UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2008
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 000-20259
SEAMLESS WI-FI, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 33-0845463
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
800 N. Rainbow Blvd., Ste. 200, Las Vegas, NV 89109
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(Address of principal executive offices)
(775) 588-2387
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act 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 [ ]
Indicate by checkmark 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 [ ] Accelerated Filer [ ]
Accelerated Filer [ ] Smaller Reporting Company [X}
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) YES [ ] NO [X]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 29,290,963 as of April 25, 2008
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3
Balance Sheet - March 31, 2008 3
Statements of Operations -
For the three and nine months ended March 31, 2008 and 2007 4
Statements of Cash Flow -
For the nine months ended March 31, 2008 and 2007 5-6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 16
Condition and Results of Operations
Item 3. Controls and Procedures 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits 21
SIGNATURES 22
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEAMLESS WI-FI, INC.
f/k/a/ ALPHA WIRELESS BROADBAND, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2008 June 30, 2007
(unaudited)
------------ ------------
Current assets
Cash $ 2,210 $ 15,181
Accounts Receivable 112,030 124,077
Notes receivable-related parties (Net of Allowance $334,703) 2,669,865 --
Accrued interest receivable 474,967 236,132
------------ ------------
Total current assets 3,259,072 375,390
Property and equipment (net of accumulated depreciation $68,133) 29,867 51,158
Technology 2,702,438 1,968,991
Employee advance 0 22,319
Notes receivable - related parties (net of allowance $334,703) 0 2,493,153
Restricted cash 0 75,000
Security deposit 21,561 6,600
------------ ------------
TOTAL ASSETS $ 6,012,938 $ 4,992,611
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,242,035 $ 239,226
Payroll taxes 42,824 96,706
Judgments payable 361,054 361,054
Other current liabilities 15,738 828,000
Payable to officer 89,381 --
Investment payable 47,000 50,000
------------ ------------
Total current liabilities 1,798,032 1,574,986
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Commitments and contingencies (See Note 7)
Stockholders' equity
Preferred A stock, par value $0.001, 4,000,000 shares and 713 498
10,000,000 shares authorized at March 31, 2008 and
June 30, 2007, 713,132 shares and 498,914 shares
issued and outstanding at March 31, 2008 and
June 30, 2007
Preferred B stock, par value $0.001, 1,000,000 and -- --
10,000,000 shares authorized at March 31, 2008 and
June 30, 2007 0 shares issued and outstanding
Preferred C stock, par value $0.001, 5,000,000 shares 3,300 300
authorized at March 31, 2008 and June 30, 2007,
3,300,000 shares and 300,000 shares issued and
outstanding at March 31, 2008 and June 30, 2007
Common stock, par value $0.001, 10,990,000,000 shares 19,691 4,847
and 11,000,000 shares authorized at March 31, 2008
and June 30, 2007, 19,690,963 shares and 4,847,202.
shares issued and outstanding at March 31, 2008 and
June 30, 2007
Additional paid-in capital 25,888,585 22,199,508
Stock subscription receivable (1,340,750) --
Accumulated deficit (20,256,633) (18,687,528)
------------ ------------
Total stockholders' equity 4,314,906 3,517,625
Less: Treasury stock at cost (100,000) (100,000)
------------ ------------
Adjusted stockholders' equity 4,214,906 3,417,625
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,012,938 $ 4,992,611
============ ============
The accompanying notes are an integral part of these financial statements.
3
SEAMLESS WI-FI, INC.
f/k/a ALPHA WIRELESS BROADBAND, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31,
(unaudited)
3 Months 9 Months
---------------------------- ----------------------------
2008 2007 2008 2007
------------ ------------ ------------ ------------
Revenues $ 7,449 $ 9,350 $ 19,000 $ 30,990
Cost of revenues 23,726 42,900 39,103 103,484
------------ ------------ ------------ ------------
Gross Income (Loss) (16,277) (33,550) (20,103) (72,494)
------------ ------------ ------------ ------------
Expenses:
Selling, general and admin. 338,917 184,389 748,357 479,829
Consulting 385,993 129,243 503,600 486,094
Interest -- 95,838 6,864 299,975
Legal 360,000 92,492 488,076 268,785
Officer Payroll 63,000 101,549 389,000 379,080
Finance -- 58,333 -- 88,333
Bad Debt Expense -- 9,162 -- 67,572
Depreciation and amortization 8,036 7,937 24,041 23,812
------------ ------------ ------------ ------------
Total Expenses 1,155,946 678,943 2,159,938 2,093,480
------------ ------------ ------------ ------------
(Loss) from operations (1,172,223) (712,493) (2,180,041) (2,165,974)
Other income
Cancellation of indebtedness 12,119 250,454 871,221 465,737
Interest 79,287 50,586 238,835 83,659
Other -- 56 1,440 56
------------ ------------ ------------ ------------
Income (Loss) before income taxes (1,080,817) (411,397) (1,068,545) (1,616,522)
Income taxes (benefit) (note 6) -- -- -- --
------------ ------------ ------------ ------------
Net Income (Loss) $ (1,080,817) $ (411,397) $ (1,068,545) $ (1,616,522)
============ ============ ============ ============
Preferred C stock dividends-deemed -- -- (500,000) --
------------ ------------ ------------ ------------
Net loss available to common stockholders $ (1,080,817) $ (411,397) $ (1,568,545) $ (1,616,522)
============ ============ ============ ============
Basic and Diluted income (loss) per common shares $ (0.09) $ (3.08) $ (0.18) $ (12.09)
============ ============ ============ ============
Weighted average basic and diluted common shares 12,072,783 133,751 8,643,901 133,751
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
4
SEAMLESS WI-FI, INC.
f/k/a ALPHA WIRELESS BROADBAND, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(unaudited)
2008 2007
----------- -----------
Cash flows used in operating activities
Net income (loss) from continuing operations $(1,068,545) $(1,616,521)
Adjustments to reconcile net loss to
used by operating activities:
Depreciation and amortization 24,041 23,812
Cancellation of indebtedness (871,221) (465,737)
Issuance of common stock for services 539,743 184,050
Issuance of common stock for payment of financing costs -- --
Issuance of preferred C stock for payment of expense 2,485 --
Interest expense 6,864 208,638
Financing cost -- 148,333
Bad debt expense -- 67,573
Prepaid legal -- (5,000)
Changes in operating assets and liabilities
Accounts receivable 12,047 (201,289)
Accrued interest receivable (238,835) (71,570)
Security deposits (14,961) --
Accounts payable 1,025,317 (469,150)
Accrued expense -- 211,000
Payroll taxes payable (53,882) (65,170)
Other current liabilities 46,840 63,638
Payable to officer 111,140 45,458
Restricted cash - Escrow 75,000 --
Interest payable -- --
----------- -----------
Net cash used by operating activities (403,967) (1,941,935)
----------- -----------
Cash flows used in investing activities:
Intangible assets -- (865,045)
Technology (689,108) (50,000)
Investments (2,750) 88
Advances to related party (169,265) (1,244,953)
----------- -----------
Net cash used in investing activities (861,123) (2,159,910)
----------- -----------
Cash flows from financing activities
Proceeds for additional paid in capital 362,119 --
Net proceeds from preferred C stock issuance 890,000 --
Increase in long term debt -- 4,109,569
Repayment of note payable -- (66,833)
Repayment of related party advances -- (19,468)
Purchase of treasury stock -- (5,000)
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Net cash provided by financing activities 1,252,119 4,018,268
----------- -----------
Increase (decrease) in cash (12,971) (83,577)
Cash at beginning of period 15,181 94,342
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Cash at end of period $ 2,210 $ 10,765
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The accompanying notes are an integral part of these financial statements.
5
SEAMLESS WI-FI, INC.
f/k/a ALPHA WIRELESS BROADBAND, INC
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(unaudited)
2008 2007
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Cash paid for:
Interest $ -- $ --
Taxes $ -- $ --
Noncash investing, and financing activities
Common stock issued for services $ 52,575 $ 160,050
Preferred C stock issued for officer's compensation $ 200,000 --
Preferred C stock issued for deemed dividend $ 500,000 --
Preferred C stock issued for stock subscription receivable $ 200,000 --
Additional paid in capital recorded for third party payments $ 64,592 --
Common stock issued for employees' services $ 18,750 --
Common stock issued for conversion of preferred A stock
and settlling operating expenses -- $ 24,000
Common stock issued for conversion of preferred A stock $2,028,456 $2,392,992
Common stock issued as collateral $ 10,750 --
Preferred C stock issued as collateral $1,200,000 --
Stock option issued for services $ 268,418 --
The accompanying notes are an integral part of these financial statements.
6
SEAMLESS WI-FI, INC.
F/K/A ALPHA WIRELESS BROADBAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: ORGANIZATION AND OPERATIONS
Prior to December 31, 1997, Seamless Wi-Fi, Inc ("The Company") formerly known
as Alpha Wireless Broadband, Inc. "the Company" was in the food product
manufacturing business and formerly known as International Food and Beverage,
Inc. In November 1998, new stockholders bought majority control from the
previous Chief Executive Officer through a private transaction. Immediately
thereafter, the former CEO resigned and the new stockholders assumed the
executive management positions. In December 1998, after new management was in
place, a decision was made to change the Company's principal line of business
from manufacturing to high technology. The Company changed its name from
International Food & Beverage, Inc. to Internet Business's International, Inc.,
and reincorporated the Company on December 8, 1998 in the state of Nevada.
During April of 1999, the Company announced the opening of its first e-commerce
site and engaged in the development, operation and marketing of a number of
commercial web sites. The Company's subsidiaries consisted of: Lending on Line
(providing real estate loans and equipment leasing), Internet Service Provider
(providing national Internet access dial-up service, wireless high speed
Internet, and Internet web design and hosting), E. Commerce (providing Auction
sites), and Direct Marketing (providing direct marketing of long distance phone
service, computers with Internet access, and Internet web design hosting). The
Company ceased operations during the fiscal year ended June 30, 2003. During the
fiscal year ended June 30, 2004, the Company changed its name to Alpha Wireless
Broadband, Inc, and started a new wireless operation through it's wholly owned
subsidiary Skyy-Fi, Inc a Nevada Corporation. Skyy-Fi began providing access to
the Internet, by installing equipment in locations such as hotels and coffee
shops for use by their patrons for a fee or free basis. These locations are
commonly known as Wi-Fi Hotspots. The Company has 36 Wi-Fi locations.
In January 2005, the Company acquired the assets of Seamless P2P, LLC and
contributed these assets to its 80% owned subsidiary Seamless Peer to Peer,
Inc., which is a developer and provider of a patent pending software program
Phenom Encryption Software that encrypts Wi-Fi transmissions based upon RSA's
government certified 256 bit AES encryption coupled with RSA's Public Key
Infrastructure flexible telecom data and voice transport solutions.
In May 2005, the Company changed its name from Alpha Wireless Broadband, Inc. to
Seamless Wi-Fi, Inc, which was approved by the Board of Directors and its
subsidiary from Skyy-Fi, Inc. to Seamless Skyy-Fi, Inc.
In December 2005, the Company started a hosting company Alpha Internet offering
Seamless clients a high-security hosting facility.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its wholly
owned subsidiaries and majority-owned subsidiary. They have been prepared in
conformity with (i) accounting principles generally accepted in the United
States of America; and (ii) the rules and regulations of the United States
Securities and Exchange Commission. All significant intercompany accounts and
transactions between the Company and its subsidiaries have been eliminated in
consolidation.
7
UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Seamless Wi-Fi,
Inc. and its Subsidiaries (the Company) have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information, pursuant to the rules and regulations of the
Securities and Exchange Commission. Pursuant to such rules and regulations,
certain financial information and footnote disclosures normally included in the
consolidated financial statements have been condensed or omitted. The results
for the periods indicated are unaudited, but reflect all adjustments (consisting
only of normally recurring adjustments) which management considers necessary for
a fair presentation of operating results.
The operating results for the six-month period ended March 31, 2008 are not
necessarily indicative of the results that may be expected for the year ended
June 30, 2008. These unaudited consolidated financial statements should be read
in conjunction with the consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended June
30, 2007.
RECLASSIFICATIONS
Certain reclassifications have been made in the 2007 financial statements to
conform to the 2008 presentation. These reclassifications did not have any
effect on net income (loss) or shareholders' equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates include allowances for doubtful accounts and notes and
mortgage loans receivable. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all short-term, highly liquid investments with an original
maturity date of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are judged as to collectibility by management and an
allowance for bad debts has not been established.
8
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the straight-line
method over the estimated useful life of the assets, which is generally three to
five years for computers and computer related equipment and five to seven years
for furniture and other non-computer equipment. Leasehold improvements are
amortized using the straight-line method over the shorter of their estimated
useful lives or the term of the lease, ranging from one to five years.
INVESTMENTS
Investments are stated at the lower of cost or market value.
PROPRIETARY SOFTWARE IN DEVELOPMENT
In accordance with SFAS No. 86, accounting for the Cost of Computer Software to
be Sold, Leased, or Otherwise Marketed Software ("FAS 86"), the Company has
capitalized certain computer software development costs upon the establishment
of technological feasibility. Technological feasibility is considered to have
occurred upon completion of a detailed program design which has been confirmed
by documenting and tracing the detailed program design to product
specifications. Amortization is provided based on the greater of the ratios that
current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product. The estimated useful life
for the straight-line method is determined to be 2 to 5 years. For nine months
ended March 31, 2008, there was no amortization for the capitalized costs.
REVENUE RECOGNITION
For current Company operations, providing wireless Internet access, fees are
charged either to the proprietor of the Wi-Fi hotspot location or the customer
using the services. The fees paid by a proprietor for services provided on a
month-to-month basis are billed at the end of each month for which the service
is contracted. The fees paid by customers using the wireless Internet access are
paid at the time service is provided and therefore recorded as revenue at that
time.
ADVERTISING EXPENSE
All advertising costs are expensed when incurred. Advertising costs were
$115,659 and $58,022 for the nine months ended March 31, 2008 and 2007,
respectively.
CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk through trade receivables. Monthly
internet access fees and web hosting are generally billed to the customer's
credit card, thus reducing the credit risk. The Company routinely assesses the
financial strength of significant customers and this assessment, combined with
the large number and geographic diversity of its customers, limits the Company's
concentration of risk with respect to trade accounts receivable.
INCOME TAXES
The Company accounts for income taxes under the asset and liability approach of
reporting for income taxes. Deferred taxes are recorded based upon the tax
impact of items affecting financial reporting and tax filings in different
periods. A valuation allowance is provided against net deferred tax assets where
the Company determines realization is not currently judged to be more likely
than not. The Company and its 80% of more owned U.S. subsidiaries file a
consolidated federal income tax return.
9
EARNINGS (LOSS) PER SHARE ("EPS")
Basic EPS is computed by dividing income (loss) by the weighted average number
of common shares outstanding for the period. Diluted EPS is computed giving
effect to all dilutive potential common shares that were outstanding during the
period. Dilutive potential common shares consist of incremental shares issuable
upon conversion of preferred stock outstanding. At March 31, 2008, Series A
Preferred shares are convertible to 7,131,320,000 common shares and Series C
Preferred shares are convertible to 165,000,000 common shares. Because the
convertible preferred shares have an anti-dilutive effect, there is no
difference between basic and diluted earnings per share.
STOCK BASED COMPENSATION
The Company has elected to early adoption of SFAS 123R which requires all share
based payments to officers, directors, and employees, including stock options to
be recognized as a cost in the financial statements based on their fair values.
The Company accounts for stock based grants issued to non-employees at fair
value in accordance with SFAS 123 and ETIF 96-18 "Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or In
Conjunction with Selling, Goods, or Services". There were no options granted
during the year ended June 31, 2007. A stock option was issued during the third
quarter of year 2008. It is disclosed in Note 5.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. ("SFAS") 141 (revised 2007),
Business Combinations, which replaces SFAS 141. SFAS 141R establishes principles
and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed and the
goodwill acquired. SFAS 141R also establishes disclosure requirements that will
enable users to evaluate the nature and financial effects of the business
combination. SFAS 141R is effective as of the beginning of an entity's fiscal
year that begins after December 15, 2008 and will be adopted by the Company in
the first quarter of fiscal 2010. While the Company expects that SFAS 141R may
have an impact on accounting for business combinations once adopted, the effect
is dependent upon acquisitions occurring.
NOTE 3: GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
company as a going concern. The Company has experienced significant losses in
recent years. At March 31, 2008 the Company had an accumulated deficit of
$20,256,633.
10
The Company is actively pursuing additional equity financing through discussions
with investment bankers and private investors. There can be no assurance the
Company will be successful in its effort to secure additional equity financing.
The Company's ability to continue as a going concern is contingent upon its
ability to secure financing and attain profitable operations. The financial
statements do not include any adjustment to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible inability of the
Company to continue as a going concern.
NOTE 4: RELATED PARTY TRANSACTIONS
The Company has made the following loans and advances to related parties as of
March 31, 2008:
Allowance for
uncollectible
Loan/Advance loans/ Balance
Balance advances Net
---------- ---------- ----------
Accepted Sales (A) $ 338,033 -- $ 338,033
Carbon Jungle, Inc. (B) 243,332 $ 236,543 6,789
DK Corp. (C) 98,160 98,160 --
DLR Funding (D) 891,403 -- 891,403
1st Global Financial Service (E,F) 1,433,640 -- 1,433,640
---------- ---------- ----------
Total: $3,004,568 $ 334,703 $2,669,865
========== ========== ==========
The above interest at annual rates ranges from 6% to 12%. The net balance at
March 31, 2008 is $2,669,865 and it matures in the year ending March 31, 2009.
(A) Accepted Sales is a division of 1st Global Financial Services
noted below.
(B) The President of the Company is a Director of the Company; the
Secretary of the Company is an officer of this Company.
(C) DK Corp is a business held by David Karst.
(D) The President of the Company is a stockholder and director of this
Company. The Secretary of the Company is an officer and
stockholder of this Company.
(E) The President of the Company is a stockholder and director of this
Company. The Secretary of the Company is an officer and
stockholder of this Company. A director of 1st Global is paid
$10,000 per month by the Company, which is recorded as a loan
receivable by the Company.
(F) The President of the Company is an officer of this Company.
The Company has recorded interest income on the above for the nine-months ended
March 31, 2008 in the amount of $ 238,834.
NOTE 5: STOCKHOLDER'S EQUITY
During the first quarter ended September 30, 2007, the following stocks were
issued.
Ayuda Funding LLC converted 130,000 shares of Series A Preferred Stock into
1,300,000 shares of common stock.
Alpha Blue converted 93,172 shares of Series A Preferred Stock into 931,720
shares of common stock.
500,000 shares of Preferred A stock were issued for pending lending agreement to
Antigna.
11
During the second quarter ended December 31, 2007 the following shares were
issued.
1,200,000 shares of Series C Preferred Stock were issued to Ayuda Funding, LLC
and DLR Funding for $900,000. The shares are convertible to common stock worth
$1,200,000 and $300,000 was recorded as deemed dividend for beneficiary
conversion feature.
200,000 shares of Series C Preferred Stock were issued for $200,000 as officer's
compensation.
400,000 shares of Series C Preferred Stock were issued to Adobe Oil Development
Corp. for $200,000 that is scheduled to be received in the third quarter. The
shares are convertible to common stock worth $400,000 and $200,000 was recorded
as deemed dividend for beneficiary conversion feature.
800,000 common stock shares were issued for $120,000 as deferred compensation.
135,084 shares of Series A Preferred Stock were converted to 1,350,840 common
stock shares.
5,100 common stock shares were converted to 510 shares of Series A Preferred
Stock.
125,000 shares of common stock were issued for employees' services at $18,750.
During the third quarter ended March 31, 2008, the following transactions
occurred.
On February 1, 2008, the Company filed a Certificate of Amendment providing for
each one thousand shares of the Company's common stock, par value $0.001 per
share, issued and outstanding to be changed into one share of common stock, par
value $0.001 per share of the Company.
The reverse stock split became effective on February 15, 2008 and the Company's
new symbol is SMWF.
On February 21, 2008, the Company filed a Certificate of Designation to
establish the following regarding the voting powers, designations, preferences,
limitations, restrictions and relative rights of the following series of stock.
The Company is authorized to issue 10,990,000,000 shares of common stock , par
value $0.001 per share, 4,000,000 shares of convertible Series A Preferred
Stock, par value $0.001 per share, 1,000,000 shares of convertible Series B
Preferred Stock, par value $0.001 per share, and 5,000,000 shares of convertible
Series C Preferred Stock, par value $0.001 per share.
The par value of Series C Preferred stock was adjusted to additional paid in
capital in the balance sheet dated June 30, 2007 to reflect the change.
The Board of Directors has the authority to issue such shares of common and/or
preferred stock in one or more series, with such voting powers, designations,
numbers, preferences and rights or qualifications, limitations, restrictions or
other distinguishing characteristics thereof as shall be stated in the
resolution or resolutions.
12
The Board of Directors has adopted the following resolutions regarding the
preferred stock.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding up
of the corporation, after setting apart or paying in full the preferential
amounts due to holders of senior capital stock, if any, the holders of Series
"A" "B" "C" Preferred Stock and parity capital stock, if any, shall be entitled
to receive, prior and in preference to any distribution of any of the assets of
surplus funds of the corporation to the holders of junior capital stock,
including Common Stock, an amount equal to approximately $1.88 per share.
DIVIDENDS. The Preferred Stock shall not be entitled to receive any dividends.
CONVERSION RIGHTS. Each share of Series "A" Preferred Stock shall be
convertible, at the option of the holder, into 10,000 fully paid and
non-assessable shares of the Company's Common Stock. Each share of Series "B"
Preferred Stock shall be convertible, at the option of the holder, into 1,000
fully paid and non-assessable shares of the Company's Common Stock. Each share
of Series "C" Preferred Stock shall be convertible at the option of the holder,
based upon the following formula: one Share of "C" Preferred Stock shall convert
into One Dollar worth of fully paid and non-assessable shares of the company's
common Stock based upon the most recent 10 day average closing price effective
the date of receipt of the conversion request.
VOTING RIGHTS. The holders of shares of Preferred Stock shall be entitled to
vote on any matters considered and voted upon by the corporation's Common Stock.
The holders of the Preferred Stock are entitled to one vote per converted common
share.
MANDATORY REDEMPTION. There shall be no mandatory redemption.
28,036 shares of Series A Preferred Stock were converted to 9,491,140 shares of
common stock.
800,000 common stock shares issued for deferred compensation in the second
quarter were cancelled.
500,000 common stock shares were issued to DC Assembly for a production in China
as a collateral.
400,000 shares of Series C Preferred Stock were issued to DC Assembly for a
production in China as a collateral.
The Company has a funding agreement with Alpha Blue, Inc. to receive up to
$5,000,000. Alpha Blue paid $240,000 in the third quarter and the Company issued
100,000 shares of Series A preferred Stock.
The Company has a funding agreement with MAKR, Inc. that is to provide a fund up
to $600,000 for a production in China. The Company issued 800,000 shares of
Series C Preferred Stock as a collateral.
Dettman Group was granted an option to purchase 975,000 shares of common stock
at a strike price of $0.01 as a consulting fee. The option was evaluated to be
worth $268,418.
750,000 shares of common stock were issued to Wakabayashi for marketing
services.
13
400,000 shares of common stock were issued for consulting service.
NOTE 6: INCOME TAXES
No provision for income taxes has been recorded in the accompanying financial
statements as a result of the Company's net operating losses. The Company has
unused tax loss carry forwards of approximately $20,000,000 to offset future
taxable income. Such carry forwards expire in the years beginning 2021. The
deferred tax asset recorded by the Company as a result of these tax loss carry
forwards is approximately $7,000,000 for both years ended June 30, 2007 and
2006. The Company has reduced the deferred tax asset resulting from its tax loss
carry forwards by a valuation allowance of an equal amount as the realization of
the deferred tax asset is uncertain. There is no net change in the deferred tax
asset and valuation allowance from July 1, 2007 to March 31, 2008.
NOTE 7: COMMITMENTS AND CONTINGENCIES
LEASE
The Company has entered into lease agreements for an office space which expires
on August 31, 2010. The Company rents additional office space in Nevada, on a
month to month basis. Rent expense under these leases for the nine months ended
March 31, 2008 and 2007 were $69,972 and $31,358, respectively. The annual
minimum future lease payments required under the Company's operating leases are
as follows.
March 31, 2009 $ 168,840
March 31, 2010 $ 168,840
March 31, 2011 $ 90,100
---------
Total $ 427,780
=========
LEGAL PROCEEDINGS
The Company is a party to the following legal proceedings:
GLOBALIST V. INTERNET BUSINESS'S INTERNATIONAL, INC. ET AL
----------------------------------------------------------
In July 2003, Globalist sued the Company and was awarded a judgment plus
interest in the amount of approximately $301,000. The Company appealed the
Court's decision and the award amount. In February 2005 the Company reached a
settlement agreement with Globalist. However, Globalist later rejected the
settlement agreement and an appeal was filed in the second quarter with the
appellate court by the Company seeking confirmation of the settlement agreement.
EMPLOYMENT CONTRACT
The Company has an employment contract with their Chief Executive Officer,
Albert Reda that calls for a base salary of $240,000 for the year ended June 30,
2007 and thereafter, a base salary of $25,000 a month from July 2007 until its
expiration date in June 2012. In the event that the company becomes profitable
according to generally accepted accounting principles, the employee's monthly
salary shall be increased to $30,000 for the remainder of the employment term.
In addition, the contract includes a bonus that will be determined by the
company's Board of Directors.
14
NOTE 8: SEGMENT INFORMATION
In accordance with SFAS No. 131 "Disclosure about Segments of an Enterprise and
Related Information", management has determined that there are three reportable
segments based on the customers served by each segment: Such determination was
based on the level at which executive management reviews the results of
operations in order to make decisions regarding performance assessment and
resource allocation.
The Company is currently a start up business that is providing "Wireless
Internet" access at business locations and a developer and provider of a patent
pending software. In December 2005 the Company started a hosting company Alpha
Internet offering Seamless clients a high-security hosting facility (See Note 1:
Organization and Operations).
Certain general expenses related to advertising and marketing, information
systems, finance and administrative groups are not allocated to the operating
segments and are included in "other" in the reconciliation of operating income
reported below.
Information on reportable segments is as follows:
Nine Months ended March 31,
2008 2007
----------- -----------
Wi-Fi ISP net sales $ 19,000 $ 30,990
Cost of Wi-Fi sales (39,103) (103,484)
Cost and expenses (2,159,938) (2,093,480)
Other income 1,111,496 549,452
----------- -----------
Net loss $(1,068,545) $(1,616,522)
=========== ===========
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
financial statements, including the notes thereto, appearing elsewhere in this
Report.
FORWARD-LOOKING STATEMENTS
The following information contains certain forward-looking statements.
Forward-looking statements are statements that estimate the happening of future
events and are not based on historical fact. Forward-looking statements may be
identified by the use of forward-looking terminology, such as "may," "could,"
"expect," "estimate," "anticipate," "plan," "predict," "probable," "possible,"
"should," "continue," or similar terms, variations of those terms or the
negative of those terms. The forward-looking statements specified in the
following information have been compiled by our management on the basis of
assumptions made by management and considered by management to be reasonable.
Our future operating results, however, are impossible to predict and no
representation, guaranty, or warranty is to be inferred from those
forward-looking statements.
OVERVIEW
Seamless Wi-Fi, Inc has operating subsidiaries: (1) Seamless Skyy-Fi, Inc. which
provides wireless Internet access (commonly known as "Wi-Fi") at 30 business
locations and is the developer of a Seamless Secure Internet Browser (S-SIB)
software program which creates a virtual private network for the Internet user ;
(2) Seamless Peer 2 Peer, Inc. which develops and provides a patent pending
software program called Phenom(R) that encrypts Internet communications and
provides flexible telecom data and voice transport solutions; and (3) Seamless
Internet, Inc. which offers high security hosting services for customers of
Seamless Peer 2 Peer, Inc. and Seamless Skyy-Fi, Inc. and which is also
manufacturing and marketing an ultra mobile personal computer named the S-Gen.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our selected
financial information:
-------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
March 31, 2008 March 31, 2007
(unaudited) (unaudited)
-------------------------------------------------------------------------------
Revenues $ 19,000 $ 30,990
-------------------------------------------------------------------------------
Cost of Revenues 39,103 103,484
-------------------------------------------------------------------------------
(Gross Loss) (20,103) (72,484)
-------------------------------------------------------------------------------
Expenses 2,158,938 2,093,480
-------------------------------------------------------------------------------
(Net Loss from Operations) (2,180,041) (2,165,974)
-------------------------------------------------------------------------------
Other Income 1,111,496 549,452
-------------------------------------------------------------------------------
(Loss) $(1,068,545) $(1,616,522)
-------------------------------------------------------------------------------
Stock Dividend (500,000) 0
-------------------------------------------------------------------------------
(Net Loss) $(1,568,545) $(1,616,522)
-------------------------------------------------------------------------------
(Net Loss) Per Share $ (0.18) $ (12.09)
-------------------------------------------------------------------------------
Weighted Average Common Shares Outstanding 8,643,901 133,751
-------------------------------------------------------------------------------
16
NINE MONTHS ENDED MARCH 31, 2008 (UNAUDITED) COMPARED TO NINE MONTHS ENDED MARCH
31, 2007 (UNAUDITED)
REVENUES
Revenues for the nine months ended March 31, 2008 were $19,000 compared to
$30,990 for the same period in 2007, a decrease of 38 %. This decrease in
revenue was the result of eliminating locations that were not profitable thereby
decreasing our Cost of Revenue at our Skyy-Fi locations.
COST OF REVENUES
The cost of revenues for the nine months ended March 31, 2008 was $39,103
compared to $103,484 for the nine months ended March 31, 2007, a decrease of
62%. The decrease in cost of revenue was the result of eliminating locations
that were not profitable thereby decreasing our Cost of Revenue at our Skyy-Fi
locations.
OPERATING EXPENSES
Operating expenses increased by approximately 3.2% from $2,159,938 for the nine
months ended March 31, 2008 compared to $2,093,480 for the nine months ended
March 31, 2007. This increase in operating expenses was a result of an increase
consulting and marketing costs related to our new product and software programs
that occurred during this corresponding period.
OTHER INCOME
Other income for the nine months ended March 31, 2008 was $1,111,496 increased
by 302 % compared to the other income of $549,452 for the same period in 2007.
Other income consists primarily of debt forgiveness from prior operations due to
the fact that certain debts were not paid within the prescribed time as required
by law and we now have to report that debt as income.
INCOME TAX
No provision for income taxes has been recorded in the accompanying financial
statements as a result of our net operating losses. We have unused tax loss
carry forwards of approximately $20,256,633 to offset future taxable income.
Such carry forwards expire in the years beginning 2022.
NET INCOME/LOSS
We experienced a reduction in the net loss from operations of $(1,568,545) for
the nine months ended March 31, 2008 as compared to a net loss of $(1,616,522)
for the nine months ended March 31, 2007. The reduction in net loss is primarily
from reduced expenses and an increase in the other income for the Quarter. The
net loss had a negligible impact on the weighted average shares because of the
corresponding increase in the number of the weighed average shares issued and
outstanding.
17
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $3,259,072 and $1,103,833 for March 31, 2008
and 2007, respectively. Net cash used by operations was $(403,967) for the
period ended March 31, 2008 compared to net cash used by operations of
$(1,941,935) for the comparable period ended March 31, 2007.
As a result of our decreases in net operation losses, our working capital
deficiency has decreased. We have funded our losses through an equity line of
credit secured by preferred stock. Repayments of certain loans occurred by the
lender taking possession of the collateral. We anticipate these losses to
continue through 2008.
We have a working capital surplus of $1,461,040 as of March 31, 2008 compared to
a working capital deficit of $(1,277,535) as of March 31, 2007. This is an
increase in the working capital surplus and as compared to the working capital
deficit from the previous year and we expect this trend to continue to decrease
as product development costs continue to decrease and income increases by the
sales of our products.
As shown in the accompanying financial statements, we have incurred an
accumulated deficit of $(20,256,633) and a working capital surplus of
approximately $1,461,040 as of March 31, 2008. Our ability to continue as a
going concern is dependent on obtaining additional capital and financing and
operating at a profitable level. We intend to seek additional capital either
through debt or equity offerings and to increase sales volume and operating
margins to achieve profitability.
We will consider both the public and private sale of securities and/or debt
instruments for expansion of our operations if such expansion would benefit our
overall growth and income objectives. Should sales growth not materialize, we
may look to these public and private sources of financing. There can be no
assurance, however, that we can obtain sufficient capital on acceptable terms,
if at all. Under such conditions, failure to obtain such capital likely would at
a minimum negatively impact our ability to timely meet our business objectives.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States requires our management to
make certain 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. As such, in accordance with the use of
accounting principles generally accepted in the United States, our actual
realized results may differ from management's initial estimates as reported. A
summary of our significant accounting policies appears in the notes to the
financial statements which are an integral component of this Report.
18
USE OF ESTIMATES
The preparation of our consolidated financial statements are in conformity with
United States generally accepted accounting principles which require us 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 period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION ARRANGEMENTS
We issue shares of common stock to various individuals and entities for certain
management, legal, consulting and marketing services. These issuances are valued
at the fair market value of the service provided and the number of shares issued
as determined, based upon the closing price of our common stock on the date of
each respective transaction. These transactions are reflected as a component of
general and administrative expenses in the accompanying statement of operations.
INFLATION
The moderate rate of inflation over the past few years has had an insignificant
impact on our sales and results of operations during the period.
NET OPERATING LOSS CARRY FORWARD
No provision for income taxes has been recorded in the accompanying financial
statements as a result of our net operating losses. We have unused tax loss
carry forwards of approximately $(20,256,633) to offset future taxable income.
Such carry forwards expire in the years beginning 2022.
The deferred tax asset we recorded as a result of these tax loss carry forwards
is approximately $(20,256,633) as of March 31, 2008. We have reduced the
deferred tax asset resulting from our tax loss carry forwards by a valuation
allowance of an equal amount as the realization of the deferred tax asset is
uncertain. The net change in the deferred tax asset and valuation allowance
which was $(18,687,528) as of June 30, 2007 to March 31, 2008 of ($20,256,633) a
decrease of $1,569,105.
OFF BALANCE SHEET ARRANGEMENTS
We have not entered into any off balance sheet arrangements that have, or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, result of operations,
liquidity, capital expenditure, or capital resources which would be considered
material to investors.
19
ITEM 3. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer (the "Certifying
Officers") are responsible for establishing and maintaining disclosure controls
and procedures for the Company. The Certifying Officers have designed such
disclosure controls and procedures to ensure that material information is made
known to them, particularly during the period in which this report was prepared.
The Certifying Officers have evaluated the effectiveness of the Company's
disclosure controls and procedures within 90 days of the date of this report and
believe that the Company's disclosure controls and procedures are effective
based on the required evaluation. There have been no significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July 2003, Globalist sued the Company and was awarded a judgment plus
interest in the amount of approximately $301,000. The Company appealed the
Court's decision and the award amount. In February 2005 the Company reached a
settlement agreement with Globalist. However, Globalist later rejected the
settlement agreement and an appeal was filed during the last quarter of 2007
quarter with the appellate court by the Company seeking confirmation of the
settlement agreement.
To the best knowledge of management, there are no other legal proceedings
pending or threatened against us.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On February 1, 2008, the after shareholder approval the Company filed a
Certificate of Amendment to its Articles of Incorporation with the Secretary of
State of Nevada (the "Amendment"), providing for each one thousand (1,000)
shares of the Company's common stock, par value $0.001 per share, issued and
outstanding shall, automatically and without any action on the part of the
respective holders thereof, be combined, converted, and changed into one (1)
share of common stock, par value $0.001 per share of the Company, provided,
however, that the Company shall issue no fractions shares of common stock, and
fractional shares resulting from the reverse split will be rounded up to the
nearest whole share.
The Amendment states that the effective date of the Reverse Split was February
8, 2008. On February 14, 2008, the Company was informed by NASDAQ that the
Reverse Split effective date is February 15, 2008, and the Company's new symbol
is SMWF.
ITEM 6. EXHIBITS
The following Exhibits are filed herein:
No. Title
--- -----
31.1 Certification of Chief Executive Officer Pursuant to the
Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to the
Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
21
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, duly authorized.
DATED: May 15, 2008 SEAMLESS WI-FI, INC.
/s/ Albert Reda
---------------
By: Albert Reda
Its: Chief Executive Officer and Chief
Financial Officer (Principal Executive
Officer, Principal Financial Officer and
Principal Accounting Officer)
22