UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES AND EXCHNGE ACT OF 1934
For the
quarterly period ended
March
31, 2008
[ ] 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:
001-32882
O2
SECURE WIRELESS, INC.
|
(Exact
name of small business issuer as specified in its
charter)
|
Georgia
|
45-0526044
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
4898
South Old Peachtree Road, Suite 150 Norcross, GA
|
30071
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(678)
942-0684
|
(Issuer’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 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. [ X ] Yes[ ] No
Indicate
by check mark whether the registrant is a large accelerated filer, and
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated
filer [ ]
Accelerated
filer [ ]
Non-accelerated
filer [ ]
(Do not check
is a smaller reporting company)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[ X ] No
As of
May 14, 2008
, the
Registrant had outstanding
28,065,284
shares of its
Common Stock, no par value.
PART I –
FINANCIAL INFORMATION
Item
1. Financial Statements
O2 SECURE WIRELESS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
2008
|
|
|
September
30, 2007
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
10,183
|
|
|
$
|
6,172
|
|
Trade
accounts receivable
|
|
|
1,689
|
|
|
|
25,883
|
|
Other
current assets
|
|
|
11,000
|
|
|
|
13,704
|
|
TOTAL
CURRENT ASSETS
|
|
|
22,872
|
|
|
|
45,759
|
|
|
|
|
|
|
|
|
|
|
EQUIPMENT,
net of accumulated depreciation
|
|
|
354,239
|
|
|
|
427,107
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
|
Restricted
investment, at fair value
|
|
|
30,334
|
|
|
|
30,651
|
|
Deposits
|
|
|
11,250
|
|
|
|
11,250
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
418,695
|
|
|
$
|
514,767
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Unsecured
loans payable:
|
|
|
|
|
|
|
|
|
Related
party
|
|
$
|
19,425
|
|
|
$
|
19,425
|
|
Unrelated
party
|
|
|
-
|
|
|
|
13,873
|
|
Note
payable - related party
|
|
|
64,800
|
|
|
|
64,800
|
|
Accounts
payable and accrued expenses
|
|
|
321,829
|
|
|
|
166,258
|
|
Accrued
expenses - related party
|
|
|
85,688
|
|
|
|
54,764
|
|
Deferred
revenue
|
|
|
7,925
|
|
|
|
31,502
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
499,667
|
|
|
|
350,622
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Preferred
stock, no par value, 10,000,000
shares authorized,
|
|
|
|
|
|
|
|
|
-0-
shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock, no par value, 50,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
28,065,284
and 26,526,552 shares issued and outstanding at
|
|
|
|
|
|
March
31, 2008 and September 30, 2007, respectively
|
|
|
3,097,295
|
|
|
|
2,898,352
|
|
Other
capital
|
|
|
78,800
|
|
|
|
78,800
|
|
Accumulated
(deficit)
|
|
|
(3,257,067
|
)
|
|
|
(2,813,007
|
)
|
Total
Stockholders' Equity (Deficit)
|
|
|
(80,972
|
)
|
|
|
164,145
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
418,695
|
|
|
$
|
514,767
|
|
|
|
|
|
|
|
|
|
|
SEE
ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
|
|
O2 SECURE WIRELESS, INC. AND
SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
Six
Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Network
service revenues
|
|
$
|
121,576
|
|
|
$
|
73,842
|
|
|
$
|
244,069
|
|
|
$
|
137,766
|
|
Network
component sales
|
|
|
1,094
|
|
|
|
3,597
|
|
|
|
3,694
|
|
|
|
40,033
|
|
Consulting
and other
|
|
|
3,439
|
|
|
|
-
|
|
|
|
14,668
|
|
|
|
1,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
126,109
|
|
|
|
77,439
|
|
|
|
262,431
|
|
|
|
178,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of network service revenues
|
|
|
42,975
|
|
|
|
15,944
|
|
|
|
96,110
|
|
|
|
27,748
|
|
Cost
of network component sales
|
|
|
276
|
|
|
|
1,977
|
|
|
|
2,508
|
|
|
|
31,936
|
|
Selling
general and administrative:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
86,741
|
|
|
|
106,053
|
|
|
|
193,161
|
|
|
|
207,936
|
|
Professional
services
|
|
|
86,962
|
|
|
|
61,685
|
|
|
|
268,235
|
|
|
|
112,208
|
|
Communications
|
|
|
7,716
|
|
|
|
30,592
|
|
|
|
18,965
|
|
|
|
60,375
|
|
Other
|
|
|
22,834
|
|
|
|
44,464
|
|
|
|
52,498
|
|
|
|
85,742
|
|
Loss
on disposal of equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
2,737
|
|
|
|
-
|
|
Depreciation
expense
|
|
|
34,380
|
|
|
|
33,585
|
|
|
|
69,076
|
|
|
|
64,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost
and expenses
|
|
|
281,884
|
|
|
|
294,300
|
|
|
|
703,290
|
|
|
|
590,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
|
(1,600
|
)
|
|
|
723
|
|
|
|
(3,201
|
)
|
|
|
2,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(LOSS)
|
|
$
|
(157,375
|
)
|
|
$
|
(216,138
|
)
|
|
$
|
(444,060
|
)
|
|
$
|
(408,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER
COMMON SHARE
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON
SHARES OUTSTANDING
|
|
|
28,065,284
|
|
|
|
26,176,552
|
|
|
|
27,692,730
|
|
|
|
26,170,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEE
ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
b
O2 SECURE WIRELESS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
|
|
Six
Months Ended
|
|
|
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net
(loss) from operations
|
|
$
|
(444,060
|
)
|
|
$
|
(408,567
|
)
|
Adjustments
to reconcile net loss to net cash provided (used) by
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
Stock
compensation expense
|
|
|
140,000
|
|
|
|
-
|
|
Stock
option expense
|
|
|
45,070
|
|
|
|
-
|
|
Loss
on disposal of equipment
|
|
|
2,737
|
|
|
|
-
|
|
Depreciation
expense
|
|
|
69,076
|
|
|
|
64,223
|
|
Change
in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
24,194
|
|
|
|
(6,504
|
)
|
Other
current assets
|
|
|
2,704
|
|
|
|
(503
|
)
|
Other
non-current assets
|
|
|
-
|
|
|
|
(13,136
|
)
|
Accounts
payable and accrued expenses
|
|
|
161,221
|
|
|
|
(1,730
|
)
|
Accrued
expenses - related party
|
|
|
25,274
|
|
|
|
1,801
|
|
Deferred
revenue
|
|
|
(23,577
|
)
|
|
|
13,947
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED (USED) BY OPERATING ACTIVITIES
|
|
|
2,639
|
|
|
|
(350,469
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of equipment and capitalized installation costs
|
|
|
(4,445
|
)
|
|
|
(127,101
|
)
|
Proceeds
from disposal of equipment
|
|
|
5,500
|
|
|
|
-
|
|
Investment
income
|
|
|
317
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED (USED) BY INVESTING ACTIVITIES
|
|
|
1,372
|
|
|
|
(127,101
|
)
|
|
|
|
|
|
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
4,011
|
|
|
|
(477,570
|
)
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
6,172
|
|
|
|
522,351
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$
|
10,183
|
|
|
$
|
44,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEE
ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
|
|
O2 SECURE
WIRELESS, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
THREE AND
SIX MONTHS ENDED MARCH 31, 2008
(unaudited)
NOTE 1 -
BASIS OF FINANCIAL STATEMENT PRESENTATION
Interim Financial
Information
. The accompanying unaudited consolidated financial statements
of O2 Secure Wireless, Inc. (the "Company") have been prepared in accordance
with principles generally accepted in the United States of America for interim
financial information and applicable rules of Regulation S-X. Accordingly, they
do not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. The interim financial statements and notes should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-KSB for the year ended September 30, 2007. Operating results
for the three and six months ended March 31, 2008 are not necessarily indicative
of the results that may be expected for the fiscal year ending September 30,
2008.
Principles of Consolidation
.
The accompanying consolidated financial statements include the accounts of O2
Secure Wireless, Inc. and its wholly-owned subsidiary, Epiphony Voice Solutions,
LLC. All material intercompany accounts and transactions have been eliminated in
consolidation.
Reclassifications.
Certain
amounts in the accompanying 2007 consolidated financial statements have been
reclassified in order to conform to 2008 financial statement
presentation.
NOTE 2 -
GOING CONCERN
The
Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has sustained
operating losses since inception, and it has been dependent upon private
placements of stock and limited private lending to provide sufficient working
capital in order to finance its operations. Two Securities Purchase Agreements
with an investor have represented substantially all of the Company's sole source
of private stock placements to date, the latest of which expired on September
30, 2006. Shares given to individuals under a debt offering are also considered
private placements by the Company. Two such agreements were extended, as
described in Note 5.
The
Company's ability to continue in existence is dependent upon developing
additional sources of capital and/or achieving profitable operations.
Management's plan is to raise capital through additional private offerings and
financing initiatives, while actively seeking installation agreements with new
customers under arrangements that will generate cash flow immediately upon
activation of service and for which the customer will agree to subsidize
installation costs, in addition to profitable sales of certain products for
which it is an authorized distributor. The accompanying financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
NOTE 3 –
NOTES PAYABLE - RELATED PARTY
On
January 13, 2008, two notes payable to a related party totaling $64,800 in
principal plus accrued interest of $5,632 due December 31, 2007 were amended by
the note holder to extend the maturity date of the notes to June 30,
2008.
NOTE 4 –
COMMITMENTS
Operating Leases.
On November
28, 2006, we executed a five-year, non-cancelable lease for office space
commencing January 1, 2007. Monthly minimum lease payments during calendar year
2007 were $3,750, with annual escalations over the lease term to $4,387 per
month. Beginning January 1, 2008, under the terms of the lease monthly rent
increased to $3,900.
Employment Agreements.
In
accordance with our employment agreement with our present CEO, this officer’s
salary increased from $6,667 per month to $8,667 per month beginning
January 1, 2008. Unpaid salary due to this officer is $78,764 at March 31, 2008,
which is included in accrued expenses – related party in the accompanying 2008
consolidated balance sheet.
NOTE 5 –
STOCKHOLDERS’ EQUITY
Common Stock Issued for Services and
Debt Settlement
. On November 27, 2007, the Company issued 500,000
restricted common shares with a market value of $50,000 based upon the closing
stock price at the grant date to a financial services company pursuant to the
execution of an agreement for this company to provide capital raising and other
corporate services. On December 13, 2007, the Company issued 138,732 common
shares with a market value of $13,873 based upon the closing stock price at the
grant date to a former employee in settlement for an unsecured loan payable of
$13,873.
Stock-Based Compensation
. On
October 29, 2007, the Board of Directors adopted an Employee Equity Incentive
Plan (the "Plan") as approved by the shareholders on October 22, 2007. The Plan
provides for the Company to grant qualified and nonqualified stock options,
restricted stock, stock grants, and other equity-based awards ("Awards") as
defined in the Plan document to employees, directors and consultants of the
Company. Awards are subject to vesting requirements and other restrictions as
may be specified in the Award Agreement. For stock option grants, the length of
the option period is not to exceed 10 years and the exercise price must be not
less than 100% of the market price of the Company's common stock at the date of
the grant. A maximum of 10 million common shares are authorized for issuance
under the Plan.
On
October 29, 2007, 750,000 restricted common shares with a market value of
$75,000 based upon the closing stock price on the grant date were awarded under
the Plan to a consultant who also functioned as the Company's External Acting
CFO. The Company also awarded 150,000 restricted common shares with a market
value of $15,000 based on the closing stock price on the grant date to an
employee on November 27, 2007.
On
October 29, 2007, common stock options for 6.2 million shares were granted under
the Plan to various employees and the External Acting CFO, 4.5 million of which
were awarded to the CEO. The shares underlying these options are restricted
because the Company has not yet filed Form S-8 to register the securities
offered under the Plan. Under the Award Agreements, these option grants vest
over graded three year period beginning one year after the grant date, with 1/3
of granted options vesting at the end of each completed service year.
Notwithstanding the foregoing, 83,333 of the options granted to the External
Acting CFO, vested on the grant date with the remainder vesting 1/2 each year
for the following two years. Non-vested option grants are subject to forfeiture
if the grantees' services to the Company terminate prior to vesting. Stock
option activity for the three and six months ended March 31, 2008 is summarized
as follows:
|
|
|
Weighted
|
|
|
|
Average
|
|
|
|
Exercise
|
|
Shares
|
|
Price
|
Outstanding
at September 30, 2007
|
-
|
|
-
|
Granted
|
6,200,000
|
|
$0.10
|
Exercised
|
-
|
|
-
|
Forfeited
|
-
|
|
-
|
Outstanding
at December 31, 2007
|
6,200,000
|
|
$0.10
|
Granted
|
-
|
|
-
|
Exercised
|
-
|
|
-
|
Forfeited
|
(266,667)
|
|
-
|
Outstanding
at March 31, 2008
|
5,933,333
|
|
$0.10
|
|
|
|
|
Exercisable
at March 31, 2008
|
83,333
|
|
$0.10
|
Remaining
reserved for grant at March 31, 2008
|
3,166,667
|
|
|
In
calculating the impact for options granted during the six months ended March 31,
2008, the fair market value of the options at the date of the grant was
estimated using a Black-Scholes option pricing model. Assumptions utilized in
the model are evaluated and revised, as necessary, to reflect, market conditions
and experience. Implied volatility was used based on similar industry sector
data which management believes is representative of the Company, due to
insufficient trading history upon which an expected volatility can be estimated.
The expected term represents the Company's estimated life of the options,
considering effects such as future exercising and forfeitures, rather than
contractual lives. The risk-free rate is equivalent to the U.S Treasury yield in
effect at the time of grant for the estimated term of the option grant. The
option valuation variables for options granted in three months ended December
31, 2007 are implied volatility of 70%, expected term of three years, and risk
free interest rate of 3.85%. The variables and assumptions used resulted in a
total estimated value of $302,090 for the stock options granted in the three
months ended December 31, 2007. The Company amortizes the estimated value of
options granted to compensation on a straight-line basis over the service period
required by the grantee to be fully vested. Compensation expense recorded during
the three and six months ended March 31, 2008 was $24,227 and
$45,070.
Common Stock Warrants.
On
December 31, 2007, an outstanding warrant to purchase one million common shares
expired without exercise by the warrant holder.
NOTE 6 –
SUPPLEMENTAL CASH FLOW INFORMATION
Non-Cash Financing
Activities.
As disclosed in Note 5, on December 13, 2007, we issued
138,732 common shares with a market value of $13,873 to a former employee in
settlement of an unsecured loan payable of $13,873.
During
the six months ended March 31, 2007, we issued of common stock with a stated
value of $100,000 in settlement of a $20,000 loan and $10,000 accrued liability
owed to an investor.
Item
2. Management Discussion and Analysis
The
following discussion should be read in conjunction with our unaudited
consolidated interim financial statements and related notes thereto included in
this quarterly report and in our audited consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") contained in our Form 10-KSB for the year ended
September 30, 2007. Certain statements in the following MD&A are forward
looking statements. Words such as "expects", "anticipates", "estimates" and
similar expressions are intended to identify forward looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected.
At the
conclusion of the second Quarter of Fiscal Year 2008, the Company continues to
show increased revenues. The Company also demonstrated a substantial
and meaningful decrease in expenses. For the first time, the Company
can report an increase in Cash due to Operating Activities. (Previous
quarters have shown increases in Cash due to Financing activities
only). This quarter also provided the company with its highest
operating margin since inception. This increase in cash is primarily due to non
payment or stretched payment terms with our various vendors as seen by the
increase in our current liabilities of approximately $149,000.
Similar
to the previous fiscal quarter, the Company still has increasing liabilities
where revenues do not yet completely outpace expenses. The Company
continues to reduce that gap, but accrued liabilities will increase until the
gap is completely eliminated.
As
described in the Company’s 10-KSB filing for the year ended September 30, 2007,
the Company altered its expense structure. The Company’s goal is to
expand and continue operations without requiring a reduction of staff levels and
without downgrading the level of service to its customers. Deferral
of officer compensation, elimination of non-essential or redundant services,
liquidation of non-essential component hardware, the removal of the
“Subscription Model” for new deployments, as well as a general reduction in
Company-provided capital outlay for new installations have all contributed to
this successful reduction in expenses.
The
Company’s largest expense on a quarterly basis has been, and continues to be
professional services, such as legal, accounting and auditing
costs. This quarter the Company demonstrated a substantial decrease
in those costs.
The
alterations and reductions in the Company’s expense structure combined with the
increase in total revenues have reduced the Company’s overhead and increased its
operating margin. The Company’s net loss for the quarter, the
smallest loss per quarter since inception, demonstrates the efforts of our
talented and dedicated personnel.
Liquidity
The
Company’s working capital deficit increased to approximately $477,000 at March
31, 2008 an increase of approximately $173,000 compared to September
30, 2007. To address the increasing liabilities, management intends to continue
working to successfully refine its revenue and expense models to address the
shortage of cash while addressing the best use of the Company’s existing capital
resources. The Company’s vendors have been working with management on
payment schedules that will reduce outstanding liabilities over
time. Some outstanding liabilities that cannot be reduced quickly
enough may result in penalization such as finance charges or suspension of
services. Such suspensions may result in the Company’s delayed
ability or inability to acquire necessary hardware for deployments on new
properties or maintenance of existing properties, while suspension or
termination of some bandwidth provided to properties may reduce the overall
level of service to its customers until a suitable replacement can be
provisioned. The Company has reduced the likelihood of such events
occurring and believes it has some alternatives in place to respond to those
events, but the Company can provide no guarantee that such events can be
completely avoided under all circumstances.
Management
continues to pursue and acquire additional revenue from its traditional business
model. Similarly, the company has seen many of its planned recurring
expenses decrease. Moreover, the Company is eagerly pursuing
additional capital infusions and partnership opportunities with other
companies.. The Company has not executed any binding agreements in this regard
and there is no assurance that any binding agreements will be
reached.
Results
of Operations
During
the 3-month periods ended March 31, 2008 and 2007, the Company generated
$126,109 and $77,439 of revenues, respectively, and incurred net losses of
($157,375) and ($216,138), respectively. This is an increase in revenues of 63%
over the same period last year and a decrease of 27% in overall net loss
compared to the same period last year. For the period ended March 31, 2008, the
Company received revenue from eighteen operational networks versus seven during
the same period in the prior year.
The
Company’s net loss for the period ended March 31, 2008 was in line with our
revenue increase and overall expense decrease, compared to the previous
quarter’s expenses incurred related to a one-time increase in professional fees
during that period.
Operational
and administrative efficiencies were instituted and are intended to continue in
order to support the initiatives pursued by management to increase business
activity.
The
increase in current liabilities of the Company against its current assets
resulted in a stockholder’s equity deficit this quarter. Those
accrued liabilities consist of $64,800 of notes payable to related parties and
$19,425 loans payable to related-parties, deferred salary of the Chief Executive
Officer in the amount of $78,764, which combined comprise 33% of the Company’s
total liabilities. Accounts payable and accrued expenses, which
increased 94% from $166,258 at September 30, 2007 to $321,829 at March 31, 2008
are due to our cash position and will continue to increase until the Company
reaches profitability.
During
the 6-month periods ended March 31, 2008 and 2007, the Company generated
$262,431 and $178,872 of revenues, respectively, and incurred net losses of
($444,060) and ($408,567), respectively. This is an increase in revenues of 47%
over the same period last year and a slight increase of 9% in overall net loss
compared to the same period last year..
Mr. Keith
A. Greaves, a Company founder, director, and its corporate secretary, re-joined
the management team as the Acting Chief Financial Officer in February
2008. He coordinates the accounting, auditing and reporting efforts
of the Company. The dramatic decrease in professional services
expenses this quarter is a positive consequence of his assumption of those
duties.
Significant
expenses during the three and six month period ended March 31, 2008 and 2007
were as follows:
Professional
fees represent expenses necessary for outside accounting, audit, legal and
transfer agent fees, a majority of which relate to legal and regulatory
compliance. For this period, our professional fees expense was $86,962 and
$193,161 compared with $61,685 and $112,208 in the previous three and
six month period ended March 31, 2007. This represents a substantial
41% and 73% increase. This is primarily due to the need to continue using
outside consultants to help with financial reporting which we hope to be offset
in the future with the addition of Mr. Greaves.
This
increase is was also the direct consequence of higher-than-normal costs related
to deficiencies in internal controls and procedures. These
deficiencies were revealed during the previous period ending December 31,
2007.
As
mentioned in the 10-QSB for the Q1 period ended December 31, 2007, some
increased accounting expense from that period is included in the reporting this
quarter due to a portion of those costs not being fully absorbed during
Q1.
We
believe inefficiencies in internal controls revealed during the previous period
while still present are being addressed, as is demonstrated by the sharp
decrease in professional services expenses of this fiscal quarter versus the
immediately preceding quarter.
Professional
services costs have decreased compared to the first quarter of fiscal 2008, the
net loss for this three month period is the lowest reported by the Company since
inception, and the Company’s operating margin is at its highest point since
inception. Company management is encouraged by these efforts, while
acknowledging several challenges and difficulties to overcome. Of
those challenges, the increasing liabilities and increasing capital deficit
relative to revenue increases will be the primary focus going
forward. Management’s expectations have not yet been met in this
regard, and the Company endeavors to continue on the path being demonstrated in
the past few quarters.
Off-Balance
Sheet Arrangements
The
Company does not have any off-balance sheet arrangements that are reasonably
likely to have a current or future effect on its financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to
investors.
Disclosure
Regarding Forward Looking Statements and Safe Harbor
This
Quarterly Report on Form 10-Q includes forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended (“Forward Looking
Statements”). All statements other than statements of historical fact included
in this report are Forward Looking Statements. In the normal course of its
business, the Company, in an effort to help keep its shareholders and the public
informed about the Company’s operations, may from time-to-time issue certain
statements, either in writing or orally, which contain or may contain
Forward-Looking Statements. Although the Company believes that the expectations
reflected in such Forward Looking Statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Generally,
these statements relate to business plans or strategies, projected or
anticipated benefits or other consequences of such plans or strategies, past and
possible future, of acquisitions and projected or anticipated benefits from
acquisitions made by or to be made by the Company, or projections involving
anticipated revenues, earnings, levels of capital expenditures or other aspects
of operating results. All phases of the Company operations are subject to a
number of uncertainties, risks and other influences, many of which are outside
the control of the Company and any one of which, or a combination of which,
could materially affect the results of the Company’s proposed operations and
whether Forward Looking Statements made by the Company ultimately prove to be
accurate. Such important factors (“Important Factors”) and other factors that
could cause actual results to differ materially from the Company’s expectations
are disclosed in this report. All prior and subsequent written and oral Forward
Looking Statements attributable to the Company or persons acting on its behalf
are expressly qualified in their entirety by the Important Factors described
below that could cause actual results to differ materially from the Company’s
expectations as set forth in any Forward Looking Statement made by or on behalf
of the Company.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
The
Company, as defined by Rule 229.10(f)(1) is a “smaller reporting company” and
therefore has no required disclosures under this Item.
Item
4. Controls and Procedures
The
Company’s acting Chief Financial Officer under the direction of the Chief
Executive Officer evaluated the Company’s disclosure controls and
procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934
as of March 31, 2008. Within the 45-day period prior to the filing of
that period’s report, the acting Chief Financial Officer concluded that the
controls as they existed were ineffective to ensure the information disclosed by
the Company under the Securities Exchange Act was recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms. This conclusion was based upon the number and magnitude of year-end
adjusting entries and the additional financial reporting disclosures identified
by the Company’s independent accountants.
Since our
initial determination in our 10KSB for the year ended September 30, 2007,
changes in internal control over financial reporting are being instituted to
help ensure that internal control procedures and information disclosed by the
Company under the Securities and Exchange Act is recorded, processed, summarized
and reported within the time period specified in the SEC’s rules and forms going
forward. These changes include additional involvement by more skilled outside
consultants and the hiring of a Chief Financial Officer. None of the
changes to internal control and procedures have materially affected, nor are
reasonably likely to materially affect the Company’s internal controls over
financial reporting.
Item
4(T). Controls and Procedures
This
quarterly report does not include a detailed report of management's assessment
regarding internal control over financial reporting or an attestation report of
the Company's registered public accounting firm due to the transition period
established by rules of the Securities and Exchange Commission. This
report will be included with the Company’s annual filing for the year ending
September 30, 2008.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
None.
Item
1A. Risk Factors
None
required to be reported due to Company’s status as defined by Rule
229.10(f)(1).
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item
3. Defaults Upon Senior Securities
None.
Item
4. Submission of Matters to a Vote of Security Holders
None.
Item
5. Other Information
None.
Item
6. Exhibits
Exhibit
Number Description
and Incorporation by Reference
31.1*
|
Rule 13a-14(a)/15d-14(a)
Certification by the Chief Executive
Officer
|
31.2*
|
Rule 13a-14(a)/15d-14(a)
Certification by the Acting Chief Financial
Officer
|
32.1*
|
Certification
by the Chief 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
by the Acting Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
* Filed
herewith
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.
O2 Secure Wireless, Inc.
May 14,
2008 ___
/s/ Craig C.
Selllars
_____________
Craig C. Sellars, President
and
Chief Executive Officer
May 14,
2008 ___
/s/ Keith A.
Greaves
____________
Keith A. Greaves, Secretary
and
Acting Chief Financial
Officer
O2 Secure Wireless (CE) (USOTC:OTOW)
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