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 EXCHANGE ACT OF
1934
For the
quarterly period ended
June 30,
2009
[ ] 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.)
|
|
P.O.
Box 49726 Atlanta, GA 30359
|
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 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). [ ] Yes [ X ]
No
As of
August 17, 2009, the Registrant had outstanding
31,065,284
shares
of its Common Stock, no par value.
Table of Contents
|
PART
I – FINANCIAL INFORMATION
|
4
|
|
Item
1. Financial Statements (Unaudited)
|
4-9
|
|
Item
2. Management Discussion and Analysis
|
10
|
|
Off-Balance
Sheet Arrangements
|
12
|
|
Disclosure
Regarding Forward Looking Statements and Safe Harbor
|
12
|
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
12
|
|
Item
4. Controls and Procedures
|
12
|
|
PART
II - OTHER INFORMATION
|
13
|
|
Item
1. Legal Proceedings
|
13
|
|
Item
1A. Risk Factors
|
13
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
13
|
|
Item
3. Defaults Upon Senior Securities
|
13
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
13
|
|
Item
5. Other Information
|
13
|
|
Item
6. Exhibits
|
14
|
|
O2
SECURE WIRELESS, INC.
|
|
|
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2009
|
|
September
30, 2008
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,546
|
|
$
|
1,404
|
|
|
Trade
accounts receivable
|
|
|
9,115
|
|
|
27,928
|
|
|
Other
current assets
|
|
|
4,460
|
|
|
12,897
|
|
|
TOTAL
CURRENT ASSETS
|
|
|
19,121
|
|
|
42,229
|
|
|
|
|
|
|
|
|
|
|
|
EQUIPMENT,
net of accumulated depreciation
|
|
|
201,005
|
|
|
275,766
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
|
Restricted
investment, at fair value
|
|
|
30,737
|
|
|
31,350
|
|
|
Deposits
|
|
|
-
|
|
|
11,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250,863
|
|
$
|
360,595
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
547,660
|
|
$
|
450,420
|
|
|
Notes
payable - related party
|
|
|
64,800
|
|
|
64,800
|
|
|
Notes
payable - unrelated party
|
|
|
38,789
|
|
|
-
|
|
|
Unsecured
loans payable - related party
|
|
|
21,050
|
|
|
13,200
|
|
|
Accrued
expenses - related party
|
|
|
27,356
|
|
|
23,472
|
|
|
Deferred
revenue
|
|
|
-
|
|
|
3,675
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
699,655
|
|
|
555,567
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
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,
|
|
|
|
|
|
31,065,284
and 31,065,284 shares issued and outstanding, respectively
|
|
|
3,274,847
|
|
|
3,204,803
|
|
|
Other
capital
|
|
|
78,800
|
|
|
78,800
|
|
|
Accumulated
(deficit)
|
|
|
(3,802,439
|
)
|
|
(3,478,575
|
)
|
|
Total
Stockholders' Deficit
|
|
|
(448,792
|
)
|
|
(194,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250,863
|
|
$
|
360,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEE
ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
|
|
|
O2
SECURE WIRELESS, INC.
|
|
|
STATEMENTS
OF OPERATIONS
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network
service revenues
|
|
$
|
70,499
|
|
|
$
|
132,319
|
|
|
$
|
235,798
|
|
|
$
|
376,448
|
|
|
Network
component sales
|
|
|
1,966
|
|
|
|
2,117
|
|
|
|
3,893
|
|
|
|
5,811
|
|
|
Consulting
and other
|
|
|
36,037
|
|
|
|
15,109
|
|
|
|
66,775
|
|
|
|
29,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
108,502
|
|
|
|
149,545
|
|
|
|
306,466
|
|
|
|
411,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of network service revenues
|
|
|
37,967
|
|
|
|
49,884
|
|
|
|
105,190
|
|
|
|
145,994
|
|
|
Cost
of network component sales
|
|
|
408
|
|
|
|
379
|
|
|
|
2,605
|
|
|
|
2,887
|
|
|
Selling
general and administrative:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
39,178
|
|
|
|
96,404
|
|
|
|
191,150
|
|
|
|
288,393
|
|
|
Professional
services
|
|
|
17,131
|
|
|
|
12,431
|
|
|
|
74,888
|
|
|
|
280,666
|
|
|
Communications
|
|
|
7,004
|
|
|
|
10,093
|
|
|
|
25,386
|
|
|
|
29,059
|
|
|
Bad
debt
|
|
|
45,003
|
|
|
|
-
|
|
|
|
52,925
|
|
|
|
-
|
|
|
Other
|
|
|
27,702
|
|
|
|
23,982
|
|
|
|
101,150
|
|
|
|
76,651
|
|
|
Loss
on disposal of equipment
|
|
|
14,133
|
|
|
|
-
|
|
|
|
14,133
|
|
|
|
2,737
|
|
|
Depreciation
expense
|
|
|
18,430
|
|
|
|
25,672
|
|
|
|
55,359
|
|
|
|
93,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost
and expenses
|
|
|
206,956
|
|
|
|
218,845
|
|
|
|
622,786
|
|
|
|
920,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
|
(1,315
|
)
|
|
|
(2,635
|
)
|
|
|
(7,543
|
)
|
|
|
(7,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(LOSS)
|
|
$
|
(99,769
|
)
|
|
$
|
(71,935
|
)
|
|
$
|
(323,863
|
)
|
|
$
|
(515,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER
COMMON SHARE
|
|
|
*
|
|
|
|
*
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON
SHARES OUTSTANDING
|
|
|
31,065,284
|
|
|
|
28,065,284
|
|
|
|
31,065,284
|
|
|
|
27,816,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Less than $(0.01)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEE
ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
|
|
|
|
O2
SECURE WIRELESS, INC.
|
|
|
STATEMENTS
OF CASH FLOWS
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
June
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net
(loss) from operations
|
|
$
|
(323,863
|
)
|
|
$
|
(515,995
|
)
|
|
Adjustments
to reconcile net loss to net cash (used) provided by
|
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
|
Stock
compensation expense
|
|
|
-
|
|
|
|
140,000
|
|
|
Stock
option expense
|
|
|
70,043
|
|
|
|
68,824
|
|
|
Loss
on disposal of equipment
|
|
|
14,133
|
|
|
|
2,737
|
|
|
Depreciation
expense
|
|
|
55,359
|
|
|
|
93,723
|
|
|
Change
in:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
26,045
|
|
|
|
5,804
|
|
|
Other
current assets
|
|
|
12,456
|
|
|
|
426
|
|
|
Other
non-current assets
|
|
|
-
|
|
|
|
-
|
|
|
Accounts
payable and accrued expenses
|
|
|
97,240
|
|
|
|
167,842
|
|
|
Accrued
expenses - related party
|
|
|
3,884
|
|
|
|
46,135
|
|
|
Other
payables - related party
|
|
|
|
|
|
|
3,500
|
|
|
Deferred
revenue
|
|
|
(3,675
|
)
|
|
|
(27,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH (USED) PROVIDED BY OPERATING ACTIVITIES
|
|
|
(48,378
|
)
|
|
|
(14,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase
of equipment and capitalized installation costs
|
|
|
(3,731
|
)
|
|
|
(4,445
|
)
|
|
Proceeds
from disposal of equipment
|
|
|
9,408
|
|
|
|
14,765
|
|
|
Investment
income
|
|
|
613
|
|
|
|
317
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH (USED) PROVIDED BY INVESTING ACTIVITIES
|
|
|
6,290
|
|
|
|
10,637
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceed
from notes payable - unrelated party
|
|
|
38,789
|
|
|
|
-
|
|
|
Proceeds
from unsecured loan payable - related party
|
|
|
7,850
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED (USED) BY INVESTING ACTIVITIES
|
|
|
46,639
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
4,551
|
|
|
|
(3,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
1,404
|
|
|
|
6,172
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$
|
5,955
|
|
|
$
|
2,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEE
ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
|
|
|
O2 SECURE
WIRELESS, INC.
NOTES TO
FINANCIAL STATEMENTS
NINE
MONTHS ENDED JUNE 30, 2009
(unaudited)
NOTE
1 – BASIS OF FINANCIAL STATEMENT PRESENTATION
Interim
Financial Information.
The accompanying unaudited 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-K for the year ended September 30, 2008. Operating results for
the three months and nine months ended June 30, 2009 are not necessarily
indicative of the results that may be expected for the fiscal year ending
September 30, 2009.
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.
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 – PAYROLL TAXES
The
Company continues to be delinquent in remitting payroll taxes and with payroll
to certain individuals. The Company has included in the accrued expenses related
to payroll taxes and estimate of the penalties associated with these
delinquencies. It is possible that the Internal Revenue Service may seize the
Company’s cash accounts or take other actions. Total unpaid payroll taxes
including penalties were estimated to be approximately $153,000 at June 30,
2009.
NOTE
4 - NOTES PAYABLE
During
the nine-month period ended June 30, 2009, the Company borrowed funds from an
unrelated company in a series of notes due on demand after a date specified in
the agreements. These due dates were not extended and, as of July 21, 2009, all
of the notes are due on demand. The notes accrue interest at an annual rate of
1.0%, are unsecured, and are personally guaranteed by our former CEO, Craig
Sellers. Principal and accrued interest on these notes totaled $38,789 at June
30, 2009. Imputed interest at an expected borrowing rate of 10% is not material
to the financial statements.
NOTE
5 – RELATED PARTY TRANSACTIONS AND LOANS PAYABLE
During
the three month period ended December 31, 2008, notes payable of $64,800 due to
the father of our former CEO were extended to June 30, 2009. The notes have not
been further extended. The notes continue to bear interest at 8%. Accrued
interest owed to this party was $13,400 at June 30, 2009 which is included in
accrued expenses – related party in the accompanying balance sheet.
During
the nine month period ended June 30, 2009 our former CEO loaned the Company an
additional $10,350. Total unsecured loans payable to related parties are $21,050
at June 30, 2009. These loans are non interest bearing, interest has not been
imputed due to immateriality. Imputed interest at an expected borrowing rate of
10% is not material to the financial statements.
NOTE
6 – CONTINGENCIES
During
the three months ended June 30, 2009, the landlord for the Company’s former
office space filed suit over non-payment of approximately $11,000 the landlord
claims the Company is obligated to pay under an agreement that was reached to
terminate the Company’s office lease. This amount is included in accrued
expenses in the accompanying June 30, 2009 balance sheet.
A
former employee has filed suit against the Company for amounts due under his
employment agreement, namely a penalty provided for in the agreement of
approximately $140,000 in the event the Company failed to comply with certain
terms. Management believes the Company had complied with all agreement terms,
and accordingly this claim is without merit. The Company has not accrued any
amounts relating to this contingency.
NOTE
7 – STOCKHOLDERS’ DEFICIT
On
October 29, 2007, common stock options for 6.2 million shares were granted under
the Plan to various employees, 4.5 million of which were awarded to our former
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. Non-vested option grants are subject to
forfeiture if the grantees' employment terminates prior to vesting. Vested
options for terminated employees are forfeited if options are not exercised by
the expiration of the award period or 90 days following termination, whichever
occurs first.
There
were no stock options granted or exercised for the three and nine month period
ended June 30, 2009. During the nine month period ended June 30, 2009, all
remaining employees with outstanding option awards terminated employment with
the Company. As a result two of the employees were given board approval for all
shares to vest immediately and the exercise period extended. The remaining
employees forfeited their options. No vested options were exercised by the
terminated employees within the prescribed timeframe, resulting in forfeiture of
all outstanding option awards. Stock option activity for the nine month period
ended June 30, 2009 was as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding
at September 30, 2008
|
|
|
5,933,333
|
|
|
$
|
0.10
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
(5,250,000
|
)
|
|
|
-
|
|
|
Outstanding
at June 30, 2009
|
|
|
683,333
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2009
|
|
|
683,333
|
|
|
|
N/A
|
|
|
Remaining
reserved for grant at June 30, 2009
|
|
|
8,416,667
|
|
|
|
|
|
The
fair value of the stock options granted in the year ended September 30, 2008 was
$302,090. 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
months and nine months ended June 30, 2009 was $22,535 and $70,043.
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-K for the
year ended September 30, 2008. 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 2009, ended June 30, 2009, the Company’s billable
revenues increased compared to the revenues collected in the previous quarter
ended March 31, 2009. Expenses and accounts payable both significantly declined
in the third fiscal quarter ended June 30, 2009 as compared to the previous
quarter.
In the
third quarter of fiscal year 2009, the Company posted its lowest net loss and
its highest net margin since inception. Expense control is the primary reason
for these results. However, revenue growth has not been satisfactory, and the
Company has taken steps to address and remedy that situation.
The
former CEO, Mr. Craig C. Sellars, resigned from O2 Secure Wireless, Inc. during
the third fiscal 2009 quarter in order to pursue other opportunities. The former
Executive Director of Marketing also left the Company during the quarter.
Returning to O2 Secure Wireless, Inc. as CEO is Mr. Scott Conley, a Founder and
former CEO of the Company. Mr. Conley assumed his duties as CEO immediately
after the resignation of Mr. Sellars.
Under the
leadership of Mr. Conley, the Company intends to implement a disciplined,
aggressive and effective marketing strategy to increase customers and improve
customer service and satisfaction. The primary business plan remains the same:
to provide wireless Internet access in high density residential areas, college
campuses, and small businesses.
The
Company has been challenged since its inception by high expenses, but it
continues to engage that challenge. The Company initially marketed to both the
property owners and the residents of the property (the “Subscriber Model”). The
Company now emphasizes direct marketing to the property owners, offering them a
revenue sharing arrangement (the “Amenity” Model). Also, the Company
initially paid up front for installations. Now, the Company shares installation
costs with the property owners.
In the
early years, and especially after becoming a publicly traded company, O2 Secure
Wireless, Inc. incurred heavy debt mainly as a result of utilizing the
professional services of Accountants, Attorneys, and Auditors. While these
services were both necessary and beneficial to the Company, the cash flow did
not match the fees. As a consequence, heavy debt for professional services
rendered has accumulated on the Company’s balance sheet. The positive note here
is that reliance by the Company on frequent outside professional service
assistance has declined, and the rate of growth of the related debt has
significantly diminished. The Company intends to work out payment plans with its
professional services providers to eliminate the debt balances as soon as is
reasonably possible.
Working
out debt payment plans is a tactic that also applies to other needed vendors
that the Company currently utilizes. Here again, the objective is to reduce the
debt balance over time. O2 Secure Wireless, Inc. has become smarter in terms of
selecting the best vendors and acquiring the optimum combination of quality and
quantity when purchasing equipment and supplies. With regard to the latter, the
Company now avoids over stocking equipment and supplies, and is now very careful
to avoid the risk of equipment obsolescence.
The
Company has unfortunately lost a few properties in North Carolina and Tennessee
primarily due to a lack of strong customer service. Under the
guidance of the current CEO, Mr. Scott Conley, customer service and satisfaction
have once again become the primary objective. The Company is presently involved
in frequently visiting its existing properties and addressing any concerns or
maintenance issues immediately. The acquisition of new business is a strong goal
of the Company, but so too is the retention of its existing
customers.
O2 Secure
Wireless, Inc. has a sound business plan and the talent to successfully
implement the plan. Unfortunately, the Company has amassed a very large debt
load.
What is
needed, and what has been sorely lacking, is a strong sales effort and customer
service focus designed to retain and expand existing business while
simultaneously seeking out and bringing in new business.
The
Company needs an infusion of external capital to enable it to more readily
reduce its debt load, purchase equipment, and add capable and reliable talent to
its staff, particularly in the areas of marketing and sales, customer service,
and engineering. Additionally, the Company is not averse to
developing strategic partnerships with other entities in the same vertical
provided that there is similarity in business objectives, values and
ethics.
Liquidity
The
Company’s working capital deficit increased to approximately $680,534 at June
30, 2009 an increase of approximately $35,590 compared to March 31, 2009.
The working capital deficit has increased compared to the previous quarter’s
growth, and could continue to do so in future quarters.
To
address its outstanding liabilities, the Company intends to continue working to
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 continues to work
with its vendors on payment schedules and debt reduction that have helped reduce
some outstanding accounts payable for the quarter, and the Company will continue
this effort.
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. To date, some
alternatives described above have been implemented and all services continued to
be offered with little or no interruption.
As was
stated in previous quarterly and yearly reports, the Company continues to pursue
additional revenue from its traditional business models. The Company
continues to see many of its recurring expenses decrease. The Company
continues to seek external capital.
Results
of Operations
Three
and Nine Months Ended June 30, 2009 and 2008
During
the 3-month period ended June 30, 2009 and 2008, the Company generated $108,502
and $149,545 of revenues, respectively, and incurred net losses of ($99,769) and
($71,935), respectively. This is a decrease in revenues of 27% over the same
3-month period last year and also an increase of 39% in overall net loss
compared to the same 3-month period last year. During the 9-month period ended
June 30, 2009 and 2008, the Company generated $306,466 and $411,977
respectively, and incurred net losses of ($323,863) and ($515,995)
respectively. This is a decrease in revenues of 26% over the same 9-month
period last year, but also a 37% decrease in overall net loss compared to the
same 9-month period last year. For the 3 and 9-month periods ended
June 30, 2009, the Company received revenue from fourteen operational networks
versus fifteen during the same period in the prior year.
The
Company’s net loss for the periods ended June 30, 2009 is in line with its
overall expense decrease, compared to the same periods ended the prior
year.
Operational
and administrative changes 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.
Cash from
operations was used to satisfy some, but not all outstanding accounts payable
liabilities. The Company intends to continue paying down outstanding
liabilities, when possible, until they reach a satisfactory level. Based
on the Company’s continued losses and negative cash flows, there can be no
assurance that the Company will be able to satisfy its payables.
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, $38,789 notes payable to unrelated party plus
interest, and $21,050 unsecured loans payable to related-parties, and additional
accrued expenses to related parties in the amount of $27,356, which combined
comprise 22% of the Company’s total liabilities. Accounts payable and
accrued expenses, increased from $530,272 at March 31, 2009 to $547,660 at June
30, 2009, representing an increase of 3%. This increase was the result of a
tight cash position during the second and third periods of this fiscal year and
also penalties and interest associated with delinquencies related to payroll
taxes.
Significant
expenses during the three-month period ended June 30, 2009 and 2008 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-month period ended June 30, 2009, the Company’s
professional fees expense was $17,131. This three-month period represented
a substantial 38% decrease in professional services expenses over the previous
three-month period ending June 30, 2009, which was $12,431.
Company
management is encouraged by the partial stabilization that has occurred over
previous quarters, while acknowledging the struggle as it continues to address
the 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, followed by the overall decrease in
revenues. The Company’s expectations have not been completely met during
the previous quarter, and are still being approached this quarter, but
also not met. In this regard, the Company believes that stabilization
might occur if operating cash flow becomes consistently positive with no growth
in vendor payables. There has not been, and there can be no assurance that
the Company will ever reach profitability or a positive cash flow position
without additional changes to its business structure, business plan, or sales
efforts.
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 carried out an evaluation, under the supervision and with the
participation of its management, including its principal executive officer and
principal financial officer, of the effectiveness of its disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based
upon that evaluation, the Company’s principal executive officer and principal
financial officer concluded that, as of the end of the period covered in this
report, the Company’s disclosure controls and procedures were not effective to
ensure that information required to be disclosed in reports filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the required time periods and is accumulated and communicated to the
Company’s management, including its principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure.
The
Company, including its principal executive officer and principal financial
officer, does not expect that its disclosure controls and procedures or its
internal controls will prevent all error or fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Due to
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. To address the material weaknesses, the Company
performed additional analysis and other post-closing procedures in an effort to
ensure its consolidated financial statements included in this annual report have
been prepared in accordance with generally accepted accounting principles.
Accordingly, the Company believes that the financial statements included in this
report fairly present in all material respects the Company’s financial
condition, results of operations and cash flows for the periods
presented.
The
Company’s internal conclusion related to its disclosure and procedural controls
is due to the number and magnitude or changes to its draft 10Q recommended by
the Company’s independent auditor.
The
Company plans to continue working with competent outside professionals to help
it with quarterly reporting and if its business plan is successful additional
improvements in the Company’s accounting department will be made.
Changes
in Internal Control over Financial Reporting
In
addition, the Company with the participation of its acting Chief Financial
Officer have determined that no change in our internal control over financial
reporting occurred during or subsequent to the quarter ended June 30, 2009 that
has materially affected, or is (as that term is defined in Rules 13(a)-15(f) and
15(d)-15(f) of the Securities Exchange Act of 1934) reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
The
Company is being sued by a disgruntled former employee, Aaron King.
On August
13, 2009, the Company entered into mediation with its former landlord, and a
settlement was reached.
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
|
|
31.1*
|
Rule 13a-14(a)/15d-14(a)
Certification by the Acting Chief Executive Officer
|
|
|
|
|
31.2*
|
Rule 13a-14(a)/15d-14(a)
Certification by the Acting Chief Financial Officer
|
|
|
|
|
32.1*
|
Certification
by the Acting 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 Section 13 or 15(d) 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.
|
(Registrant)
|
|
|
|
|
|
August
19, 2009
|
/s/
Scott Conley
|
|
|
|
Scott
Conley, Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
August
19, 2009
|
/s/
Keith A. Greaves
|
|
|
|
Keith A. Greaves,
Secretary and
|
|
|
|
Chief
Financial Officer
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates stated.
|
|
|
|
|
August
19, 2009
|
/s/
Scott Conley
|
|
|
|
Scott
Conley, Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
August
19, 2009
|
/s/
Keith A. Greaves
|
|
|
|
Keith A. Greaves,
Secretary and
|
|
|
|
Chief
Financial Officer
|
|
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