##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

|                           |                        
|-------------------------- | -----------------------
|For Quarterly Period Ended | Commission File Number:
|March 31, 2002             | 0-31295                

O2WIRELESS SOLUTIONS, INC.

---

(Exact name of registrant as specified in its charter)


|                                               |  |                    
|---------------------------------------------- |  | -------------------
|Georgia                                        |  | 58-2467466         
|                                              
|(State or other jurisdiction of                |  | (I.R.S. Employer   
|incorporation or organization)                 |  | Identification No.)
|                                               |  |                    
|440 Interstate North Parkway, Atlanta, Georgia |  | 30339              
|                                              
|(Address of principal executive offices)       |  | (Zip Code)         

770-763-5620

---

(Registrants telephone number, including area code)


Not applicable

---

(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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.

Yes    [X]                     No   [   ]

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date:

|                                         |  |                            
|---------------------------------------- |  | ---------------------------
|Common Stock, $.0001 par value per share |  | 27,937,737 shares          
|                                         |  |                            
|Class                                    |  | Outstanding at May 20, 2002





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TABLE OF CONTENTS



|                               |                                                                                               |                                            |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | Item 1. Financial Statements                                                                 
|                               |                                                                                               | Consolidated Balance Sheets               
|                               |                                                                                               | Consolidated Statements of Operations     
|                               |                                                                                               | Consolidated Statements of Cash Flows     
|                               |                                                                                               | Notes to Consolidated Financial Statements
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3 Quantitative and Qualitative Disclosures About Market Risk.                           
|PART II.  OTHER INFORMATION  
|                               | Item 6: Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                    
|Employment Agreement          



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##### Table of Contents



O2WIRELESS SOLUTIONS, INC.
FORM 10-Q
MARCH 31, 2002
TABLE OF CONTENTS

|              |  |                                                                                       |    |                                                                                                      |    |      |   | 
|------------- |  | ------------------------------------------------------------------------------------- | -- | ---------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|              |  |                                                                                       |    |                                                                                                      |    | Page
|PART I -      |  | FINANCIAL INFORMATION                                                                 |    |                                                                                                      |    |     
|Item 1.       |  | Financial Statements                                                                  |    |                                                                                                      |    |     
|              |  |                                                                                       |    | Consolidated Balance Sheets (unaudited) as of December 31, 2001
and March 31, 2002                   |    |      | 3 | 
|              |  |                                                                                       |    | Consolidated Statements of Operations (unaudited) for the Three
Months Ended March 31, 2001 and 2002 |    |      | 5 | 
|              |  |                                                                                       |    | Consolidated Statements of Cash Flows (unaudited) for the Three
Months Ended March 31, 2001 and 2002 |    |      | 6 | 
|              |  |                                                                                       |    | Notes to Consolidated Financial Statements (unaudited)                                               |    |      | 8 | 
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations |    |                                                                                                      | 14 |     
|Item 3.       |  | Quantitative and Qualitative Disclosure about Market Risk                             |    |                                                                                                      | 25 |     
|PART II -     |  | OTHER INFORMATION                                                                     |    |                                                                                                      |    |     
|Item 6.       |  | Exhibits and Reports on Form 8-K                                                      |    |                                                                                                      | 26 |     
|SIGNATURES    |  |                                                                                       | 27 |                                                                                                     
|EXHIBIT INDEX |  |                                                                                       |    |                                                                                                     

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##### Table of Contents






PART I  FINANCIAL INFORMATION




Item 1.   Financial Statements

o2wireless Solutions, Inc. and Subsidiaries




Consolidated Balance Sheets


(In thousands, except share and per share data)
(Unaudited)


|                                                                                                                                   |                                                                                                                                                 |                           |                      |        |              |        |           |        |        |        | 
|---------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | -------------------- | ------ | ------------ | ------ | --------- | ------ | ------ | ------ | 
|                                                                                                                                   |                                                                                                                                                 |                           |                      |        | December 31, |        | March 31,
|                                                                                                                                   |                                                                                                                                                 |                           |                      |        | 2001         |        | 2002     
|                                                                                                                                   |                                                                                                                                                 |                           |                      |        |              |        |          
|ASSETS                                                                                                                             |                                                                                                                                                 |                           |                      |        |              |        |           |       
|Current Assets:                                                                                                                    |                                                                                                                                                 |                           |                      |        |              |        |           |       
|                                                                                                                                   | Cash and cash equivalents                                                                                                                       |                           | $                    | 4,599  |              |        | $         | 3,960  |       
|                                                                                                                                   | Contract revenues receivable, net of allowance for doubtful accounts of
$3,356 and $4,043 at December 31, 2001 and March 31, 2002,
respectively |                           |                      | 24,833 |              |        |           | 20,627 |       
|                                                                                                                                   | Costs and estimated earnings in excess of billings on uncompleted contracts                                                                     |                           |                      | 15,456 |              |        |           | 14,595 |       
|                                                                                                                                   | Inventories, net of obsolescence reserve of $446 at December 31,
2001 and March 31, 2002,                                                       |                           |                      | 3,434  |              |        |           | 3,758  |       
|                                                                                                                                   | Other current assets                                                                                                                            |                           |                      | 2,413  |              |        |           | 2,478  |       
|                                                                                                                                   |                                                                                                                                                 |                           |                      |        |              |        |           |       
|                                                                                                                                   |                                                                                                                                                 |                           | Total Current Assets |        |              | 50,735 |           |        |        | 45,418 | 
|                                                                                                                                   |                                                                                                                                                 |                           |                      |        |              |        |           |       
|Property and equipment, net of accumulated depreciation of $3,961 and
$4,318 at December 31, 2001 and March 31, 2002, respectively |                                                                                                                                                 |                           | 3,977                |        |              |        | 3,707     |       
|Goodwill, net                                                                                                                      |                                                                                                                                                 |                           | 28,775               |        |              |        |          |       
|Other intangible assets, net                                                                                                       |                                                                                                                                                 |                           | 112                  |        |              |        | 100       |       
|Other assets                                                                                                                       |                                                                                                                                                 |                           | 178                  |        |              |        | 158       |       
|                                                                                                                                   |                                                                                                                                                 |                           |                      |        |              |        |           |       
|                                                                                                                                   |                                                                                                                                                 | $                         | 83,777               |        |              | $      | 49,383    |       
|                                                                                                                                   |                                                                                                                                                 |                           |                      |        |              |        |           |       
|LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS EQUITY                                                                   |                                                                                                                                                 |                           |                      |        |              |        |           |       
|Current liabilities:                                                                                                               |                                                                                                                                                 |                           |                      |        |              |        |           |       
|                                                                                                                                   | Affiliate notes payable, current portion                                                                                                        |                           | $                    | 1,279  |              |        | $         | 696    |       
|                                                                                                                                   | Current portion of other indebtedness                                                                                                           |                           |                      | 451    |              |        |           | 120    |       
|                                                                                                                                   | Accrued earn-out                                                                                                                                |                           |                      | 1,650  |              |        |           | 1,650  |       
|                                                                                                                                   | Accounts payable                                                                                                                                |                           |                      | 9,580  |              |        |           | 6,755  |       
|                                                                                                                                   | Accrued expenses                                                                                                                                |                           |                      | 9,409  |              |        |           | 9,154  |       
|                                                                                                                                   | Line of credit                                                                                                                                  |                           |                      |       |              |        |           | 9,418  |       
|                                                                                                                                   | Billing in excess of costs and estimated earnings on uncompleted contracts                                                                      |                           |                      | 1,137  |              |        |           | 686    |       
|                                                                                                                                   | Other current liabilities                                                                                                                       |                           |                      | 375    |              |        |           | 130    |       
|                                                                                                                                   |                                                                                                                                                 |                           |                      |        |              |        |           |       
|                                                                                                                                   |                                                                                                                                                 | Total Current Liabilities |                      |        | 23,881       |        |           |        | 28,609 |       
|                                                                                                                                   |                                                                                                                                                 |                           |                      |        |              |        |           |       
|Affiliate notes payable, less current portion                                                                                      |                                                                                                                                                 |                           | 23                   |        |              |        |          |       
|Other long-term indebtedness, less current portion                                                                                 |                                                                                                                                                 |                           | 7,502                |        |              |        | 462       |       
|Other long-term liability                                                                                                          |                                                                                                                                                 |                           | 674                  |        |              |        | 490       |       
|                                                                                                                                   |                                                                                                                                                 |                           |                      |        |              |        |           |       
|                                                                                                                                   |                                                                                                                                                 | Total Liabilities         |                      |        | 32,080       |        |           |        | 29,561 |       
|                                                                                                                                   |                                                                                                                                                 |                           |                      |        |              |        |           |       

3



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|                            |                                                                                                                                                               |                            |        |         |        |   |        |         |        |  | 
|--------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ------- | ------ | - | ------ | ------- | ------ |  | 
|Redeemable preferred stock: |                                                                                                                                                               |                            |        |         |        |   |        |        
|                            | Class A redeemable convertible preferred stock, $.01 par value; 100,000
shares authorized; no shares issued or outstanding                                    |                            |        |        |        |   |        |        |       
|                            | Series C redeemable convertible preferred stock, no par value; 75,000
shares authorized; no shares issued or outstanding                                      |                            |        |        |        |   |        |        |       
|                            | Series D senior redeemable preferred stock, no par value; 100,000 shares
authorized; no shares issued or outstanding                                          |                            |        |        |        |   |        |        |       
|                            |                                                                                                                                                               |                            |        |         |        |   |        |        
|                            |                                                                                                                                                               |                            |       |         |        |   |       |        
|                            |                                                                                                                                                               |                            |        |         |        |   |        |        
|Stockholders equity:       |                                                                                                                                                               |                            |        |         |        |   |        |        
|                            | Serial preferred stock, no par value, 10,000,000 shares authorized; no
shares issued or outstanding                                                           |                            |        |        |        |   |        |        |       
|                            | Common stock, $.0001 par value; 100,000,000 shares authorized;
27,937,737 shares issued and outstanding at
December 31, 2001 and March 31, 2002, respectively |                            |        | 3       |        |   |        | 3       |       
|                            | Additional paid-in capital                                                                                                                                    |                            |        | 101,823 |        |   |        | 101,688 |       
|                            | Deferred stock compensation                                                                                                                                   |                            |        | (368    | )      |   |        | (193    | )     
|                            | Accumulated other comprehensive loss                                                                                                                          |                            |        | (114    | )      |   |        | (78     | )     
|                            | Accumulated deficit                                                                                                                                           |                            |        | (49,647 | )      |   |        | (81,598 | )     
|                            |                                                                                                                                                               |                            |        |         |        |   |        |        
|                            |                                                                                                                                                               | Total stockholders equity |        |         | 51,697 |   |        |         | 19,822 | 
|                            |                                                                                                                                                               |                            |        |         |        |   |        |        
|                            |                                                                                                                                                               | $                          | 83,777 |         |        | $ | 49,383 |        
|                            |                                                                                                                                                               |                            |        |         |        |   |        |        

See accompanying notes to unaudited consolidated financial statements

4



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o2wireless Solutions, Inc. and Subsidiaries




Consolidated Statements of Operations


(In thousands, except share and per share data)
(Unaudited)


|                                                    |                        |                                             |                                                               |                    |  |              |            |              |  |        |            |  
|--------------------------------------------------- | ---------------------- | ------------------------------------------- | ------------------------------------------------------------- | ------------------ |  | ------------ | ---------- | ------------ |  | ------ | ---------- | -
|                                                    |                        |                                             |                                                               |                    |  | Three months |            | Three months
|                                                    |                        |                                             |                                                               |                    |  | ended        |            | ended       
|                                                    |                        |                                             |                                                               |                    |  | March 31,    |            | March 31,   
|                                                    |                        |                                             |                                                               |                    |  | 2001         |            | 2002        
|                                                    |                        |                                             |                                                               |                    |  |              |            |             
|Revenues                                            |                        | $                                           | 30,338                                                        |                    |  | $            | 24,059     |             
|Operating expenses:                                 |                        |                                             |                                                               |                    |  |              |            |             
|                                                    |                        |                                             | Cost of revenues                                              |                    |  | 24,241       |            |              |  | 20,419 |           
|                                                    |                        |                                             | Selling, general, and administrative expenses                 |                    |  | 9,526        |            |              |  | 6,387  |           
|                                                    |                        |                                             | Restructuring charge                                          |                    |  | 1,100        |            |              |  | 423    |           
|                                                    |                        |                                             | Restructuring credit                                          |                    |  |             |            |              |  | (314   | )         
|                                                    |                        |                                             | Depreciation                                                  |                    |  | 344          |            |              |  | 411    |           
|                                                    |                        |                                             | Goodwill amortization                                         |                    |  | 1,605        |            |              |  |       |           
|                                                    |                        |                                             | Goodwill impairment                                           |                    |  |             |            |              |  | 28,753 |           
|                                                    |                        |                                             |                                                               |                    |  |              |            |             
|                                                    |                        |                                             |                                                               | Operating loss     |  |              | (6,478     | )            |  |        | (32,020    | )
|Other income (expense):                             |                        |                                             |                                                               |                    |  |              |            |             
|                                                    |                        |                                             | Interest income                                               |                    |  | 235          |            |              |  | 3      |           
|                                                    |                        |                                             | Interest expense                                              |                    |  | (422         | )          |              |  | (228   | )         
|                                                    |                        |                                             | Other                                                         |                    |  | 14           |            |              |  | 10     |           
|                                                    |                        |                                             |                                                               |                    |  |              |            |             
|Loss
from continuing operations before income taxes |                        |                                             | (6,651                                                        | )                  |  |              | (32,235    | )           
|Income tax expense                                  |                        |                                             |                                                              |                    |  |              |           |             
|                                                    |                        |                                             |                                                               |                    |  |              |            |             
|Loss from continuing operations                     |                        |                                             | (6,651                                                        | )                  |  |              | (32,235    | )           
|Discontinued operations:                            |                        |                                             |                                                               |                    |  |              |            |             
|                                                    |                        |                                             | Loss from discontinued operations net of tax                  |                    |  | (196         | )          |              |  |       |           
|                                                    |                        |                                             | (Loss) gain on disposal of discontinued operations net of tax |                    |  | (588         | )          |              |  | 284    |           
|                                                    |                        |                                             |                                                               |                    |  |              |            |             
|Net loss                                            |                        | $                                           | (7,435                                                        | )                  |  | $            | (31,951    | )           
|                                                    |                        |                                             |                                                               |                    |  |              |            |             
|Earnings per share data:                            |                        |                                             |                                                               |                    |  |              |            |             
|                                                    | Loss per common share: |                                             |                                                               |                    |  |              |            |              | 
|                                                    |                        |                                             | Continuing operations:                                        |                    |  |              |            |              |  |        |           
|                                                    |                        |                                             |                                                               | Basic and diluted: |  | $            | (0.24      | )            |  | $      | (1.15      | )
|                                                    |                        |                                             |                                                               |                    |  |              |            |             
|                                                    |                        |                                             | Discontinued operations:                                      |                    |  |              |            |              |  |        |           
|                                                    |                        |                                             |                                                               | Basic and diluted  |  | $            | (0.03      | )            |  | $      | 0.01       |  
|                                                    |                        |                                             |                                                               |                    |  |              |            |             
|                                                    |                        |                                             | Net loss per common share:                                    |                    |  |              |            |              |  |        |           
|                                                    |                        |                                             |                                                               | Basic and diluted  |  | $            | (0.27      | )            |  | $      | (1.14      | )
|                                                    |                        |                                             |                                                               |                    |  |              |            |             
|                                                    |                        | Weighted-average common shares outstanding: |                                                               |                    |  |              |            |              |  |       
|                                                    |                        |                                             |                                                               | Basic
and diluted  |  |              | 27,746,888 |              |  |        | 27,937,737 |  

See accompanying notes to unaudited consolidated financial statements

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o2wireless Solutions, Inc. and subsidiaries




Consolidated Statements of Cash Flows


(In thousands, except per share data)
(Unaudited)


|                                      |                                                                                                                                 |                                                                                                                 |   |                                                                             |         |              |         |              |        |   |        |  
|------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | - | --------------------------------------------------------------------------- | ------- | ------------ | ------- | ------------ | ------ | - | ------ | -
|                                      |                                                                                                                                 |                                                                                                                 |   |                                                                             |         | Three months |         | Three months
|                                      |                                                                                                                                 |                                                                                                                 |   |                                                                             |         | ended        |         | ended       
|                                      |                                                                                                                                 |                                                                                                                 |   |                                                                             |         | March 31,    |         | March 31,   
|                                      |                                                                                                                                 |                                                                                                                 |   |                                                                             |         | 2001         |         | 2002        
|                                      |                                                                                                                                 |                                                                                                                 |   |                                                                             |         |              |         |             
|Cash flows from operating activities: |                                                                                                                                 |                                                                                                                 |   |                                                                             |         |              |         |             
|                                      | Net loss from continuing operations                                                                                             |                                                                                                                 | $ | (6,651                                                                      | )       |              | $       | (32,235      | )     
|                                      | Adjustments to reconcile net loss from continuing operations to net cash
provided by (used in) continuing operating activities: |                                                                                                                 |   |                                                                             |         |              |         |              |       
|                                      |                                                                                                                                 | Depreciation and amortization                                                                                   |   |                                                                             | 1,949   |              |         |              | 411    |  
|                                      |                                                                                                                                 | Goodwill impairment                                                                                             |   |                                                                             |        |              |         |              | 28,753 |  
|                                      |                                                                                                                                 | Amortization of deferred stock-based compensation                                                               |   |                                                                             | 193     |              |         |              | 175    |  
|                                      |                                                                                                                                 | Changes in operating assets and liabilities:                                                                    |   |                                                                             |         |              |         |              |        |  
|                                      |                                                                                                                                 |                                                                                                                 |   | Contract revenues receivable                                                |         |              | 10,636  |              |        |   | 4,206  |  
|                                      |                                                                                                                                 |                                                                                                                 |   | Costs and estimated earnings in excess of billings
on uncompleted contracts |         |              | (100    | )            |        |   | 861    |  
|                                      |                                                                                                                                 |                                                                                                                 |   | Inventories                                                                 |         |              | (526    | )            |        |   | (324   | )
|                                      |                                                                                                                                 |                                                                                                                 |   | Other current assets                                                        |         |              | (477    | )            |        |   | (65    | )
|                                      |                                                                                                                                 |                                                                                                                 |   | Other assets                                                                |         |              | (61     | )            |        |   | 20     |  
|                                      |                                                                                                                                 |                                                                                                                 |   | Accounts payable                                                            |         |              | (4,464  | )            |        |   | (2,825 | )
|                                      |                                                                                                                                 |                                                                                                                 |   | Accrued expenses                                                            |         |              | 1,376   |              |        |   | (265   | )
|                                      |                                                                                                                                 |                                                                                                                 |   | Billings in excess of cost and estimated earnings
on uncompleted contracts  |         |              | (1,244  | )            |        |   | (451   | )
|                                      |                                                                                                                                 |                                                                                                                 |   | Other
current liabilities  financing activity                              |         |              |        |              |        |   | 7,418  |  
|                                      |                                                                                                                                 |                                                                                                                 |   | Long-term liability                                                         |         |              |        |              |        |   | (7,603 | )
|                                      |                                                                                                                                 |                                                                                                                 |   |                                                                             |         |              |         |             
|                                      |                                                                                                                                 |                                                                                                                 |   | Net cash provided by (used in) continuing operating activities              |         |              | 631     |              |        |   | (1,924 | )
|                                      |                                                                                                                                 |                                                                                                                 |   |                                                                             |         |              |         |             
|Discontinued operations:              |                                                                                                                                 |                                                                                                                 |   |                                                                             |         |              |         |             
|                                      |                                                                                                                                 | Loss from discontinued operations                                                                               |   |                                                                             | (196    | )            |         |              |       |  
|                                      |                                                                                                                                 | (Loss) gain on disposal of discontinued operations                                                              |   |                                                                             | (588    | )            |         |              | 284    |  
|                                      |                                                                                                                                 | Adjustment to reconcile loss from discontinued operations to net
cash used in discontinued operating activities |   |                                                                             | 14      |              |         |              | (284   | )
|                                      |                                                                                                                                 |                                                                                                                 |   |                                                                             |         |              |         |             
|                                      |                                                                                                                                 |                                                                                                                 |   | Net cash used in discontinued operating activities                          |         |              | (770    | )            |        |   |       |  
|                                      |                                                                                                                                 |                                                                                                                 |   |                                                                             |         |              |         |             
|                                      |                                                                                                                                 |                                                                                                                 |   | Net cash used in operating activities                                       |         |              | (139    | )            |        |   | (1,924 | )
|                                      |                                                                                                                                 |                                                                                                                 |   |                                                                             |         |              |         |             
|                                      | Cash flows used in investing activities:                                                                                        |                                                                                                                 |   |                                                                             |         |              |         |              |       
|                                      |                                                                                                                                 | Purchase of property and equipment                                                                              |   |                                                                             | (290    | )            |         |              | (89    | )
|                                      |                                                                                                                                 | Cash paid for acquisitions, net                                                                                 |   |                                                                             | (10,944 | )            |         |              |       |  
|                                      |                                                                                                                                 |                                                                                                                 |   |                                                                             |         |              |         |             
|                                      |                                                                                                                                 |                                                                                                                 |   | Net cash used in investing activities                                       |         |              | (11,234 | )            |        |   | (89    | )
|                                      |                                                                                                                                 |                                                                                                                 |   |                                                                             |         |              |         |             

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|                                                  |  |                                               |                                           |   |        |        |       |   |       |       |  | 
|------------------------------------------------- |  | --------------------------------------------- | ----------------------------------------- | - | ------ | ------ | ----- | - | ----- | ----- |  | 
|Cash flows from financing activities:             |  |                                               |                                           |   |        |        |       |  
|                                                  |  | Exercise of stock options and warrants        |                                           |   | 14     |        |       |   |      |      
|                                                  |  | Repayment of various notes payable            |                                           |   | (525   | )      |       |   | (626  | )    
|                                                  |  | Proceeds from borrowing under credit facility |                                           |   | 11,164 |        |       |   | 2,000 |      
|                                                  |  |                                               |                                           |   |        |        |       |  
|                                                  |  |                                               | Net cash provided by financing activities |   |        | 10,653 |       |   |       | 1,374 | 
|                                                  |  |                                               |                                           |   |        |        |       |  
|Net decrease in cash and cash equivalents         |  |                                               | (720                                      | ) |        |        | (639  | )
|Cash and cash equivalents at beginning of period  |  |                                               | 12,168                                    |   |        |        | 4,599 |  
|                                                  |  |                                               |                                           |   |        |        |       |  
|Cash and cash equivalents at end of period        |  | $                                             | 11,448                                    |   |        | $      | 3,960 |  
|                                                  |  |                                               |                                           |   |        |        |       |  
|Supplemental disclosure of cash flow information: |  |                                               |                                           |   |        |        |       |  
|                                                  |  | Cash paid during the period for interest      |                                           | $ | 375    |        |       | $ | 228   |      
|                                                  |  |                                               |                                           |   |        |        |       |  

See accompanying notes to unaudited consolidated financial statements

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o2wireless Solutions Inc. and Subsidiaries




Notes to Consolidated Financial Statements


(Unaudited)




|1) |  | Summary of Significant Accounting Policies and Procedures
|-- |  | ---------------------------------------------------------
|  
|a) |  | Organization, Basis of
Presentation and Liquidity        

o2wireless Solutions, Inc. and subsidiaries (formerly Clear Holdings, Inc.
and subsidiaries)  (the Company) is headquartered in Atlanta, Georgia. The
Company provides comprehensive integrated network solutions to all sectors of
the global wireless telecommunications industry. This comprehensive end-to-end
solution enables the Company to address the current and emerging network
infrastructure requirements of its customers. These solutions enable its
customers to plan, design, deploy and maintain their wireless networks. The
Company also offers business planning and consulting services to wireless
telecommunications industry participants.

The accompanying consolidated financial statements as of March 31, 2002,
and for the three month periods ended March 31, 2001 and 2002 are unaudited and
have been prepared by management. In the opinion of management, these unaudited
consolidated financial statements include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the financial
condition and results of operations for the interim periods presented. The
consolidated balance sheet data for December 31, 2001 was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. Interim operating results are not
necessarily indicative of operating results for the entire year. The financial
information presented herein should be read in conjunction with the Companys
Annual Report on Form 10-K for the year ended December 31, 2001 which includes
information and disclosures not included herein. All significant inter-company
accounts or balances have been eliminated upon consolidation.

The telecommunications market is characterized by significant risks as a
result of changes in economic conditions, changes in technology, outsourcing of
telecommunications networks, consolidation of equipment vendors and other
significant factors. The Companys ability to effectively manage its
operations, personnel levels and third-party subcontractors is critical to
achieving profitability. Changes in technology, adverse economic or industry
conditions or the loss of one or more of the Companys key customers, among
other factors, could have a material adverse effect on the Companys financial
position and results of operations.

At March 31, 2002 the Company was in breach of covenants established under
its credit facility with Wachovia Bank N.A. The Company has been granted a
waiver from Wachovia for 90 days to enable the Company to arrange an
alternative source of credit. The Company has executed an amendment to its
credit agreement with Wachovia which provides for repayments

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aggregating $650,000 over the period ending August 15, 2002 and the
conversion of the facility into a term loan with a maturity of August 15, 2002.
As a result the Company has reclassified the amount outstanding on its line of
credit from long-term liabilities to current liabilities. The Company is in
active discussions with another financial institution to provide a substitute
for the Wachovia credit facility. Based on our current cash and cash equivalents, we
would not have sufficient resources to repay our indebtedness under
the credit facility. Although management believes that it will be able
to arrange an alternative credit facility within the waiver period,
there can be no assurance given that the alternative facility will be
available.

The Company has incurred net losses in each
of its last two fiscal years and had an accumulated deficit of approximately
$82 million as of March 31, 2002. The Company anticipates that it may continue
to incur operating losses for the foreseeable future.

The Company is working to manage its cash by actively controlling expenses
and pursuing additional sources of revenue. The Company has substantially
reduced overhead costs through reduction in employment levels and is continuing
to consolidate its physical locations. Based on these actions, the performance
of the Companys current strategic business plan which assumes
the infusion of additional capital or long term debt and assuming that
the Company can obtain an
alternative source of credit, management believes the Companys liquidity and
capital resources will be sufficient to satisfy its cash requirements for the
remainder of 2002.
However, if the Company cannot achieve the operating performance
contained in its strategic business plan or obtain
an alternative source of credit, may not have sufficient financing to
continue its operations. In addition, there are no assurances that such actions
will ensure cash sufficiency through fiscal 2003 and beyond. The Company may
consider additional options, which include, but are not limited to, forming
strategic partnerships or alliances or selling other assets or business units.

Based on certain
triggering events the Company
incurred a goodwill impairment loss of approximately $28.8 million
during the quarter ended March 31, 2002. See footnote 1(e).



|b) |  | Use of Estimates
|-- |  | ----------------

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities as of the balance sheet date and revenues and
expenses during the reporting period to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.



|c) |  | Derivative Financial Instruments
|-- |  | --------------------------------

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133). This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. Effective January 1, 2001, the Company adopted SFAS No. 133
which requires that all derivatives be recognized on the balance sheet at their
fair value.

The Company engages in activities that expose it to various market risks,
including the effects of a change in interest rates. This financial exposure is
managed as an integral part of the Companys risk management program, which
seeks to reduce the potentially adverse effect that the volatility in interest
rates may have on operating results. The Company currently maintains an
interest rate swap, to minimize significant, unanticipated earnings
fluctuations caused by volatility in interest rates. The Company assesses, both
at inception and on an ongoing basis, whether the interest rate swap is highly
effective in offsetting changes in cash flows of the hedged items.

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The Company has entered into an interest rate swap agreement with its
senior lender in accordance with its loan agreement, which has been classified
as a cash flow hedge. The interest rate swap agreement allows the Company to
swap interest rate payments from a floating rate of LIBOR to a fixed interest
payment of 7.25% on a notional principal of $12.5 million and will be in effect
until January 2003. Changes in the fair value of the interest rate swap
agreement are recognized in other comprehensive income or loss until such point
that the interest rate swap no longer qualifies for hedge accounting, at which
point, the gain (loss) reported is reported as a component of interest expense.
During 2001, the Company recognized a comprehensive loss of $200,000 on the
interest rate swap agreement. During the three month period ended
September 30, 2001, the Company repaid $5 million on its line of credit with the result
that its line of credit fell below the notional principal of $12.5 million.
Thus the interest rate swap agreement no longer qualifies for hedge accounting
and therefore for the quarter ended March 31, 2002 the Company recorded to interest
expense a $184,000 decrease in the fair value of the swap agreement. The fair
value of the interest rate swap agreement was approximately $674,000 and
$490,000 at December 31, 2001 and March 31, 2002, respectively.



|d) |  | Comprehensive Income (Loss)
|-- |  | ---------------------------

On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards
No. 130, Reporting Comprehensive Income(SFAS No. 130). SFAS No. 130
establishes standards for reporting and presentation of comprehensive income or
loss and its components in a full set of financial statements. Comprehensive
income or loss consists of net income or loss and all other gains and losses
that are excluded from net income by current accounting standards.
SFAS No. 130
requires only additional disclosures in the financial statements and does not
affect the Companys position or results of operations. As discussed above in
Note (c), during 2001 the Company recognized a comprehensive loss on its
interest rate swap agreement of $200,000. The Company had no other
comprehensive income or loss for the three-month periods ended March 31, 2001
or March 31, 2002.



|e) |  | Recent Accounting Pronouncements
|-- |  | --------------------------------

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, Business Combinations
(SFAS 141), which is effective for all business combinations initiated after
June 30, 2001. SFAS 141 requires companies to account for all business
combinations using the purchase method of accounting, recognize intangible
assets if certain criteria are met, as well as provide additional disclosures
regarding business combinations and allocation of purchase price. The Company
adopted SFAS 141 as of July 1, 2001. The adoption of SFAS 141 did not have a
material effect on the financial position or results of the operations of the
Company.

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In June 2001, FASB issued Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets (SFAS 142), which requires
non-amortization of goodwill and intangible assets that have indefinite useful
lives and annual tests of impairment of those assets. SFAS 142 also provides
specific guidance about how to determine and measure
goodwill and intangible asset impairment, and requires additional
disclosure of information about goodwill and other intangible assets. The
provisions of this statement are required to be applied starting with fiscal
years beginning after December 15, 2001 and applied to all goodwill and other
intangible assets recognized in its financial statements at that date. Goodwill
and intangible assets acquired after June 30, 2001 will be subject to the
non-amortization provisions of the statement. The Company adopted SFAS 142
beginning January 1, 2002 upon which time the Company ceased amortizing
goodwill in accordance with the guidelines set forth in the standard.

During the first quarter of 2002, as a result of recent economic
triggering events, the Company performed an impairment review of its goodwill
and recorded a $28.8 million pre-tax charge for the impairment of goodwill.
The charge reflects continued declines in the telecommunications sector along
with the current depressed market price for the Companys common stock and is
reflected as an operating expense in the accompanying consolidated financial
statements as the impairment analysis was performed as a result of current
period events, not attributable to the transition provisions of SFAS
142.

In August 2001, FASB issued Statement of Financial Accounting Standards
No. 143, Accounting for Asset Retirement Obligations (SFAS 143). SFAS 143
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to
its present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. Companies are required to adopt SFAS 143 in the first fiscal
year beginning after June 15, 2002. Adoption of SFAS 143 is not currently
expected to have a material impact on the Companys results of operations.

In October 2001, FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets which supersedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
and the accounting and reporting provisions of Accounting Principles Board
(APB) Opinion No. 30, Reporting the Results of Operations  Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions for the disposal of a segment of
a business. SFAS 144 retains many of the fundamental provisions of SFAS 121,
but resolves certain implementation issues associated with that Statement.
SFAS 144 became effective for the Company beginning January 1, 2002. Adoption
of SFAS 144 has not had any material effect on the Companys financial
statements.

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|2) |  | Restructuring
|-- |  | -------------

During the first quarter of 2002 the Company implemented a restructuring
plan to further streamline operations and cost structure to reflect the
slowdown in the telecommunications sector and the decline in revenues
it has experienced. As part of the
restructuring plan, which consists primarily of a workforce reduction, closure
of certain offices and the consolidation of certain facilities, the Company
anticipates recording a restructuring charge of approximately $2.0 million
over the first two quarters of 2002. During the three months ended March 31,
2002, the Company recorded a charge of approximately $423,000 of
which $283,000 was paid during that period. The Company anticipates recording
an additional restructuring charge of approximately $1.5 million during the
three months ended June 30, 2002.

Workforce reduction is the main focus of the restructuring. Employee
headcount has been reduced from 573 employees at December 31, 2001 to 413
employees at April 30, 2002, representing a reduction of 160 employees or
approximately 28% of the Companys workforce. The reductions took place in all
sectors of operations and at all levels of staff including management. The
Company recorded approximately $223,000 for severance and other termination
benefits related to the workforce reduction during the three month period ended
March 31, 2002.

Additionally, as part of the restructuring, the Company is closing
certain regional offices.

During the first quarter of 2001, the Company also implemented a
restructuring plan at which time it took a restructuring charge totaling
approximately $1.1 million. As of March 31, 2002 approximately $786,000 in
costs were paid relating to this restructuring. The Company now believes it has
incurred and paid all costs associated with that restructuring. Hence, during
the three months ended March 31, 2002, the Company recorded a restructuring
credit for the remaining unused liability of approximately $314,000 related to
that initial charge.



|3) |  | Discontinued Operations
|-- |  | -----------------------

On April 12, 2001 the Company sold substantially all of the assets of
Specialty Drilling, Inc. During the quarter ended March 31, 2001 the Company
provided for approximately $784,000 in losses from discontinued operations and
losses on disposal of discontinued operations. As of March 31, 2002,
approximately $500,000 in losses had been incurred and paid. The Company does
not believe there are any additional losses to be paid and hence it is
reversing the remaining $284,000 of the provision during the quarter ended
March 31, 2002.

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|4) |  | Segment and Customer Information
|-- |  | --------------------------------

The Company operates and manages its business as a single segment. The
Company provides comprehensive integrated network solutions to service
providers in the wireless telecommunications industry. The following is a
summary of revenues by geographic area. (in thousands) :

|             |  |              |        |              |  |   |        | 
|------------ |  | ------------ | ------ | ------------ |  | - | ------ | 
|             |  | Three months |        | Three months
|             |  | ended        |        | ended       
|             |  | March 31,    |        | March 31,   
|             |  | 2001         |        | 2002        
|             |  |              |        |             
|U.S.         |  | $            | 28,593 |              |  | $ | 23,343 | 
|Foreign      |  |              | 1,745  |              |  |   | 716    | 
|             |  |              |        |              |  |   |        | 
|Consolidated |  | $            | 30,338 |              |  | $ | 24,059 | 
|             |  |              |        |              |  |   |        | 



|5) |  | Legal Matters
|-- |  | -------------

In the normal course of business, the Company is subject to certain
administrative proceedings and litigation. The following is a summary of two
proceedings currently pending.

On November 20, 1997, the Company agreed to issue warrants to purchase
shares of the Companys common stock to a corporation in consideration for
services rendered in connection with the issuance of the Companys Class A
Preferred Stock. By virtue of a transaction closed on November 20, 1997, and a
subsequent stock split, the number of warrants to be issued was 298,562. Each
warrant enabled the holder to purchase one share of common stock for $1.81. The
warrants were to expire five years from the issuance date. The estimated value
of the warrants was $20,652, at the time of the November 1997 transaction, and
was included in the issuance costs of the Class A Preferred Stock. Although the
Company believed its obligation to the aforementioned corporation was resolved
by an arbitration proceeding decided January 3, 2000, the matter was disputed
by the corporation and the matter was again submitted to arbitration. During
the third quarter of 2001, an arbitration panel determined that the Company
should pay $489,600 to the corporation subject to appeal. During 2001, the
Company recognized $641,000 in expense, which includes the expected cost of the
award along with associated defense costs incurred to date. Following
negotiation between the parties, on March 19, 2002, a settlement agreement was
reached whereby the Company agreed to pay the corporation $553,775 in cash, of
which $153,775 has been paid. The remainder of the settlement amount will be
paid over a period of eight months.

On November 7, 2000, a suit was filed against the Company and two officers
of the Company, (as well as a third individual not affiliated with the
Company), asserting that the defendants engaged in a conspiracy to pursue
frivolous litigation against the plaintiff, to threaten further litigation and
to interfere with the business relations of the plaintiff and that agents of
the Company acting to benefit the Company committed acts of fraud against, and
violated fiduciary duties to the plaintiff. The Complaint was later amended to
reflect that the plaintiff had lost by jury verdict in related litigation in
Georgia concerning a sale of a 30 MHz PCS license for Honolulu. An additional
amendment to the Complaint, filed in August 2001, abandoned plaintiffs claim
for interference with business relations and added a subsidiary of the Company

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as a defendant. The Company vigorously defended all claims against it.
Agreement has been reached that all claims against the Company will be
dismissed with prejudice in connection with the resolution of related disputes
between parties to two other lawsuits to which the Company is not a party. In
managements opinion, the outcome of the foregoing proceeding
will not
materially affect the financial condition and results of the Company.




Item 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations

This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements regarding our expected financial position
and operating results, our business strategy and our financing plans are
forward-looking statements. These statements can sometimes be identified by
our use of forward-looking words such as believe, project, may, will,
anticipate, estimate, expect, or intend. Known and unknown risks,
uncertainties and other factors could cause our actual results to differ
materially from those contemplated by these statements. Such risks and
uncertainties include, but are not limited to, general economic conditions,
competition in the wireless services industry, demand for outsourced wireless
network services, the Companys ability to manage its operations effectively,
the Companys ability to maintain and increase revenues while controlling
costs, the Companys ability to retain its customers and attract new business,
fluctuations in quarterly operating results, and other uncertainties detailed
from time to time in the Companys Securities and Exchange Commission filings.
The section entitled Risk Factors in Item 1 of our Form 10-K for the year
ended December 31, 2001, discusses some additional important factors that could
cause the Companys actual results to differ materially from those in such
forward-looking statements.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no obligation to update
any of the forward-looking statements after the filing of this Form 10-Q to
conform such statements to actual results or to changes in our expectations.

The following discussion should be read in conjunction with our financial
statements and the related notes and other financial information appearing
elsewhere in this Form 10-Q and the information contained in our Annual Report
on Form 10-K for the year ended December 31, 2001.

Overview

We provide comprehensive integrated network solutions to all sectors of
the global wireless telecommunications industry. This comprehensive end-to-end
solution enables us to address the current and emerging network infrastructure
requirements of our customers. These solutions enable our customers to plan,
design, deploy and maintain their wireless networks. We also offer business
planning and consulting services to wireless telecommunications industry
participants.

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During the past few years, we acquired certain strategically positioned
companies in order to create an integrated telecommunications services company
with depth and expertise in wireless and wireline technologies and a broad
geographical presence. All of our acquisitions have been accounted for under
the purchase method of accounting. Aggregate goodwill for all of our
acquisitions from 1997 to 2001 is approximately $44.2 million
which, prior to
December 31, 2001, was generally being amortized on a straight-line basis over 5 to 10
years, the expected period of benefit. Effective January 1, 2002, with the
adoption of FAS 142 the Company is no longer amortizing goodwill on these
acquisitions but evaluating the carrying value of the goodwill on an annual
basis or as required if an event occurs or circumstances change that would more
likely than not reduce the fair value of the Company below its carrying value.

During the first
quarter of 2002, as a result of recent economic triggering events the Company performed an impairment
review of its goodwill and recorded a $28.8 million pre-tax charge for the
impairment of goodwill. The charge reflects declines in the
telecommunications sector along with the current depressed market price for the
Companys common stock and is reflected as an operating expense in the
accompanying financial statements.

We generally offer our network planning, design and deployment services on
either a fixed-price or a time-and-materials basis, with scheduled deadlines
for completion times, that is, on a time-certain basis. Revenue on time
and-materials contracts is recognized as services are rendered. We recognize
revenues for our fixed-price contracts using the percentage-of-completion
method of accounting. Under the percentage-of-completion method, in each period
we recognize expenses as they are incurred, and we recognize revenues based on
a comparison of the current costs incurred for the project to the then
estimated total costs of the project.

Accordingly, the revenues we recognize in a given quarter depend primarily
on the costs we have incurred for individual projects and our then current
estimate of the total remaining costs to complete individual projects. These
estimates are reviewed on a contract-by-contract basis, and are revised
periodically throughout the life of the contract such that adjustments to the
results of operations relating to these revisions are reflected in the period
of revision. Our estimated costs for a project are based on many factors.
Accordingly, the final projects cost may vary from the original estimate.
Certain project costs can vary significantly from original estimates, which may
lead to significant fluctuations in actual gross margin compared to projected
margins. If in any period we significantly increase our estimate of the total
costs to complete a project, we may recognize very little or no additional
revenue with respect to that project. As a result, gross margins in such period
and in future periods may be significantly reduced, and in some cases, a loss
may be required to be recognized. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. For the three months ended March 31, 2002, revenues from our
fixed-price contracts accounted for approximately 75% of our total revenues.
Our contracts are typically structured with milestone events that dictate the
timing of payments to us from our customers. Accordingly, there may be a
significant delay between the date we record revenues and the date we receive
payment from our customers. During our planning process, we divide projects
into deliverables, which enables us to better understand the costs associated
with each of the components and minimize the risks of exceeding our initial
estimates.

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Our customers include wireless carriers, equipment vendors, tower
companies and broadband carriers. We have derived, and believe that we will
continue to derive a significant portion of our revenues from a limited number
of customers. For the three months ended March 31, 2002, we derived 62% of our
revenues from our top five customers. Our business was
obtained from multiple departments within these organizations. The volume
of work performed for specific customers is likely to vary from period to
period, and a major customer in one period may not use our services in a
subsequent period.

Due to the recent downturn in financial markets in general, and
specifically within the telecommunications industry, many of our customers are
having trouble obtaining necessary capital resources which are required to fund
the expansion of their businesses (e.g. telecom network deployments and
upgrades). The current volatility of the financial markets and economic
slowdown in the U.S. and internationally has also intensified the uncertainty
experienced by many of our customers, who are finding it increasingly difficult
to predict demand for their products and services. As a result, many of our
customers may continue to slow and postpone the deployment of new wireless
networks and the development of new technologies and products, which may
continue to reduce the demand for our services. Some of our customers have
recently cancelled or suspended their contracts with us and many of our
customers or potential customers have postponed entering into new contracts for
our services. Also due to the difficult financing and economic conditions, some
of our customers may not be able to pay us for services that we have already
performed. Based on the Companys assessment of the expected collectibility of
various receivables, it was determined to add $687,000 to our allowance for
doubtful accounts during the quarter ending March 31, 2002.

Our net contract revenue receivables have continued to decrease in
absolute dollars from $24.8 million at December 31, 2001 to $20.6 million at
March 31, 2002. This reflects the slowdown in revenues for the period along
with a concerted effort to reduce the balance of outstanding receivables. This
has resulted in a reduction of our days sales outstanding (DSOs), from 79 days
at December 31, 2001 to 77 days at March 31, 2002. Our costs and estimated
earnings in excess of billings decreased from $15.5 million at December 31,
2001 to $14.6 million at March 31, 2002. This represented an increase from 45
days to 55 days. This increase represents a delay in billing certain large
projects as billing milestones had not been achieved.

Our cost of revenues includes direct materials, compensation and benefits,
living and travel expenses, payments to third-party sub-contractors and other
direct project-related expenses, in addition to allocation of indirect
overhead. Cost of revenues excludes down-time for direct compensation and
benefits and training not required for a specific job. As of March 31, 2002 we
had 377 employees working on contracted projects.

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Selling, general and administrative expenses include compensation and
benefits, facilities expenses and other expenses not related directly to
projects. All unassigned employees and related costs are charged to selling,
general and administrative expenses along with training costs associated with
new hires.

Depreciation and amortization expenses include depreciation on our
furniture, fixtures and equipment and in prior years, amortization related to
our acquisitions.

Interest expense is primarily related to interest on notes payable to
related parties and our bank facility. It also includes adjustments to the
valuation of the interest rate swap agreement.

Prior to our initial public offering in August 2000, we granted options to
certain of our employees at exercise prices below our initial public offering
price of $12.00 per share, which resulted in a total future compensation
expense of approximately $1.9 million to be recognized over the vesting period
of the options. A majority of the aggregate expense amount has been recognized
over the past two fiscal years. Of this aggregate amount, approximately $49,000
was expensed during the three months ended March 31, 2002 as a component of
selling general and administrative expenses.

Critical Accounting Policies

We rely on the use of estimates and make assumptions that impact our financial
condition and results. These estimates and assumptions are based on historical
results and trends as well as our forecasts as to how these might change in the
future. Some of the most critical accounting policies that might materially
impact our results include:

Contract Revenue and Cost Recognition

The Company offers its network planning, design and deployment services on
either a fixed price of a time and materials basis, with scheduled deadlines
for completion times. Revenue on time and materials contracts is recognized as
services are rendered. Revenue on fixed price contracts is recognized using the
percentage-of-completion method. Under the percentage-of-completion method, in
each period expenses are recognized as incurred and we recognize revenue based
on a comparison of the current costs incurred for the project to the then
estimated total costs of the project. Accordingly, the revenues we recognize in
a given period depend on the costs we have incurred for individual projects and
the estimate of the total remaining costs to complete individual projects.
These estimates are reviewed on a contract-by-contract basis, and are revised
periodically throughout the life of the contract such that adjustments to the
results of operations relating to these revisions are reflected in the period
of revision. Estimated costs to complete a project are based on many factors.
Accordingly, the final project cost may vary from the original estimate.
Certain project costs can vary significantly from original estimates which may
lead to significant fluctuations in actual gross margin compared to projected
margins. As a result, gross margins in future periods may be significantly
reduced, and in some cases, a loss may be required to be recognized. Provisions
for estimated losses on uncompleted contracts are made in the period in which
such losses are determined.

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Contract costs include all direct materials, compensation and benefits,
living and travel expenses, payments to third-party sub-contractors and other
direct project-related expenses, in addition to allocations of indirect
overhead. Cost of revenues excludes down-time for direct compensation and
benefits and training not required for a specific job. Selling, general and
administrative costs are charged to expense as incurred.

Costs and estimated earnings in excess of billings on uncompleted
contracts, represents revenues recognized in excess of amounts billed. Billings
in excess of costs and estimated earnings on uncompleted contracts represents
billings in excess of revenues recognized.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using
the average cost method for all inventories. The inventories are primarily
composed of raw materials for use in the manufacture of tower lighting systems.

Property and Equipment

Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets. Significant
additions which extend lives are capitalized. Normal maintenance and repair
costs are expensed as incurred.

Income Taxes

The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

Restructuring

During the first quarter of 2002, the Company implemented a restructuring
plan to further streamline its operations and cost structure to reflect the
slowdown in the telecommunications sector and the decline in revenues
it has experienced. As part of the restructuring plan, which consists primarily
of a workforce reduction, closure of certain offices and the consolidation of
certain facilities, the Company anticipates recording a restructuring charge
of approximately $2.0 million over the first two quarters of 2002. During the
three months ended March 31, 2002, the Company recorded a charge of
approximately $423,000 of which approximately $283,000 was paid
during that period. The Company anticipates recording an additional
restructuring charge of approximately $1.5 million during the three months
ended June 30, 2002.

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Workforce reduction is the main focus of the restructuring. Employee
headcount has been reduced from 573 employees at December 31, 2001 to 413
employees at April 30, 2002, representing a reduction of 160 employees or
approximately 28% of the Companys workforce. The reductions took place in all
sectors of operations and at all levels of staff including management. The
Company recorded approximately $223,000 during the three month period ended
March 31, 2002 for severance and other termination benefits related to the
workforce reduction.

Additionally, as part of the restructuring, the Company is closing
certain offices.

During the first quarter of 2001, the Company also implemented a
restructuring plan at which time it took a restructuring charge totaling
approximately $1.1 million. As of March 31, 2002 approximately $786,000 in
costs were paid relating to this restructuring. The Company now believes it has
incurred and paid all costs associated with that restructuring. Hence, during
the three months ended March 31, 2002, the Company recorded a restructuring
credit for the remaining unused liability of approximately $314,000 related to
that initial charge.

Discontinued Operations

On April 12, 2001 the Company sold substantially all of the assets of
Specialty Drilling, Inc. During the quarter ended March 31, 2001 the Company
provided for approximately $784,000 in losses from discontinued operations and
losses on disposal of discontinued operations. As of March 31, 2002,
approximately $500,000 in losses had been incurred and paid. The Company does
not believe there are any additional losses to be paid and hence it is
reversing the remaining $284,000 of the provision during the quarter ended
March 31, 2002.

Revenues from Specialty Drilling, Inc. were approximately $170,000 for the
three months ended March 31, 2001 while the net loss for the three months ended
March 31, 2001 was $196,000.

Results of Operations for the Three Months Ended March 31, 2002

Revenues. Our revenues decreased 21%, or $6.2 million, from $30.3 million
for the three months ended March 31, 2001 to $24.1 million for the three months
ended March 31, 2002. The decrease was primarily attributable to the overall
decline in network construction activity and the continued reduction or delay
of capital expenditures by some of our customers, particularly equipment
manufacturers. We do not anticipate any significant increase in revenues in the
near future until there is a sustained increase in capital expenditures in the
telecommunications sector.

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Cost of Revenues.Our cost of revenues decreased 16% from $24.2 million,
or 80% of revenues, for the three months ended March 31, 2001 to $20.4 million,
or 85% of revenues for the three months ended March 31, 2002. Gross margin
decreased from 20% for the three months ended March 31, 2001 to 15% for the
three months ended March 31, 2002. The decrease in 2002 reflected continued
pricing pressure in the telecommunications sector, along with unusual costs
of approximately $950,000 associated with the closure and clean-up of certain contracts in one of our divisions.

Selling, General and Administrative Expenses. Selling, general, and
administrative expenses decreased 33% from $9.5 million, or 31% of revenues,
for the three months ended March 31, 2001 to $6.4 million, or 27% of revenues,
for the three months ended March 31, 2002. The decrease in both absolute
dollars and percentage of sales reflects our continued efforts to reduce
selling, general and administrative expenses in line with the decline in
revenues. The
decrease was offset by a $687,000 increase in our allowance for doubtful
accounts during the three months ended March 31, 2002. This reflects the
increased risk associated with some of our receivables.

Depreciation and Amortization. Depreciation and amortization expenses
decreased 79% from $1.9 million for the three months ended March 31, 2001 to
$411,000 for the three months ended March 31, 2002. This significant decrease
is attributable to the adoption of FAS 142 on January 1, 2002, with the result
that the Company is no longer amortizing goodwill on acquisitions but
evaluating the carrying value of goodwill on an annual basis or as required if
an event occurs or circumstances change, that would more likely than not reduce
the fair value of the Company below its carrying value. As
described previously, the Company recorded a $28.8 million charge for the
impairment of its goodwill balance during the first quarter of 2002. This is
recorded as an operating expense in the accompanying financial statements as
the impairment analysis was performed as a result of current period events,
not attributable to the transition provisions of SFAS 142.

Interest Expense. Interest expense decreased 46% from $422,000 for the
three months ended March 31, 2001 to $228,000 for the three months ended March
31, 2002. The primary reason for the decline in interest expense is the
$184,000 credit to interest expense for the three months ended March 31, 2002,
due to the decline in value of the interest rate swap.

Other Income (Expense).For the three months ended March 31, 2001, other
income was approximately $249,000 as compared to other income of approximately
$13,000 for the three months ended March 31, 2002. Other income for the three
months ended March 31, 2001 consisted primarily of interest income from our
note receivable with South Carolina Phone LLC at that time. That note was paid
later in 2001.

Income Tax Expense. No income tax expense was recorded for the three
months ended March 31, 2001, or for the three months ended March 31, 2002.

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Net Loss. Net loss for the three months ended March 31, 2001 was $7.4
million, as compared to net loss of $32.0 million for the three months ended
March 31, 2002. The increase in net loss for the three months ended March 31,
2002 is attributable primarily to the impairment charge to goodwill of
approximately $28.8 million.

Liquidity and Capital Resources

Net Cash Used in Operating Activities

As of March 31, 2002, we had a cash balance of approximately $4.0 million
which included approximately $1.7 million of outstanding checks that had not
cleared the bank at March 31 ,2002. Since our inception, we have primarily
financed our operations through commercial bank borrowings, the issuance of
subordinated notes, and the sale of preferred and common stock. Net cash
provided by and used in operations is primarily derived from our contracts in
process and changes in working capital. Net cash used by operations was
approximately $1.9 million for the three months ended March 31, 2002.

Net Cash Used in Investing Activities

Net cash used in investing activities was approximately $89,000 for the
three months ended March 31, 2002, consisting primarily of capital expenditures
to support our operations.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the three months ended March
31, 2002 was approximately $1.4 million. This consisted primarily of $2.0
million borrowed under our revolving credit agreement, offset by repayment of
various notes payable of approximately $626,000.

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Contractual Obligations and Commercial Commitments

The following summarizes our future contractual obligations and commercial
commitments for the period ending March 31, 2002 (in thousands of dollars):

|                                   |  |       |        |        |  |                        |        |           |  |         |       |  |  |   |     |       |  |   |   | 
|---------------------------------- |  | ----- | ------ | ------ |  | ---------------------- | ------ | --------- |  | ------- | ----- |  |  | - | --- | ----- |  | - | - | 
|                                   |  |       |        |        |  | Payments Due by Period
|                                   |  |       |        |        |  |                       
|                                   |  |       |        |        |  | Less than              |        |           |  |         |       |  |  |   |     | After
|Contractual Obligations            |  | Total |        | 1 year |  | 1-3 years              |        | 4-5 years |  | 5 years
|                                   |  |       |        |        |  |                        |        |           |  |        
|Line of credit and notes payable   |  | $     | 10,114 |        |  | $                      | 10,114 |           |  | $       |      |  |  | $ |    |       |  | $ |  | 
|Capital Lease Obligations          |  |       | 582    |        |  |                        | 120    |           |  |         | 462   |  |  |   |    |       |  |   |  | 
|Operating Leases                   |  |       | 3,992  |        |  |                        | 2,130  |           |  |         | 1,654 |  |  |   | 208 |       |  |   |  | 
|                                   |  |       |        |        |  |                        |        |           |  |         |       |  |  |   |     |       |  |   |   | 
|Total Contractual Cash Obligations |  | $     | 14,688 |        |  | $                      | 12,364 |           |  | $       | 2,116 |  |  | $ | 208 |       |  | $ |  | 
|                                   |  |       |        |        |  |                        |        |           |  |         |       |  |  |   |     |       |  |   |   | 

Our only commercial commitment for the period ending March 31, 2002
represented our credit facility which is included above in our line of credit
and notes payable balance.

Cash Requirements

Our cash requirements through the end of fiscal year 2002 are primarily to
fund operations, capital expenditures, cash restructuring outlays and debt
service agreements.

Sources of Cash

We currently fund our operations with available cash, cash equivalents and
our credit facility. Due to significant cost reduction steps taken in 2001 and
early 2002, the
performance of the Companys current strategic business plan and assuming
that the Company can obtain an alternative source of credit, management
believes the Companys liquidity and capital resources will be sufficient to
satisfy its cash requirements for the remainder of 2002. However, if the
Company cannot perform to its strategic business plan or obtain an alternative
source of credit, it may not have sufficient financing to continue its
operations.

Additional financing may not be available when needed on terms and
conditions favorable to us or at all. If adequate funds are not available or
are not available on acceptable terms and conditions, we may be unable to fund
our operations. In addition, our inability to obtain cash may damage our
customers perceptions of us and our management team and inhibit our ability to
sell our services to a customer base which values financial strength and
stability.

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Credit Facility

Effective May 20, 2002 we amended our syndicated credit agreement with
Wachovia Bank, N.A. as agent and reduced the amount available under the credit
facility from the lesser of (a) $13.0 million or (b) a pre-defined borrowing
base determined by Eligible Receivables to the lesser of (a) $9.7 million or
(b) a pre-defined borrowing base determined by Eligible Receivables. The
Eligible Receivables balance excludes certain accounts receivable from EBITDA
covenant calculations. Accordingly our ability to borrow under the facility is
contingent upon gross receivables, based on a pre-defined borrowing base. In
addition the amendment provides for repayments aggregating $650,000 over the
period ending August 15, 2002 and the conversion of the facility into a term
loan with a maturity of August 15, 2002.

At March 31, 2002 the Company was in breach of covenants established under
its credit facility with Wachovia Bank N.A. The Company has been granted a
waiver from Wachovia for 90 days to enable it to arrange an alternative source
of credit. The Company has executed an amendment to its credit agreement with
Wachovia which provides for repayments aggregating $650,000 over the period
ending August 15, 2002 and the conversion of the facility into a term loan with
a maturity of August 15, 2002. As a result the Company has reclassified the
amount outstanding on its line of credit from long term liabilities to current
liabilities. The Company is in active discussions with another
financial institution to provide a substitute for the Wachovia credit
facility.
Based on
our current cash and cash equivalents, we would not have sufficient
resources to repay our indebtedness under the credit facility. Although
management believes that it will be able to arrange an alternative credit
facility within the waiver period , there can be no assurance given that an
alternative facility will be available.

The line of credit is secured by substantially all of our business assets,
is guaranteed by our subsidiaries and is senior to approximately $1.3 million
of subordinated indebtedness. The terms of the credit agreement include several
covenants and restrictions including but not limited to those discussed herein.
The terms of the credit agreement require maintenance of specified levels of
earnings (loss) before income taxes, depreciation, and amortization (EBITDA).
In addition, we are required to provide our lenders with periodic budgets,
financial statements and periodic reports and filings. Additionally, we are
restricted in the amount of payments to holders of seller notes. The covenants
also limit our ability to sell our assets outside the ordinary course of
business, merge with or acquire other businesses. In addition, we are limited
in capital expenditures that can be incurred during a given period. At March
31, 2002, we had capacity to borrow up to an additional $1.4 million under the
credit facility and at that date we had $9.4 million in outstanding borrowings.
The interest rate was 7% at March 31, 2002.

The estimates for the periods for which we expect our available cash
balances and credit facility to be sufficient to meet our capital requirements
are forward-looking statements that involve risks and uncertainties detailed in
this report and as set forth under the caption Risk Factors in Item 1 of our
Annual Report on Form 10-K for the year ended December 31,
2001.

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Interest Rate Risk

We are exposed to market risk from changes in interest rates and equity
prices that could affect our results of operations and financial condition. We
manage our exposure to these market risks through our regular operating and
financing activities and, when deemed appropriate, hedge these risks through
the use of derivative financial instruments. We use the term hedge to mean a
strategy designed to manage risks of volatility in prices or rate movements on
certain assets, liabilities or anticipated transactions and by creating a
relationship in which gains or losses on derivative instruments are expected to
counterbalance the losses or gains on the assets, liabilities or anticipated
transactions exposed to such market risks. We use derivative financial
instruments as risk management tools and not for trading or speculative
purposes. We generally do not hedge our credit risk on customer receivables.

We use a combination of financial instruments, including variable-rate
debt instruments and, to a lesser extent, interest rate swaps to manage the
interest rate mix of our total debt portfolio and related cash flows. To manage
this mix in a cost-effective manner, we, from time to time, may enter into
interest rate swap agreements in which we agree to exchange various
combinations of fixed and/or variable interest rates based on agreed-upon
notional amounts.

The Company has entered into an interest rate swap agreement with its
senior lender in accordance with its loan agreement, which has been classified
as a cash flow hedge. The interest rate swap agreement allows us to swap
interest rate payments from a floating rate tied to LIBOR to a fixed interest
payment of 7.25% on a notional principal of $12.5 million and will be in effect
until January 2003. Changes in the fair value of the interest rate swap
agreement are recognized in other comprehensive income or loss until such point
that the interest rate swap no longer qualifies for hedge accounting, at which
point, the gain (loss) reported is reported as a component of interest expense.
In addition, a credit of $184,000 was recorded to interest expense for a
reduction in value of the interest rate hedge swap from $674,000 to $490,000.

Recent Developments

On February 26, 2002, the Company announced that it had entered into a
nonbinding letter of intent with Baran Group, Ltd. (Baran), a diversified
engineering services and
construction firm based in Tel Aviv, Israel. Under the terms of the letter of
intent, Baran was granted exclusive rights for a period of time to enter into a
merger agreement with the Company. That period of time has elapsed without the
execution of a definitive merger agreement. While discussions with
Baran are continuing, the Company has begun discussions with other parties regarding
a potential merger agreement. The Company is seeking additional
funding for its day to day operations.

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Item 3   Quantitative and Qualitative Disclosures About Market Risk.

The Company engages in activities that expose it to various market risks,
including the effects of a change in interest rates. This financial exposure
is managed as an integral part of the Companys risk management program, which
seeks to reduce the potentially adverse effect that the volatility for the
markets may have on operating results. The Company does not use derivative
financial instruments for trading purposes. The Company currently maintains an
interest rate swap, to minimize significant, unanticipated earnings
fluctuations caused by volatility in interest rates. The Company assesses,
both at inception and on an ongoing basis, whether the interest rate swap is
highly effective in offsetting changes in cash flows of the hedged items. For
more information regarding the Companys interest rate swap agreement, please
see Note 1(c) of Notes to Consolidated Financial Statements included in this
report.

At March 31, 2002, we had notes payable to affiliated parties (the
Notes) of approximately $696,000 with interest payable at a rate equal to
9.5% per annum, which rate shall be adjusted on July 31 and December 31 of each
year the Notes remain outstanding to a rate equal to the most recently
announced by Citibank, N.A., in the Wall Street Journal as its prime rate of
interest.

Our revolving credit facility bears interest at LIBOR plus a margin of up
to 3.75%. Accordingly, changes in LIBOR, which is affected by changes in
interest rates in general, will affect the interest rate on our revolving
credit facility.

At March 31, 2002 the Company was in breach of covenants established under
its credit facility with Wachovia Bank N.A. The Company has been granted a
waiver from Wachovia for 90 days to enable the Company to arrange an
alternative source of credit. The Company has executed an amendment to its
credit agreement with Wachovia which provides for repayments aggregating
$650,000 over the period ending August 15, 2002 and the conversion of the
facility into a term loan with a maturity of August 15, 2002. As a result the
Company has reclassified the amount outstanding on its line of credit from
long-term liabilities to current liabilities. The Company is in active
discussions with another financial institution to provide a substitute for the
Wachovia credit facility. Based on our current cash and cash
equivalents, we would not have sufficient resources to repay our
indebtedness under the credit facility. Although management believes
that it will be able to arrange an alternative credit facility within
the waiver period, there can be no assurance given that an
alternative facility will be available.

We temporarily invest our excess cash in money market funds. Changes in
interest rates would not significantly affect the fair value of these cash
investments.

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PART II.  OTHER INFORMATION




Item 6:   Exhibits and Reports on Form 8-K



|(a) |  | Exhibits
|--- |  | --------



| | 10.7 |  | Employment Agreement dated
April 17, 2002 between o2wireless Solutions, Inc and William J. Loughman
| | ---- |  | ---------------------------------------------------------------------------------------------------



|(b) |  | Reports on Form 8-K
|--- |  | -------------------
|   
|    |  | None               

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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.

|                   |  |                           |  |                                                                                                                        
|------------------ |  | ------------------------- |  | -----------------------------------------------------------------------------------------------------------------------
|                   |  | O2WIRELESS SOLUTIONS, INC
|                   |  |                           |  |                                                                                                                        
|Date: May 20, 2002 |  | By:                       |  | /s/ Andrew D. Roscoe                                                                                                   
|                   |  |                           |  |                                                                                                                        
|                   |  |                           |  | Andrew D. Roscoe                                                                                                       
|                   |  |                           |  | Chairman and Chief Executive Officer                                                                                   
|                   |  |                           |  | (principal executive officer)                                                                                          
|                   |  |                           |  |                                                                                                                        
|                   |  |                           |  |                                                                                                                        
|Date: May 20, 2002 |  | By:                       |  | /s/ Ronald D. Webster                                                                                                  
|                   |  |                           |  |                                                                                                                        
|                   |  |                           |  | Ronald D. Webster                                                                                                      
|                   |  |                           |  | Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
(principal financial and accounting
officer)

27