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
EXCH
A
NGE ACT OF 1934
For the
quarterly period ended
June
30
,
2008
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:
001-3288
2
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
o
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
o
|
Accelerated
filer
o
|
Non-accelerated
filer
o
(Do
not check if 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).
As of
July 31
, 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
|
|
|
June 30,
2008
|
|
|
September 30,
2007
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,653
|
|
|
$
|
6,172
|
|
Trade
accounts receivable
|
|
|
20,079
|
|
|
|
25,883
|
|
Other
current assets
|
|
|
13,278
|
|
|
|
13,704
|
|
TOTAL
CURRENT ASSETS
|
|
|
36,010
|
|
|
|
45,759
|
|
|
|
|
|
|
|
|
|
|
EQUIPMENT,
net of accumulated depreciation
|
|
|
320,327
|
|
|
|
427,107
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
|
Restricted
investment, at fair value
|
|
|
30,334
|
|
|
|
30,651
|
|
Deposits
|
|
|
11,250
|
|
|
|
11,250
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
397,921
|
|
|
$
|
514,767
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
328,450
|
|
|
$
|
166,258
|
|
Note
payable - related party
|
|
|
64,800
|
|
|
|
64,800
|
|
Accrued
expenses - related party
|
|
|
106,549
|
|
|
|
54,764
|
|
Other
payables:
|
|
|
|
|
|
|
|
|
Related
party
|
|
|
22,925
|
|
|
|
19,425
|
|
Unrelated
party
|
|
|
-
|
|
|
|
13,873
|
|
Deferred
revenue
|
|
|
4,349
|
|
|
|
31,502
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
527,073
|
|
|
|
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 June 30, 2008 and September
30, 2007, respectively
|
|
|
3,121,049
|
|
|
|
2,898,352
|
|
Other
capital
|
|
|
78,800
|
|
|
|
78,800
|
|
Accumulated
(deficit)
|
|
|
(3,329,001
|
)
|
|
|
(2,813,007
|
)
|
Total
Stockholders' Equity (Deficit)
|
|
|
(129,152
|
)
|
|
|
164,145
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
397,921
|
|
|
$
|
514,767
|
|
|
|
|
|
|
|
|
|
|
SEE
ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
|
|
O2
SECURE WIRELESS, INC. AND SUBSIDIARY
|
---------------
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(unaudited)
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Network
service revenues
|
|
$
|
132,319
|
|
|
$
|
86,215
|
|
|
$
|
376,448
|
|
|
$
|
223,981
|
|
Network
component sales
|
|
|
2,117
|
|
|
|
24,668
|
|
|
|
5,811
|
|
|
|
64,779
|
|
Consulting
and other
|
|
|
15,109
|
|
|
|
1,573
|
|
|
|
29,718
|
|
|
|
2,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
149,545
|
|
|
|
112,456
|
|
|
|
411,977
|
|
|
|
291,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of network service revenues
|
|
|
49,884
|
|
|
|
22,048
|
|
|
|
145,994
|
|
|
|
49,796
|
|
Cost
of network component sales
|
|
|
379
|
|
|
|
51,903
|
|
|
|
2,887
|
|
|
|
83,880
|
|
Selling
general and administrative:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
96,404
|
|
|
|
72,256
|
|
|
|
288,393
|
|
|
|
276,858
|
|
Professional
services
|
|
|
12,431
|
|
|
|
15,674
|
|
|
|
280,666
|
|
|
|
131,216
|
|
Communications
|
|
|
10,093
|
|
|
|
45,662
|
|
|
|
29,059
|
|
|
|
106,037
|
|
Other
|
|
|
23,982
|
|
|
|
36,604
|
|
|
|
76,651
|
|
|
|
122,346
|
|
Loss
on disposal of equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
2,737
|
|
|
|
-
|
|
Depreciation
expense
|
|
|
25,672
|
|
|
|
34,840
|
|
|
|
93,723
|
|
|
|
99,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost
and expenses
|
|
|
218,845
|
|
|
|
278,987
|
|
|
|
920,110
|
|
|
|
869,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
|
(2,635
|
)
|
|
|
315
|
|
|
|
(7,862
|
)
|
|
|
3,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(LOSS)
|
|
$
|
(71,935
|
)
|
|
$
|
(166,216
|
)
|
|
$
|
(515,995
|
)
|
|
$
|
(574,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET (LOSS)
PER COMMON SHARE
|
|
$
|
|
*
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
|
|
|
28,065,284
|
|
|
|
26,176,552
|
|
|
|
27,816,461
|
|
|
|
26,172,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Less than $ (0.01)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEE
ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
|
|
O2
SECURE WIRELESS, INC. AND SUBSIDIARY
|
---------------
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(unaudited)
|
|
|
Nine
Months Ended
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net
(loss) from operations
|
|
$
|
(515,994
|
)
|
|
$
|
(574,745
|
)
|
Adjustments
to reconcile net loss to net cash provided (used) by operating
activities:
|
|
|
|
|
|
|
|
|
Stock
compensation expense
|
|
|
140,000
|
|
|
|
-
|
|
Stock
option expense
|
|
|
68,824
|
|
|
|
-
|
|
Loss
on disposal of equipment
|
|
|
2,737
|
|
|
|
-
|
|
Depreciation
expense
|
|
|
93,723
|
|
|
|
99,063
|
|
Change
in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
5,804
|
|
|
|
(286
|
)
|
Other
current assets
|
|
|
426
|
|
|
|
(10,440
|
)
|
Other
non-current assets
|
|
|
-
|
|
|
|
(10,201
|
)
|
Accounts
payable and accrued expenses
|
|
|
167,842
|
|
|
|
24,000
|
|
Accrued
expenses - related party
|
|
|
46,135
|
|
|
|
43,048
|
|
Other
payables - related party
|
|
|
3,500
|
|
|
|
-
|
|
Deferred
revenue
|
|
|
(27,153
|
)
|
|
|
7,422
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED (USED) BY OPERATING ACTIVITIES
|
|
|
(14,156
|
)
|
|
|
(422,139
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of equipment and capitalized installation costs
|
|
|
(4,445
|
)
|
|
|
(99,504
|
)
|
Proceeds
from disposal of equipment
|
|
|
14,765
|
|
|
|
-
|
|
Investment
income
|
|
|
317
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED (USED) BY INVESTING ACTIVITIES
|
|
|
10,637
|
|
|
|
(99,504
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from notes payable - related party
|
|
|
-
|
|
|
|
34,800
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED (USED) BY INVESTING ACTIVITIES
|
|
|
-
|
|
|
|
34,800
|
|
|
|
|
|
|
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(3,519
|
)
|
|
|
(486,843
|
)
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
6,172
|
|
|
|
522,351
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$
|
2,653
|
|
|
$
|
35,508
|
|
|
|
|
|
|
|
|
|
|
SEE
ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
|
|
O2 SECURE
WIRELESS, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
THREE AND
NINE MONTHS ENDED JUNE 30, 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 nine months ended June 30, 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 (“Epiphony”). All material intercompany accounts and transactions have been
eliminated in consolidation. Epiphony had commenced no operations and was
dissolved on May 16, 2008.
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 sources 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. On
June 17, 2008, the notes were further amended to extend the maturity date to
December 31, 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 $98,333 at June 30, 2008, which is
included in accrued expenses – related party in the accompanying 2008
consolidated balance sheet.
NOTE 5 –
STOCKHOLDERS’ EQUITY (DEFICIT)
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 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 nine months ended June 30, 2008 is summarized
as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at September 30, 2007
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
6,200,000
|
|
|
$
|
0.10
|
|
Forfeited
|
|
|
(266,667
|
)
|
|
|
-
|
|
Outstanding
at March 31, 2008
|
|
|
5,933,333
|
|
|
$
|
0.10
|
|
Granted
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
Outstanding
at June 30, 2008
|
|
|
5,933,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2008
|
|
|
83,333
|
|
|
$
|
0.10
|
|
Remaining
reserved for grant at June 30, 2008
|
|
|
3,166,667
|
|
|
|
|
|
In
calculating the impact for options granted during the nine months ended June 30,
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 during this period 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. 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 nine months ended June 30, 2008 was $23,754 and
$68,824.
Common Stock Warrants.
On
December 31, 2007, an outstanding warrant to purchase one million common shares
expired without exercise by the warrant holder. As of June 30, 2008, the Company
has outstanding warrants to purchase 500,000 shares of common stock issued to a
foreign company investor in 2005 in consideration for a Securities Purchase
Agreement. On June 30, 2008, the expiration date for these warrants was extended
to from June 30, 2008 to September 30, 2009. The Company evaluated the effect of
this modification pursuant to FASB statement number 123R and the effect of the
modification was determined to be immaterial for financial reporting
purposes.
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 payable of $13,873.
During
the nine months ended June 30, 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 the Company’s unaudited
consolidated interim financial statements and related notes thereto included in
this quarterly report and in the Company’s audited consolidated financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") contained in the Company’s 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.
In the
Third Quarter of Fiscal Year 2008, the Company demonstrated a positive course
change by continuing to show increased revenues, decreased expenses and
decreased accounts payable. Similar to the previous quarter, the
Company continued to demonstrate a decrease in expenses. In the Third
Quarter of FY2008, the Company posted its lowest net loss since
inception. This quarter also provided the Company with its highest
operating margin since inception. These results are primarily due to
increased revenues, payment terms with the Company’s various vendors, and the
continued decline in professional services expenses.
In
contrast to the previous fiscal quarter, the Company decreased its accounts
payable liabilities by beginning to utilize cash flow more appropriately,
towards existing liabilities as well as recurring expenses. The
Company continues to reduce the gap between revenues and expenses (including
non-cash expenses such as depreciation) and, to the extent possible, plans
to continue to reduce outstanding liabilities and payables as such gap is
completely eliminated.
As
described in the Company’s 10-KSB filing for the year ended September 30, 2007,
the Company has 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 professional services
such as legal, accounting and auditing costs. This quarter, as in the
previous 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 further 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 (and 1/2 the amount of
the previous fiscal quarter), reflects the efforts and results of the Company’s
talented and dedicated personnel.
The prior
several quarters have been challenging for the Company, as it continued to
report a net loss for each period. This period’s results demonstrate
that the Company is headed in the right direction by increasing revenues,
margins, and reducing its net loss. It would be premature to say that
the Company has “turned the corner,” but the results of the Third Quarter of
Fiscal Year 2008 are encouraging, and the Company will strive to continue the
trend going forward.
Liquidity
Using the
method presented in the previous period’s 10-Q, the Company’s working capital
deficit increased to approximately $489,000 at June 30, 2008 an increase of
approximately $12,000 compared to March 31, 2008. However, compared to the past
three quarters ended March 31, 2008, the quarter ended June 30, 2008 had the
smallest increase in the Company’s working capital deficit. The working capital
deficit growth is slowing down significantly and could continue to do so in
future quarters.
To
address its outstanding liabilities, management intends to continue working to
successfully refine its revenue and expense models to address any shortage of
cash while addressing the best use of the Company’s existing capital resources,
especially positive cash flow as it comes available. The Company’s
vendors worked with management on payment schedules that have reduced
outstanding accounts payable for the quarter, and management will continue to do
so over time.
Some
outstanding liabilities that cannot be reduced quickly enough may result in
penalization such as finance charges or suspension of
services. Suspension or termination of some bandwidth provided to
properties may reduce the overall level of service to the Company’s customers
until a suitable replacement can be provisioned. The Company has
implemented procedures to reduce the likelihood of such events occurring and
believes it has 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.
As was
stated in the previous quarter, Company management continues to pursue and
acquire additional revenue from its traditional business model, and has added
additional lines of revenue by increasing its consulting
services. Similarly, the company continues to see many of its planned
recurring expenses decrease. The Company has not executed any binding
agreements in regard to additional capital infusions or partnership
opportunities, and there is no assurance that any binding agreements will be
reached. Nonetheless, the Company has engaged in conversations,
discussions, and negotiations in this regard which may provide additional growth
and capital resources in the future. The Company continues to
aggressively pursue growth opportunities with other companies within the same
vertical.
Results
of Operations
Three
Months Ended June 30, 2008 and 2007
During
the 3-month periods ended June 30, 2008 and 2007, the Company generated $149,545
and $112,456 of revenues, respectively, and incurred net losses of ($71,935) and
($166,216), respectively. This is an increase in revenues of 33% over the same
period last year and a decrease of 57% in overall net loss compared to the same
period last year. For the period ended June 30, 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 June 30, 2008 is in line with its
revenue increase and overall expense decrease, compared to the quarter ended
June 30, 2007. The Company continues to stabilize its cost structure
relative to its revenue increase, and this period it is able to post its
smallest loss since inception.
Operational
and administrative efficiencies were instituted within the past 12 months and
are intended to continue in order to support the initiatives pursued by
management to increase business activity.
Additional
cash from operations was used to satisfy some outstanding accounts payable
liabilities. The Company intends to continue paying down outstanding
liabilities in this manner until they reach a satisfactory level.
There was
an increase in the overall current liabilities of the Company due to an increase
in accrued liabilities. Those accrued liabilities consist of $64,800
of a note payable to a related party, plus interest, and $22,925 loans payable
to related-parties, and deferred salary of the Chief Executive Officer in the
amount of $98,333, which combined comprise 37% of the Company’s total
liabilities. Accounts payable and accrued expenses, which increased
3%, from $321,829 at March 31, 2008 to $328,450 at June 30, 2008, represent
an increase of 75% over the period ended June 30, 2007, when accounts payable
was $187,394. This increase was the result of a tight cash
position during the first periods of this fiscal year and the total amount
should continue to decrease, as funds are available, while the Company
approaches profitability.
Nine
Months Ended June 30, 2008 and 2007
During
the 9-month periods ended June 30, 2008 and 2007, the Company generated $411,977
and $291,406 of revenues, respectively, and incurred net losses of ($515,994)
and ($574,745), respectively. This is an increase in revenues of 41% over the
same period last year and a decrease of 10% in overall net loss compared to the
same period last year.
Significant
expenses during the three- and nine-month periods ended June 30, 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 the three- and nine-month periods ended June 30, 2008, the
Company’s professional fees expense was $12,431 and $280,666. This
three-month period represented a substantial 86% decrease in professional
services expenses over the previous three-month period ending March 31, 2008,
which was $86,962. Compared with the same three- and nine-month periods
from the prior year’s periods, (where professional services fees were $15,674
and $131,216), there was a decrease of 21% for the three-month periods, and an
increase of 113% during the nine-month periods.
The
decrease of 86% for this three-month period compared to the prior three-month
period ending March 31, 2008 are the result of streamlined processes and the
efforts of Mr. Greaves, who re-joined the Company in February specifically for
this result. The Company believes 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.
The net
loss for this three-month period is the lowest reported by the Company since
inception, the Company’s operating margin is at its highest point since
inception, and both are better than those reported in the previous
period. Company management is encouraged by the stabilization that
has occurred this quarter and the previous quarter, while it continues to
acknowledge challenges and difficulties to overcome. Of those
challenges, the accrued liabilities and increasing capital deficit relative to
revenue increases continues to be the primary focus. Management’s
expectations had not been completely met during the previous quarter, and are
still being approached this quarter. In this regard, the Company
endeavors to continue on the path being demonstrated in the past few quarters,
and believes full stabilization might occur once operating cash flow becomes
consistently positive with no growth in vendor payables.
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 is
not required to provide or disclose the information required by 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 June 30, 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 for the prior
period.
Since the
Company’s initial determination in its 10-KSB for the year ended September 30,
2007, changes in internal control over financial reporting have been and 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 a “Smaller Reporting Company”
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
|
|
Rule 13a-14(a)/15d-14(a)
Certification by the Chief Executive
Officer
|
|
Rule 13a-14(a)/15d-14(a)
Certification by the Acting Chief Financial
Officer
|
|
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
|
|
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.
|
|
|
|
|
August
13, 2008
|
/s/
Craig C. Sellars
|
|
|
Craig C. Sellars,
President and
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
August
13, 2008
|
/s/
Keith A. Greaves
|
|
|
Keith A. Greaves,
Secretary and
|
|
|
Acting
Chief Financial Officer
|
|
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