**U. S. SECURITIES AND EXCHANGE COMMISSION**

**Washington, D. C. 20549**

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**FORM 10-QSB**

**(Mark One)**

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

 

**For thequarterly period ended December 31, 2006**

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

 

**For thetransition period from               to               **

**Commission File Number****001-32882**

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**O2 SECURE WIRELESS, INC.**(Exact name of small businessissuer 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 150Norcross, GA 30071**(Address of Principal ExecutiveOffices)

**(678) 942-0684**(Issuer’s telephone number)

**3300Holcomb Bridge Rd., Suite 226Norcross, Georgia 30092**(Former Address of Principal ExecutiveOffices)

Check whether the issuer (1)filed all reports required to be filed by Section 13 or 15(d) of the ExchangeAct during the past 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes  o; No  x

APPLICABLE ONLY TO CORPORATEISSUERS

State the numberof shares outstanding of each of the issuer’s classes of common equity, as ofthe latest practicable date: as of February 12, 2007, the Registrant hadoutstanding 26,176,552 shares of its Common Stock, no par value.

Transitional SmallBusiness Disclosure Format (check one):  Yeso;  No x

 

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**O2 Secure Wireless, Inc. andSubsidiary**

### **FORM 10-QSB REPORT INDEX**

| PART I. FINANCIAL  INFORMATION                                                                      |   |                                                                                                |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------|
|                                                                                                |   |                                                                                                |
| Item 1. Financial  Statements (Unaudited)                                                           |   |                                                                                                |
|                                                                                                |   |                                                                                                |   |   |
|                                                                                                |   | Consolidated Balance  Sheet as of December 31, 2006                                                 |   |   |
|                                                                                                |   |                                                                                                |   |   |
|                                                                                                |   | Consolidated  Statements of Operations for the Three Months Ended December 31, 2006 and  2005       |   |   |
|                                                                                                |   |                                                                                                |   |   |
|                                                                                                |   | Consolidated  Statements of Cash Flows for the Three Months Ended December 31, 2006 and  2005       |   |   |
|                                                                                                |   |                                                                                                |   |   |
|                                                                                                |   | Notes to  Unaudited Consolidated Financial Statements for the Three Months Ended  December 31, 2006 |   |   |
|                                                                                                |   |                                                                                                |   |   |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operation |   |                                                                                                |
|                                                                                                |   |                                                                                                |
| Item 3. Controls and  Procedures                                                                    |   |                                                                                                |
|                                                                                                |   |                                                                                                |
| PART II. OTHER  INFORMATION                                                                         |   |                                                                                                |
|                                                                                                |   |                                                                                                |
| Item 1. Legal Proceedings                                                                           |   |                                                                                                |
|                                                                                                |   |                                                                                                |
| Item 2. Changes in  Securities                                                                      |   |                                                                                                |
|                                                                                                |   |                                                                                                |
| Item 3.  Defaults on Senior Securities                                                              |   |                                                                                                |
|                                                                                                |   |                                                                                                |
| Item 4.  Submission of Matters to a Vote of Security Holders                                        |   |                                                                                                |
|                                                                                                |   |                                                                                                |
| Item 5. Other Information                                                                           |   |                                                                                                |
|                                                                                                |   |                                                                                                |
| Item 6.  Exhibits and Reports on Form 8-K                                                           |   |                                                                                                |
|                                                                                                |   |                                                                                                |
| Signatures                                                                                          |   |                                                                                                |

 

2

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**PART I. FINANCIAL INFORMATION**

**Item 1. FinancialStatements**

O2 SECURE WIRELESS, INC. AND SUBSIDIARY

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CONSOLIDATEDBALANCE SHEET

December 31, 2006

(unaudited)
| ASSETS                                                                                          |   |       |    |
|-------------------------------------------------------------------------------------------------|--------|------------|---------|
|                                                                                            |   |       |    |
| CURRENT  ASSETS:                                                                                |   |       |    |
| Cash and cash  equivalents                                                                      |   | $          | 284,324 |   |
| Trade accounts  receivable                                                                      |   | 11,251     |    |
| Other current  assets                                                                           |   | 18,213     |    |
| TOTAL CURRENT  ASSETS                                                                           |   | 313,788    |    |
|                                                                                            |   |       |    |
| EQUIPMENT, net of  accumulated depreciation                                                     |   | 520,679    |    |
|                                                                                            |   |       |    |
| OTHER  NON-CURRENT ASSETS                                                                       |   | 12,299     |    |
|                                                                                            |   |       |    |
|                                                                                            |   | $          | 846,766 |   |
|                                                                                            |   |       |    |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                      |   |       |    |
|                                                                                            |   |       |    |
| CURRENT  LIABILITIES:                                                                           |   |       |    |
| Unsecured loan  payable                                                                         |   | $          | 13,873  |   |
| Note payable -  related party                                                                   |   | 30,000     |    |
| Accounts payable                                                                                |   | 20,728     |    |
| Accrued  liabilities                                                                            |   | 13,169     |    |
| Customer deposit                                                                                |   | 10,000     |    |
| Deferred revenue                                                                                |   | 7,938      |    |
| TOTAL CURRENT  LIABILITIES                                                                      |   | 95,708     |    |
|                                                                                            |   |       |    |
| COMMITMENTS  AND CONTINGENCIES                                                                  |   |       |    |
|                                                                                            |   |       |    |
| STOCKHOLDERS’  EQUITY                                                                      |   |       |    |
| 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, 26,176,552 issued and outstanding    |   | 2,823,352  |    |
| Other capital                                                                                   |   | 78,800     |    |
| Accumulated  (deficit)                                                                          |   | (2,151,094 | )       |
| Total  Stockholders’ Equity                                                                |   | 751,058    |    |
|                                                                                            |   |       |    |
|                                                                                            |   | $          | 846,766 |   |

 

SEEACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

3

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O2 SECURE WIRELESS, INC. AND SUBSIDIARY

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CONSOLIDATEDSTATEMENTS OF OPERATIONS

(unaudited)
| ** **                                            | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                            | ** ** | **December 31,**            | ** ** |
| ** **                                            | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| REVENUES:                                             |       |                             |       |   |   |
| Network service revenues                              |       | $                                | 63,924     |   | $ | 14,052 |   |
| Network component sales                               |       | 36,436                           |       | 6,114 |   |
| Other                                                 |       | 1,073                            |       | 542 |   |
|                                                  |       |                             |       |   |   |
| Total revenues                                        |       | 101,433                          |       | 20,708 |   |
|                                                  |       |                             |       |   |   |
| COSTS AND EXPENSES:                                   |       |                             |       |   |   |
| Cost of network service revenues                      |       | 11,662                           |       | 11,644 |   |
| Cost of network component sales                       |       | 29,959                           |       | 4,628 |   |
| Selling general and administrative:                   |       |                             |       |   |   |
| Compensation                                          |       | 101,884                          |       | 106,389 |   |
| Professional fees                                     |       | 50,523                           |       | 62,642 |   |
| Communications                                        |       | 29,782                           |       | 13,341 |   |
| Travel & entertainment                            |       | 2,370                            |       | 12,491 |   |
| Other                                                 |       | 39,048                           |       | 24,838 |   |
| Depreciation expense                                  |       | 30,638                           |       | 21,554 |   |
|                                                  |       |                             |       |   |   |
| Total cost and expenses                               |       | 295,866                          |       | 257,527 |   |
|                                                  |       |                             |       |   |   |
| OTHER INCOME  (EXPENSE):                              |       |                             |       |   |   |
| Interest income                                       |       | 2,006                            |       | 2,386 |   |
|                                                  |       |                             |       |   |   |
| NET (LOSS)                                            |       | $                                | (192,427   | ) | $ | (234,433 | ) |
|                                                  |       |                             |       |   |   |
| BASIC AND  DILUTED NET (LOSS) PER COMMON SHARE        |       | $                                | (0.01      | ) | $ | (0.01 | ) |
|                                                  |       |                             |       |   |   |
| WEIGHTED AVERAGE NUMBER  OF COMMON SHARES OUTSTANDING |       | 26,137,422                       |       | 23,516,720 |   |

 

SEE ACCOMPANYING NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS.

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O2 SECURE WIRELESS, INC. AND SUBSIDIARY

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CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(unaudited)
| ** **                                                                       | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                       | ** ** | **December 31,**            | ** ** |
| ** **                                                                       | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| OPERATING  ACTIVITIES:                                                           |       |                             |       |   |   |
| Net (loss) from operations                                                       |       | $                                | (192,427   | ) | $ | (234,433 | ) |
| Adjustments to reconcile net (loss) to net cash  (used by) operating activities: |       |                             |       |   |   |
| Expense paid by investor                                                         |       | —                           |       | 11,177 |   |
| Depreciation expense                                                             |       | 30,638                           |       | 21,554 |   |
| Change in:                                                                       |       |                             |       |   |   |
| Accounts receivable                                                              |       | (9,662                           | )          | — |   |
| Other current assets                                                             |       | (16,403                          | )          | (3,865 | ) |
| Other non-current assets                                                         |       | (7,500                           | )          | 116 |   |
| Accounts payable                                                                 |       | (8,662                           | )          | 15,952 |   |
| Accrued expenses                                                                 |       | 16,914                           |       | (2,451 | ) |
| Customer deposit                                                                 |       | 10,000                           |       | — |   |
| Deferred revenue                                                                 |       | (669                             | )          | 313 |   |
|                                                                             |       |                             |       |   |   |
| NET CASH (USED) BY OPERATING ACTIVITIES                                          |       | (177,771                         | )          | (191,637 | ) |
|                                                                             |       |                             |       |   |   |
| INVESTING  ACTIVITIES:                                                           |       |                             |       |   |   |
| Purchase of equipment and capitalized installation  costs                        |       | (60,256                          | )          | (107,614 | ) |
|                                                                             |       |                             |       |   |   |
| NET CASH (USED) BY INVESTING ACTIVITIES                                          |       | (60,256                          | )          | (107,614 | ) |
|                                                                             |       |                             |       |   |   |
| FINANCING  ACTIVITIES:                                                           |       |                             |       |   |   |
| Proceeds from sale of common stock                                               |       | —                           |       | 352,241 |   |
| Cash paid for common stock offering costs                                        |       | —                           |       | (13,890 | ) |
|                                                                             |       |                             |       |   |   |
| NET CASH  PROVIDED BY FINANCING ACTIVITIES                                       |       | —                           |       | 338,351 |   |
|                                                                             |       |                             |       |   |   |
| NET CHANGE IN  CASH AND CASH EQUIVALENTS                                         |       | (238,027                         | )          | 39,100 |   |
|                                                                             |       |                             |       |   |   |
| CASH AND CASH  EQUIVALENTS, beginning of period                                  |       | 522,351                          |       | 415,079 |   |
|                                                                             |       |                             |       |   |   |
| CASH AND CASH  EQUIVALENTS, end of period                                        |       | $                                | 284,324    |   | $ | 454,179 |   |

 

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIALSTATEMENTS.

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O2 SECUREWIRELESS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

THREE MONTHS ENDEDDECEMBER 31, 2006(unaudited)

# NOTE1—BASIS OF FINANCIAL STATEMENT PRESENTATION

*Interim Financial Information.* The accompanying unaudited consolidated financial statements of O2Secure Wireless, Inc. (the “Company”) have been prepared in accordance withprinciples generally accepted in the United States of America for interimfinancial information and applicable rules of Regulation S-X. Accordingly, theydo not include all of the information and notes required by generally acceptedaccounting principles for complete financial statements. In the opinion ofmanagement, all adjustments considered necessary for a fair presentation havebeen included. The interim financial statements and notes should be read inconjunction with the financial statements and notes thereto included in theCompany’s Form 10-KSB for the year ended September 30, 2006. Operating resultsfor the three months ended December 31, 2006 are not necessarily indicative ofthe results that may be expected for the fiscal year ending September 30, 2007.

*Principles of Consolidation.*The accompanying consolidated financialstatements include the accounts of O2 Secure Wireless, Inc. and its wholly-ownedsubsidiary, Epiphony Voice Solutions, LLC. All material intercompany accountsand transactions have been eliminated in consolidation.

##### *Going Concern.*The Company’s financial statements have been presented on the basisthat it is a going concern, which contemplates the realization of assets andthe satisfaction of liabilities in the normal course of business.  It has sustained operating losses sinceinception, and has been dependent upon private placements of stock to providesufficient working capital in order to finance its development activities. ASecurities Purchase Agreement with a sole investor, who represents the Company’ssole source of private stock placements to date, expired on September 30, 2006without extension. The Company’s ability to continue in existence is dependentupon developing additional sources of capital and/or achieving profitableoperations. Management’s plan is to raise capital through additional privateofferings, while actively seeking additional wireless network installation agreementsand generating profitable revenue-producing connectivity subscriptions withnetwork end-users, in addition to profitable sales of certain products forwhich it is an authorized distributor. The Company’s need for additionalworking capital infusion to sustain present operations raises substantial doubtabout its ability to continue as a going concern. The accompanying consolidatedfinancial statements do not include any adjustments that might result from theoutcome of these uncertainties.

NOTE 2—EQUIPMENT

During the three months ended December 31, 2006, the Companycapitalized no equipment and labor costs for new wireless networkinstallations. Hardware component equipment held for network installations orsale increased $56,967 during the three months ended December 31, 2006.

NOTE 3—COMMITMENTS

On November 28, 2006, weexecuted a five-year, non-cancelable lease for office space commencing January1, 2007. Monthly minimum lease payments during the first year will be $3,750,with annual escalations over the lease term to $4,387 per month. The lease hasa five year option to renew. In addition

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to monthly lease payments,we will be subject to a pro rata share of the lessor’s increases in propertytaxes and insurance in future years above the level paid by the lessor duringcalendar year 2006. We paid a deposit of $11,250 upon execution of the lease,and are required to pay an additional deposit of $6,000 by January 31, 2007.$9,750 of this deposit will be credited against rent payments at various pointsduring the lease term so long as we are in compliance with the lease agreement.

NOTE 4—STOCKHOLDERS’ EQUITY

In October 2006, we repaid an investor a $20,000loan and $10,000 the investor had paid to a service provider on our behalf bythe issuance of 100,000 shares of restricted common stock at $0.30 per share.

On December 20, 2006, an outstanding warrant topurchase one million common shares expired without exercise by the warrantholder.

NOTE 5—SUPPLEMENTAL CASH FLOW INFORMATION

As disclosed in Note 4, duringthe three months ended December 31, 2006, we issued 100,000 shares of commonstock with a stated value of $30,000 in settlement of a $20,000 loan and$10,000 accrued liability owed to an investor.

**Item 2.  Management’s Discussion and Analysis of FinancialCondition and Results of Operations.**

***DisclosureRegarding Forward Looking Statements***

This Quarterly Report on Form 10-QSB includes forwardlooking statements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934, asamended (“Forward Looking Statements”). All statements other than statements ofhistorical fact included in this report are Forward Looking Statements. In thenormal course of its business, the Company, in an effort to help keep itsshareholders and the public informed about the Company’s operations, may fromtime-to-time issue certain statements, either in writing or orally, whichcontain or may contain Forward-Looking Statements. Although the Companybelieves that the expectations reflected in such Forward Looking Statements arereasonable, it can give no assurance that such expectations will prove to havebeen correct. Generally, these statements relate to business plans orstrategies, projected or anticipated benefits or other consequences of suchplans or strategies, past and possible future, of acquisitions and projected oranticipated benefits from acquisitions made by or to be made by the Company, orprojections involving anticipated revenues, earnings, levels of capitalexpenditures or other aspects of operating results. All phases of the Companyoperations are subject to a number of uncertainties, risks and otherinfluences, many of which are outside the control of the Company and any one ofwhich, or a combination of which, could materially affect the results of theCompany’s proposed operations and whether Forward Looking Statements made bythe Company ultimately prove to be accurate. Such important factors (“ImportantFactors”) and other factors could cause actual results to differ materiallyfrom the Company’s expectations are disclosed in this report. All prior andsubsequent written and oral Forward Looking Statements attributable to theCompany or persons acting on its behalf are expressly qualified in theirentirety by the Important Factors described below that could cause actualresults to differ materially from the Company’s expectations as set forth inany Forward Looking Statement made by or on behalf of the Company.

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***Plan of Operation***

Ourprimary business involves the installation of wireless Internet systems inmultifamily properties and educational institutions, from which a majority ofour revenues are derived.  We also sell network components, such aswireless cards and access points, to unrelated parties, which constitute thebalance of our revenues.

Ouroriginal plan of operation involved installing a wireless Internet system in amulti-residential property at our cost, and then generating revenue from thesale of subscriptions to residents of the property. However, through January2007 we have completed the installation of four properties under which we arecompensated by the owner of the property instead of through subscriptions fromresidents in the property.  Under this “amenity” model, the property paysus a flat rate for the total number of units in the property, which providesthe service as a complimentary benefit to all residents. By doing so, we cangenerate cash flows more quickly by eliminating the time lag to market ourservices to tenants. Also, marketing costs to obtain and maintain individualtenant subscribers will be unnecessary, and we will be able to maintain aconsistent revenue stream that is not affected by tenant turnover. Our firstproject under this model required a ramp up of revenues during the first yearof the agreement which did not enable us to achieve breakeven until near theend of that period. The remaining projects we deployed under the “amenity”model did not require a revenue ramp up period, and we began receiving the fullflat-rate revenues for those projects immediately upon the networks becomingoperational.  We anticipate utilizing the“amenity” model in a majority of our future property deployments.

Asof December 31, 2006, under the original “subscriber” model, we serviced sevenproperties, and had 459 full subscribers at $29.95 per month and 49 childaccounts at $5.00, for a bulk total of 508 accounts representing revenues ofapproximately $14,000 per month. We currently have commitments to deploy networksunder the subscriber model at two more multi-residential properties in Atlanta,Georgia representing 1,143 apartment units. We believe these networks will beoperational by March 2007. However, we anticipate only a minority of tenants inthose multi-residential properties will ultimately subscribe to our service,and that it is more likely than not to require a year or more to reach suchsubscriber base.   As of December 31,2006, under the “amenity” model we served two properties and were receivingflat-rate revenues approximating $10,000 per month.  In January 2007, wecompleted two more installations which are based on the “amenity” model, forwhich we are to receive a combined minimum of $4,000 per month.

Duringfiscal year 2006, we began marketing our services to educational institutionsthat desire to provide wireless Internet access to their studentpopulations.  Because the Internetservice would be offered as part of the institution’s educational experience,our revenues would not be dependent on obtaining subscribers for our service. Instead, the service would be open to all students, and we would becompensated on a per student basis by the educational institution itself. Wecompleted our first such deployment in Atlanta, Georgia during the 4th quarterof fiscal year 2006, and a second deployment in Chattanooga, Tennessee inJanuary 2007.

Withone recent exception, all of our network projects initially result in negativecash flows. This is because we usually bear the full costs of installation, includingmaterials and labor. In addition, seven of our eleven operational projects todate are under the subscriber model. Under the “subscriber” model, installing anetwork (and incurring the associated installation costs) only allows us theopportunity to begin to market our services to individual tenant subscribersbefore we can realize any revenues. Our experience indicates that it takes morethan one year before the subscriber base can reach a level at which the networkhas a positive cash flow. Furthermore, after a network is operational we beginto incur costs to service and maintain the network regardless how manysubscribers we have for that network.

Thepoint at which a project begins to realize positive cash flow depends uponseveral key factors, including how well we control installation costs, whetherrevenues are based on the “subscriber” or the

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“amenity”model, whether we can obtain any funding from the property owner forinstallation costs, and the complexity and location (i.e. outside of Atlanta)of the network, which affects the costs to service the network after it isoperational.

Duringthe 4th quarter of fiscal year 2006, we further improved upon our “amenity”model by securing a project in which we are not only receiving our full revenuesupon the activation of the network, but we received a deposit from the propertycustomer. By controlling our costs, this deposit substantially covered ourinstallation costs. Thus, this project was cash flow positive within threemonths of activation. In addition, in January 2007 we completed anotherinstallation under the “amenity” model in which the property owner paid for ourinstallation costs, enabling this project to be cash positive from inception.While we will continue to seek out such projects, it is not reasonable toexpect that we will secure all future projects under similar terms.

Wehave also explored the feasibility of installing our wireless Internet systemsto serve the growing municipal market, and plan to install a test system in thenear future in a portion of Dekalb County, Georgia for the city of Decatur incooperation with PowerNet global, a national Internet service provider. We planto compete on the basis of attempting to provide superior technology, price andcustomer service. In particular, we plan to offer our Internet service at alower price than our competitors, which are primarily DSL or cable Internetservices.  Our plan is also to utilize the best available technology atany given time, so as to continue to offer reliable, high quality, wirelessInternet access that provides each end user with maximum mobility, very highspeed, and reasonable security.

Otherpotential sources of revenue for the company may include business-to-businessapplications of broadband technology, and implementation of wider area Internetcoverage as technology evolves. The company also plans to move toward totalservice convergence at some point in the future, providing voice and videoservices in addition to data services.

Alongthese lines, we have developed the infrastructure to provide additionalInternet services, such as our REACTOR product under which we have begunoffering “anywhere” access to the Internet.  The REACTOR product connectsto the Internet utilizing the nationwide EVDO network deployed by cellularcarriers to connect to the Internet.  We elected to diversify into “anywhere”access after we determined that a potential market existed for the service, andthat we could provide the service at reasonable pricing using our existing technicalpersonnel and network systems.

Wealso generate revenue from the resale of wireless cards that we purchase on awholesale basis for the wireless networks we install. Most of our businessreselling wireless cards is from resellers, via our online web store or oneBay.  We do not consider the business of reselling of wireless cards tobe a core business and, accordingly, we do not plan to invest any additionalresources to expand that line of business.

Infiscal year 2006, we began implementing with Incumbent Local Exchange Carriers(ILECs) and Common Local Exchange Carriers (CLECs) a more cost-effective meansof delivering large amounts of synchronous bandwidth to our customerproperties.  Under this new architecture, we are now offering substantiallyhigher bandwidth at a similar price to what we currently pay for existing,smaller amounts of bandwidth.  Since speed and latency are two of theprimary competitive advantages that an Internet provider can have with regardsto its service offering, we are pleased with the results of these efforts.

Weplan to deploy the new network architecture by the end of March 2007 to fiveAtlanta properties as a new bandwidth delivery platform.

Inthe future, we will require additional sources of external capital in order togrow.  The capital will be used primarily for new site deployments,additional personnel, marketing and sales.

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***Results of Operations***

*ThreeMonths Ended December 31, 2006 and 2005*

Duringthe three months ended December 31, 2006 and 2005, we generated $101,433 and$20,708 of revenues, respectively, and incurred net losses of ($192,427) and($234,433), respectively.  During thethree months ended December 31, 2006, we were receiving revenues from nineoperational networks versus six during the prior period.  The increase in overall expenses reflects ourincreased operational and administrative costs to support the significantincrease in business activity between periods.

Significantexpenses during the three months ended December 31, 2006 and 2005 were asfollows:

·                  Compensation expense includes allsalaries, wages and commissions not capitalized as a part of networkinstallation costs.

·      Professional fees represent expenses necessary for outsideaccounting, audit, legal and transfer agent fees, a majority of which relatesto regulatory compliance.  The decrease in these expenses for the threemonths ended December 31, 2006 compared to the same period in 2005 wasprimarily due to a reduction of our outside professional accounting costs byhiring a full-time controller in the 2nd quarter of fiscal year 2006.

·      Capitalized material and labor costs fornetwork installations were $0 and $33,014 during the three months endedDecember 31, 2006 and 2005, respectively. During the three months endedDecember 31, 2006 we had no installation projects in process. During the sameperiod in 2005, we had one installation project in process in Tampa, Florida.

***Liquidity and Capital Resources***

Todate, we have financed our operations almost entirely from the proceeds from thesale of common stock to a foreign investor under Regulation S.  Our mostrecent agreement to sell shares of common stock to the foreign investor expiredin the 4th quarter of fiscal year 2006, and we currentlydo not have any agreement to obtain additional capital.

Asof December 31, 2006, we had working capital of $218,080.  Our workingcapital is currently insufficient for us to fully implement our business planand our commitment to breakeven as outlined in our most recent Regulation Soffering.  Our principal business plan involves the installation ofwireless Internet systems at our expense, including all parts and laborassociated with the systems, and we also sell network components.  On thefirst systems we installed, our revenues came from the sale of Internet serviceto residents who subscribed to our service.  On the latest systems weinstalled, and most future systems we plan to install, our revenues will comefrom a flat fee charged to the owner of the property.  The present level ofgross profit on network service fees and component sales are insufficient toenable us to cover our recurring operating expenses unless such levels aredramatically increased.

Therefore,we must install many more systems and sell substantially more network componentsin order for us to achieve a breakeven level of operations.  We will beunable to achieve this goal in the near term, and beyond that, we will needsubstantial additional capital as our installations generate negative cashflows until such time as they individually reach breakeven level ofsubscriptions or guaranteed revenues from the owner, as applicable.

Webelieve our current working capital is sufficient to both sustain our currentlevel of operations and planned growth only through April 2007.  We arecurrently using capital at an average monthly rate of

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$59,000for operating expenses on an accrual basis, although the actual monthly cashoutlay varies.  In addition, normally we must incur additional capitalexpenditures with each system that we install.  This rate will acceleratesignificantly over the following twelve months if we reach agreements toinstall systems in the number of properties that we have projected in ourbusiness plan, unless we are successful in negotiating for more property ownersto fund our installation costs.

Weproject additional working capital needs of $300,000, exclusive of fundscurrently on hand, to fund our planned operations for the following twelvemonth period. To satisfy our future working capital needs, we are in activenegotiations with a financing institution to secure a working capital line ofcredit at a level that will enable us to continue our business plan and achievebreakeven.  However, this is our onlypotential source of additional working capital at this time, and there is noassurance we will be successful in obtaining this credit line. To date, we haverelied substantially upon investment proceeds to satisfy our working capitalrequirements.  In the event we experience delays in raising additionalcapital, we plan to continue reducing our recurring cash outlay by deferringofficer salaries, as well as reducing the rate of our planned installations asnecessary in order to maintain adequate cash funds, however, this curtailmentis not expected to ensure continued operations.

OnFebruary 9, 2007 the company received a non-binding term sheet from aninvestment group for working capital financing totaling $5,000,000.

***Going Concern***

TheCompany’s financial statements have been presented on the basis that it is agoing concern, which contemplates the realization of assets and thesatisfaction of liabilities in the normal course of business. As shown in theaccompanying financial statements, the Company incurred net operating lossesthrough the year ended December 31, 2006. These factors create an uncertaintyabout the Company’s ability to continue as a going concern.  The recentpast efforts by Company’s management to raise additional operating capital weresuccessful.  However, the ability of the Company to continue as a goingconcern is dependent on their continued success in raising future capital. The financial statements do not include any adjustments that might benecessary if the Company is unable to continue as a going concern.

***Off-BalanceSheet Arrangements***

TheCompany does not have any off-balance sheet arrangements that are reasonablylikely to have a current or future effect on our financial condition, changesin financial condition, revenues or expenses, results of operations, liquidity,capital expenditures or capital resources that are material to investors.

**Item 3.  Controls and Procedures.**

TheCompany believes that its disclosure controls and procedures are effective forgathering, analyzing and disclosing the information it is required to disclosein its reports filed under the Securities Exchange Act of 1934.  The Company is in the process of improvingits internal controls and procedures to accommodate an increased level ofbusiness activity in the future.

Disclosurecontrols and procedures are controls and other procedures that are designed toensure that information required to be disclosed in the Company’s reports filedor submitted under the Exchange Act are recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms. Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed in the Company’s reports filed under the Exchange Actis accumulated and communicated to management, including to our company’s chiefexecutive officer and chief financial officer, as appropriate, to allow timelydecisions regarding required disclosure.

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**PART II.  OTHER INFORMATION.**

**Item 1.  Legal Proceedings.**

None.

**Item 2. Changes in Securities.**

None

**Item 3.  Defaults upon Senior Securities.**

None

**Item 4.   Submission of Matters to a Vote of SecurityHolders.**

None.

**Item 5.  Other Information.**

None.

**Item 6.  Exhibits and Reports on Form 8-K.**

(a)     Furnish the exhibitsrequired by Item 601 of Regulation S-B.
| 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  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 Chief Financial 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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* Filed herewith

(b)     Reports on Form 8-K.

None.

**SIGNATURES**

     In accordance with the requirements of theExchange Act, the registrant caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.
|                          |   | O2 SECURE WIRELESS, INC.                     |
|--------------------------|--------|----------------------------------------------|
|                     |   |                                         |
| Date: February  12, 2007 |   | /s/ T. Scott Conley                          |
|                     |   | By: T. Scott Conley, Chief Executive Officer |

 

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