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 First Quarter of Fiscal Year 2009, the Company demonstrated a mixed course change by continuing to show decreased expenses and more stable accounts payable. Compared to the first period of the previous fiscal year, the Company demonstrated an increase in revenue, but compared to the immediately previous period, the Company demonstrated a decrease in overall revenue. The results seen this quarter are primarily due to continued optimization of the Company's expense structure, payment terms with some of the Company's various vendors, and the continued decline in professional services expenses. The decrease in overall revenue can be attributed to renegotiation of two amenity-service contracts that reduced the recurring monthly revenues provided by those customers.
Continuing from the previous fiscal quarter, the Company has attempted to better manage its accounts payable liabilities by utilizing cash flow more appropriately, towards existing liabilities as well as recurring expenses, while still experiencing difficulty in acheiving the maximum benefit of this goal. 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 further narrowed, and eventually eliminated, if possible.
As described in the Company's 10-K filing for the year ended September 30, 2008, the Company altered its expense structure 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 the continued 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 have further reduced the Company's overhead and increased its operating margin.
This fiscal quarter, and the prior several quarters have been challenging for the Company, as it continues to report a net loss for each period. This period's results demonstrate that the Company is aiming in the right direction by directing resources toward increasing revenues, margins, and by focusing on reducing its net loss. It would be premature to say that the Company has "turned the corner," and the results of the First Quarter of Fiscal Year 2009 are encouraging, but the Company will still encounter additional difficulties in its strive to continue the trend going forward.
Liquidity
The Company's working capital deficit increased to approximately $570,000 at December 31, 2008 an increase of approximately $56,000 compared to September 30, 2008. However, compared to previous quarters, the quarter ended December 31, 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 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, Company management continues to pursue and acquire additional revenue from its traditional business model, and has added additional lines of revenue by leveraging 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.
Results
of Operations
Three
Months Ended December 31, 2008 and 2007
During the 3-month periods ended December 31, 2008 and 2007, the Company generated $117,504 and $136,322 of revenues, respectively, and incurred net losses of ($99,736) and ($286,619), respectively. This is a decrease in revenues of 14% over the same period last year and a substantial decrease of 66% in overall net loss compared to the same period last year. For the period ended December 31, 2008, the Company received revenue from twenty operational networks versus seventeen during the same period in the prior year.
The Company's net loss for the period ended December 31, 2008 is in line with its overall expense decrease, compared to the quarter ended December 31, 2007. The Company continues to stabilize its cost structure relative to its revenues.
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.
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 upon our continued losses and negative cash flows there can be no assurance that we will satisfy our 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, plus interest, and $18,850 loans payable to related-parties, and deferred salary of the Chief Executive Officer in the amount of $33,237, which combined comprise 19% of the Company's total liabilities. Accounts payable and accrued expenses, which increased 11%, from $450,420 at September 30, 2008 to $503,381 at December 31, 2008, represent an increase of 15% over the period ended December 31, 2007, when accounts payable and accrued expenses was $308,591. This increase was the result of a tight cash position during the first periods of this fiscal year and penalties associated with deliquesces related to payroll taxes.
Significant expenses during the three-month period ended December 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 the three-month period ended December 31, 2008, the Company's professional fees expense was $30,900. This three-month period represented a substantial 83% decrease in professional services expenses over the previous three-month period ending December 31, 2007, which was $182,311.
The decrease of 83% for this three-month period compared to the prior three-month period ending December 31, 2007 are the result of streamlined processes and the efforts of Mr. Greaves, who re-joined the Company in February 2008 specifically for this result. The Company believes inefficiencies in internal controls revealed during the previous periods while still present are being addressed, as is demonstrated by the sharp decrease in professional services expenses of this fiscal quarter versus the prior period.
Company management is encouraged by the partial stabilization that has occurred over previous quarters, 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 if operating cash flow becomes consistently positive with no growth in vendor payables. There can be no assurance that we will ever reach profitability or a positive cash flow position.
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
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our 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 our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our 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, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Our internal conclusion related to our disclosure and procedure controls is due to the number and magnitude of changes to our draft 10Q recommended by our independent auditor.
We plan to continue working with competent outside professionals to help us with quarterly reporting and if our business plan is successful additional improvements in our accounting department will be made.
Changes in Internal Control over Financial Reporting
In addition, our management with the participation of our Chief Executive Officer have determined that no change in our internal control over financial reporting occurred during or subsequent to the quarter ended December 31, 2008 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, our internal control over financial reporting.
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
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Exhibit
Number
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Description
and Incorporation by Reference
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Rule 13a-14(a)/15d-14(a)
Certification by the Chief Executive
Officer
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Rule 13a-14(a)/15d-14(a)
Certification by the Acting Chief Financial
Officer
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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
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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.
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O2
Secure Wireless, Inc.
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February 17, 2009
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/s/
Craig C. Sellars
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Craig C. Sellars,
President and
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Chief
Executive Officer
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February 17, 2009
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/s/
Keith A. Greaves
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Keith A. Greaves,
Secretary and
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Acting
Chief Financial Officer
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