**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

Washington, D.C. 20549

 

**FORM 10-Q**

 

(MARK ONE)

**x**QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2008

 

**o**TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ______ to _______

 

Commission file number 0-52396

 

**CX2 TECHNOLOGIES, INC.**

(Exact name of registrant as specified in its charter)

 

| **Nevada**                                                     | **20-2889663**                       |
|----------------------------------------------------------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |

 

**3700 Airport Road, Suite 410B, Boca Raton, FL 33431**

(Address of principal executive offices)

 

**(561) 347-9235**

Registrant’s telephone number

 

_________________________________________

(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 past 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        o

 

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.

Yes o  No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer o  Accelerated filer        o  Non-accelerated filer o  Smaller reporting company x

 

As of October 28, 2008 there were 23,057,210 shares of the Registrant’s common stock outstanding.

 

Transitional Small Business Disclosure Format (Check one): Yes o  No x

 

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**CX2 TECHNOLOGIES, INC.**

**INDEX**

 

PART I FINANCIAL INFORMATION

 

| Item 1. Financial Statements                                                                                  |   |
|---------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                          |   |
| Condensed Balance Sheets at September 30, 2008 (unaudited) and March 31, 2008                                 | 3      |
|                                                                                                          |   |
| Condensed Statements of Operations for the three and six months ended September 30, 2008 and 2007 (unaudited) | 4      |
|                                                                                                          |   |
| Condensed Statements of Cash Flows for the six months ended September 30, 2008 and 2007 (unaudited)           | 5      |
|                                                                                                          |   |
| Notes to Condensed Financial Statements                                                                       | 6      |
|                                                                                                          |   |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations           | 10     |
|                                                                                                          |   |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk                                            | 14     |
|                                                                                                          |   |
| Item 4. Controls and Procedures                                                                               | 14     |
|                                                                                                          |   |
| PART II OTHER INFORMATION                                                                                     |   |
|                                                                                                          |   |
| Item 6. Exhibits                                                                                              | 15     |

 

 2

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**CX2 TECHNOLOGIES, INC.**

**CONDENSED BALANCE SHEETS**

**As of September 30, 2008 and March 31, 2008**

 

 

|                                                                                             |   |                   |        |               |   |        |   |
|--------------------------------------------------------------------------------------------------|--------|------------------------|-------------|--------------------|--------|-------------|--------|
|                                                                                             |   | **September 30, 2008** |        | **March 31, 2008** |   |
|                                                                                             |   |                        |        |                    |   |
|                                                                                             |   | **(Unaudited)**        |        | **(Audited)**      |   |
| **ASSETS**                                                                                       |   |                   |        |               |   |        |   |
| **Current Assets**                                                                               |   |                   |        |               |   |        |   |
| Cash and cash equivalents                                                                        |   | $                      | 5,501       |               | $      | 2,917       |   |
| Notes receivable                                                                                 |   |                   | 1,245       |               |   | —     |   |
|                                                                                             |   |                        |             |               |        |             |   |
| Total Current Assets                                                                             |   |                   | 6,746       |               |   | 2,917       |   |
|                                                                                             |   |                        |             |               |        |             |   |
|                                                                                             |   |                   |        |               |   |        |   |
| **Property and Equipment, net**                                                                  |   |                   | 167,393     |               |   | 193,540     |   |
|                                                                                             |   |                        |             |               |        |             |   |
|                                                                                             |   |                   |        |               |   |        |   |
| **Other Assets**                                                                                 |   |                   |        |               |   |        |   |
| Deposits                                                                                         |   |                   | —     |               |   | 5,448       |   |
|                                                                                             |   |                        |             |               |        |             |   |
| Total Other Assets                                                                               |   |                   | —     |               |   | 5,448       |   |
|                                                                                             |   |                        |             |               |        |             |   |
|                                                                                             |   |                   |        |               |   |        |   |
| **Total Assets**                                                                                 |   | $                      | 174,139     |               | $      | 201,905     |   |
|                                                                                             |   |                        |             |               |        |             |   |
|                                                                                             |   |                   |        |               |   |        |   |
| **LIABILITIES AND STOCKHOLDERS’ DEFICIENCY**                                               |   |                   |        |               |   |        |   |
|                                                                                             |   |                   |        |               |   |        |   |
| **Current Liabilities**                                                                          |   |                   |        |               |   |        |   |
| Accounts payable and accrued expenses                                                            |   | $                      | 444,849     |               | $      | 319,454     |   |
| Notes payable - related parties                                                                  |   |                   | 469,786     |               |   | 852,450     |   |
| Notes payable                                                                                    |   |                   | 9,000       |               |   | —     |   |
|                                                                                             |   |                        |             |               |        |             |   |
| Total Current Liabilities                                                                        |   |                   | 923,635     |               |   | 1,171,904   |   |
|                                                                                             |   |                   |        |               |   |        |   |
| **Total Liabilities**                                                                            |   |                   | 923,635     |               |   | 1,171,904   |   |
|                                                                                             |   |                        |             |               |        |             |   |
|                                                                                             |   |                   |        |               |   |        |   |
| **Stockholders’ Deficiency**                                                               |   |                   |        |               |   |        |   |
| Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued and outstanding      |   |                   | —     |               |   | —     |   |
| Common stock, $0.001 par value; 200,000,000 shares authorized, 23,057,210 issued and outstanding |   |                   | 23,057      |               |   | 23,057      |   |
| Additional paid-in capital                                                                       |   |                   | 9,749,832   |               |   | 9,282,122   |   |
| Accumulated deficit                                                                              |   |                   | (10,522,385 | )                  |   | (10,275,178 | )      |
|                                                                                             |   |                   |        |               |   |        |   |
|                                                                                             |   |                        |             |               |        |             |   |
| **Total Stockholders’ Deficiency**                                                         |   |                   | (749,496    | )                  |   | (969,999    | )      |
|                                                                                             |   |                        |             |               |        |             |   |
|                                                                                             |   |                   |        |               |   |        |   |
| **Total Liabilities and Stockholders’ Deficiency**                                         |   | $                      | 174,139     |               | $      | 201,905     |   |
|                                                                                             |   |                        |             |               |        |             |   |

 

  3

See accompanying notes to the condensed financial statements.

 

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**CX2 TECHNOLOGIES, INC.**

**CONDENSED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

**For the Three and Six Months Ended September 30, 2008 and 2007**

 

|                                                                |   |                                                |       |                                              |   |       |   |     |       |   |   |       |   |
|---------------------------------------------------------------------|--------|-----------------------------------------------------|------------|---------------------------------------------------|--------|------------|--------|----------|------------|--------|--------|------------|--------|
|                                                                |   | **For the Three Months Ended********September 30,** |       | **For the Six Months Ended********September 30,** |   |
|                                                                |   | **2008**                                            |       | **2007**                                          |   | **2008**   |   | **2007** |       |
|                                                                |   |                                                     |       |                                                   |   |            |   |          |       |
|                                                                |   |                                                |       |                                              |   |       |   |     |       |   |   |       |   |
| **Revenue**                                                         |   | $                                                   | 31,151     |                                              | $      | —    |   | $        | 36,401     |   | $      | 39,000     |   |
| Cost of sales                                                       |   |                                                | —    |                                              |   | —    |   |     | —    |   |   | 12,382     |   |
|                                                                |   |                                                     |            |                                              |        |            |   |          |            |   |        |            |   |
| **Gross Profit**                                                    |   |                                                | 31,151     |                                              |   | —    |   |     | 36,401     |   |   | 26,618     |   |
|                                                                |   |                                                     |            |                                              |        |            |   |          |            |   |        |            |   |
|                                                                |   |                                                |       |                                              |   |       |   |     |       |   |   |       |   |
| **Operating Expenses**                                              |   |                                                |       |                                              |   |       |   |     |       |   |   |       |   |
| Selling, general and administrative                                 |   |                                                | 134,239    |                                              |   | 130,236    |   |     | 252,724    |   |   | 313,673    |   |
| Depreciation and amortization                                       |   |                                                | 13,074     |                                              |   | 13,073     |   |     | 26,147     |   |   | 26,146     |   |
|                                                                |   |                                                     |            |                                              |        |            |   |          |            |   |        |            |   |
| **Total Operating Expenses**                                        |   |                                                | 147,313    |                                              |   | 143,309    |   |     | 278,871    |   |   | 339,819    |   |
|                                                                |   |                                                     |            |                                              |        |            |   |          |            |   |        |            |   |
|                                                                |   |                                                |       |                                              |   |       |   |     |       |   |   |       |   |
| **Loss from Operations**                                            |   |                                                | (116,162   | )                                                 |   | (143,309   | )      |     | (242,470   | )      |   | (313,201   | )      |
|                                                                |   |                                                |       |                                              |   |       |   |     |       |   |   |       |   |
| **Other Expense**                                                   |   |                                                |       |                                              |   |       |   |     |       |   |   |       |   |
| Interest expense                                                    |   |                                                | (4,729     | )                                                 |   | (4,808     | )      |     | (4,737     | )      |   | (10,482    | )      |
|                                                                |   |                                                     |            |                                              |        |            |   |          |            |   |        |            |   |
| **Total Other Expense**                                             |   |                                                | (4,729     | )                                                 |   | (4,808     | )      |     | (4,737     | )      |   | (10,482    | )      |
|                                                                |   |                                                     |            |                                              |        |            |   |          |            |   |        |            |   |
|                                                                |   |                                                |       |                                              |   |       |   |     |       |   |   |       |   |
| **Net Loss**                                                        |   | $                                                   | (120,891   | )                                                 | $      | (148,117   | )      | $        | (247,207   | )      | $      | (323,683   | )      |
|                                                                |   |                                                     |            |                                              |        |            |   |          |            |   |        |            |   |
|                                                                |   |                                                |       |                                              |   |       |   |     |       |   |   |       |   |
| **Weighted Average Number of Shares Outstanding During the Period** |   |                                                | 23,057,210 |                                              |   | 17,777,210 |   |     | 23,057,210 |   |   | 17,764,133 |   |
|                                                                |   |                                                     |            |                                              |        |            |   |          |            |   |        |            |   |
| **Basic and Diluted**                                               |   |                                                |       |                                              |   |       |   |     |       |   |   |       |   |
|                                                                |   |                                                |       |                                              |   |       |   |     |       |   |   |       |   |
| **LOSS PER COMMON SHARES BASIC AND DILUTED**                        |   | $                                                   | (0.01      | )                                                 | $      | (0.01      | )      | $        | (0.01      | )      | $      | (0.02      | )      |
|                                                                |   |                                                     |            |                                              |        |            |   |          |            |   |        |            |   |

 

  4

See accompanying notes to the condensed financial statements.

 

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**CX2 TECHNOLOGIES, INC.**

**CONDENSED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

**For the Six Months Ended September 30, 2008 and 2007**

 

 

 
|                                                                        |   |                   |     |                   |   |     |   |
|-----------------------------------------------------------------------------|--------|------------------------|----------|------------------------|--------|----------|--------|
|                                                                        |   | **September 30, 2008** |     | **September 30, 2007** |   |
|                                                                        |   |                        |     |                        |   |
| **Cash Flows From Operating Activities:**                                   |   |                   |     |                   |   |     |   |
| Net Loss                                                                    |   | $                      | (247,207 | )                      | $      | (323,683 | )      |
| Adjustments to reconcile net loss to net cash used in operations            |   |                   |     |                   |   |     |   |
| Amortization and depreciation                                               |   |                   | 26,147   |                   |   | 26,146   |   |
| Common stock issued in exchange for services                                |   |                   | —  |                   |   | 25,000   |   |
| Changes in operating assets and liabilities:                                |   |                   |     |                   |   |     |   |
| Accounts receivable                                                         |   |                   | (1,245   | )                      |   | —  |   |
| Prepaid expenses                                                            |   |                   | —  |                   |   | 9,000    |   |
| Deposits                                                                    |   |                   | 5,448    |                   |   | —  |   |
| Accounts payable and accrued expenses                                       |   |                   | 130,822  |                   |   | 16,378   |   |
| Deferred revenue                                                            |   |                   | —  |                   |   | (39,000  | )      |
|                                                                        |   |                        |          |                   |        |          |   |
| **Net Cash Used in Operating Activities**                                   |   |                   | (86,035  | )                      |   | (286,159 | )      |
|                                                                        |   |                        |          |                   |        |          |   |
|                                                                        |   |                   |     |                   |   |     |   |
| **Cash Flows From Financing Activities:**                                   |   |                   |     |                   |   |     |   |
| Proceeds from notes payable - related parties                               |   |                   | 91,619   |                   |   | 506,288  |   |
| Proceeds from notes payable                                                 |   |                   | 9,000    |                   |   | —  |   |
| Repayment of notes payable - related parties                                |   |                   | (12,000  | )                      |   | —  |   |
| Repayment of notes payable                                                  |   |                   | —  |                   |   | (237,372 | )      |
| Stock issued for cash, net of offering costs                                |   |                   | —  |                   |   | 5,000    |   |
|                                                                        |   |                        |          |                   |        |          |   |
| **Net Cash Provided by Financing Activities**                               |   |                   | 88,619   |                   |   | 273,916  |   |
|                                                                        |   |                        |          |                   |        |          |   |
|                                                                        |   |                   |     |                   |   |     |   |
| **Net Decrease in Cash**                                                    |   |                   | 2,584    |                   |   | (12,243  | )      |
| Cash at Beginning of Period                                                 |   |                   | 2,917    |                   |   | 13,714   |   |
|                                                                        |   |                        |          |                   |        |          |   |
| **Cash at End of Period**                                                   |   | $                      | 5,501    |                   | $      | 1,471    |   |
|                                                                        |   |                        |          |                   |        |          |   |
|                                                                        |   |                   |     |                   |   |     |   |
| **Supplemental Disclosure of Cash Flow Information:**                       |   |                   |     |                   |   |     |   |
| **Cash paid for:**                                                          |   |                   |     |                   |   |     |   |
| Interest                                                                    |   | $                      | —  |                   | $      | 5        |   |
|                                                                        |   |                        |          |                   |        |          |   |
| Taxes                                                                       |   | $                      | —  |                   | $      | —  |   |
|                                                                        |   |                        |          |                   |        |          |   |
| **Supplemental Disclosure of Non-Cash Investing and Financing Activities:** |   |                   |     |                   |   |     |   |
| Stock issued under terms of airtime agreement                               |   | $                      | —  |                   | $      | 25,000   |   |
|                                                                        |   |                        |          |                   |        |          |   |
| Conversion of notes payable - related parties to equity                     |   | $                      | 467,710  |                   | $      | —  |   |
|                                                                        |   |                        |          |                   |        |          |   |

 

 

  5

See accompanying notes to the condensed financial statements.

 

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**CX2 TECHNOLOGIES, INC.**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**As of September 30, 2008**

 

 

 

 

*NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS*

 

CX2 Technologies, Inc. (hereinafter the “Company” or “CX2”) was incorporated on May 21, 2002 as Brookview Institute, Inc., under the laws of the State of Nevada. On November 16, 2005 the Company changed its name to CX2 Technology, Inc. On December 6, 2005, the Company filed articles of correction to change the name to CX2 Technologies, Inc. On May 10,                2006, the Company domesticated to the State of Florida. Its fiscal year end is March 31.

 

The Company is engaged in the development, operation and management of 220 MHz digital wireless data communications services. In September 2006 the Company entered into a ten year Airtime agreement for the exclusive use of minutes on 220 MHz Federal Communications Commission (“FCC”) licenses and the related equipment with a third party. This agreement allows the                Company to operate throughout the entire United States and initially in the geographical areas of Florida, Illinois, Michigan and Texas.The Company may also seek to acquire the 220 MHz licenses and related equipment owned by such third party or from one or more other third parties.

 

*NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES*

 

***Basis of Accounting***

 

The financial statements are prepared using the accrual basis of accounting where revenues and expenses are recognized in the period in which they were incurred.  The basis of accounting conforms to accounting principles generally accepted in the United States of America.

 

***Interim Reporting***

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of                financial position and results of operations.

 

It is management’s opinion, however that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.

 

***Going-Concern***

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company had a net loss of $247,207 and a negative cash flow from operations of $86,035 during the six months ended September 30, 2008, a working capital deficiency of $916,889 as of September 30, 2008 and a stockholder’s deficiency of $749,496 as of                September 30, 2008. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company was in the development stage from May 2002 until January 2007, at which time operations began. The Company has incurred a loss from operations, and its present level of revenues is not sufficient to cover all the Company’s incurred expenses. Management recognizes that the Company must generate additional resources to enable it to pay its                obligations as they come due, and that the Company must ultimately achieve profitable operations. Management’s plans in this regard are to further pursue its business plan relating to the operation and management of its 220 MHz digital wireless data communications services and to seek financing through private offerings of its stock. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 6

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**CX2 TECHNOLOGIES, INC.**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**As of September 30, 2008**

 

 

*NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)*

 

***Revenue Recognition***

 

Revenue from users for network services is recognized at the time that the services are provided. Revenue from sales of radios and other related equipment is recognized at date of delivery to the customer and collection is reasonably assured. Revenue from consulting services is recognized at the time that the services are provided.

 

***Estimates***

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and                expenses during the reporting period. Actual results could differ from those estimates.

 

***Fair Value of Financial Instruments***

 

Statement of Financial Accounting Standards (SFAS) No. 107, disclosures about fair value of financial instruments, defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying values of the Company’s financial instruments, which consist of current liabilities,                approximate fair values due to the short-term maturities of such instruments.

 

***Net Loss Per Share***

 

The Company follows the provisions of SFAS No. 128, “Earnings per Share,” which requires companies with complex capital structures or common stock equivalents to present both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is calculated as income available to common stockholders divided by the weighted average                number of common shares outstanding during the period. Diluted EPS is calculated using the “if converted” method for common stock equivalents. As of September 30, 2008 there were no common stock equivalents outstanding.

 

***Reclassifications***

 

Certain amounts in the fiscal year 2008 financial statements have been reclassified to conform to the 2009 fiscal year presentation.

 

***Recent Accounting Pronouncements***

 

*Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities*

 

In June 2008, the Financial Accounting Standards Board (“FASB”) issued FSP Emerging Issues Task Force (“EITF”) Issue No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” The FSP addresses whether instruments granted in share-based payment transactions are                participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. The FSP affects entities that accrue dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the award. This FSP is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the                impact of FSP EITF No. 03-6-1 on its financial position and results of operations.

 

 7

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**CX2 TECHNOLOGIES, INC.**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**As of September 30, 2008**

 

 

*NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)*

 

*Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an entity’s Own Stock*

 

In June 2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF 07-5). EITF 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the                instrument’s contingent exercise and settlement provisions. It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of EITF 07-5 on its financial position and results of operations.

 

*Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)*

 

In May 2008, the FASB issued FSP Accounting Principles Board (“APB”) Opinion No. 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash                settlement) upon conversion. The FSP requires issuers to account separately for the liability and equity components of certain convertible debt instruments in a manner that reflects the issuer’s nonconvertible debt (unsecured debt) borrowing rate when interest cost is recognized. The FSP requires bifurcation of a component of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as part of interest                expense in our consolidated statement of operations. The FSP requires retrospective application to the terms of instruments as they existed for all periods presented. The FSP will be effective for the Company as of April 1, 2009 and early adoption is not permitted. The Company is currently evaluating the potential impact of FSP APB No. 14-1 upon its financial statements.

 

*NOTE 3 – NOTES PAYABLE-RELATED PARTIES*

 

Debt as of September 30, 2008 consists of the following:

 

|                                                                                                                                                       |   | 2008   |             |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------|
|                                                                                                                                                       |   |   |             |
| Promissory note to a related party, payable in monthly installments of $25,000. Interest calculated at 5% per annum. Includes accrued interest of $13,031. |   | $      | 381,468          |   |
|                                                                                                                                                       |   |   |             |   |
| Unsecured notes payable to related parties. These notes are payable on demand with no interest.                                                            |   |   | 88,318           |   |
|                                                                                                                                                       |   |   |             |   |
|                                                                                                                                                       |   |   |             |   |
|                                                                                                                                                       |   |   | 469,786

469,786 |   |
| Less current portion of long term notes payable                                                                                                            |   | $      |             |
| Total                                                                                                                                                      |   |   | -                |   |

 

A promissory note payable and accrued interest to a related party of $467,710 was forgiven by a stockholder and recorded as additional paid-in capital during the period ended September 30, 2008.

.

 8

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**CX2 TECHNOLOGIES, INC.**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**As of September 30, 2008**

 

 

*NOTE 4– STOCKHOLDERS’ EQUITY*

 

***Common Stock***

 

All shares of common stock are identical with each other in every respect, and the holders thereof are entitled to one vote for each share of common stock upon all matters upon which the shareholders have the right to vote.

 

***Preferred Stock***

 

The Company has 5,000,000 shares of $0.001 par value preferred stock authorized with such preferences as the Board of Directors may designate.

 

***Private Placements of Common Stock***

 

The Company previously offered, through its private placement memorandum dated March 6, 2006 and as amended on September 27, 2006 (the “PPM”), up to a maximum of 5,000,000 shares of its common stock par value $.001 per share, at a price of $1.00 per share for total gross offering proceeds of up to $5,000,000. The PPM was terminated in June of 2008.

 

*NOTE 5 – COMMITMENTS AND CONTINGENCIES*

 

***Operating Lease Obligations***

 

In April 2006, the Company entered into a 60-month operating lease for office space in Boynton Beach, Florida beginning June 1, 2006 for $4,459 per month, exclusive of recurring utility expenses. The Company vacated this office space in February 2008 and the landlord obtained a $226,562 default judgment which has been accrued in these financial statements.

 

*NOTE 6 – RELATED PARTY TRANSACTIONS*

 

Bizcom USA, Inc. (“Bizcom”) is a major shareholder of the Company. The Company has non-exclusive access to 500 million minutes of airtime in the 220 MHz frequency band as a result of its Airtime Agreement with Bizcom which was entered into in March 2006. In addition, the Company has another non-exclusive license agreement with Bizcom which provides for rights to                use certain wireless digital data intellectual property, including rights to further develop the existing technology or new technology, which new development would be owned by the Company.

 

See Note 3 for additional information on related party notes payable.

 

*NOTE 7 – CONCENTRATION OF CREDIT RISKS*

 

Customers

 

For the six months ended September 30, 2008, one customer accounted for all of the Company’s sales. The Company purchases its radios primarily from one vendor, which accounted for all of the Company’s product purchases during that period. As such, the Company believes that it has a concentration of credit risk within its receivables because of the limited customer                base.

 

*NOTE 8 – SUBSEQUENT EVENT*

 

The Company received $3,500 in loans from a related party subsequent to September 30, 2008. These loans are unsecured, due on demand and bear no interest.

 

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**ITEM 2.****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following is a discussion and analysis of our financial condition and results of operations for the three and six months ended September 30, 2008 and significant factors that could affect our prospective financial condition and results of operations. You should read this discussion in conjunction with our financial statements and notes contained in our Form 10-KSB for the fiscal year ended March            31, 2008. Historical results may not be indicative of future performance.

 

***Caution Regarding Forward-Looking Information***

 

 

*All statements contained in this Form 10-Q, other than statements of historical facts, that address future activities, events or developments are forward-looking statements, including, but not limited to, statements containing the words “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project,”            and similar expressions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. These statements are based            on certain assumptions and analyses made by us in light of our experience and our assessment of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. However, whether actual results will conform to the expectations and predictions of management is subject to a number of risks and uncertainties described under “Risk Factors” below and in the “Risk Factors” section of            our Form 10-KSB for the fiscal year ended March 31, 2008 that may cause actual results to differ materially.*

 

*Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business operations. Readers are cautioned not to place undue reliance on such            forward-looking statements as they speak only of the Company’s views as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.*

 

**Overview**

 

CX2 Technologies, Inc is engaged in the development and sale of 220 MHz digital wireless data communications technologies and related services.

 

The Company currently markets CX2 branded data technology and services for use by various commercial/industrial applications and the Homeland Security/Public Safety sector. We believe that due to advances in 220 MHz technology and equipment and the lower costs generally associated with lower frequency band usage in comparison to cellular telephone and other wireless communications services, a broad            spectrum of potential commercial and public safety/ emergency disaster relief end-users may find the Company’s services advantageous and desirable, which could result in fee-based subscribership and/or high margin technology sales. The Company cannot assure, however, that it is correct in such a belief or that it will be successful in any of such efforts.

 

We intend to grow primarily by (a) marketing efforts to the Homeland Security/Public Safety sector; and (b) through the sale of the CX2 data modems and base stations to existing 220 MHz license holders. There can be no assurance that we will be successful in executing our business plan.

 

We have a working capital shortage, and must continue to seek and secure significant capital from outside funding sources as our cash flow from operations is insufficient to sustain operations. No assurances can be given that we will be successful in obtaining such needed capital. Our inability to promptly secure needed capital will materially adversely affect the Company and its operations, as we            believe our current cash position and anticipated receipt of revenues will enable us to sustain current operations for only up to approximately one to two months from the date of this filing.

 

We have no financing sources in place and no assurances are given as to the availability of any financing, or if available, the terms thereof. We will require additional capital within the next month to continue our operations, the failure of which to obtain could materially adversely affect the Company and its business.

 

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We anticipate that even in the event we are able to raise sufficient capital to continue our operations, such capital will not necessarily assure our success or profitability in view of, among other factors, our limited operating history in this business, the uncertainties associated with marketing emerging technologies, and the capital intensive nature of the wireless data and voice industry. We            anticipate that revenues, if any, will be derived through the Network Operations Center in Burr Ridge, IL as well as through the sale of digital base stations, modems and engineering services and support. We are subject to all of the substantial risks inherent in the development of a business enterprise within a sector of the wireless data and voice industry that has itself generated only limited revenues to date. Accordingly, no assurances can be given that our business will ever            be successful or that we will ever be profitable.

 

The Company continues to be in its initial phase of operations with limited assets and capital. For the three months ended September 30, 2008, the Company had a net loss of $120,891.

 

We believe that we will have to increase the number of our personnel over the next approximately 6-12 months as our business expands due to the need to increase our networking and marketing efforts.

**Results of Operations**

 

*Three months ended September 30, 2008 compared to the three months ended September 30, 2007*

***Revenues.***Revenues from operations for the three months ended September 30, 2008 reflected an increase of $31,151 from the three months ended September 30, 2007, due to an increase in sales of equipment, primarily base stations. Revenues in both periods were minimal as the Company has not yet fully commenced its operations and will not do so unless and until            additional capital is raised.

***Cost of Sales.***There were no costs of sales for the three months ended September 30, 2008 and the three months ended September 30, 2007 due to the Company’s decision to adjust its inventory that was considered obsolete at March 31, 2008.

***Operating Expenses.***Operating expenses increased by $4,004 to $147,313 for the three months ended September 30, 2008, as compared to $143,309 for the three months ended September 30, 2007 as a result of increased marketing costs in an effort to increase customer sales.

***Net Loss.***The Company’s net loss was $120,891 for the three months ended September 30, 2008, as compared to a net loss of $148,117 for the three months ended September 30, 2007. The decrease in the net loss is primarily due to an increase in the revenues from operations.

*Six months ended September 30, 2008 compared to the Six months ended September 30, 2007*

***Revenues.***Revenues from operations for the six months ended September 30, 2008 reflected a decrease of $2,599 from the six months ended September 30, 2007, due to a decrease in sales of equipment, primarily base stations. Revenues in both periods were minimal as the Company has not yet fully commenced its operations and will not do so unless and until additional            capital is raised.

***Cost of Sales.***The costs of sales for the six months ended September 30, 2008 reflected a decrease of $12,382 from the six months ended September 30, 2007 due to the Company’s decision to adjust its inventory that was considered obsolete at March 31, 2008.

***Operating Expenses.***Operating expenses decreased by $60,948 to $278,871 for the six months ended September 30, 2008, as compared to $339,819 for the six months ended September 30, 2007 as a direct result of a decrease in licensing fees, payroll costs and office rent.

***Net Loss.***The Company’s net loss was $247,207 for the six months ended September 30, 2008, as compared to a net loss of $323,683 for the six months ended September 30, 2007. The decrease in the net loss is primarily due to the decreases in operating expenses.

 

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**Liquidity and Capital Resources**

Our financial statements appearing elsewhere in this Report have been prepared on a going concern basis that contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. Management realizes that we must generate capital and revenue resources to enable us to achieve profitable operations. To the extent that we are unable to obtain additional            working capital from operations and/or other sources as required or otherwise desired, our financial statements will be materially affected and we may be forced to curtail our operations.

 

We were in a working capital shortage at September 30, 2008 and cash flow from operations is insufficient to sustain our operations as of the date of this filing. As of the date of this filing, the Company still requires additional financing to sustain operations until additional subscribers can be obtained. No assurances are given that we will be successful in obtaining additional needed capital. Our            inability to secure such additional capital will materially adversely affect the Company and its operations. We believe our current cash position after funding and anticipated receipt of revenues will enable us to sustain current operations for up to approximately one to two months from the date of this filing.

 

At September 30, 2008, we had a stockholders’ deficiency of $749,496, total assets of $174,139 and total current liabilities of $923,635. For the six months ended September 30, 2008, we have incurred losses of $247,207 and we used cash in operations of $86,035. Our operations and acquisitions have been funded to date by loans from our management and unrelated parties. These funds have been used            for working capital and general corporate purposes and acquisition and licensing costs in furtherance of our business plan. There are no current arrangements with purchasers for any of our securities, and management is under no obligation to provide us with future loans.

 

In the event we are unable to raise additional capital within the next month, such event will significantly restrict and possibly cause us to cease our operations which would have a substantial adverse effect on the Company and its shareholders**.**

 

We do not currently anticipate any material capital expenditures for our existing operations. We do not currently anticipate purchasing, leasing or selling any plant or significant equipment during approximately the next twelve (12) months. To the extent that we engage in such acquisitions, we plan to utilize shares of the Company’s common stock for such purposes, and may assume certain            obligations and debt in such transactions. Such common stock issuance, as well as any common stock issuance for cash to the extent affected, will have the effect of creating further shareholder dilution.

 

We do not believe that inflation has had a material effect on our results of operations. However, there can be no assurances that our business will not be affected by inflation in the future.

 

We have no off balance sheet arrangements.

 

**Critical Accounting Policies and Estimates**

 

Note 2 of the Notes to the Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of our financial statements. We consider the following accounting policy to be the most important to our financial position and results of operations, because of the significance of the financial statement item and because it requires the exercise of significant            judgment or the use of estimates. In addition, Financial Reporting Release No. 61 requires all companies to include a discussion to address, among other things, liquidity, off-balance sheet arrangements, contractual obligations and commercial commitments.

 

***Revenue Recognition***

 

Revenue from users for network services is recognized at the time that the services are provided. Revenue from sales of radios and other related equipment is recognized at date of delivery to the customer and collection is reasonably assured. The Company does not believe that this concentration of revenues and related licenses under which it will operate have significant risk inasmuch as the services            will be utilized by many unrelated businesses.

 

**Risk Factors**

 

You should consider the following discussion of risks as well as other information regarding our operations. The risks and uncertainties described below are not the only ones. Additional risks and uncertainties not presently known to us or that we

 

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currently deem immaterial also may impair our business operations. For a more detailed discussion of the risks facing us, you should review the “Risk Factors” sections contained in our Form 10-KSB for the fiscal year ended March 31, 2008.

 

|   | **•** | The Company does not have sufficient capital for operations, and a failure to obtain additional financing within one month from the filing date of this Report may preclude its ability to stay in business                                                |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | The Company has historically lost money and expects its losses will continue in the future                                                                                                                                                                 |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | The Company’s auditors have expressed doubt about the Company’s ability to continue as a going concern                                                                                                                                         |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | The Company is dependent on its relationships with GEOCommand and Bizcom for a substantial portion of its currently proposed products and licensed intellectual property                                                                                   |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | Uncertain demand for the Company’s services may cause revenues to fall short of expectations and expenses to be higher than forecast if the Company needs to incur more marketing costs                                                              |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | The Company may acquire other companies, which will reduce its income in the event the Company is not able to integrate them into its existing operations                                                                                                  |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | New and existing competition may gain market share and limit the Company’s potential growth                                                                                                                                                          |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | The Company’s ability to achieve profitable operations is directly tied to the Company’s ability to attract and retain customers                                                                                                               |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | There are a limited number of successful operators within the 220 MHz wireless industry                                                                                                                                                                    |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | We cannot assure our success in our planned business operations                                                                                                                                                                                            |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | The Company could fail to attract or retain key personnel, which could hamper its ability to generate income                                                                                                                                               |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | The Company may enter into option agreements to acquire select assets of other 220 MHz system owners/operators, which may include 220 MHz licenses, and with options the Company is subject to continued control of the assets by the owner/operators      |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | We are subject to a number of risks associated with our development plans                                                                                                                                                                                  |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | Broad based market acceptance of our products is uncertain as there is limited operating history for our industry                                                                                                                                          |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | We are subject to substantial competition                                                                                                                                                                                                                  |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | We depend on third party manufacturers and suppliers for components of all of the products we sell                                                                                                                                                         |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | We depend on our internally developed and licensed intellectual property                                                                                                                                                                                   |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | We could incur substantial costs defending our intellectual property from infringement by others                                                                                                                                                           |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | We could incur substantial costs defending against claims that our products infringe on the proprietary rights of others                                                                                                                                   |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | Our sales may be concentrated in public sector markets that inherently possess additional risks that could harm our business                                                                                                                               |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | We may depend on federal government contracts for a substantial portion of our future revenues, and the loss of federal government contracts or a decline in funding of existing or future government contracts could adversely affect our future revenues |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | Our failure to comply with, or changes in, governmental regulation could adversely affect our business and operations                                                                                                                                      |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | We may be unable to meet the rapid technology changes required by our market                                                                                                                                                                               |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | Our future operations will depend upon our ability and the resources available to respond to the rapidly evolving technology and customer requirements in the markets in which we will operate                                                             |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | The Company’s common stock is a “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements                                                                                       |
|   |       |                                                                                                                                                                                                                                                       |
|   | **•** | The Company does not intend to pay any dividends                                                                                                                                                                                                           |

 

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**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

As a smaller reporting company, the Company is not required to provide Part I, Item 3 disclosure in this Quarterly Report**.**

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

The Company’s principal executive and financial officer evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined under Rules 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on the evaluation and subject to the limitations noted        below, such person concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this Report, were effective to provide reasonable assurance that the information required to be disclosed by the Company in periodic reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The design of any system of controls is        based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, management believes that our system of disclosure controls and procedures is designed to provide a reasonable level of assurance that the objectives of the system will be met.

 

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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

 

| (a)    | Exhibits:                                                                                                                                                                                                                                                     |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                          |   |
|   | 31                                                                                                                                                                                                                                                            | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive and Principal Financial Officer |
|   |                                                                                                                                                                                                                                                          |   |
|   | 32                                                                                                                                                                                                                                                            | Section 1350 Certification |
|   |                                                                                                                                                                                                                                                          |   |
| (b)    | Reports on Form 8-K:                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                          |
|   | On August 7, 2008, the Company filed a Form 8-K announcing the dismissal of Webb & Company PA and theretention of Jewett, Schwartz, Wolfe & Associates as the Company’s independent registered public accounting firm,effective August 1, 2008. |

 

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

| Date: November 18, 2008 | CX2 Technologies, Inc.                                        |
|-------------------------|---------------------------------------------------------------|
|                    | (Registrant)                                                  |
|                    |                                                          |
|                    | By: /s/ Michael B. Rand                                       |
|                    | Michael B. Rand, Chief Executive Officer, Principal Executive |
|                    | Financial and Accounting Officer                              |

 

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