material features: (1) the standard conversion feature of the debentures; (2) a reset of the conversion price condition for subsequent equity sales; (3) the Company’s ability to pay interest in cash or shares of its common stock; (4) optional redemption at the Company’s election; (5) forced conversion; (6) holder’s restriction on conversion; and (7) a default put.

The Company, with the assistance of an independent valuation firm, calculated the fair value of the compound embedded derivative associated with the convertible debentures utilizing a complex, customized Monte Carlo simulation model suitable to value path dependant American options. The model uses the risk neutral methodology adapted to value corporate securities. This model utilized subjective and theoretical assumptions that can materially affect fair values from period to period.

At June 30, 2010, the Company recorded beneficial conversion liabilities of $3.3 million. For the three and six months ended June 30, 2010, the Company recognized other income of $5.0 million and other income of $0.8 million, respectively, related to the change in fair market value of the beneficial conversion liabilities.

All of the Company’s debentures were repurchased and cancelled as of July 2, 2010, and the beneficial conversion feature derivative liability was eliminated.

8. Warrants and Warrant Liabilities

In connection with its various financings through December 2008, the Company issued warrants to purchase shares of common stock in conjunction with the sale of its convertible debentures. The Company issued such warrants in December 2006, February 2007, August 2007, March 2008, August 2008 and December 2008. In May 2009, the Company restructured the terms of the then-outstanding debentures and all of the Company’s then-outstanding warrants issued in connections with the Debentures pursuant to the terms of the Amendment Agreement. In connection with the Recapitalization, the Company repurchased all of its then-outstanding debentures and cancelled substantially all of its then-outstanding warrants. See Note 7 – Convertible Debentures.

Under the terms of the Amendment Agreement, the holders of the then-outstanding warrants were granted the right to exchange their outstanding warrants for shares of the Company’s common stock at the rate of 1.063 shares of common stock, subject to adjustment for stock splits and dividends. In exchange, the price-based anti-dilution protection under the warrants was eliminated. Previously the exercise price of the warrants would decrease, and the number of shares issuable upon exercise would increase, generally, each time the Company issued common stock or common stock equivalents at a price less than the exercise price of the warrants. The Amendment Agreement eliminated the potential for future price-based dilution from the warrants, and accordingly, the warrants are no longer a derivative liability and their value as of May 8, 2009, was reclassed to equity.

On July 2, 2010, in connection with the Recapitalization, the Company eliminated all of the warrants is issued in connection with debentures and none of those warrants are outstanding as of December 31, 2010. See Note 7 – Convertible Debentures.

There were 36,661 shares subject to warrants at a weighted average exercise price of $22.5 at June 30, 2011and December 31, 2010.

The following table summarizes information about warrants outstanding at June 30, 2011:

Exercise Prices		Number of Shares Subject to Outstanding Warrants and Exercisable	Weighted Average Remaining Contractual Life (years)
$	2.90	31,152	4.01
$	93.75	1,400	1.92
$	129.75	2,667	1.74
$	144.00	1,042	1.74
$	300.00	400	1.63
		36,661

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9. Business Risks and Credit Concentration

The Company’s cash is maintained with a limited number of commercial banks, and are invested in the form of demand deposit accounts. Deposits in these institutions may exceed the amount of FDIC insurance provided on such deposits.

The Company markets its products to resellers and end-users primarily in the United States. Management performs ongoing credit evaluations of the Company’s customers and maintains an allowance for potential credit losses. There can be no assurance that the Company’s credit loss experience will remain at or near historic levels. One customer accounted for 12% of gross accounts receivable at June 30, 2011. One customer accounted for 16% of gross accounts receivable at June 30, 2010.

No one customer accounted for more than 10% of the Company’s revenue during the three and six months ended June 30, 2011 and June 30, 2010. During the first quarter of 2010, the Company received notice from two of its customers that they would be terminating service during the course of 2010. This service is an older product offering that had been in place with these customers for several years. The Company had known for some time that the customers would move away from the service eventually and the revenue generated by these customers had been declining over recent years. Revenue received from these customers accounted for approximately 0.00% during the three and six months ended June 30, 2011, as compared to 9% and 12% or revenue during the three and six months ended June 30, 2010.

The Company relies on primarily one third party network service provider for network services. If this service provider failed to perform on its obligations to the Company, such failure could materially impact future operating results, financial position and cash flows.

10. Commitments and Contingencies

Leases

The Company has non-cancelable operating and capital leases for corporate facilities and equipment.

Minimum Third Party Network Service Provider Commitments

The Company has a contract with a third party network service provider that facilitates interconnects with a number of third party network service providers. The contract contains a minimum usage guarantee of $0.2 million per monthly billing cycle and expires in July 2012. The cancellation terms are a ninety (90) day written notice prior to the extended term expiring.

Litigation

From time to time and in the course of business, the Company may become involved in various legal proceedings seeking monetary damages and other relief. The amount of the ultimate liability, if any, from such claims cannot be determined. However, in the opinion of management, there are no legal claims currently pending or threatened against the Company that would be likely to have a material adverse effect on its financial position, results of operations or cash flows.

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11. Stock Based Compensation

Stock Option Plan

The Company maintains two equity plans: the 2005 Equity Incentive Plan (the “2005 Plan”) and the 2010 Stock Incentive Plan (the “2010 Plan”).

The 2005 Plan, which was approved by the Company’s stockholders in August 2006, permits the Company to grant shares of common stock and options to purchase shares of common stock to the Company’s employees for up to 5 million shares of common stock. The Company believes that such awards better align the interests of its employees with those of its stockholders. Option awards are generally granted with an exercise price that equals the market price of the Company's stock at the date of grant; these option awards generally vest based on 3 years of continuous service and have 10-year contractual terms. On November 8, 2007, the Board of Directors approved an amendment to the 2005 Plan to increase the number of shares of common stock available for grant to 113,333 shares. On December 11, 2008, the Board of Directors approved an additional amendment to the 2005 Plan to increase the number of shares of common stock available for grant to 206,667 shares. At June 30, 2011 there were 127,256 options outstanding under the 2005 plan. The Board of Directors has indicated that it does not intend to make any further option grants under the 2005 Plan.

The 2010 Plan, which was approved by the Company’s stockholders in July 2010, permits the Company to grant options to purchase, and other stock-based awards covering, in the aggregate 1,189,198 shares of the Company’s common stock to the Company’s employees, directors or consultants. The Company believes that such awards will aid in recruiting and retaining key employees, directors or consultants and to motivate such employees, directors or consultants to exert their best effort on behalf of the Company. Option awards are granted in four Tranches with Tranche 1 shares having an option price of $3.00 per share and Tranches 2, 3, and 4 having an option price of $5.778 per share. Tranche 1 option awards vest fifty percent (50%) of the awarded shares upon Hale receiving cash proceeds in return on its Invested Capital in the Company and its subsidiaries which cash proceeds equal no less than one times its Invested Capital plus a four percent (4%) annual return on such Invested Capital, compounded annually (the “Tranche 1 Return”). Notwithstanding the foregoing and the failure of Hale to have achieved the Tranche I Return, Tranche 1 shares shall vest with respect to ten percent (10%) of such Tranche 1 shares on each of the first, second, and third anniversaries of the Effective Date, irrespective of whether such Tranche 1 shares were issued as of such dates subject to the Participant’s continued employment in good standing with the Company on each such anniversary. Tranche 2 option awards vest sixteen and sixty-fifth one hundredths percent (16.65%) upon Hale receiving cash proceeds in return on its Invested Capital in the Company and its subsidiaries which cash proceeds equal no less than two times its Invested Capital plus four percent (4%) annual return on such Invested Capital, compounded annually and subject to the Participant’s continued employment in good standing with the Company on the Tranche 2 vesting date. Tranche 3 option awards vest sixteen and sixty-fifth one hundredths percent (16.65%) upon Hale receiving cash proceeds in return on its Invested Capital in the Company and its subsidiaries which cash proceeds equal no less than three times its Invested Capital plus four percent (4%) annual return on such Invested Capital, compounded annually and subject to the Participant’s continued employment in good standing with the Company on the Tranche 3 vesting date. Tranche 4 option awards vest sixteen and seventieth one hundredths percent (16.67%) upon Hale receiving cash proceeds in return on its Invested Capital in the Company and its subsidiaries which cash proceeds equal no less than four times its Invested Capital plus four percent (4%) annual return on such Invested Capital, compounded annually and subject to the Participant’s continued employment in good standing with the Company on the Tranche 4 vesting date. Option under the 2010 Plan shall be exercisable at such time and upon such terms and conditions as may be determined by the Committee, but in no event shall an Option be exercisable more than ten years after the date it is granted.

An amendment to the 2010 Plan (the “2010 Plan Amendment”) was approved by the Company’s stockholders and became effective in May 2011. The 2010 Plan Amendment was adopted in connection with the terms of the Hale Securities Purchase Agreement dated June 30, 2010. Pursuant to Section 1(e) of the Hale Securities Purchase Agreement the Company agreed to grant shares of common stock to Hale, in the event that the Company received a notice that it is obligated to pay certain specified contingent liabilities within two years of the closing (a “Contingent Share Issuance”). The Company received such notice in April 2011, and in accordance with the terms of the Hale Securities Purchase Agreement, the Company issued an aggregate of 225,576 shares of common stock to Hale. The Hale Securities Purchase Agreement provides that in the event of a Contingent Share Issuance a proportionate adjustment would be made to the number of shares of our common stock reserved under the 2010 Plan. Based on the Contingent Share Issuance, the Company’s board of directors approved an increase in the number of shares of common stock subject to the 2010 Plan from 1,189,198 to 1,232,121 shares. In addition the 2010 Plan Amendment provides that the maximum aggregate number of shares available for issuance under the Plan will increase automatically by one share for every four shares issued in any future Contingent Share Issuance up to a maximum of 1,493,333 shares.

A summary of option activity under the 2005 Plan and 2010 Plan as of June 30, 2011, and changes during the three months then ended is presented below:

	Shares			Weighted-Average Exercise Price
Outstanding at December 31, 2010		954,979		$	6.00
Granted		192, 330			4.40
Exercised		—			—
Forfeited or expired		(118,332	)		4.40
Outstanding at June 30, 2011		1,028,977		$	5.66

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The options outstanding and currently exercisable by exercise price at June 30, 2011 are as follows:

		Stock options outstanding				Stock Options Exercisable
Range of Exercise Prices		Number Outstanding	Weighted-Average Remaining Contractual Term (Years)	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Remaining Contractual Term (Years)	Weighted-Average Exercise Price
$	3.00 to 4.50	452,188	9.49	$	3.00	45,647	9.43	$	3.02
$	4.50 to 7.50	560,062	8.85	$	5.66	105,343	6.11	$	5.20
$	7.50 to 11.25	11,313	4.03	$	7.90	11,258	4.01	$	7.88
$	191.22 to 262.43	5,414	6.09	$	221.91	5,414	6.09	$	221.91
		1,028,977	9.06	$	5.66	167,662	6.87	$	11.78

As of June 30, 2011 and December 31, 2010, 167,662 and 129,631 outstanding options were exercisable at an aggregate average exercise price of $11.78 and $14.25, respectively. The aggregate intrinsic value of stock options outstanding and stock options exercisable at June 30, 2011 was less than $0.1 million.

As of June 30, 2011, total compensation cost related to non-vested stock options not yet recognized was $2.5 million, of the $2.5 million, $0.9 million is expected to recognized over the next three years on a weighted average basis, and includes stock options with contingent vesting. The remaining $1.6 million is related to stock options in Tranches 2, 3, and 4 with contingent vesting which will be recognized when it is probable the options will become exercisable.

Valuation and Expense Information

The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors based upon estimated fair values. The following table summarizes stock-based compensation expense recorded for the six months ended June 30, 2011 and 2010, and its allocation within the Consolidated Statements of Operations:

	June 30,
	2011		2010
Selling and marketing	$	62,934	$	62,492
General and administrative		100,993		140,068
Research and development		86,518		88,602
Stock based compensation included in continuing operations		250,445		291,162
Stock based compensation in discontinued operations		-		143,498
Total stock-based compensation expense related to employee equity awards	$	250,445	$	434,660

Valuation Assumptions:

The Company uses the Black Scholes option pricing model in determining its option expense. The weighted-average estimated fair value of employee stock options granted during the six months ended June 30, 2011 was $2.68 per share. There were no options granted during the three months ended June 30, 2011. There were no options granted during the three and six months ended June 30, 2010. The fair value of each option is estimated on the date of grant using the Black Scholes option pricing model and is recognized as expense using the straight-line method over the requisite service period.

As the stock-based compensation expense recognized in the Consolidated Statements of Operations is based on awards ultimately expected to vest, such amounts have been reduced for estimated forfeitures estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

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12. Computation of Net Loss Per Share

Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all potential common stock equivalents (convertible preferred stock, convertible debentures, stock options, and warrants) are converted or exercised. The calculation of diluted net loss per share excludes potential common stock equivalents if the effect is anti-dilutive. The Company's weighted average common shares outstanding for basic and dilutive are the same because the effect of the potential common stock equivalents is anti-dilutive. The Company has the following dilutive common stock equivalents as of June 30, 2011 and 2010, which were excluded from the net loss per share calculation because their effect is anti-dilutive.

	Three months ended June 30,				Six months ended June 30,
	2011		2010		2011		2010
Convertible Debentures		-		1,317,747		-		1,317,747
Stock Options		1,028,977		140,474		1,028,977		140,474
Warrants		36,661		169,276		36,661		169,276
Total		1,065,638		1,627,497		1,065,638		1,627,497

13. Subsequent Events

On August 5, 2011, we reached agreement with Hale Capital Partners, L.P. to terminate our previously announced rights offering and Hale’s obligation to backstop the rights offering. We also agreed to modify certain payment obligations under our understanding senior secured note.

Under the terms of a Settlement Agreement between us and Hale, Hale has released us from our obligation to conduct the rights offering and from certain other representations in the Securities Purchase Agreement. We, in turn, released Hale from its backstop obligations. As a result, we will not be conducting the rights offering and will withdraw the related registration statement (registration no, 333-169174) previously filed with the SEC. Hale will not be required to convert any portion of the $10.5 million senior secured note into shares of our common stock.

Interest accrues on the senior secured note at a rate equal to the prime rate as published in the Wall Street Journal as of the first business day of each interest period plus 4.75% per annum and is payable at the end of each month. Through June 30, 2011, we had the option to defer the monthly interest payments otherwise due and to have the amount of interest deferred added to the principal balance of the senior secured note. We elected this option for all interest accruing through June 30, 2011. In connection with the Settlement Agreement, Hale has agreed to continue this option with respect to monthly interest payments on up to $3 million of principal on the senior secured note through June 30, 2012.

Our scheduled payment obligations under the senior secured note, assuming that we pay all of the interest current, will be approximately $250,000 per month through June 30, 2012 and will average approximately $415,000 per month for the remaining 24 months until maturity.

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this report. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including without limitation, the disclosures made under "Item 1A. Risk Factors" included in Part II of this report and in our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2010, previously filed with the SEC.

Overview

Business

We are an IP communications company, offering a range of communications solutions from hosted IP voice and conferencing products to text and data collaboration products and services. Our subsidiary, AccessLine, offers the following hosted VoIP Services: Digital Phone Service, SIP Trunking Service and Individual Phone Services.

Digital Phone Service replaces a customer's existing telephone lines with a VoIP alternative. It is sold as a complete solution where we bundle our software applications and hosted network services with business-class phone equipment which is manufactured by third parties. The service is designed to be easy to install, set-up and use, and at a lower cost than traditional phone service. This service is targeted at small businesses looking for a fully integrated solution that does not require expert assistance to install; the customer has the ability to select the number of phone stations (from 1 to 100), number of phone lines (from 1 to 100) and types of phone numbers.

SIP Trunking Service is for larger businesses that already have their own PBX equipment and is targeted at those businesses with large calling volumes looking for cost effective alternatives to traditional carrier offerings. SIP Trunking Service does not include user equipment such as business phones. The service involves routing calls over internet data networks to avoid tariffs and reduce expenses for larger enterprises. This service can support businesses with hundreds of employees.

As part of its Individual Phone Service product offerings, AccessLine offers a variety of other phone services, including, conferencing calling services, toll-free service plans, a virtual phone system with after hours answering service that routes calls based on specific business needs, find-me and follow-me services, a full featured voice mail system that instantly contacts a customer via an email or cell phone text message the moment such customer receives a new voice mail or fax, and the ability to manage faxes from virtually anywhere.

Our revenues principally consist of: monthly recurring charges, activation, and usage fees from communication solutions, which include mobility solutions, PBX enhancements, single number solutions and unified messaging, voice messaging, paging, and bundled solutions of phone equipment and service.

We differentiate our VoIP Services on the bases of the quality of our service, the comprehensiveness of our solutions and the quality of our customer support. Our engineers have refined our network infrastructure and our software to provide, robust, scalable, and reliable solutions. We have written substantially all of the software used in our network and applications. As a result, we have greater visibility into the software, a greater understanding of its function, and believe that we can respond more quickly in the development of new features and functions or to customize an application to meet customer demand. This level of understanding has allowed us to simplify the user experience for our customers, such as our Digital Phone System which can be self-installed by the customer. Our network architecture is designed to provide redundancy, with multiple failover layers, and scalability. Finally, we have also written tools that augment and enhance our customer support functions, providing greater access to information and accelerating our call response rates.

Recapitalization

Our overriding objective is to grow revenue while achieving operating profitability and generating cash from operations. In 2010 we addressed this objective through the growth in our core voice businesses and a recapitalization which substantially reduced our outstanding debt, and provided additional working capital.

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We experienced growth in revenue and gross profit for our AccessLine division in 2010. We increased revenue during 2010 through, in part, more efficiency in our advertising and also through our success in selling our SIP Trunking Service through direct and agent channels. Our Digital Phone Service continues to grow month over month. We increased our year-to-date gross profit percentage through our continued progress in optimizing our network configuration. Additionally, we have reduced operating expenses, in part, through reducing our staffing levels.

Debenture Repurchase

On June 30, 2010, we entered into a securities purchase agreement with the holders of our outstanding debentures in the principal amount of $29.6 million. Under the terms of the agreement, we repurchased all of our outstanding debentures in exchange for payment of $7.5 million in cash, the holder of the debentures exchanged all outstanding warrants they held for shares of our common stock and we issued to such holder an additional number of shares of our common stock, such that the holder collectively and beneficially owned approximately 221,333 shares of our common stock immediately following the completion of the transactions contemplated by the agreement. We paid $7.5 million from the proceeds of our senior secured note private placement described below.

After giving effect to the transactions contemplated by the debenture repurchase described above and the transactions contemplated by the senior secured note private placement described below, we currently have $10.5 million of senior secured notes outstanding and all our previously issued debentures, which had a principal balance of $29.6 million, were cancelled.

Senior Secured Notes Private Placement

On June 30, 2010, we entered into a securities purchase agreement, which we refer to as the “Hale Securities Purchase Agreement” in this report, with affiliates of Hale Capital Management, LP, whom we refer to collectively as “Hale” in this report, pursuant to which in exchange for $10.5 million, we issued to Hale $10.5 million of senior secured notes, which we refer to as the “2010 notes” in this report, and 3,833,356 unregistered shares of our common stock. For a summary of material terms of the 2010 notes see “Commitments and Contingencies” below.

We agreed to a number of provisions in the Hale Securities Purchase Agreement that protect Hale’s investment, including:

Most Favored Nation. For so long as the 2010 notes are outstanding and until Hale ceases to own ten percent of our outstanding common stock, if we (i) issue debt on terms that are more favorable than the terms of the 2010 notes, or (ii) issue common stock, preferred stock, equivalents or any other equity security on terms more favorable than those set out in the Hale Securities Purchase Agreement, then the terms of the 2010 notes and/or the Hale Securities Purchase Agreement shall automatically be amended such that Hale receives the benefit of the more favorable terms.

Right of First Refusal. For so long as the 2010 notes are outstanding and until Hale ceases to own ten percent of our outstanding common stock, Hale shall have a right of first refusal on any subsequent placement that we make of common stock or common stock equivalents or any securities convertible into or exchangeable or exercisable for shares of our common stock.

Fundamental Transactions. For so long as the 2010 notes are outstanding and thereafter for as long as any of the Hale purchasers continue to own 20% of the common stock that they purchased under the Hale Securities Purchase Agreement, we cannot effect a transaction in which we consolidate or merge with another entity, convey all or substantially all of our assets, permit another person or group to acquire more than 50% of our voting stock, or reorganize or reclassify our common stock without the consent of a majority in interest of the Hale purchasers. Additionally, we cannot effect such a transaction without obtaining the foregoing requisite consent if such transaction would trigger the most favored nation provision in the Hale Securities Purchase Agreement described above or if such transaction would otherwise involve the issuance of any equity securities or the incurrence of debt at a price that is less than the price paid in connection with the transaction consummated pursuant under the Hale Securities Purchase Agreement.

Post Closing Adjustment Shares. If at any time prior to July 2, 2012, we are required to make payment on certain identified contingent liabilities up to an aggregate amount of $769,539, then we will issue additional shares of common stock to Hale, such that the total percentage ownership of our fully diluted common stock immediately after the payment of such liabilities will equal the same percentage ownership that Hale would have had if the contingent payable had been paid prior to the closing under the Hale Securities Purchase Agreement.

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Registration Rights Agreement

In connection with the Hale Securities Purchase Agreement, we entered into a registration rights agreement with Hale pursuant to which we have agreed to file a registration statement with the SEC for the resale of the shares issued and issuable to Hale under the Hale Securities Purchase Agreement. We filed that registration statement on September 30, 2010. The registration rights agreement contains penalty provisions in the event that we fail to secure the effectiveness of that registration statement by November 29, 2010, fail to file other registration statements we are required to file under the terms of the registration rights agreement in a timely manner or if we fail to maintain the effectiveness of any registration statement we are required to file under the terms of the registration rights agreement until the shares issued to Hale are sold or can be sold under Rule 144 without restriction or limitation (including volume restrictions) and without the requirement that our company be in compliance with Rule 144 (c)(1). In the event of any such failure, and in addition to other remedies available to Hale, we agreed to pay Hale as liquidated damages and amount equal to 1% of the purchase price for the share to be registered in such registration statement. Such payments are due on the date we fail to comply with our obligation and every 30th day thereafter (pro rated for periods totaling less than 30 days) until such failure is cured. The registration statement covering the resale of the shares issued to Hale has not been declared effective. Hale and the Company have agreed to amend the term “Initial Effectiveness Deadline” set forth in Section 1(o) of the Registration Rights Agreement to read in its entirety as follows: “Initial Effectiveness Deadline” means November 30, 2011.

Impact of Debenture Repurchase and Senior Secured Note Private Placement

In connection with the Hale Securities Purchase Agreement we received gross proceeds of $10.5 million. We incurred expenses of $1.5 million in connection with the transaction contemplated by the Hale Securities Purchase Agreement, resulting in net proceeds of approximately $9.0 million. We used $7.5 million of these proceeds to repurchase our outstanding debentures. We will use the remaining $1.5 million for working capital purposes, including advertising and distribution programs for our Digital Phone Service products.

Merriman Curhan Ford acted as our financial advisor in the transaction and we paid them a fee of $682,500 in connection with the transaction. We also issued Merriman Curhan Ford warrants to purchase 31,152 shares of our common stock. The warrants are exercisable at $2.889 per share for a period of 5 years.

Stock Award Agreements

As a condition to the completion of the transactions contemplated by the Hale Securities Purchase Agreement, on July 2, 2010, we entered into stock award agreements with our employees who had earned compensation under our senior management incentive plans that had yet to be paid. The stock award agreements were entered into to eliminate all accrued and unpaid incentive compensation owed to those employees. Under the terms of the stock award agreements, each employee received 30% of his or her accrued incentive compensation in cash, which amounts are being withheld to pay applicable withholding taxes, and the balance in unregistered shares of or common stock, calculated on the basis of one share being issued for every $2.889 of incentive compensation owed. In the aggregate, we paid $147,230 in cash and we issued 118,912 shares of our common stock to employees in cancellation of $490,768 of earned and unpaid incentive compensation.

Rights Offering

Under the terms of the Hale Securities Purchase Agreement, we agreed to conduct a rights offering pursuant to which we would distribute at no charge to holders of our common stock non-transferable subscription rights to purchase up to an aggregate 1,038,414 share our common stock at a subscription price of $2.889 per share. Under the terms of the 2010 notes, we agreed to use the gross proceeds of the rights offering to redeem an aggregate of up to $3 million of principle amount of such notes. To the extent the gross proceeds of the rights offering are less than $3 million, we and Hale agreed that Hale would exchange the principle amount to be redeemed (up to $3 million) for shares of our common stock at an exchange price equal to the subscription price of the subscription rights. We paid Hale an aggregate of $60,000 in consideration for the foregoing. In addition, we agreed to pay Hale upon completion of the rights offered an amount of cash equal to the accrued and unpaid interest in respect of the principal amount of the senior secured notes redeemed or exchanged for shares of common stock in connection with the rights offering.

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Under the terms of the Hale Securities Purchase Agreement, we agreed to commence the rights offering no later than 30 days after the transaction closed, and to consummate such offering within 90 days after the transaction closed. We have not yet commenced the rights offering, pending improvement in market conditions. Our independent directors determined that it would be in the best interest of the Company and our stockholders to delay the commencement of the rights offering pending improvement in market conditions. Hale and our management concurred with the decision to delay the commencement of the offering. Hale has waived (i) any default or breach by us under the Hale Securities Purchase Agreement, (ii) any penalties or remedies, including the right to increase the interest rate under the 2010 notes and (iii) any rights it may have to seek that we redeem the 2010 notes, in each case, resulting from, arising out of and/or related to the failure to commence the rights offering during the specified required period.

In August 2011, the independent directors of the Company approved, and the Company and Hale entered into a settlement agreement, pursuant to which (1) Hale released the Company from any obligation to conduct the rights offering, and (2) the Company released Hale from its "backstop" obligation to convert up to $3.0 million of the 2010 notes into common stock. As a result of the amendment, the principal amount of the 2010 notes outstanding remained at approximately $10.5 million, plus interest that was accrued to principal through June 30, 2011. In addition, under the settlement agreement, Hale granted the Company the right to defer cash payment of the interest on up to $ 3 million of principal (plus associated “PIK Interest”) through July 31, 2012 and have the amounts added to principal. The Company's scheduled payment obligations under the 2010 notes, assuming that it pays all of the interest current, will be approximately $250,000 per month through June 30, 2012 and will average approximately $415,000 per month for the remaining 24 months until maturity.

Recent Developments

During 2010 and the first six months of 2011 our focus has been on driving our core business of next generation VOIP Services including our Digital Phone Service and our SIP Trunking Service. Our network infrastructure is scalable and capable of supporting significant additional services, without substantial capital expenditure. As we generate additional revenues, we can distribute the fixed cost elements of our business over a greater revenue base, and increase gross profit.

During the second quarter of 2011, we continued the growth of our Digital Phone Service and our SIP Trunking Service which grew by 45 percent over revenues for those products in 2010. Digital Phone Service and our SIP Trunking service will continue to be core to our revenue growth initiative going forward. Effort is being made to expand the related distribution channels to increase penetration into this market and increase revenues.

Overall revenues for the second quarter declined compared to 2010 as the increase in our core Digital Phone Service and SIP Trunking Service was more than offset by the loss of revenue related to certain Legacy products. During the three months ended June 30, 2010, we received notice from two of our significant Legacy customers that they would be terminating our service during the course of 2010. This service is an older product offering, that had been in place with these customers for several years. We had known for some time that the customers would move away from the service eventually and the revenue generated by these customers had been declining over recent years. That discontinuation did occur and we did not generate any revenues from those Legacy products in the second quarter of 2011. Consequently, we will not experience any further erosion of revenues related to Legacy Product sales.

We continued to focus on containing operating expenses. We reduced both general and administrative expenses as well as research and development expenses during the second quarter compared to 2010 levels, but increased sales and marketing expenses related to advertising for our Digital Phone Service.

If we can continue to generate revenue and gross profit in our Digital Phone Service and SIP Trunking Service products consistent with our growth in 2010 and we maintain control of our operating expenses, we believe that our existing capital, taking into account the effect of the two transactions that recapitalized our debt, will be sufficient to finance our operations at least the next 12 months. However, we have limited financial resources. Significant unforeseen decreases in revenues or increases in operating costs could impact our ability to fund our operations. We do not currently have any sources of credit available to us. See “Liquidity and Capital Resources” below.

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Results of Operations

Second Quarter of Fiscal 2011 Compared to Second Quarter of Fiscal 2010

Revenues, Cost of Revenues and Gross Profit

							(Decrease)
	2011			2010			Dollars			Percent
Three Months Ended June 30:
Revenues	$	6,994,902		$	7,285,612		$	(290,710	)		(4.0	%)
Cost of revenues		2,991,432			3,014,694			(23,262	)		(0.1	%)
Gross profit		4,003,470			4,270,918			(267,448	)		(6.3	%)
Gross profit percentage		57.2	%		58.6	%

Six Months Ended June 30:
Revenues	$	13,929,303		$	14,946,308		$	(1,017,005	)		(6.8	%)
Cost of revenues		5,861,829			6,195,951			(334,122	)		(5.4	%)
Gross profit		8,067,474			8,750,357			(682,883	)		(7.8	%)
Gross profit percentage		57.9	%		58.5	%

Net revenues for the three months ended June 30, 2011 were $7.0 million, a decrease of $0.3 million, or 4.0%, over the same period in 2010. Net revenues for the six months ended June 20, 2011 were $13.9 million, a decrease of $1.0 million, or 6.8% over the same period in 2010. Net revenues declined for both the three and the six month periods as the result of the discontinuation of our Legacy products in 2010. Net Revenues from our Legacy products amounted to $1.8 million and $3.2 million for the three and six months ended June 30, 2010. Revenue grew in Digital Phone Service and SIP Trunking Service in the three and six months ended June 30, 2011and we expect this growth to continue to be strong throughout the second half of 2011.

Cost of revenues for the three months ended June 30, 2011 were $3.0 million, a decrease of less than $0.1 million, or 0.1%, over the same period in 2010. Cost of revenues for the six months ended June 30, 2011 were $5.9 million, a decrease of $0.3 million, or 5.4% over the same period in 2010. Cost of revenues decreased as a result of the change in product mix and variable costs.

Gross profit for the three months ended June 30, 2011 was $4.0 million, a decrease of $0.3 million, or 6.3%, over the same period in 2010. Gross profit for the six months ended June 30, 2011 was $8.1 million, a decrease $0.7 million, or 7.8% over the same period in 2010. Gross profit percentage was 57.9% for the six months ended June 30, 2011 as compared to 58.5% in the same period in 2010.

Selling and Marketing Expenses

Selling and marketing expenses for the three months ended June 30, 2011 were $1.7 million, a decrease of less than $0.1 million or 4.4%, over the same period in 2010. Selling and marketing expenses for the six months ended June 30, 2011 were $3.5 million, an increase of $0.1 million or 2.7% over the same period in 2010. The increase was primarily due to an increase in advertising and marketing. We anticipate that selling and marketing expenses for 2011 will be higher than those incurred in 2010 as we increase our advertising expense in our effort to increase market share and to promote our Digital Phone Service product line.

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General and Administrative Expenses

General and administrative expenses for the three months ended June 30, 2011 were $1.8 million, a decrease of $0.1 million or 2.7%, over the same period in 2010. General and administrative expenses for the six months ended June 30, 2011 were $3.7 million, a decrease of $0.1 million or 2.9% over the same period in 2010. The decrease is primarily a result of lower tax and registration fees.

Research, Development and Engineering Expenses

Research, development and engineering expenses for the three months ended June 30, 2011 were $0.5 million, a decrease of $0.2 million or 33.0%, over the same period in 2010. Research, development and engineering expenses for the six months ended June 30, 2011 were $0.9 million, a decrease of $0.5 million or 34.2%, over the same period in 2010. Research and development expenses decreased in 2011 because we capitalized a larger percentage of payroll and related costs that were attributable to the design, coding, and testing of our software developed for internal use than we did in the same period in the prior year and we incurred lower payroll related expenses.

Depreciation Expense

Depreciation expense for the three months ended June 30, 2011 was $0.2 million, a slight increase over the same period in 2010. Depreciation for the six months ended June 30, 2011 was $0.3 million a slight increase over the same period in 2010. The increase is primarily attributable to additional capital leases on network equipment during the three months ended June 30, 2011.

Amortization of Purchased Intangibles

We recorded $1.1 million of amortization expense in both the six months ended June 30, 2011 and 2010, related to the amortization of intangible assets acquired in the AccessLine acquisition.

Interest Expense

Interest expense was $0.9 and $0.8 million for the three months ended June 30, 2011 and June 30, 2010, respectively. Interest expense for the six months ended June 30, 2011 was $1.7 million, an increase of $0.2 million or 11.9%, from the same period in 2010. Interest expense includes stated interest, amortization of note discounts, amortization of deferred financing costs, and interest on capital leases.

Interest was payable on our debentures quarterly at the rate of (i) 0% per annum from October 1, 2008 until September 30, 2009, (ii) 13.5% per annum from October 1, 2009 until September 30, 2012 and (iii) 18% per annum from October 1, 2012 until maturity. In May 2009, interest payment provisions were amended to reduce the interest rate to 0% through September 30, 2011 and then to 5% per annum thereafter. We recorded interest expense for the three months ended June 30, 2010 at the effective rate of the debentures during the period.

On June 30, 2010, we entered into a securities purchase agreement with holders of our outstanding debentures in the principal amount of $29.6 million. Under the terms of the agreement, we repurchased all of our outstanding debentures in exchange for payment of $7.5 million in cash, the holders of our debentures exchanged all outstanding warrants they held for shares of our common stock and we issued to such holders an additional number of shares of our common stock, such that the holders collectively beneficially owned approximately 221,333 shares of our common stock immediately following the completion of the transactions contemplated by the agreement.

Concurrently with the repurchase of our debentures, we entered into the securities purchase agreement with Hale, pursuant to which we issued $10.5 million in senior secured notes. Interest accrues on the senior secured notes at a rate equal to the prime rate as published in the Wall Street Journal as of the first business day of each interest period plus 4.75% per annum and is payable at the end of each month, with the first payment due on July 31, 2010. Through June 30, 2011, we had the option to defer the monthly interest payments otherwise due and have the amount of interest deferred added to the principal balance of the 2010 notes. During 2010 and 2011 we elected this option for all months.

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Change in Fair Value of Warrant and Beneficial Conversion Liabilities

Change in Fair Value of Warrant and Beneficial Conversion Liabilities was $0.00 for the three and six months ended June 30, 2011 and income of $5.0 million and $0.8 million related to the beneficial conversion liabilities for the three and six months ended June 30, 2010.

We initially recorded the fair value of the warrants issued in connection with our various debenture financings at the issuance dates as a warrant liability because the exercise price of the warrants could be adjusted if we subsequently issued common stock at a lower price and it was possible for us to not have enough authorized shares to settle the warrants and therefore would have to settle the warrants with cash.

The fair value of the then outstanding warrants was estimated at each reporting date. However, as a result of the Amendment Agreement (see “Convertible Debentures”, below), the price-based anti-dilution protection feature of these warrants was removed, which eliminates the potential for future price-based dilution from these warrants. Accordingly, these warrants are no longer a derivative liability and their value as of May 8, 2009, was reclassed to equity.

The change in fair value of beneficial conversion liabilities during the six months ended June 30, 2010 resulted in non-operating income of $5.0 million.

In connection with our debt restructuring transactions, on July 2, 2010, all of our previously outstanding convertible debentures were repurchased and the related conversion feature was eliminated. At each reporting period that these convertible debentures were outstanding, we assessed the value of these convertible debentures that were accounted for as a derivative financial instrument indexed to and potentially settled in our stock. At December 31, 2009 and through June 30, 2010 we determined that the beneficial conversion feature in the debentures represented a derivative liability. Accordingly, we bifurcated the embedded conversion feature and accounted for it as a derivative liability because the conversion price and ultimate number of shares could be adjusted if we subsequently issued common stock at a lower price and it was deemed possible that we could have to net cash settle the contract if there were not enough authorized share to issue upon conversion.

With the assistance of an independent valuation firm, we calculated the fair value of the compound embedded derivative associated with the convertible debentures utilizing a complex, customized Monte Carlo simulation model suitable to value path dependant American options. The model uses the risk neutral methodology adapted to value corporate securities. This model utilized subjective and theoretical assumptions that can materially affect fair values from period to period.

In connection with the Recapitalization, on July 2, 2010, all of our convertible debentures were repurchased and the related conversion feature was eliminated. Accordingly at June 30, 2011 there is no beneficial conversion feature liability. At June 30, 2010 $3.3 million of beneficial conversion feature liability was associated with our convertible debentures. For the three and six months ended June 30, 2010, we recognized non-operating income of $5.0 million and non-operating income $0.8 million, respectively related to the increase in the beneficial conversion liability which was primarily attributable to an increase in the market price of our common stock at June 30, 2010 as compared to December 31, 2009.

Discontinued Operations

As a result of the sale of our system integration business in October 2009, and the termination of the Digital Presence video conferencing product line, we have reported our video segment results as discontinued operations in 2010. The $0.1 million and $0.3 million of expenses incurred during the three and six months ended June 30, 2010, relate to the wind down of our Digital Presence product line. No expenses were incurred during the three and six months ended June 30, 2011.

Provision for Income Taxes

No provision for income taxes has been recorded because we have experienced net losses from inception through June 30, 2011. As of December 31, 2010, we had net operating loss carryforwards (“NOL’s”), net of section 382 limitations, of approximately $46 million, some of which, if not utilized, will begin expiring in the current year. Our ability to utilize the NOL carryforwards is dependent upon generating taxable income. We have recorded a corresponding valuation allowance to offset the deferred tax assets as it is more likely than not that the deferred tax assets will not be realized.

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Liquidity and Capital Resources

Our cash balance as of June 30, 2011 was $2.1 million. At that time, we had accounts receivable of $1.9 million and a working capital deficit of $3.3 million. However, current liabilities include certain items that will likely settle without future cash payments or otherwise not require significant expenditures by the Company including: deferred revenue of $1.0 million (primarily deferred up front customer activation fees), deferred rent of $0.1 million and accrued vacation of $0.5 million. The aforementioned items represent $1.6 million of total current liabilities as of June 30, 2011.

The Company does not anticipate being in a positive working capital position in the next 12 months. However, if the Company continues to generate revenue and gross profit consistent with its growth in 2010 and maintain control of its variable operating expenses, the Company believes that its existing capital, together with anticipated cash flows from operations, will be sufficient to finance its operations through at least July 1, 2012.

Cash generated by continuing operations during the six months ended June 30, 2011 was $0.3 million. This was primarily the result of cash generated from operations of $0.3 million as the net loss from continuing operations of $3.2 million was more than offset by the following non-cash charges: amortization of note discounts of $1.0 million; amortization of intangible assets of $1.1 million; depreciation expense of $0.9 million (which includes depreciation expense of $0.3 million in cost of sales); non-cash interest of $0.4 million and stock compensation expense of $0.3 million. The remaining $0.2 million of cash was used by the change in working capital.

Net cash used by investing activities during the six months ended June 30, 2011 was $0.3 million, which consisted primarily of purchases of property and equipment.

Net cash used by financing activities was $0.3 million during the six months ended June 30, 2011, all of which related to payments on our capital leases.

If we can continue to generate revenue and gross profit in our Digital Phone Service and SIP Trunking Service products consistent with our growth in 2010, and we continue to maintain control of our variable operating expenses, we believe that our existing capital, together with anticipated cash flows from operations, will be sufficient to finance our operations through at least July 1, 2012.

We do not currently have any unused credit arrangement or open credit facility available to us. The 2010 Notes are secured by a lien on all of our assets, and the terms of those notes restrict our ability to borrow funds, pledge our assets as security for any such borrowing or raise additional capital by selling shares of capital stock or other equity or debt securities, without the consent of the holders of the 2010 Notes.

If our cash reserves prove insufficient to sustain operations, we plan to raise additional capital by selling shares of capital stock or other equity or debt securities. However, there are no commitments or arrangements for future financings in place at this time, and we can give no assurance that such capital will be available on favorable terms or at all.

Commitments and Contingencies

Leases

We have non-cancelable operating and capital leases for corporate facilities and equipment.

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Future minimum rental payments required under non-cancelable operating and capital leases are as follows:

	Operating Leases		Capital Leases
2011		1,582,437		228,698
2012		1,321,702		218,840
2013		252,920		41,821
Total minimum lease payments	$	3,157,059		489,359
Less amount representing interest				(32,337	)
Present value of minimum lease payments				457,022
Less current portion				(314,632	)
			$	142,390

The 2010 Notes

In connection with the Recapitalization, on July 2, 2010, we issued $10.5 million in principal amount of 2010 notes. The following summarizes the terms of the 2010 notes:

Term. The 2010 notes are due and payable on July 2, 2014.

Interest. Interest accrues at a rate equal to the prime rate as published in The Wall Street Journal as of the first business day of each interest period plus 4.75% per annum and is payable at the end of each month, with the first payment due on July 2, 2010. Through June 30, 2011, we had the option to defer the monthly interest payments otherwise due and have the amount of interest deferred added to the principal balance of the 2010 notes.

Principal Payment. In July 2011 and continuing for 11 months thereafter, principal payments of $200,000 per month are due on the last day of each month. Thereafter, we are required to pay principal in a monthly amount equal to the sum of (a) $316,667 and (b) the quotient determined by dividing the (i) aggregate amount of interest added to the principal amount by (ii) 24. Any remaining principal amount, if not paid earlier, is due and payable on July 2, 2014.

Early Redemption. We have the right to redeem up to $3 million of the 2010 notes prior to maturity in connection with the rights offering. In August 2011, the Company and Hale amended the Hale Securities Purchase Agreement to (i) cancel the Company's obligation to conduct the rights offering, and (2) cancel Hale's obligation to convert up to $3.0 million of the 2010 notes into common stock. As a result of the amendment, the principal amount of the 2010 notes outstanding remained at approximately $10.5 million, plus interest that was accrued to principal through July 31, 2011. The Company's scheduled payment obligations under the 2010 notes will be approximately $250,000 per month through June 30, 2012 and average approximately $415,000 per month for the remaining 24 months until maturity.

No Conversion Rights. The 2010 notes are not convertible other than in connection with the rights offering.

Security. The 2010 notes are secured by all our assets under the terms of a pledge and security agreement and we and our subsidiaries entered into with Hale. Each of our subsidiaries also entered into guarantees in favor of Hale, pursuant to which each subsidiary guaranteed the complete payment and performance by us of our obligation under the 2010 notes and related agreements.

Covenants. The 2010 notes impose certain covenants on us, including: restrictions against incurring additional indebtedness, creating any liens on our property, entering into a change in control transaction, redeeming or paying dividends on shares of our outstanding common stock, entering into certain related party transactions, changing the nature of our business, making or investing in a joint venture, disposing of any of our assets outside of the ordinary course of business, effecting any subsequent offering of debt or equity, amending our articles of incorporation or bylaws, and limiting our ability to enter into lease arrangements.

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Events of Default. The 2010 notes define certain events of default, including; failure to make a payment obligation under the 2010 notes, failure to pay other indebtedness when due if the amount exceeds $250,000, bankruptcy, entry of a judgment against us in excess of $250,000 which are not discharged or covered by insurance, failure to observe other covenants of the 2010 notes or related agreements (subject to applicable cure periods), breach of representation or warranty, failure of Hale’s security documents to be binding and enforceable, and casualty loss of any of our assets that would have a material adverse effect on our business, and failure to meet 80% of quarterly financial targets from our annual operating budget, including cash, revenue and EBITDA. In the event of default, additional default interest of 4% will accrue on the outstanding balance. In addition, in the event of default, we may be required to redeem all or any portion of the 2010 notes at a price equal to 125% of the sum of the principal amount that such holder requests that we redeem plus accrued but unpaid interest on such principal amount plus any accrued and unpaid late charges with respect to such principal and interest.

Change of Control. We are required to obtain the consent of the holders of the 2010 notes representing at least a majority of the aggregate principal amount of the 2010 notes then outstanding in order to enter into a change of control transaction. If such consent is obtained the holders of the 2010 notes may require us to redeem all or any portion of such notes at a price equal to 125% of the sum of the principal amount that such holder requests that we redeem plus accrued but unpaid interest on such principal amount plus any accrued and unpaid late charges with respect to such principal and interest.

Minimum Third Party Network Service Provider Commitments

We have a contract with a third party network service provider that facilitates interconnectivity with a number of third party network service providers. The contract contains a minimum usage guarantee of $0.2 million per monthly billing cycle and expires in July 2011. The cancellation terms are a 90 day written notice prior to the then current term expiring.

Critical Accounting Policies Involving Management Estimates and Assumptions

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include those related to the allowance for doubtful accounts; valuation of inventories; valuation of goodwill, intangible assets and property and equipment; valuation of stock based compensation expense, the valuation of warrants and conversion features; and other contingencies. On an on-going basis, we evaluate our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies, estimates, or judgments from those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. The following is a discussion of certain of the accounting policies that require management to make estimates and assumptions where the impact of those estimates and assumptions may have a substantial impact on our financial position and results of operations.

Internally Developed Software:

The Company capitalizes payroll and related costs that are directly attributable to the design, coding, and testing of the Company's software developed for internal use. Internally developed software costs, which are included in property and equipment, are amortized on a straight-line basis over an estimated useful life of two years.

Goodwill:

Goodwill is not amortized but is regularly reviewed for potential impairment. The identification and measurement of goodwill impairment involves the estimation of the fair value of our reporting units. The estimates of fair value of reporting units are based on the best information available as of the date of the assessment, which primarily incorporate management assumptions about expected future cash flows. Future cash flows can be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized with newly acquired entities.

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Impairment of Long-Lived Assets:

Purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from five to ten years. Purchased intangible assets determined to have indefinite useful lives are not amortized. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Revenue Recognition:

Revenues from continuing operations are derived primarily from monthly recurring fees, which are recognized over the month the service is provided, activation fees, which are deferred and recognized over the estimated life of the customer relationship, and fees from usage which are recognized as the service is provided.

Revenues from our discontinued video segment were recognized when persuasive evidence of an arrangement existed, title was transferred, product payment was not contingent upon performance of installation or service obligation, the price was fixed or determinable, and collectability was reasonably assured. In instances where final acceptance of the product or service was specified by the customer, revenue was deferred until all acceptance criteria was met. Additionally, extended service revenue on hardware and software products was recognized ratably over the service period, generally one year.

Income Taxes:

We account for income taxes using the asset and liability method, which recognizes deferred tax assets and liabilities determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established to reduce deferred tax assets when, based on available objective evidence, it is more likely than not that the benefit of such assets will not be realized. In addition, FASB guidance requires us to recognize in the consolidated financial statements only those tax positions determined to be more likely than not of being sustained.

Derivative Financial Instruments

We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.

We review the terms of convertible debt and equity instruments it issues to determine whether there are embedded derivative instruments, including the embedded conversion option, that are required to be bifurcated and accounted for separately as a derivative financial instrument. In circumstances where the convertible instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. Also, in connection with the sale of convertible debt and equity instruments, we may issue freestanding warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds allocated to the convertible host instruments are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face amount.

The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.

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Stock Based Compensation:

We measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized in the Consolidated Statement of Operations over the period during which the employee is required to provide service in exchange for the award – the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments is estimated using option-pricing models adjusted for the unique characteristics of those instruments.

Recent Accounting Pronouncements

See “Note 2 – Basis of Presentation” of the Notes to the Condensed Consolidated Financial Statements included in "Item 1. Financial Statements” of Part I of this report.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Under the rules and regulations of the Securities and Exchange Commission, as a smaller reporting company we are not required to provide the information required by this Item.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurances that material information related to our company is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer have determined that as of June 30, 2011, our disclosure controls were effective at that "reasonable assurance" level.

Changes In Internal Controls over Financial Reporting.

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

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PART II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

Item 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in "Part I. Item 1A—Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. The risks and uncertainties described in such risk factors and elsewhere in this report have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results and future prospects. As of the date of this report, we do not believe that there have been any material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. (REMOVED AND RESERVED)

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS

See the exhibit index immediately following the signature page of this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TELANETIX, INC.
	/s/ Paul C. Bogonis
Date: August 24, 2011	Paul C. Bogonis, Chief Financial Officer
	(Duly Authorized Officer and Principal Financial Officer)

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EXHIBIT INDEX

Exhibit No.		Description
10.1		Letter Agreement dated July 11, 2011, between Telanetix, Inc. and Paul C. Bogonis (incorporated herein by reference to the registrant's Form 8-K filed on July 14, 2011)
10.2		Confidential Settlement Agreement dated July 8, 2011, between Telanetix, Inc. and J. Paul Quinn (incorporated herein by reference to the registrant's Form 8-K filed on July 14, 2011)
31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
*	Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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Telanetix,Inc - FORM 10-Q/A - August 24, 2011

Attached files

Telanetix,Inc Reports