Clean Energy & Power (KEPI) 10QSB 2007 Q2 Quarterly report (small business)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007

OR

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER: 0-30448

5G WIRELESS COMMUNICATIONS, INC.

(Exact Name of Company as Specified in Its Charter)

Nevada	20-0420885
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

2771 Plaza del Amo, Suite 805, Torrance, California 90503

(Address of Principal Executive Offices)

 (310) 328-0495

(Company’s Telephone Number)

4136 Del Rey Avenue, Marina del Rey, California 90292

(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company 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 Company is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes  o No  x.

As of September 17, 2007, the Company had 104,530,451 shares of common stock issued and outstanding (the Company had 43,478,435 additional shares held in escrow as of that date).

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

TABLE OF CONTENTS

	PAGE
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEET AS OF JUNE 30, 2007 (UNAUDITED)	3
CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND JUNE 30, 2006 (UNAUDITED)	5
CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND JUNE 30, 2006 (UNAUDITED)	7
NOTES TO CONDENSED FINANCIAL STATEMENTS	10
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	46
ITEM 3. CONTROLS AND PROCEDURES	62
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	64
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	65
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	65
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	66
ITEM 5. OTHER INFORMATION	66
ITEM 6. EXHIBITS	67
SIGNATURES	67

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCAL STATEMENTS.

5G WIRELESS COMMUNICATIONS, INC.

CONDENSED BALANCE SHEET

JUNE 30, 2007

(Unaudited)

ASSETS
Cash	$	1,919
Accounts receivable, net of allowance for doubtful accounts of $25,016		106,376
Inventory, net of reserve of $30,492		105,701
Deferred financing costs, net		108,345
Other current assets		13,253
Total current assets		335,594
Property and equipment, net of accumulated depreciation and amortization of $384,212		333,366
Intangible assets, net of accumulated amortization of $138,932		237,694
Goodwill, net		100,000
Total assets	$	1,006,654
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Liabilities:
Accounts payable and accrued liabilities	$	1,372,458
Notes payable		48,392
Related party notes and advances		44,460
Accrued interest payable		826,597
Other liabilities		2,160,609
Convertible notes payable, net of discount of $755,049		3,343,451
Total current liabilities		7,795,967
Stockholders’ deficit:
Preferred Series A convertible stock, $0.001 par value; 3,000,000 shares authorized; 3,000,000 shares issued and outstanding		3,000
Preferred Series B convertible stock, $0.001 par value; 5,000,000 shares authorized; 540,000 shares issued and outstanding		540
Common stock, $0.001 par value; 5,000,000,000 shares authorized; 105,764,868 (1) shares issued and outstanding		105,765
Additional paid-in capital		23,899,077
Common stock held in escrow		(47,828	)

3

5G WIRELESS COMMUNICATIONS, INC.

CONDENSED BALANCE SHEET

JUNE 30, 2007

(Unaudited)

(continued)

Unearned compensation		(16,668	)
Deferred consulting fees		(15,860	)
Accumulated deficit		(30,717,339	)
Total stockholders’ deficit		(6,789,313	)
Total liabilities and stockholders’ deficit	$	1,006,654

(1) Includes 31,400,000 shares held in escrow for sale to pursuant to Regulation S, 15,212,982 shares held in escrow in connection with the Securities Purchase Agreement with Montgomery Equity Partners, LP; 1,015,873 shares held in escrow in connection with the Securities Purchase Agreements with the Longview Funds; and 198,786 of escrow shares issued to Global Connect, Inc. in 2006

The accompanying notes are an integral part of these condensed financial statements

4

5G WIRELESS COMMUNICATIONS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30, 2007			Three Months Ended June 30, 2006			Six Months Ended June 30, 2007			Six Months Ended June 30, 2006
Revenues	$	291,563		$	89,302		$	389,297		$	298,402
Cost of revenues		186,357			115,075			393,262			260,377
Gross profit		105,206			(25,773	)		(3,965	)		38,025
Operating expenses:
General and administrative		968,001			797,714			1,670,514			1,410,520
Sales and marketing		130,464			126,161			206,332			254,139
Research and development		27,381			66,619			59,751			215,380
Depreciation and amortization		109,061			9,372			182,752			20,801
Total operating expenses		1,234,907			999,866			2,119,349			1,900,840
Operating loss		(1,129,701	)		(1,025,639	)		(2,123,314	)		(1,862,815	)
Interest expense (including amortization of financing costs and debt discount)		(491,694	)		(658,959	)		(1,088,510	)		(1,237,033	)
Change in fair value of derivative liabilities		1,145,452			(1,951,810	)		1,405,821			(2,655,530	)
Net loss		(475,943	)		(3,636,408	)		(1,806,003	)		(5,755,378	)
Cumulative undeclared dividends and deemed dividends on preferred stock		(13,463	)		(1,010,471	)		(26,778	)		(1,346,327	)

5

5G WIRELESS COMMUNICATIONS, INC.

CONDENSED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006

(Unaudited)

(continued)

	Three Months Ended June 30, 2007			Three Months Ended June 30, 2006			Six Months Ended June 30, 2007			Six Months Ended June 30, 2006
Net loss applicable to common stockholders	$	(489,406	)	$	(4,646,879	)	$	(1,832,781	)	$	(7,101,705	)
Loss per common share applicable to common stockholders:
Basic and diluted (1)	$	(0.01	)	$	(0.71	)	$	(0.05	)	$	(1.32	)
Basic and diluted weighted average common shares outstanding (1)		48,441,730			6,589,318			36,363,459			5,376,689

(1) Excludes shares held in escrow.

The accompanying notes are an integral part of these condensed financial statements

6

5G WIRELESS COMMUNICATIONS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30, 2007	Six Months Ended June 30, 2006
Cash flows from operating activities:
Net loss	$ (1,806,003)	$ (5,755,378)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of unearned compensation	33,332	33,333
Amortization of debt discount on convertible notes	625,730	716,298
Amortization of deferred financing costs	40,897	3,402
Depreciation and amortization	182,752	20,800
Fair value of common stock and warrants issued for services	756,117	577,307
Bad debt expense	5,725	192,264
Change in fair value of derivative liabilities	(832,514)	2,655,530
Amortization of deferred consulting fees	74,949	—
Changes in operating assets and liabilities:
Accounts receivable	(15,729)	54,813
Inventory	(8,686)	(26,089)
Other current assets	(5,165)	(14,461)
Accounts payable and accrued liabilities	304,660	248,611
Accrued interest	258,197	113,240
Other liabilities	(441,646)	119,090
Net cash used in operating activities	(827,384)	(1,061,240)
Cash flows from investing activities:
Purchases and deployment of property and equipment	(266,670)	—
Disposition of property and equipment	—	18,635
Net cash provided by (used in) investing activities	(266,670)	18,635

7

5G WIRELESS COMMUNICATIONS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

(Unaudited)

(continued)

	Six Months Ended June 30, 2007			Six Months Ended June 30, 2006
Cash flows from financing activities:
Related party notes and advances		1,983			53,626
Repayments on notes payable		(2,532	)		—
Payment of deferred financing costs		(30,000	)		(109,178	)
Proceeds from issuance of convertible notes		300,000			669,000
Net proceeds from issuance of preferred Series B stock		—			475,328
Net proceeds from issuance of common stock		824,371			112,223
Net proceeds from exercise of warrants		—			2,500
Net cash flows provided by financing activities		1,093,822			1,203,499
Net increase (decrease) in cash		(232	)		160,894
Cash, beginning of period		2,151			85,357
Cash, end of period	$	1,919		$	246,251
Supplemental disclosure of non-cash investing and financing activities:
Conversion of convertible notes and accrued interest into common stock	$	12,250		$	418,843
Debt discounts on convertible notes	$	83,347		$	669,000
Reduction in fair value of deferred consulting fees	$	(222,416	)	$	$ —

8

5G WIRELESS COMMUNICATIONS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

(Unaudited)

(continued)

Reclassification of conversion feature and warrant derivative liability from additional paid in capital	$	—	$	52,632
Imputed dividend on preferred Series B	$	—	$	1,331,389
Acquisition of assets with common stock	$	150,000	$	—
Cumulative preferred Series B undeclared dividends	$	26,778	$	14,938

The accompanying notes are an integral part of these condensed financial statements

9

5G WIRELESS COMMUNICATIONS, INC.

NOTES TO CONDENSEDFINANCIAL STATEMENTS

(Unaudited)

1.NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

5G Wireless Communications, Inc. (“Company”) is a designer, developer and manufacturer of commercial grade wireless telecommunications equipment operating on the 802.11a/b/g frequency. The Company deploys its equipment as a wireless Internet service provider (“WISP”), primarily to hospitality properties. The Company also sells its equipment through resellers or directly to end-users.

The Company was incorporated as Tesmark, Inc. in September 1979. In November 1998, it changed its state of incorporation from Idaho to Nevada and in January 2001 changed the name to 5G Wireless Communications, Inc. In March 2001, the Company acquired 5G Partners, a Canadian partnership, and changed its business to provide wireless technology systems through high speed Internet access and data transport systems. 5G Partners was liquidated shortly after acquisition. In April 2002, it acquired Wireless Think Tank, Inc., a developer of high-speed long distance wireless technologies. Wireless ThinkTank, Inc. is inactive. In July 2003, the Company shifted its strategy from that of a service provider to an equipment manufacturer.

On October 19, 2004, the Company elected, by the filing of a Form N-54A with the Securities and Exchange Commission (“SEC”) to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (“1940 Act”). On December 31, 2004, certain assets and certain liabilities of the Company were transferred into 5G Wireless Solutions, Inc., a newly formed subsidiary, in exchange for 100% of its outstanding common shares.

On June 3, 2005, the Company’ board of directors unanimously determined that it would be in the best interests of the Company and its stockholders to seek stockholder approval on certain matters. Pursuant to a definitive Schedule 14A proxy statement filed with the SEC on September 19, 2005, the Company sought approval from the stockholders, at the annual stockholder’s meeting on October 20, 2005, for the following (among other things): (a) to terminate the Company’ status as a BDC under the 1940 Act and to file a Form N-54C with the SEC to terminate this status, and (b) to file a new registration statement with the SEC.

On October 20, 2005, the Company’ stockholders approved (among other things) (a) the termination of the Company’s status as a business development company under the 1940 Act and the filing of a Form N-54C with the SEC, and (b) the filing of a new registration statement. Based on this approval, on October 21, 2005, the Company filed a Form N-54C with the SEC terminating its status as a BDC.

On November 3, 2005, the Company’s Board of Directors approved a 1 for 350 reverse stock split of the Company’s common stock. Common shares outstanding prior to and after the reverse stock split totaled 1,169,494,405 and 3,341,419 shares, respectively. The November 23, 2005 reverse stock split has been retroactively reflected in the accompanying financial statements for all periods presented. Unless otherwise indicated, all references to outstanding common shares, including common shares to be issued upon the exercise of warrants and convertible notes payable, refer to post-split shares.

10

On January 19, 2006, 5G Wireless Solutions, Inc. was merged with and into the Company.

On October 4, 2006, the Company acquired certain assets of Global Connect, Inc. (“GCI”) doing business as Ivado, which included wireless equipment deployed at 13 hospitality properties and contracts related to the properties for total purchase consideration of $397,476.

Going Concern Basis of Presentation.

The accompanying condensed financial statements have been prepared assuming that the Company continues as a going concern that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, the ability of the Company to continue as a going concern on a longer-term basis will be dependent upon its ability to generate sufficient cash flow from operations, to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately attain profitability.

During the six months ended June 30, 2007, the Company incurred net losses totaling $1,806,003, had net cash used in operating activities totaling $827,384 and had an accumulated deficit of $30,717,339 as of June 30, 2007. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. If the Company is unable to generate sufficient cash flow from operations and/or continue to obtain financing to meet its working capital requirements, it may have to curtail its business sharply or cease business altogether.

Management plans to continue raising additional capital through a variety of fund raising methods during 2007 and to pursue all available financing alternatives as necessary to fund operations. Management also expects that WISP revenue will begin to contribute significantly to cash flow, especially in the second half of 2007 and into 2008 as the Company establishes critical mass with respect to properties deployed. Management may also consider partnerships or strategic alliances to strengthen its financial position. In addition, the Company will continue to seek additional funds to ensure its successful growth strategy as a WISP to hospitality and similar properties and to, when appropriate, consider investments in companies with strategic information and communications technologies or applications. In April 2007, the Company issued 35,000,000 shares that are held by an escrow agent to be sold under Regulation S. As of June 30, 2007, 3,600,000 shares were sold and 31,400,000 remain in escrow. Whereas the Company has been successful in the past in raising capital, no assurance can be given that these sources of financing will continue to be available to the Company and/or that demand for the Company’s equity/debt instruments will be sufficient to meet its capital needs. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

11

If funding is insufficient at any time in the future, the Company may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of its planned product development and marketing efforts, any of which could have a negative impact on its business and operating results. In addition, insufficient funding may have a material adverse effect on the Company’s financial condition, which could require it to:

· curtail operations significantly;

· sell significant assets;

· seek arrangements with strategic partners or other parties that may require it to relinquish significant rights to products, technologies or markets; or

· explore other strategic alternatives including a merger or sale of the Company.

To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on the Company’s operations. Regardless of whether the Company’s cash assets prove to be inadequate to meet its operational needs, the Company may seek to compensate providers of services by issuing stock in lieu of cash, which will help it manage its liquidity but may also result in dilution to existing stockholders.

Basis of Presentation.

The accompanying unaudited interim condensed financial statements have been prepared by the Company, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements and the notes hereto should be read in conjunction with the financial statements, accounting policies and notes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2006, filed with the SEC. In the opinion of management, all adjustments necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America, the Company’s financial position as of June 30, 2007, and the results of operations and cash flows for the interim periods presented, have been made. Such adjustments consist only of normal recurring adjustments. The results of operations for the three and six months ended June 30, 2007 are not necessarily indicative of the results for the full year.

12

Use of 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 periods. Significant estimates include fair value of debt and equity instruments and related derivative liabilities, revenue recognition, valuation of intangible assets and goodwill, realization of long-lived assets, inventory and warranty reserves, allowance for doubtful accounts and valuation of deferred tax assets. Actual results could differ from those estimates.

Cash and Cash Equivalents.

The Company considers all highly liquid fixed income investments with maturities of three months or less at the time of acquisition, to be cash equivalents. At June 30, 2007, the Company has cash of $1,919. At June 30, 2007, the Company had no cash equivalents.

Accounts Receivable.

The Company provides a reserve for bad debts on trade receivables based on a review of the current status of existing receivables and management’s evaluation of periodic aging of accounts. The Company charges off accounts receivable against the allowance for doubtful accounts when an account is deemed to be uncollectible. It is not the Company’s policy to accrue interest on past due receivables.

In determining the allowance for doubtful accounts, management evaluates the future collectibility of customer receivable balances, on a customer by customer basis, including an individual assessment of the customer’s credit quality, financial standing, and the customer's ability to meet current or future commitments and the industry and general economic outlook. Based on judgment and experience, the Company provides an allowance for doubtful accounts against outstanding balances over 60 days. In the event collection efforts are unsuccessful for a customer, the receivable is written off and the allowance for doubtful accounts is reduced. At June 30, 2007, the allowance for doubtful accounts was $25,016. During the three months ended June 30, 2007, the Company recorded bad debt expense totaling $5,725.

Inventory.

Inventories are stated at the lower of cost (first-in, first-out) or market. Cost is determined on a standard cost basis that approximates the first-in, first-out method. Market is determined by comparison with recent sales or net realizable value.

Such net realizable value is based on management’s anticipated sales of the Company’s products or services in the near term. The industry in which the Company operates is characterized by technological advancement, change and certain regulations. Should the demand for the Company’s products prove to be significantly less than anticipated, the ultimate realizable value of the Company’s inventories could be substantially less than amounts shown in the accompanying balance sheet. An inventory reserve has been provided for raw materials not currently used in products for deployment in the WISP operation or offered for sale to the public. At June 30, 2007, the balance of the reserve for obsolete inventory of $30,492 is included within inventory on the accompanying condensed balance sheet.

13

Property and Equipment.

Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of 5-7 years for furniture and fixtures and 2-3 years for computers and software. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the lease. Self-constructed equipment deployed in the WISP operations is recorded at its standard cost plus installation cost when deployed and is depreciated over 2 years.

Goodwill.

Goodwill is periodically reviewed, but no less than annually for impairment as to its realizability in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. Factors the Company considers important which could trigger an impairment review include significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of use of acquired assets or the strategy for the overall business, and significant negative industry or economic trends. No triggering events were noted during the six months ended June 30, 2007 based on management’s estimates and assessments. Future events or circumstances could alter this assessment. At June 30, 2007, the balance of goodwill is $100,000 and is recorded in the accompanying condensed balance sheet.

Long-Lived Assets.

Intangible assets and other long-lived assets with definite lives are amortized over their useful lives, currently approximately two years. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If long-lived assets become impaired, the Company recognizes an impairment loss measured as the excess of carrying value of the assets over the estimated fair value of the assets. No triggering events were noted during the three months ended June 30, 2007. At June 30, 2007, the balance of unamortized intangible assets is $237,694 and is recorded in the accompanying condensed balance sheet.

Concentrations of Credit Risk.

Financial instruments that potentially subject the Company to concentrations of credit risk include cash and accounts receivable. The Company maintains its cash funds in bank deposits in highly rated financial institutions. At times, such investments may be in excess of the Federal Deposit Insurance Corporation insurance limit. At June 30, 2007, there were no funds in excess of the FDIC limit.

The Company’s customers are located in the United States and other countries.

14

During the six months ended June 30, 2007, there was one customer that accounted for more than 10% of the Company’s revenues (13%) in the United States geographic region.

The Company operates in a highly competitive industry that is subject to intense competition, government regulation and rapid technological change. The Company's operations are subject to significant risks and uncertainties including financial, operational, technological, regulatory and other business risks associated with such a company.

Customer Concentration

The Company has many customers in the WISP operations. However, the ability to serve these customers is largely dependent upon one contract where the Company is an outsourced provider of WISP services. During the six months ended June 30, 2007 the Company generated 97% of WISP revenue and 53% of total revenue from this contract. Should the Company become unable to perform its obligation under this contract, its ability to generate revenue could be adversely impacted. As the Company enters into new agreements, this customer concentration risk is expected to dissipate.

Income Taxes.

In accordance with SFAS No. 109, deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. A deferred tax asset is reduced by a valuation allowance if, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Income Taxes/FIN 48 Disclosure.

The Company adopted the provisions of Financial Accounting Standards Board’s (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” an interpretation of SFAS No. 109, on January 1, 2007. The implementation of FIN 48 did not result in any adjustment to the Company's beginning tax positions. The Company reduces the gross amount of deferred tax assets and unrecognized tax benefits by a valuation allowance equal to the amount that more likely than not will not be realized. As of January 1, 2007 and June 30, 2007, the Company did not have any unrecognized tax benefits.

The Company’s policy is to recognize accrued interest on taxes in interest expense and accrued penalties on taxes in general and administrative expense.

The Company is not currently under examination. The statute of limitations has expired for all tax years prior to 2003 for federal income taxes and 2002 for state income taxes.

15

Revenue Recognition.

Revenues principally result from (1) WISP operations, and (2) sales of wireless radio equipment to customers. Equipment sales are recognized as products are delivered. The Company recognizes revenues in accordance with Staff Accounting Bulleting (“SAB”) No. 104, “Revenue Recognition,” when all of the following conditions exist: (a) persuasive evidence of an arrangement exists in the form of an accepted purchase order or equivalent documentation; (b) delivery has occurred, based on shipping terms, or services have been rendered; (c) the Company’s price to the buyer is fixed or determinable, as documented on the accepted purchase order or similar documentation; and (d) collectibility is reasonably assured.

The WISP operation applies SAB No. 104 to pay-per-use internet to recognize revenue as follows: (a) persuasive evidence of an arrangement exists in the form of an order accepted online; (b) revenue recognized ratably as services are rendered over contracted term of service; (c) the Company’s price to the buyer is fixed or determinable; and (d) collectibility is reasonably assured as credit card is approved and billed and then customer is provided service.

Orders delivered to the Company by telephone, facsimile, mail or e-mail are considered valid purchase orders and once accepted by the Company are deemed to be the final understanding between the Company and its customer as to the specific nature and terms of the agreed-upon sale transaction. Products are shipped and are considered delivered when (a) for FOB factory orders they leave the Company’s shipping dock or (b) for FOB customer dock orders upon confirmation of delivery. The creditworthiness of customers is generally assessed prior to the Company accepting a customer’s first order.

The Company offers installation services and extended warranties to customers and generally charges separately when such services are purchased. Installation by the Company and extended warranties are not required for the functionality of the equipment. Consequently, installation services and extended warranties are considered separate units of accounting and valued under the relative fair value method pursuant to the FASB Emerging Issues Task Force (“EITF”) No. 00-21,“Revenue Arrangements with Multiple Deliverables.” Extended warranties are recognized ratably over the life of the contract.

Basic and Diluted Loss per Common Share.

Under SFAS No. 128, “Earnings Per Share,” basic earnings per common share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period of computation. Diluted earnings per share iscomputed similar to basic earnings per share except that the denominator isincreased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Issued shares held in escrow are not considered for basic or diluted earnings per share. Because the Company has incurred net losses, basic and diluted loss per share is the same since additional potential common shares would be anti-dilutive. The calculated diluted loss per share at June 30, 2007 does not consider the effect of 335,464,973 shares, attributable to escrow shares, convertible debt securities and warrants, which are potentially dilutive.

16

Fair Value of Financial Instruments.

The carrying value of cash and cash equivalents, accounts receivable, notes payable, accounts payable and accrued expenses approximate their fair value due to their short-term maturities. At June 30, 2007, the fair value of the convertible notes amounts to $4,784,422, based on the Company’s incremental borrowing rate. The carrying value of the convertible notes and debentures, derivative liabilities, liquidated damages and redemption premiums associated with the convertible notes and debentures approximates fair value based on assumptions which included using the Black-Scholes model and convertible debt and equity financial pricing models.

Management has concluded that it is not practical to determine the estimated fair value of amounts due to related parties. SFAS No. 107 requires that for instruments for which it is not practicable to estimate their fair value, information pertinent to those instruments be disclosed, such as the carrying amount, interest rate, and maturity, as well as the reasons why it is not practicable to estimate fair value. Information related to these related party instruments is included in Note 5. Management believes it is not practical to estimate the fair value of these related-party instruments because the transactions cannot be assumed to have been consummated at arm’s length, the terms are not deemed to be market terms, there are no quoted values available for these instruments, and an independent valuation would not be practicable due to the lack of data regarding similar instruments, if any, and the associated potential costs.

Stock-Based Compensation Arrangements.

Commencing January 1, 2006, the Company accounts for stock issued to non-employees for services under SFAS No. 123-R. During the six months ended June 30, 2007, there were no options issued to employees, directors or related third parties, nor did any outstanding option awards vest during 2006 that would be accounted for under SFAS No. 123-R. During the three and six months ended June 30, 2007, the Company incurred total stock-based compensation expense of $741,463 and $1,046,118, respectively from issuance of 12,330,772 and 15,116,895 shares, respectively. During the three and six months ended June 30, 2007, zero and 2,100,000 restricted shares valued at zero and $105,000 respectively were issued to employees and directors and 10,230,772 and 13,016,895 shares valued at $636,463 and $941,118, respectively were issued to non-employees. As of June 30, 2007, there were no options outstanding to employees, directors or others.

Warranty.

The Company provides a warranty on all manufactured products, including both hardware and software components, sold for a period of one year after the date of shipment. Warranty issues are usually resolved with repair or replacement of the product. Trends of sales returns, exchanges and warranty repairs are tracked by management as a basis for the reserve that management records in the Company’s financial statements. Estimated future warranty obligations related to certain products and services are provided by charges to operations in the period in which the related revenue is recognized. At June 30, 2007, the warranty reserve was $26,055, which is included in other current liabilities in the accompanying balance sheet.

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Shipping and Handling Costs.

Shipping and/or handling costs are included in cost of goods sold in the accompanying statements of operations in accordance with EITF No. 00-10, “Accounting for Shipping and Handling Fees and Costs.”

Research and Development.

In accordance with SFAS No. 2, “Accounting for Research and Development Costs,” all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. Research and development costs for the three and six months ended June 30, 2007 were $27,381 and $59,751, respectively.

Segment Disclosures.

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” changed the way public companies report information about segments of their business in their annual financial statements and requires them to report selected segment information in their quarterly reports issued to stockholders. It also requires entity-wide disclosures about the products and services an entity provides, the foreign countries in which it holds significant assets and its major customers. During the three and six months ended June 30, 2007, the Company operated in two segments, WISP, and product sales and service. During the three and six months ended June 30, 2006 the Company operated in product sales and service only.

The Company’s chief operating decision-maker evaluates the performance of the Company based upon revenues and expenses by operating divisional areas as disclosed in the Company’s statements of operations. Operating division segment information follows:

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	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Sales to external customers:
Product sales and service	$	162,988		$	89,302		$	179,381		$	298,402
WISP service		128,575			—			209,916			—
Total sales to external customers	$	291,563		$	89,302		$	389,297		$	298,402
Net loss:
Product sales and service	$	(443,530	)	$	(3,636,408	)	$	(1,769,476	)	$	(5,755,378	)
WISP service		(32,413	)		—			(36,527	)		—
Net loss	$	(475,943	)	$	(3,636,408	)	$	(1,806,003	)	$	(5,755,378	)

	As of June 30,
	2007		2006
Identifiable assets by operating division:
Product sales and service:
Tangible assets	$	240,939	$	187,933
Intangible assets		108,345		464,933
Product sales and service		349,284		652,866
WISP service:
Tangible assets		319,675		--
Intangible assets		337,694		--
WISP service		657,369		--
Total identifiable assets	$	1,006,654	$	652,866

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The Company’s chief operating decision-maker evaluates the performance of the Company based upon revenues and expenses by geographic areas as disclosed in the Company’s condensed statements of operations. Geographical information follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Sales to external customers:
United States	$	274,925	$	—	$	371,659	$	—
Europe		4,417		—		4,417		—
Asia		12,221		—		13,221		—
Africa		—		—		--		—
Total sales to external customers		291,563	$	—	$	389,287	$	—

	As of June 30,
	2007		2006
Long-lived assets by area:
North America	$	671,060	$	41,363
All other geographic regions		—		—
Total long-lived assets	$	671,060	$	41,363

Reclassifications.

Certain reclassifications have been made to the prior year and quarter condensed financial statements to conform to the current year and quarter presentation. The Company reclassified profit and loss captions to a format that management believes provides a clearer picture of operations. Such reclassifications included an increase to cost of goods sold primarily related to customer service and installation costs from operating expenses.

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Discount on Convertible Notes.

Convertible instruments are evaluated to determine if they are within the scope of EITF No. 00-19 and SFAS No. 133. In the event that they are not within the scope of SFAS No. 133, (i) discounts on convertible notes are attributable to the beneficial conversion feature (that allows holders of the debenture to convert into shares of the Company’s common stock at prices lower than the market value), and (ii) discounts associated with detachable warrants are accounted for in accordance with EITF No. 00-27, “Application of EITF No. 98-5 To Certain Convertible Instruments” and EITF No. 98-5, “Accounting For Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios.”

Derivative Liabilities.

The Company evaluates the conversion feature of convertible notes and free-standing instruments such as warrants (or other embedded derivatives) indexed to its common stock to properly classify such instruments within equity or as liabilities in its financial statements, pursuant to the requirements of the EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” EITF No. 01-06, “The Meaning of Indexed to a Company’s Own Stock,” EITF No. 05-04, “The Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to EITF No. 00-19,” and SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended.

During 2006, the Company accounted for the effects of registration rights and related liquidated damages pursuant to EITF No. 05-04, View C, subject to EITF No. 00-19. Pursuant to EITF No. 05-04, View C, liquidated damages payable in cash or stock were accounted for as a separate liability. The Company accounts for certain embedded conversion features and free-standing warrants pursuant to SFAS No. 133 and EITF No. 00-19, which require corresponding recognition of liabilities associated with such derivatives at their fair values and changes in fair values to be charged to results of operations. As of January 1, 2007, the Company adopted FASB Staff Position (“FSP”) 00-19-2 “Accounting for Registration Payment Arrangements.” This FSP addresses an issuer’s accounting for registration payment arrangements. This FSP specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies.” This FSP further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with other applicable generally accepted accounting principles (GAAP) without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement.

Acquisition of Certain Assets of Global Connect, Inc.

On October 4, 2006, the Company acquired certain assets of GCI for cash and stock consideration totaling $397,476 in the aggregate. The purpose of the acquisition was to establish a footprint in the WISP market and to establish a more reliable and predictable revenue stream going forward.

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Operating results relating to the certain assets of GCI acquired have been included in the accompanying financial statements for the three and six months ended June 30, 2007.

The Company issued a total of 861,174 shares in connection with the acquisition of GCI. This included 492,841 restricted shares of common stock issued directly to GCI. These shares were valued at $182,351 ($0.37 per share) pursuant to the terms of the purchase agreement. On October 24, 2006, the Company issued 76,667 shares ($0.15 per share or $11,500) to satisfy a debt owed by GCI to a vendor. On March 14, 2007, the Company issued 291,666 shares ($0.12 per share or $35,000) to former employees of GCI pursuant to the acquisition contract for certain assets of GCI which are included in the accompanying financial statements as if they were issued by December 31, 2006 as required by the contract. The aggregate purchase price can result in up to $935,000 in total consideration provided certain future sales goals are met. The additional consideration will be satisfied with additional shares of the Company’s common stock. The formula for such additional consideration is 100 shares for each incremental rentable timeshare or hospitality unit for which contracts to provide WISP service are obtained until the contingent consideration reaches the maximum of 1,579,072 shares. Such shares are required to be issued within 5 days of each quarter end for contracts signed in the prior quarter. During the three months ended June 30, 2007, additional contracts were signed and 17,200 shares valued at $344 were required to be issued. As of June 30, 2007, 61,410 shares valued at $7,983 have been issued as contingent consideration. On December 8, 2006 the Company also issued 198,786 shares ($0.22 per share, or $43,733) to be held in escrow to guarantee a note payable by GCI to a vendor.

Management has preliminarily allocated the purchase price according to the provisions of SFAS No. 141, “Business Combinations.” Management acquired three groups of assets: (1) fixed assets, primarily including computers and access points; (2) contracts to provide WISP services to certain timeshare properties generally expiring November 2008; and (3) goodwill.

The acquired fixed assets were allocated value of $70,850 that is the estimated fair market value that approximated replacement cost and included in fixed assets in the accompanying balance sheet and depreciated over an expected life of two years.

The WISP services contracts were recorded as contractual rights that are to be recognized as an asset separate from goodwill. The contract was estimated to have a fair value of $226,626 determined using a discounted cash flow model. On February 12, 2007, shares valued at $125,000 were issued in exchange for contract modifications. On March 19, 2007 the Company agreed to issue shares valued at $25,000 in exchange for contract modifications. These shares were issued May 15, 2007 but are accounted for as if they were issued as of March 19, 2007. The value of the contract and modifications are being amortized over the remaining term of the contract expiring in November 2008.

The excess of cost over the fair value of assets acquired or goodwill, primarily composed of workforce-in-place was $100,000.

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The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The components of acquisition cost are detailed as well. The Company may incur additional costs in the form of contingent consideration; thus, the allocation of the purchase price is subject to refinement.

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October 4, 2006

Assets acquired:
Fixed assets	$	70,850
Contracts		226,626
Goodwill		100,000
Total assets acquired	$	397,476
Acquisition costs:
Cash paid	$	140,125
Common stock issued		228,851
Liabilities assumed		28,500
Total acquisition costs	$	397,476

2. INVENTORY

Inventory consisted of the following at June 30, 2007:

Raw materials	$	128,864
Work in process		3,999
Finished goods		3,330
Inventory, gross		136,193
Reserve for obsolete inventory		(30,492	)
Inventory, net	$	105,701

3. PROPERTY AND EQUIPMENT

Property and equipment at June 30, 2007 consisted of the following:

Building improvements	$	4,747
Computers		353,222
Furniture and fixtures		21,264
Software		26,194
Hospitality assets		312,151
Fixed assets, gross		717,578
Accumulated depreciation		(384,212	)
Fixed assets, net	$	333,366

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4.OTHER LIABILITIES

Other liabilities at June 30, 2007 consisted of the following:

Accrued liquidated damages –    Longview	$	930,159
Series B preferred stock –    conversion feature    derivative liabilities		650,700
$805,000 convertible notes –    conversion feature derivative    liabilities		208,458
Longview convertible notes –    conversion feature derivative    liabilities		79,177
Longview convertible notes –    warrants derivative liabilities		7,691
Montgomery convertible    debentures – conversion    feature derivative liabilities		80,279
Montgomery convertible    debentures – warrants    derivative liabilities		43,200
Montgomery notes – redemption    liability		91,993
$135,000 convertible notes –    warrants derivative liabilities		14
Series B preferred stock –    cumulative accrued dividends		68,938
Total	$	2,160,609

See Notes 5 and 6 for a description of the Company’s debt and equity instruments that are hosts to derivative liabilities.

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5. NOTES PAYABLE

Note payable and convertible notes payable consist of the following at June 30, 2007:

$50,000 note payable, interest bearing at 10% per annum with principal and interest payment of $2,500 monthly, maturing in November 2008	$	16,392
$32,000 note payable, interest bearing at 10% per annum with principal and interest currently due and payable		32,000
Total notes payable	$	48,392
$805,000 convertible notes, bearing interest at 9% per annum, net of principal converted of $541,250, matures in March 2008	$	260,000
$2,000,000 convertible notes, bearing interest at default rate of 15%, net of discount of $97,378 and $717,460 of principal converted, maturing in September 2007		1,185,162
$1,000,000 convertible notes, at default rate of 15%, net of discount of $0 and $13,040 of principal converted currently due and payable		986,960
$300,000 convertible note, bearing interest at default rate of 15%, net of discount of $8,334, maturing in July, 2007		291,666
$69,000 convertible note, bearing interest at default rate of 15%, net of discount of $33,007 which matured in April 2007, currently due and payable		35,993
$600,000 convertible note, bearing interest at 12%, net of discount of $339,125, maturing in June 2008		260,883
$300,000 convertible note, bearing interest at 12%, net of discount of $205,280, maturing in August 2008		94,723
$300,000 convertible note, bearing interest at 12%, net of discount of $71,936, maturing in March 2009		228,064
Total convertible notes payable		3,343,451
Total	$	3,391,843

Note Payable - $50,000.

On March 21, 2003, the Company signed a $50,000 promissory note that as of June 30, 2007 had a balance of $16,392. The note was originally scheduled to be repaid in monthly installments of $2,500 per month. The Company restructured the note in February 2007 with the note holder to make monthly payments of $1,000. The note currently matures in November 2008. During the three and six months ended June 30, 2007 $4,250 and $6,250 was paid on the note respectively. The default interest rate is 10% and at June 30, 2007, $137 of accrued interest was payable.

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Note Payable - $32,000.

On June 1, 2006, the Company signed a $33,000 loan agreement that as of December 31, 2006 had a balance of $32,000 and is currently due and payable. $11,000 was paid on the note in May 2006. An additional $10,000 was drawn on the note in November 2006. During the three and six months ended June 30, 2007 no payments were made. The note originally matured on July 31, 2006 and is currently in default. The default interest rate is 10%. At June 30, 2007, $3,297 of accrued interest was payable. The Company is accruing interest on this note at the default rate.

$135,000 Convertible Notes.

The Company entered into an agreement with four investors, in the third quarter of 2003, one of which was the then president of the Company, Peter Trepp, to loan the Company a total of $135,000 under subordinated promissory notes (“$135,000 Convertible Notes”). The $135,000 Convertible Notes, bearing 8% simple interest payable at maturity or conversion, automatically convert into shares of the security issued in connection with the receipt of a new $2,500,000 equity financing, or into shares of common stock in case of a change in control of the Company. The $135,000 Convertible Notes are subordinated to all of our indebtedness to banks, commercial finance lenders, insurance companies or other financial institutions regularly engaged in the business of lending money, but are senior to all other debt on our balance sheet. As of June 30, 2006, the $135,000 Convertible Notes were paid in full.

Each investor was issued a warrant to purchase shares of our common stock equal to 40% of the amount invested in the notes. As of June 30, 2007, warrants to purchase 13,716 shares of common stock were outstanding.

Upon completion of the June 13, 2006 Montgomery financing, the warrants did not satisfy all of the conditions of EITF No. 00-19 and therefore do not meet the scope exception of paragraph 11(a) of SFAS No. 133. Accordingly, at June 13, 2006, after considering all other commitments that may require the issuance of common stock during the maximum period the warrants could remain outstanding, the Company determined that it is possible that the Company may not have sufficient authorized and unissued shares available to settle the warrants. Accordingly, the warrants were reclassified to derivative liabilities (included in other liabilities - See Note 2). The amount reclassified from additional paid-in capital related to the warrants was $4,800.

The estimated fair value of the warrants at June 13, 2006, the date of reclassification resulting from the issuance of the Montgomery debt, was $4,800. At June 30, 2007, the estimated fair value of such warrants was $14. During the three and six months ended June 30, 2007, the Company recorded reductions to change in the estimated fair value of derivative liabilities of $260 and $397 respectively, in the condensed statements of operations. The Company carries a derivative liability of $14 related to these warrants, which is included in other liabilities in the accompanying condensed balance sheet at June 30, 2007.

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$250,000 Convertible Notes.

In March 2004, the Company borrowed $250,000 under convertible notes payable (“$250,000 Convertible Notes”), of which $100,000 came from management or individuals related to certain management personnel. All borrowings were due in March 2006, with monthly interest payments on the outstanding balance; interest accrues at 9% per annum. The $250,000 Convertible Notes may be converted into common stock of the Company based on a formula subject to a floor of $0.001 per share.

In connection with the $250,000 Convertible Notes, the Company issued warrants to purchase 8,659 (post reverse split) shares of the Company’s restricted common stock based on a formula subject to a floor of $0.001 per share. The warrants vested upon grant and expired in March 2006. The conversion feature embedded in the notes and the warrants can be settled in unregistered shares pursuant to EITF No. 00-19.

The conversion feature of the $250,000 Convertible Notes provides for a rate of conversion that is below market value. Such feature is normally characterized as a “beneficial conversion feature” (“BCF”). Pursuant to EITF No. 98-5, “Accounting For Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratio” and EITF No. 00-27, “Application of EITF No. 98-5 To Certain Convertible Instruments,” the Company has estimated the fair value of such BCF to be approximately $176,000 related to these notes and recorded such amount as a debt discount. Such discount was fully amortized to interest expense prior to January 1, 2006. There was no amortization expense during the three and six months ended June 30, 2007 and 2006. The notes were paid off in June 2006. Of the $250,000 in proceeds, $100,000 came from related parties, including former officers of the Company.

$805,000 Convertible Notes.

In March 2004, the Company borrowed $715,000 under convertible notes payable (“$715,000 Convertible Notes”). All borrowings were due in March 2006, with monthly interest payments on the outstanding balance; interest accrues at 9% per annum. The $715,000 Convertible Notes may be converted into common stock of the Company based on a formula subject to a floor of $0.001 per share. In July 2004, the Company borrowed an additional $90,000 under terms identical to those of the $715,000 Convertible Notes.

The conversion feature embedded in the notes and the warrants can be settled in unregistered shares pursuant to EITF No. 00-19 and meets the scope exception of paragraph 11(a) of SFAS No. 133.

On June 13, 2006, the Company issued convertible note instruments with variable conversion features and not subject to a floor exercise price. Consequently, due to these terms, the number of shares required for settlement is indeterminate. Accordingly, at June 30, 2006, after considering all other commitments that may require the issuance of stock during the maximum period the convertible notes could remain outstanding, the Company determined that it is possible it may not have sufficient authorized and unissued shares available to settle the convertible notes. Accordingly, the fair value of the conversion feature of $325,341associated with the $715,000 Convertible Notes was reclassified to derivative liabilities (included in other liabilities-See Note 2).

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The estimated fair value of the conversion feature decreased during the three and six months ended June 30, 2007 by $74,259 and $28,399 respectively. The Company recorded the decreases in estimated fair value of this derivative liability within change in fair value of derivative liabilities in the accompanying condensed statements of operations. As of June 30, 2007 the Company carries a derivative liability of $208,458 related to the conversion feature, which is included in other liabilities in the accompanying condensed balance sheet.

In connection with the issuance of the $715,000 Convertible Notes, the Company paid issuance costs of $74,500, which was recorded as a debt discount and is being amortized to interest expense over the life of notes. The discount was fully amortized as of March 31, 2006.

During the three and six months ended June 30, 2007, $3,750 and $12,250 of principal balance and no accrued interest was converted into common stock. As of June 30, 2007, the outstanding principal balance is $260,000.

In April 2006, the notes expired and were in default. On May 22, 2006, the parties agreed to extend the due date to March 31, 2008.

$2,000,000 Convertible Notes.

On September 22, 2004, the Company entered into a subscription agreement with Longview Fund, LP, Longview Equity Fund, LP, and Longview International Equity Fund, LP whereby these investors purchased $2,000,000 of principal amount of promissory notes (“$2,000,000 Convertible Notes”), bearing interest at 5% per annum, of the Company that are convertible into shares of the Company’s common stock. The conversion formula is subject to a floor of $0.001 per share. The conversion price is equal to the lesser of (i) 75% of the average of the five lowest closing bid prices of the Company’s common stock as reported by the OTC Bulletin Board for the ninety trading days preceding the conversion date, or (ii) $17.50 (post reverse split). Under the terms of the notes, they cannot be converted if such conversion would result in beneficial ownership by the subscriber and its affiliates of more than 4.99% of the outstanding shares of the Company’s common stock on the conversion date. In addition, the convertible note holders received Class A and Class B share warrants to purchase shares of common stock, as described below. The $2,000,000 Convertible Notes and related warrant agreements require registration of the shares underlying the conversion feature and warrants. See also “Registration Rights,” “Classification of Conversion Feature and Warrants” and “Liquidated Damages,” below.

$1,000,000 of promissory notes was purchased on the initial closing date (“Initial Closing Purchase Price”) and the second $1,000,000 of the purchase price (“Second Closing Purchase Price”) was on November 9, 2004.

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The convertible note holders will receive Class A and Class B share warrants to purchase shares of common stock based on the following formula:

(1) Class A Warrants.

A Class A warrant to purchase 30 shares of common stock was issued for each 100 shares issuable assuming conversion at inception. The per warrant share exercise price to acquire a share upon exercise of a Class A warrant is $0.15, as adjusted June 13, 2006. The original exercise price was $7.14. Each Class A warrant is exercisable until five years after the issue date of the Class A warrants.

(2) Class B Warrants.

A Class B warrant to purchase 125 shares of common stock was issued for each $1.00 of purchase price invested on each closing date. The per warrant share exercise price to acquire a share upon exercise of a Class B warrant is $0.15 as adjusted June 13, 2006. The original exercise price was $7.00. Each Class B warrant is exercisable until three years after the issue date of the Class B warrant.

At the inception of the $2,000,000 Convertible Notes, the conversion feature and the warrants could be settled in unregistered shares and was outside the scope of EITF No. 00-19. Consequently, pursuant to EITF No. 98-5 and EITF No. 00-27, the Company estimated the fair value of such BCF to be approximately $2,000,000 and recorded such amount as a debt discount. Such discount is being amortized to interest expense over the three-year term of the notes. Amortization expense on the $2,000,000 Convertible Notes during the three and six months ended June 30, 2007 was $106,878 and $213,757 respectively. At June 30, 2007, the balance of unamortized discount is $97,738.

During the three and six months ended June 30, 2007, there were no conversions of the $2,000,000 Convertible Notes into common stock.

On October 22, 2005, upon the de-election as a BDC, the shares underlying the conversion feature and the warrants were required to be registered. As a result, the Company reclassified the fair value of the conversion feature and the warrants of $26,193 to other liabilities from additional paid in capital. The balance of the derivative liability related to the $2,000,000 Convertible Notes conversion feature and warrants at June 30, 2007 was $51,569.

The estimated fair value of the conversion feature and warrants associated with the Longview $2,000,000 convertible notes during the three and six months ended June 30, 2007 decreased by $265,313 and $338,594, respectively. The estimated fair value of the conversion feature and warrants associated with the Longview $2,000,000 convertible notes during the three and six months ended June 30, 2006 increased by $227,447 and $615,974, respectively. Such increases or decreases to expense were recorded in change in fair value of derivative liabilities in the accompanying condensed statements of operations.

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$1,000,000 Convertible Notes.

On March 22, 2005, the Company entered into a subscription agreement with Longview Fund, LP, Longview Equity Fund, LP, and Longview International Equity Fund, LP whereby these investors purchased $1,000,000 in convertible notes (“$1,000,000 Convertible Notes”), bearing interest at prime plus 4% per annum of the Company convertible into shares of the Company’s common stock. The conversion formula is subject to a floor of $0.001 per share. The conversion price is equal to the lesser of (i) 75% of the average of the five lowest closing bid prices of the Company’s common stock as reported by the OTC Bulletin Board for the ninety trading days preceding the conversion date, or (ii) $17.50 (post reverse split). Under the terms of the notes, they cannot be converted if such conversion would result in beneficial ownership by the subscriber and its affiliates of more than 4.99% of the outstanding shares of the Company’s common stock on the conversion date. In addition, the convertible note holders received Class A share warrants to purchase shares of common stock, as described below. See also “Registration Rights,” “Classification of Conversion Feature and Warrants” and “Liquidated Damages,” below.

The convertible note holders received Class A share warrants to purchase shares of common stock based on the following formula:

A Class A warrant to purchase 30 shares of common stock was issued for each 100 shares issuable assuming the complete conversion of the notes issued at inception. The per warrant share exercise price to acquire a share upon exercise of a Class A warrant is $0.15, as adjusted June 13, 2006. The original exercise price was $3.50. Each Class A warrant is exercisable until five years after the issue date.

At the inception of the $1,000,000 Convertible Notes, the conversion feature and the warrants could be settled in unregistered shares and was outside the scope of EITF No. 00-19. Consequently, pursuant to EITF No. 98-5 and EITF No. 00-27, the Company has estimated the fair value of such BCF to be approximately $1,000,000 related to these notes and recorded such amount as a debt discount. Such discount is being amortized to interest expense over the two-year term of the note. Amortization expense on these notes during the three and six months ended June 30, 2007 was $112,404. At June 30, 2007, there is no unamortized discount. To date, the Company has issued 68,088 shares (post-reverse split) upon conversion of $13,040 aggregate principal and $53,081 of related accrued interest.

On October 22, 2005, upon the de-election as a BDC, the shares underlying the conversion feature and the warrants were required to be registered. As a result, the Company reclassified the fair value of the conversion feature and the warrants to other liabilities from additional paid in capital. The balance of the derivative liabilities related to the $1,000,000 Convertible Notes conversion feature and warrants at June 30, 2007 was $25,785.

The estimated fair value of the conversion feature and warrants associated with the Longview $1,000,000 convertible notes during the three and six months ended June 30, 2007 decreased by $132,657 and $169,297, respectively. The estimated fair value of the conversion feature and warrants associated with the Longview $1,000,000 convertible notes during the three and six months ended June 30, 2006 increased by $164,519 and $207,604, respectively. Such increases or decreases to expense were recorded within change in fair value of derivative liabilities in the accompanying condensed statements of operations.

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$300,000 Convertible Notes.

On July 20, 2005, July 28, 2005, and August 17, 2005, the Company entered into subscription agreements with Longview Fund, LP, Longview Equity Fund, LP, and Longview International Equity Fund, LP whereby these investors purchased $300,000 of principal amount of promissory notes (“$300,000 Convertible Notes”), bearing interest at prime plus 4% per annum, of the Company convertible into shares of the Company’s common stock. The conversion formula is subject to a floor of $0.001 per share. The conversion price is equal to the lesser of (i) 75% of the average of the five lowest closing bid prices of the Company’s common stock as reported by the OTC Bulletin Board for the ninety trading days preceding the conversion date, or (ii) $17.50 (post reverse split). Under the terms of the notes, they cannot be converted if such conversion would result in beneficial ownership by the subscriber and its affiliates of more than 4.99% of the outstanding shares of the Company’s common stock on the conversion date. In addition, the convertible note holders received Class A share warrants to purchase shares of common stock, as described below. The $300,000 Convertible Notes and related warrants agreements require registration of the shares underlying the conversion feature and warrants. See also “Registration Rights,” “Classification of Conversion Feature and Warrants” and “Liquidated Damages,” below.

The convertible note holders received Class A share warrants to purchase shares of common stock based on the following formula:

A Class A warrant to purchase 30 shares of common stock was issued for each 100 shares issuable assuming the complete conversion of the notes at inception. The per warrant share exercise price to acquire a share upon exercise of a Class A warrant is $0.15. The original exercise price was 120% of the closing bid price of the common stock on the trading day immediately preceding the Initial Closing Date and is exercisable until five years after the issue date of the Class A warrants.

At the inception of the $300,000 Convertible Notes, the conversion feature and the warrants could be settled in unregistered shares and were outside the scope of EITF No. 00-19. Consequently, pursuant to EITF No. 98-5 and EITF No. 00-27, the Company has estimated the fair value of such BCF to be approximately $300,000 related to these notes and recorded such amount as a debt discount. Such discount is being amortized to interest expense over the two-year term of the notes. Amortization expense on this note during the three and six months ended June 30, 2007 was $37,500 and $75,000, respectively. Amortization expense on this note during the three and six months ended June 30, 2006 was $37,500 and $75,539, respectively.

To date, none of the $300,000 Convertible Notes or their related accrued interest have been converted into common stock.

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On October 22, 2005, upon the de-election as a BDC, the shares underlying the conversion feature and the warrants were required to be registered. As a result, the Company reclassified the fair value of the conversion feature and the warrants to derivative liability from additional paid in capital. The balance of the derivative liabilities related to the $300,000 Convertible Notes conversion feature and warrants at June 30, 2007 was $7,735.

The estimated fair value of the conversion feature and warrants associated with the Longview $300,000 convertible notes during the three and six months ended June 30, 2007 decreased by $39,717 and $50,789, respectively, and such change was recorded within change in fair value of derivative liabilities accompanying condensed statements of operations. The estimated fair value of the conversion feature and warrants associated with the Longview $300,000 convertible notes during the three and six months ended June 30, 2006 increased by $27,402 and $102,010, respectively, and such change was recorded within change in fair value of derivative liabilities accompanying condensed statements of operations.

$69,000 Longview Convertible Notes.

On April 5, 2006, the Company entered into a subscription agreement with Longview Fund, LP under which this investor purchased $69,000 in convertible notes bearing interest at 12% per annum, convertible into shares of the Company’s common stock (the total amount of the notes was changed upon signing from $60,000 to $69,000) (“$69,000 Convertible Notes”). The terms of these notes are two years. The conversion price is equal to the lower of (i) $0.50, or (ii) 50% of the lowest five day weighted average volume price of the common stock using the volume weighted average price as reported by Bloomberg L.P. for our principal market for the 20 trading days preceding a conversion date. The conversion feature is not subject to a floor.

The note holder received Class A share warrant to purchase shares of common stock based on the following formula:

1 Class A warrant was issued for each 1 share of common stock issuable assuming conversion at inception. The per warrant share exercise price to acquire a share upon exercise of a Class A warrant is $0.15, as adjusted June 13, 2006. The original exercise price was $0.50. Each warrant is exercisable until five years after the issue date of the Class A warrants.

On this basis, the Company issued warrants to purchase 216,668 shares of common stock on April 5, 2006.

The Company has received a total of $69,000 under two promissory notes under a first and second closing under the terms of the subscription agreement.

The conversion feature of the notes and warrants do not satisfy all of the conditions of EITF No. 00-19 and therefore do not meet the scope exception of paragraph 11(a) of SFAS No. 133. As a result, the conversion feature must be bifurcated from the host note and together with the warrants must be reflected as derivative liabilities.

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The estimated fair value of the conversion feature was $120,681 at inception and none was allocated as discount against the note and $120,681 of such amount was recorded to change in fair value of derivative liabilities for the year ended December 31, 2006. The estimated fair value of the warrants was $132,167 at inception and $69,000 was allocated as discount against the note and $63,167 of excess discount was recorded to change in fair value of derivative liabilities in the condensed statements of operations. The balance of the derivative liabilities related to the $69,000 Convertible Notes conversion feature and warrants at June 30, 2007 was $1,779.

During the three and six months ended June 30, 2007 the estimated fair value of the conversion feature and warrants associated with the Longview $69,000 convertible notes decreased by $9,153 and $11,681, respectively, and was recorded within change in estimated fair value of derivative liabilities in the accompanying condensed statements of operations. During the period from April 5, 2006 (the inception date) to June 30, 2007 the estimated fair value of the conversion feature and warrants associated with the Longview $69,000 convertible notes increased by $6,831 and was recorded within change in estimated fair value of derivative liabilities in the accompanying condensed statements of operations.

Amortization of discount to interest expense on this note during the three and six months ended June 30, 2007 was $8,829 and $16,754, respectively. Amortization of discount to interest expense on this note during the period from April 5, 2006 (the inception date) to June 30, 2006 was $8,151.

During the three months ended June 30, 2007, there were no conversions of the $69,000 Convertible Notes into common stock.

Registration Rights - Longview.

The Longview notes and related warrant agreements contain provisions whereby the holders of notes and warrants are entitled to registration rights in the event the Company’s Regulation E exemption from registration ceases to be effective. This exemption (evidenced by a Form 1-E filed when the Company operated as a BDC), ceased to be effective on October 22, 2005. Specifically, subsequent to October 22, 2005, the Company was required to register with the SEC the shares issuable pursuant to the notes’ conversion feature and warrants. From the date that the Regulation E exemption ceased to be effective, the Company must file a registration statement with the SEC within 60 days and it must have such registration statement be effective within 90 days. The Company filed a Form SB-2 registration statement with the SEC on August 8, 2006. The registration statement never became effective and was with withdrawn on July 19, 2007.

Classification of Conversion Feature and Warrants - Longview.

Pursuant to EITF No. 00-19, the Company evaluated the Longview conversion feature and warrants at October 22, 2005. Management determined that due to the nature of the liquidated damages the Company must pay (with no maximum prescribed in the agreements), the Company must pursue registration as its most “economic alternative” and settle the Longview conversion feature and warrants with registered shares; and as a result, it must treat the conversion feature and warrants as derivative liabilities. In addition, under FSP 00-19-2, the Company accounts for the liquidated damages separately from these two other derivative liabilities.

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Management estimated the value of the warrants using a Black-Scholes model. The fair value of the Longview warrant derivative liability at June 30, 2007 totaled $7,691 and is included in other liabilities in the accompanying condensed balance sheet.

Management estimated the value of the conversion feature using convertible bond pricing models while taking into consideration limitations on ownership (Longview cannot own in excess of 4.99% of the Company’s outstanding shares at any time) and estimated conversions during the term of the notes based upon expected dilution of the stock. The fair value of the Longview conversion feature derivative liability at June 30, 2007 totaled $79,177 and is included in other liabilities in the accompanying condensed balance sheet. During the three and six months ended June 30, 2007 the estimated fair value of the conversion feature and warrants associated with the all Longview convertible notes decreased by $446,920 and $570,361 respectively, and was recorded within change in estimated fair value of derivative liabilities in the accompanying condensed statements of operations.

During the three and six months ended June 30, 2006 the estimated fair value of the conversion feature and warrants associated with the all Longview convertible notes increased by $495,202 and $1,001,422 respectively, and was recorded within change in estimated fair value of derivative liabilities in the accompanying condensed statements of operations.

Liquidated Damages - Longview.

The Company is required to pay liquidated damages at the rate of 2% per month (based on the Longview notes’ outstanding principal balance) until such time as a Form SB-2 registration statement is effective. As of June 30, 2007 the Company has accrued $930,159 in liquidated damages, which is included in other liabilities in the accompanying balance sheet. Additional liquidated damages accrue at $51,390 per month based on the outstanding principal balance of the Longview notes in the amount of $2,638,499 as of June 30, 2007. To date, no liquidated damages have been paid.

On July 10, 2007, the Company entered into a Settlement Agreement and Mutual Release (“Settlement Agreement”) with Longview Fund L.P., Longview Equity Fund L.P., Longview International Equity Fund, L.P. (collectively hereinafter referred to as “Longview”), Stan Hirschman and Phil Pearce, in settlement of all claims relating to that certain lawsuit initiated on or around November 2, 2006 in the Supreme Court of the State of New York, index No. 603826-06 by Longview.

As a condition precedent and in settlement of all claims and counterclaims between the parties, the Company arranged for a third party investor to purchase from Longview for the sum of $1,100,000 all of Longview’s rights and interests to and under the convertible notes, subscription agreements and other related agreements between Longview and the Company and all warrants of the Company beneficially owned by Longview. In addition, Longview agreed to transfer to the Company all common shares of the Company beneficially owned by Longview, and Longview withdrew its UCC security interest against the Company. The condition precedent was satisfied on July 11, 2007 thus rendering the Settlement Agreement binding and effective that same date. A stipulation of discontinuance was filed with the Court dismissing the complaint and counterclaims with prejudice.

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In connection with the transfer of the convertible notes and related agreements from Longview to the third party investor, the third party investor agreed to waive all defaults by the Company on the convertible notes and agreed to relieve the Company of its obligation to register shares related to the conversion features and warrants issued with the notes.

Montgomery Convertible Debentures.

(a)General Discussion.

On June 13, 2006, the Company entered into and closed on a Securities Purchase Agreement with Montgomery Equity Partners, LP (“Montgomery”). Under this agreement, Montgomery agreed to purchase from the Company 12% convertible debentures in the aggregate principal amount of $1,200,000; that will mature on June 13, 2008 (“Montgomery Convertible Debentures”). The debentures are convertible from time to time into the Company’s common stock by Montgomery, at its sole option, into a price per share of either: (i) $0.3155, or (ii) 80% of the lowest closing bid price of our common stock, for the five trading days immediately preceding the conversion date. The conversion feature is not subject to a floor.

Beginning January 15, 2007, the Company is required to redeem the debentures at a rate of no less than $60,000 per month of any then outstanding principal balance plus a redemption premium equal to 20% of the principal amount being redeemed. The Company is accreting the redemption premium as interest expense over the period from inception through each required monthly redemption date. During the three and six months ended June 30, 2007, the Company included $28,231 and $51,150 of redemption premium accretion in interest expense in the accompanying condensed statements of operations. At June 30, 2007, the redemption premium liability totals $91,993 and is included in other liabilities in the accompanying balance sheet.

The Company granted Montgomery a subordinate priority security interest in certain of our assets pursuant to a Security Agreement, dated June 13, 2006.

The Company received $600,000 upon closing June 13, 2006, received $300,000 on August 11, 2006 after a registration statement (Form SB-2) was filed with the Securities and Exchange Commission, and received the final $300,000 on March 19, 2007.

Montgomery will not be able to convert the debentures and/or exercise the warrants into an amount that would result in the investor beneficially owning in excess of 4.99% of the outstanding shares of the Company’s common stock. Further, Montgomery agreed to limit its weekly debenture conversions to no more than $50,000 per week, unless this provision is waived by the Company. That limitation becomes void when our traded weighted dollar volume exceeds $400,000 for the previous week or the closing bid price of our common stock exceeds $0.4259.

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In this transaction, Montgomery received three five-year warrants, all dated June 13, 2006, to purchase as follows:

· Class A warrant to purchase 800,000 shares of common stock at an exercise price of $0.15.

· Class B warrant to purchase 800,000 shares of common stock at an exercise price of $0.35 per share.

· Class C warrant to purchase 800,000 shares of common stock at an exercise price the lesser of $0.35 or 80% of the lowest closing bid price of our common stock per share as reported by Bloomberg L.P. for the 5 trading days prior to exercise of the warrant.

These warrants are exercisable on a cash basis provided the Company is not in default and the shares underlying the warrants are subject to an effective registration statement.

The Company paid to Montgomery 60,852 shares of common stock as a loan commitment fee. In addition, the Company paid the following, under the Securities Purchase Agreement to Yorkville Advisors LLC (an affiliate of Montgomery):

· commissions of 10% of the principal amount of the debenture, which is to be paid proportionally upon each disbursement;

· a structuring fee of $10,000 directly from the initial proceeds; and

· a non-refundable due diligence fee of $5,000.

All the above fees have been paid.

These costs have been accounted for as deferred financing costs and are being amortized to interest expense over the life of the convertible debentures. During the three and six months ended June 30, 2007, $20,163 and $40,898 of deferred financing costs were amortized to interest expense. As of June 30, 2007, the unamortized balance of deferred financing costs related to the Montgomery Convertible Debentures is $108,345. In connection with this transaction, the Company granted to Montgomery certain demand rights under a registration rights agreement, dated June 13, 2006, to the shares to be issued upon conversion of the Montgomery debentures and the warrants.

The conversion feature of the Montgomery Convertible Debentures provides for a rate of conversion that is below the market value of the Company's common stock. The conversion feature of the notes and warrants do not meet all of the criteria of EITF No. 00-19 as the number of shares is not fixed and therefore the scope exception of paragraph 11(a) of SFAS No. 133 is not met. As a result, the conversion feature must be bifurcated from the host note and together with the warrants reflected as derivative liabilities. The estimated fair value of the conversion feature was $744,000 at inception and $600,000 was allocated as discount against the notes with the remaining $144,000 charged to change in fair value of derivative liabilities in the condensed statements of operations.

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On August 11, 2006, an additional $300,000 of the Montgomery Convertible Debentures was funded. The conversion feature of the notes does not meet all of the criteria of EITF No. 00-19 as the number of shares is not fixed and therefore the scope exception of paragraph 11(a) of SFAS No. 133 is not met. As a result, the conversion feature must be bifurcated from the host note and reflected as a derivative liability. The estimated fair value of the conversion feature was $450,000 at inception and $300,000 was allocated as discount against the notes with the remaining $150,000 charged to change in fair value of derivative liabilities in the condensed statements of operations.

On March 19, 2007, the final $300,000 of the Montgomery Convertible Debentures were funded. The conversion feature of the notes does not meet all of the criteria of EITF No. 00-19 as the number of shares is not fixed and therefore the scope exception of paragraph 11(a) of SFAS No. 133 is not met. As a result, the conversion feature must be bifurcated from the host note and reflected as a derivative liability. The estimated fair value of the conversion feature was $83,347 at inception and $83,347 was allocated as discount against the notes.

During the three and six months ended June 30, 2007, the Company recorded a decrease in fair value of $270,912 and $333,536, respectively related to the Montgomery conversion feature derivative liabilities within change in fair value of derivative liabilities in the accompanying condensed statements of operations.

At June 30, 2007, $80,279 related to Montgomery convertible debentures conversion feature derivative liabilities is included in other liabilities in the accompanying balance sheet.

The estimated fair value of the warrants was $840,000 at inception and such amount was charged to change in fair value of derivative liabilities in the condensed statements of operations. During the three and six months ended June 30, 2007, the Company recorded a decrease in fair value of $220,800 and $245,600 of the warrants’ derivative liability within change in fair value of derivative liabilities in the accompanying condensed statements of operations. At June 30, 2007, $43,200 of Montgomery warrants’ derivative liability is included in other liabilities in the accompanying condensed balance sheet.

The discount of $983,347 is being amortized to interest expense over the two-year terms of the notes. Amortization of debt discount on this note for the three and six months ended June 30, 2007 was $112,126 and $207,814, respectively. At June 30, 2007, the unamortized balance of discount attributable to the Montgomery Convertible Debentures is $616,330.

During the three and six months ended June 30, 2007, there were no conversions of the Montgomery Convertible Debentures into common stock.

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(b)Default Status of Debentures.

The Company is in default to Montgomery because: (1) the Company has not commenced the mandatory redemptions of principal; and (2) the Company has not made interest payments required by the convertible debentures.

If the Company fails to deliver to a subscriber unlegended shares as required by the fifth trading day after the unlegended shares delivery date and the subscriber purchases (in an open market transaction or otherwise) shares of common stock to deliver in satisfaction of a sale by such subscriber of the shares of common stock which the subscriber was entitled to receive from the Company (a “Buy-In”), then the Company will (A) pay in cash to Montgomery (in addition to any remedies available to or elected by Montgomery) the amount by which (x) Montgomery’s total purchase price (including brokerage commissions, if any) for the common stock so purchased exceeds (y) the product of (1) the aggregate number of shares of common stock that Montgomery anticipated receiving from the conversion at issue multiplied by (2) the market price of the common stock at the time of the sale giving rise to such purchase obligation and (B) at the option of Montgomery, either reissue a debenture in the principal amount equal to the principal amount of the attempted conversion or deliver to Montgomery the number of shares of common stock that would have been issued had the Company timely complied with its delivery requirements.

Under a Pledge and Escrow Agreement, dated June 13, 2006, the Company has irrevocably pledged to Montgomery 15,212,982 shares of the Company’s common stock. This stock is held by an escrow agent (counsel for Montgomery) until the full payment of all amounts due under the Montgomery convertible debentures. Since an event of default has occurred, Montgomery has the option to declare the obligations to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration, Montgomery has the right to have such shares transferred into its name and sold. Montgomery has not taken this step.      

Since the debentures are in default, they are classified as current liabilities as of June 30, 2007.

6.STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock.

Series A.

The Company has 3,000,000 shares of Series A preferred stock authorized. On October 6, 2004 the Company’s Compensation Committee granted and the Company issued Series “A” convertible preferred shares (“Series A”) to Mr. Dix and Mr. Boudewyn totaling 3,000,000. Each share of Series A is convertible at the rate of 800 shares of common stock for each full share of preferred stock (under the terms of the certificate of designation governing these shares, the conversion ratio was not changed upon the reverse split of the Company’s common stock on November 23, 2005).

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Each share of outstanding Series A entitles the holder thereof to vote on each matter submitted to a vote of the stockholders of the Company and to have the number of votes equal to the number (including any fraction) of shares of common stock into which such share of Series A is then convertible pursuant to the provisions hereof at the record date for the determination of shareholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of stockholders becomes effective. The Series A are convertible after three years from issuance.

Management concluded that the value of the Series A preferred shares was $200,000, which is being amortized over the three-year vesting period. During the three months ended March 31, 2007 and 2006, the Company recorded $16,666 and $16,666 of amortization as general and administrative expense in the accompanying condensed statements of operations. At June 30, 2007, the balance of $16,668 is carried as unearned compensation, contra equity, in the accompanying condensed balance sheet.

Series B.

The Company is authorized to issue up to 5,000,000 shares of Series B convertible preferred stock (“Series B”). Series B is convertible into common stock upon various events including, change of control of the Company. The Company issued $250,000 of Series B convertible preferred stock in February 2006 and an additional $290,000 in April 2006. Issuance costs of $64,672 were recorded as reduction of additional paid in capital in the accompanying condensed balance sheet.

Each share of the Series B is convertible at a per share conversion price equal to the lesser of: (i) if converted without benefit of a registration statement, the conversion price will be equal to 75% of the lowest close bid of the common stock as reported by the Over-the-Counter Bulletin Board for the twenty trading days preceding the conversion date for each full share of Series B held; (ii) if converted with the benefit of a registration statement, the conversion price will be equal to 85% of the lowest close bid of the common stock as reported by the Over-the-Counter Bulletin Board for the twenty trading days preceding the conversion date for each full share of Series B held; or (iii) $1.00 (subject to adjustment as appropriate in the event of recapitalizations, reclassifications stock splits, stock dividends, divisions of shares and similar events).

Except as otherwise required by law, each share of outstanding Series B entitles the holder thereof to vote on each matter submitted to a vote of the stockholders of the Company and to have the number of votes equal to the number (including any fraction) of shares of common stock into which such share of Series B is then convertible pursuant to the provisions hereof at the record date for the determination of stockholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of stockholders becomes effective. Except as otherwise required by law or by the Certificate of Designation for the Series B, the holders of shares of common stock and Series B are to vote together and not as separate classes.

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Should the Company file with the SEC a Form SB-2 registration statement in order to register the shares of common stock to be issued upon conversion of the Series B and the shares which could be issued upon payment of the dividends for resale and distribution under the Securities Act of 1933, the registrable securities are to be reserved and set aside exclusively for the benefit of each holder. Additionally, the registration statement will immediately be amended or additional registration statements will be immediately filed by the Company as necessary to register additional shares of common stock to allow the public resale of all common stock included in and issuable by virtue of the registrable securities.

Additionally, the Series B designation document includes the following provisions:

· 10% cumulative preferred dividends shall accrue and accumulate on a quarterly basis at $0.10 per share;

· provided that, and only to the extent that, the Company has a sufficient number of shares of authorized but unissued and unreserved common stock available to issue upon conversion, each share of Series B shall be convertible at the option of the holder; and

· in the event the Company is prohibited from issuing shares of common stock upon conversion of the Series B, then at the holder's election, the Company must pay to the holder, an amount in cash determined by multiplying the unconverted face amount, together with accrued but unpaid dividends thereon, of the amount of shares of convertible preferred stock designated by the Holder for mandatory redemption by 110%.

The Series B embedded conversion feature contains a variable conversion rate with no cap. Additionally, all of the three criteria pursuant to SFAS No. 133 paragraph 12 are met, therefore the embedded derivative instrument (the conversion option) is required to be bifurcated from the host contract and accounted for as a derivative instrument pursuant to SFAS No. 133, with changes in fair value between reporting periods included in results of operations. Accordingly, the Company recorded the commitment date fair value as derivative liabilities ($332,500 for 250,000 shares issued during the three months ended March 31, 2006 and $998,889 for 290,000 shares issued during the three months ended June 30, 2006), with a corresponding decrease to additional paid-in capital (since the Company has no retained earnings) for the offsetting deemed dividend.

During the three and six months ended June 30, 2007, the fair value of the embedded conversion feature decreased by $132,300 and $144,180, respectively. The decrease was included in change fair value of derivative liabilities in the accompanying condensed statements of operations. At June 30, 2007 the balance of derivative liability related to the embedded conversion feature is $650,700 and is included in other liabilities in the accompanying condensed balance sheet.

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Common Stock

During the three months ended June 30, 2007, the Company issued common stock, valued using either the market price on the date of issuance subject to discount as applicable or the value of the services rendered, whichever was more readily determinable, as follows:

(a) 12,330,772 restricted and free trading shares issued for services valued at $741,463, using the contract value or share price on date of issuance whichever was of greater evidence. $70,000 in value of the issued shares were recorded as deferred consulting fees in the accompanying balance sheet and amortized to stock-based compensation over the term of service and $671,463 were included in stock-based compensation expense upon issuance.

(b) 35,000,000 restricted shares were issued to an escrow agent to be held for sale under Regulation S.

(c) 102,040 restricted shares were issued in connection with conversions of convertible debt and related accrued interest valued at $3,750.

(d) 10,290,799 restricted shares issued under Regulation S for which cash proceeds of $413,661 were received. 3,600,000 of the issued shares were previously held in escrow.

Warrants

During the three and six months ended June 30, 2007 no warrants were issued by the Company. During the three and six months ended June 30, 2007, warrants representing 147,068 shares of common stock expired. As of June 30, 2007, warrants to purchase 3,668,481 shares of common stock are outstanding and exercisable.

7.COMMITMENTS AND CONTINGENCIES

Lease Commitments.

Since October, 2003, the Company operates its business from its corporate headquarters in Marina del Rey, California under an operating lease agreement for its office, manufacturing and research and development space of approximately 10,560 square feet, for a five-year term, ending in October 2008. In September 2007, the Company entered into a transaction where an unrelated third party paid a lump sum payment of $85,000 to buy out the remaining term of the lease.

Rent expense for the corporate headquarters was $35,286 and $36,342 for the three months ended June 30, 2006 and 2007, respectively. Rent expense for the corporate headquarters was $70,572 and $72,684 for the six months ended June 30, 2006 and 2007, respectively.

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Commencing September 2007, the Company’s headquarters are located in Torrance, California under an operating lease agreement for its office, manufacturing and research and development space of approximately 3,940 square feet, for a three-year term, ending in August 2010.

Litigation.

Other than as set forth below, the Company is not a party to any material pending legal proceedings, claims or assessments and, to the best of its knowledge, no such action by or against the Company has been threatened.

(a)On June 15, 2005, the Company was served with a summons from a third party in a matter entitled Leslie J Bishop and Deborah J. Bishop v. Brian K. Corty and Candy M. Corty, Wireless Think Tank, Inc., and 5G Wireless Communications, Inc., New York Supreme Court (Chenango County). This action seeks actual damages in excess of $80,000 and punitive damages of $300,000 against a former employee of the Company for breach of a residential lease and damage to a residential property in 2001. The claim against the Company alleges that the former employee was a principal in Wireless ThinkTank (a wholly owned subsidiary of the Company) and conducted business from such residence.

In April 2007, the Company was notified by its counsel that the case was settled for $7,500. Such amount was recorded as expense in 2006.

(b)On May 8, 2006 the Company was served with a summons in a matter entitled Brian Vallone and Anne Vallone v. 5G Wireless Communications, Inc., California Superior Court (Orange County). This action, which does not allege a damage amount, includes causes of action for breach of contract, negligent misrepresentation, and fraud, and is concerning equipment that was sold to a wireless internet provider in California who claims that they were unable to generate fees for use and for advertising revenues.

In September 2007, a judgment was entered in favor of Brian Vallone and Anne Vallone in the amount of $19,000. The Company accrued an additional $7,600 to cover legal and court costs incurred by Brian Vallone and Anne Vallone. Such accruals will be reflected by the Company in the three months ended September 30, 2007.

(c)In November 2006 the Company was served with a Notice of Motion for Summary Judgment in Lieu of Complaint filed by Longview Fund, L.P., Longview Equity Fund, L.P., and Longview International Equity Fund, L.P. (“Longview Funds”). In this Motion, filed in New York State Supreme Court on November 2, 2006, the Longview Funds allege that the Company has failed to make payments of interest due on a series of notes issued by the Company, and failed to make payments of interest due on these notes.  The Longview Funds asked the court to enter judgment in their favor for $2,644,987 allegedly due under the notes, plus accrued interest.

Summary judgment was denied by the court, and the Longview Funds were ordered to file a regular complaint, which they did in January 2007. The Company filed an answer and counterclaims in response to the complaint, asserting numerous defenses and independent claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, and breach of fiduciary duty against the Longview Funds, and Stanley A. Hirschman and Phil E. Pearce (two former directors of the Company). The Longview Funds have filed an answer in response to the Company’s counterclaims; the two former directors have filed a motion to dismiss for lack of personal jurisdiction. However, they subsequently stipulated to submit to discovery on jurisdictional issues, and their motion is adjourned until that discovery is completed.

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On July 10, 2007, the Company entered into a Settlement Agreement and Mutual Release (“Settlement Agreement”) with Longview Fund L.P., Longview Equity Fund L.P., Longview International Equity Fund, L.P. (collectively hereinafter referred to as “Longview”), Stan Hirschman and Phil Pearce, in settlement of all claims relating to that certain lawsuit initiated on or around November 2, 2006 in the Supreme Court of the State of New York, index No. 603826-06 by Longview.

As a condition precedent and in settlement of all claims and counterclaims between the parties, the Company arranged for a third party investor to purchase from Longview for the sum of $1,100,000 all of Longview’s rights and interests to and under the convertible notes, subscription agreements and other related agreements between Longview and the Company and all warrants of the Company beneficially owned by Longview. In addition, Longview agreed to transfer to the Company of all common shares of the Company beneficially owned by Longview, and Longview withdrew its UCC security interest against the Company. The condition precedent was satisfied on July 11, 2007 thus rendering the Settlement Agreement binding and effective that same date. A stipulation of discontinuance was filed with the Court dismissing the complaint and counterclaims with prejudice.

Consulting Agreements.

The Company entered into consulting agreements with certain former employees of GCI. The term of the consulting agreements was from the October 4, 2006 to December 31, 2006. The agreements are now at will and can be terminated at any time. As of June 30, 2007, the aggregate monthly cost for these agreements was $20,616.

Payroll Taxes.

The Company accrued a total of $142,142 in back payroll taxes including penalties and interest as of June 30, 2007. The Company has been notified that the Internal Revenue Services has recorded federal tax liens against the Company in the office of the Los Angeles County Recorder aggregating $119,560 all of which is included in accounts payable and accrued liabilities in the accompanying condensed balance sheet. Such lien(s) may affect the ability of the Company to raise capital in the future. The Company is currently negotiating payment arrangements with the tax authorities. During the three months ended June 30, 2007, the Company paid $41,351 to reduce these liabilities.

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8.RELATED PARTY TRANSACTIONS.

During the three and six months ended June 30, 2007 and 2006, the Company used the credit lines of Service Group, which is a company controlled by Jerry Dix, chief executive officer of the Company, to help the Company purchase equipment, travel and related consumables throughout the year as a means of managing cash flows. The Service Group submits monthly expense reports for reimbursement of expenses incurred on behalf of the Company.

During the three and six months ended June 30, 2007, the Company accrued interest of $997 and $1,983 on notes payable to Thomas Janes and Russell Janes, who are related to Don Boudewyn, executive vice president. At June 30, 2007 the balance owed to them is $44,460. During the six months ended June 30, 2007, no payments were made on the notes.

9.SUBSEQUENT EVENTS.

Stock Issuances.

(a)From July 1, 2007 to August 10, 2007 3,333,333 shares were issued from escrow for proceeds of $40,000.

(b)Between July 2, 2007 and July 19, 2007, the Company issued 26,939,683 shares of restricted shares of common stock pursuant to Regulation S for cash proceeds of $142,256.

(c)From July 5, 2007 to September 14, 2007, the Company issued 10,299,259 restricted shares of common stock in exchange for conversion of $63,142 of convertible debt and related accrued interest.

(d)Between July 13, 2007 and September 17, 2007, the Company issued 400,000 shares of free trading shares of common stock valued at $4,560 to settle legal fees.

(e)On July 16, 2007, 1,015,873 shares held in escrow pursuant to Longview convertible debt financings were returned to treasury and cancelled.

(f)On July 16, 2007, 552,198 shares held by Longview were returned to treasury and cancelled.

(g)Between July 18, 2007 and August 9, 2007, the Company issued 8,500,000 shares of restricted shares of common stock valued at $12,000 for consulting services.

(h)On August 16, 2007 the Company issued 1,005,780 restricted shares of common stock in exchange for conversion of $4,526 of Preferred B stock.

(i)On September 18, 2007, the Company issued $40,000 of convertible debt, which was paid directly to a service provider, which is due and payable on or before January 1, 2008. The interest rate is 14% per annum.

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

The following discussion and analysis of financial condition and results of operations is based upon, and should be read in conjunction with, the audited financial statements and related notes included elsewhere in this Form 10-QSB, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

Overview.

The Company is a designer, developer and manufacturer of commercial grade wireless broadband communications equipment operating on the 802.11a/b/g frequency. The Company’s principal markets are hospitality properties, universities and international.

The Company is focused on developing, marketing and selling its innovative wireless solutions to university campus & enterprise wide-area-networks (“WAN”). As of October 2006, The Company is also focused on generating revenue as a Wireless Internet Service Provider (“WISP”) to hospitality properties. To a lesser degree, the Company earns revenue from installation services and extended warranties. In addition to manufacturing the existing product line, the Company has focused on developing new solutions that better serve its customers.

The move into timeshare and hospitality changes the business model under which the company has been operating since it now provides the equipment to the timeshare or hospitality property and absorbs all costs in order to own the network and revenue streams. Although the Company continues to focus on developing and improving current solutions, both hardware and software, to create more efficient wireless networks with greater remote control and network functionality its main focus is on securing new properties in which to deploy, manage and own the equipment and revenue. The acquisition of certain GCI assets has provided the company with a “jump start” opportunity to enter these markets.

Through years of research and development, field-testing and customer support, the Company has optimized the hardware design of our base stations, within the IEEE standards, to maximize coverage to mobile wireless devices. The Company has accomplished this through a combination of proprietary software, amplifier design and antenna system selection. Amplifiers and antennas are optimized to maximize the RF coverage in both the uplink and downlink, while minimizing the effects of ambient interference and maximizing frequency reuse to accommodate the largest possible number of simultaneous users and offering the best user experience within the coverage area. The Company’s products provide strong security at both the hardware and software levels, optimizes voice, and offers data, and video links at multi-megabit speeds, and can work seamlessly in wireless networks.

Because of the Company’s equipment, cost benefits, network design and network management experience, the Company believes its current business focus to hospitality, time share and planned communities in addition to equipment sales will result in the company realizing positive cash flow by the second quarter of 2008.

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The Company has historically experienced operating losses and negative cash flow. The Company expects that these operating losses and negative cash flows may continue through additional periods. Until recently, the Company has had a limited record of revenue-producing operations but with the addition of the WISP operations, the Company now believes it has a predictable, scalable revenue and business model that based on the Company’s short but proven revenue history, will be able to achieve its business plans.

Results of Operations.

(a)Revenues.

Revenues from the equipment sales and service and WISP operations was $291,563 for the three months ended June 30, 2007 compared to $89,302 for the three months ended June 30, 2006, an increase of $202,261 or approximately 226%. Revenue from the equipment sales and service and WISP operations was $389,297 for the six months ended June 30, 2007 compared to $298,402 for the six months ended June 30, 2006, an increase of $90,895 or approximately 30%. The increase in revenue was primarily attributable to key sales personnel in the university campus market place performing and the significant growth in WISP operations. The Company expects the current sales personnel to increase sales as more university campuses look to upgrade their network infrastructure. Further, the WISP operation is expected to continue revenue growth over the next twelve months.

(b)Cost of Revenues.

Cost of revenues was $186,357 for the three months ended June 30, 2007 compared to $115,075 for the three months ended June 30, 2006, an increase of $71,282 or approximately 62%. Cost of revenues was $393,262 for the six months ended June 30, 2007 compared to $260,377 for the six months ended June 30, 2006, an increase of $132,885 or approximately 51%. The increase was principally due to increased products sales and increased WISP costs associated with increased WISP revenue. Going forward, the Company expects cost of revenue to increase in the aggregate but to increase at a lower rate in relation to increases in sales revenue. As WISP revenue increases, the cost of revenue that includes royalties, customer service and credit card processing costs is expected to increase as well.

(c)Operating Expenses.

Total operating expenses were $1,234,907 for the three months ended June 30, 2007 compared to $999,866, an increase of $235,041 or approximately 24%. Total operating expenses were $2,119,349 for the six months ended June 30, 2007 compared to $1,900,840, an increase of $218,509 or approximately 11%. The increase is principally attributable to increased use of outside law firms associated with the Longview litigation. As revenue increases, operating expenses are expected to increase during the next twelve months.

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(d)Interest Expense.

Interest expense was $491,694 for the three months ended June 30, 2007 compared to $658,959 for the three months ended June 30, 2006, a decrease of $167,265 or approximately 25%. Interest expense was $1,088,510 for the six months ended June 30, 2007 compared to $1,237,033 for the six months ended June 30, 2006, a decrease of $148,523 or approximately 12%.

Ongoing amortization of beneficial conversion features and other debt discounts on the notes will decline in the next twelve months and beyond as the notes reach maturity. Interest expense for the next twelve months is expected to continue to decrease primarily as a result of (1) discontinued liquidated damages accruals associated with the Longview notes and debt, and (2) debt discounts that have largely been amortized. The expected decrease is expected to be offset by interest expense accruals attributable to larger principal balances of outstanding debt.

Costs recorded as interest expense for the three and six months ended June 30, 2007 and 2006 primarily consist of: (1) amortization of the beneficial conversion features and discounts associated with the convertible notes; (2) stated interest rates on notes and convertible notes; (3) liquidated damages; (4) accretion of redemption premium; and (5) amortization of deferred financing costs.

(e)Net Loss.

Net loss was $475,943 for the three months ended June 30, 2007 compared to $3,636,408 for the three months ended June 30, 2006, a decrease of $3,160,465 or approximately 87%. Net loss was $1,806,003 for the six months ended June 30, 2007 compared to $5,755,378 for the six months ended June 30, 2006, a decrease of $3,949,375 or approximately 69%. The decreased net loss is principally attributable to the change in fair value of derivative liabilities and to a lesser degree, decreases in interest expense, offset by an increase in legal fees primarily related to the Company’s defense related to the Longview litigation that was settled in July 2007. The net loss for the next twelve months and beyond is anticipated to decline as sales increase with lower rates of increase in operating expenses.

Factors That May Affect the Company’s Operating Results.

The operating results of the Company can vary significantly depending upon a number of factors, many of which are outside its control. General factors that may affect the Company’s operating results include:

· market acceptance of and changes in demand for products;

· a small number of customers account for, and may in future periods account for, substantial portions of the Company’s revenue, its revenue could decline because of delays of customer orders or the failure to retain customers;

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· gain or loss of clients or strategic relationships;

· continuance of the hospitality contracts;

· satisfaction of hospitality wireless Internet service end users;

· announcement or introduction of new products by the Company or by its competitors;

· the ability to build brand recognition;

· timing of sales to customers;

· price competition;

· the ability to upgrade and develop systems and infrastructure to accommodate growth;

· the ability to attract and integrate new personnel in a timely and effective manner;

· the ability to introduce and market products in accordance with market demand;

· changes in governmental regulation;

· reduction in or delay of capital spending by clients due to the effects of terrorism, war and political instability;

· valuation of derivative liabilities; and

· general economic conditions.

The Company believes that its planned growth and profitability will depend in large part on the ability to promote its products, gain clients and expand its relationship with current clients. Accordingly, the Company intends to invest in marketing, strategic partnerships, and development of its customer base. If the Company is not successful in promoting its products and expanding its customer base, this may have a material adverse effect on its financial condition and its ability to continue to operate its business.

The Company is also subject to the following specific factors that may affect its operating results:

(a)The Company May Not Be Able to Accommodate Rapid Growth Which Could Decrease Revenues and Result in a Loss of Customers.

The Company is currently selling and installing Wi-Fi equipment in universities. To manage anticipated growth, the Company must continue to implement and improve its operational, financial and management information systems. The Company must also hire, train and retain additional qualified personnel, continue to expand and upgrade core technologies, and effectively manage its relationships with end users, suppliers and other third parties. The Company’s expansion could place a significant strain on its current services and support operations, sales and administrative personnel, capital and other resources. The Company could also experience difficulties meeting demand for its products. The Company cannot guaranty that its systems, procedures or controls will be adequate to support operations, or that management will be capable of fully exploiting the market. The Company’s failure to effectively manage growth could adversely affect its business and financial results.

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(b)The Company’s Customers Require a High Degree of Reliability in Equipment and If the Company Cannot Meet Their Expectations, Demand for Its Products May Decline.

Any failure to provide reliable equipment for the Company’s customers, whether or not caused by their own failure, could reduce demand for the Company’s products. Because the Company has only recently begun to place customers on its Wi-Fi system, the Company does not have substantial experience in gauging negative customer response.

(c)Dependence on Suppliers May Affect the Ability of the Company to Conduct Business.

The Company depends upon a number of suppliers for components of its products. There is an inherent risk that certain components of the Company’s products will be unavailable for prompt delivery or, in some cases, discontinued. The Company only has limited control over any third-party manufacturer as to quality controls, timeliness of production, deliveries and various other factors. Should the availability of certain components be compromised, it could force the Company to develop alternative designs using other components, which could add to the cost of goods sold and compromise delivery commitments. If the Company is unable to obtain components in a timely manner, at an acceptable cost, or at all, it may need to select new suppliers, redesign or reconstruct processes used to build its devices. In such an instance, the Company would not be able to manufacture any devices for a period of time, which could materially adversely affect its business, results from operations, and financial condition.

(d)The Company Faces Strong Competition in Its Market, Which Could Make It Difficult for the Company to Generate Income

The market for wireless products is highly competitive. The Company’s future success will depend on its ability to adapt to rapidly changing technologies, evolving industry standards, product offerings and evolving demands of the marketplace. The Company competes for customers primarily with facilities-based carriers, as well as with other non-facilities-based network operators. Some of the Company’s competitors have substantially greater resources, larger customer bases, longer operating histories and greater name recognition than the Company has.

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· Some of our competitors provide functionalities that the Company does not. Potential customers who desire these functions may choose to obtain their equipment from the competitor that provides these additional functions.

· Potential customers may be motivated to purchase their wireless Internet equipment from a competitor in order to maintain or enhance their respective business relationships with that competitor.

In addition, the Company’s competitors may also be better positioned to address technological and market developments or may react more favorably to technological changes. The Company competes on the basis of a number of factors, including:

· range

· non-line of sight capabilities

· data rate

· security scheme

· simultaneous users

· implementation cost

Competitors may develop or offer products that provide significant (technological, creative, performance, price) or other advantages over the products offered by the Company. If the Company fails to gain market share or loses existing market share, its financial condition, operating results and business could be adversely affected and the value of the investment in the Company could be reduced significantly. The Company may not have the financial resources, technical expertise, marketing, and distribution or support capabilities to compete successfully.

(e)Uncertain Demand for Equipment 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 is unable to forecast revenues with certainty because of the unknown demand from consumers for its equipment and the emerging nature of the Wi-Fi industry. The Company is in the process of refining its marketing plan for colleges, universities and municipalities in order to achieve the desired level of revenue, which could result in increased marketing costs. In the event demand for the Company’s wireless equipment does not prove to be as great as anticipated, revenues may be lower than expected and/or marketing expenses higher than anticipated, either of which may increase the amount of time and capital that the Company needs to achieve a profitable level of operations.

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(f)The Company Could Fail to Develop New Products to Compete In an Industry of Rapidly Changing Technology, Resulting In Decreased Revenue.

The Company operates in an industry with rapidly changing technology, and its success will depend on the ability to deploy new products that keep pace with technological advances. The market for broadband communications equipment is characterized by rapidly changing technology and evolving industry standards in both the Wi-Fi and Internet access industries. The Company’s technology or systems may become obsolete upon the introduction of alternative technologies. If the Company does not develop and introduce new products in a timely manner, it may lose opportunities to competing service providers, which would adversely affect business and results of operations.

There is a risk to the Company that there may be delays in initial implementation of new products. Further risks inherent in new product introductions include the uncertainty of price-performance relative to products of competitors, competitors’ responses to its new product introductions, and the desire by customers to evaluate new products for longer periods of time. Also, the Company does not have any control over the pace of technology development. There is a significant risk that rights to a technology could be acquired or be developed that is currently or is subsequently made obsolete by other technological developments. There can be no assurance that any new technology will be successfully acquired, developed, or transferred.

(g)The Company’s Ability to Grow Is Directly Tied to Its Ability to Attract and Retain Customers, Which Could Result In Reduced Income.

The Company has no way of predicting whether its marketing efforts will be successful in attracting new locations and acquiring substantial market share. Past efforts have been directed toward a limited target market of colleges, universities and municipalities. If the Company’s marketing efforts fail, it may fail to attract new customers and fail to retain existing ones, which would adversely affect business and financial results.

(h)Government Regulation May Affect the Ability of the Company to Conduct Business.

The Company’s technology is deployed in license-free frequency bands and is not subject to any wireless or transmission licensing in most jurisdictions, including the United States. Continued license-free operation is dependent upon the continuation of existing government policy. While the Company is not aware of any policy changes planned or expected, there can be no assurances that government policy will not change. License-free operation of the Company’s products in the 2.4 GHz and 5 GHz bands are subordinate to certain licensed and unlicensed uses of the bands and its products must not cause harmful interference to other equipment operating in the bands and must accept interference from any of them. If the Company is unable to eliminate any such harmful interference, or should its products be unable to accept interference caused by others, the Company and its customers could be required to cease operations in the bands in the locations affected by the harmful interference.

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(i)Interference on License Free Bands May Affect the Company’s Equipment and Sales.

License-free operation of the Company’s products in the 2.4 GHz and 5 GHz bands are subordinate to certain licensed and unlicensed uses of the bands and the Company’s products must not cause harmful interference to other equipment operating in the bands and must accept interference from any of them. If the Company is unable to eliminate any such harmful interference, or should its products be unable to accept interference caused by others, the Company and its customers could be required to cease operations in the bands in the locations affected by the harmful interference.

(j)Protection of Proprietary Rights May Affect the Company’s Ability to Compete.

The Company’s intellectual property combines hardware design and modifications to the radio frequency software that enables it to extend range and throughputs. The Company plans to maintain this intellectual by limiting individuals within the organization from having access to these codes and will not allow any third party to have access to the base codes or hardware configurations.

The Company’s success and ability to compete will be dependent in part on the protection of its trade name (WiFi Hot Zone), and other proprietary rights. The Company intends to rely on trade secret and copyright laws to protect the intellectual property that it has developed, but there can be no assurance that such laws will provide sufficient protection, that others will not develop products that are similar or superior to the Company’s, or that third parties will not copy or otherwise obtain and use proprietary information without authorization.

The Company may rely on certain intellectual property licensed from third parties, and may be required to license additional products or services in the future, for use in the general operations of the business plan. There can be no assurance that these third party licenses will be available or will continue to be available to the Company on acceptable terms or at all. The inability to enter into and maintain any of these licenses could have a material adverse effect on the Company’s business, financial condition and operating results.

There is a risk that some of the Company’s products may infringe the proprietary rights of third parties. In addition, whether or not the Company’s products infringe on proprietary rights of third parties, infringement or invalidity claims may be asserted or prosecuted against the Company and it could incur significant expense in defending them. If any claims or actions are asserted against the Company, it may be required to modify its products or seek licenses for these intellectual property rights. The Company may not be able to modify its products or obtain licenses on commercially reasonable terms, in a timely manner or at all. The Company’s failure to do so could have a negative affect on its business and revenues.

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(k)Any Required Expenditures as a Result of Indemnification Will Result in a Decrease in the Company’s Net Income.

The Company’s bylaws include provisions to the effect that the Company may indemnify any director, officer, or employee. In addition, provisions of Nevada law provide for such indemnification, as well as for a limitation of liability of the Company’s directors and officers for monetary damages arising from a breach of their fiduciary duties. Any limitation on the liability of any director or officer, or indemnification of any director, officer, or employee, could result in substantial expenditures being made by the Company in covering any liability of such persons or in indemnifying them.

(l)Customer Concentration in WISP Operation.

The Company has many customers in the WISP operations. However, the ability to serve these customers is largely dependent upon one contract with Kenmark Communications, Inc. During the six months ended June 30, 2007 the Company generated 97% of WISP revenue and 53% of total revenue from this contract where the Company is an outsourced provider of WISP services. Should the Company become unable to perform its obligation under this contract, its ability to generate revenue could be adversely impacted. As the Company enters into new agreements, this customer concentration risk is expected to dissipate.

Operating Activities.

The net cash used in operating activities was $827,384 for the six months ended June 30, 2007 compared to $1,061,240 for the six months ended June 30, 2006, a decrease of $233,856 or approximately 22%. This decrease is attributed primarily to (1) depreciation associated with the WISP operations, (2) decreased headcount, and (3) settlement of legal and other consulting fees with common stock.

Investing Activities.

Net cash used in investing activities was $266,670 during the six months ended June 30, 2007 compared to net cash provided by investing activities of $18,635 during the six months ended June 30, 2006, a decrease of $285,305 or approximately 1,531%. This increase in cash used was the result of investment in WISP assets.

Liquidity and Capital Resources.

The Company’s current liabilities totaled $7,795,967 at June 30, 2007, and current assets totaled $335,594, resulting in a working capital deficit of $7,460,373 at June 30, 2007. Current liabilities are primarily due to: (1) financing the Company through the issuance of convertible notes all of which are in default and classified as current liabilities, (2) derivative liabilities over and above the principal balance of the convertible notes, and (3) increased accrued legal fees and other payables. At June 30, 2007, the Company’s current assets consisted of net accounts receivable totaling $106,376, net inventory of $105,701, deferred financing costs of $108,345, other current assets of $13,253 and cash of $1,919.

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The Company incurred a net loss of $1,806,003 for the six months ended June 30, 2007. As of June 30, 2007, the Company has an accumulated deficit of $30,717,339.

The above factors raise doubt as to the Company’s ability to continue as a going concern. The Company’s current cash flow from operations is not likely to be sufficient to maintain its capital requirements for the next twelve months. Accordingly, the Company’s implementation of its business plan will depend upon its ability to raise additional funds through equity or debt financing. The Company estimates that it will need to raise up to $2,500,000 over the next twelve months for such purposes.

The accompanying financial statements have been prepared assuming that the Company continues as a going concern that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business assuming the Company will continue as a going concern. However, the ability of the Company to continue as a going concern on a longer-term basis will be dependent upon its ability to generate sufficient cash flow from operations to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately attain profitability.

The Company has been successful in obtaining the required cash resources through private placements, convertible notes and notes payable to service the Company’s operations during the six months ended June 30, 2007. The Company’s net cash provided by financing activities for the six months ended June 30, 2007 was $1,093,822, which resulted primarily from (1) the net proceeds of $824,371 from the sale of the common stock under Regulation S, and (2) net proceeds from issuance of a convertible debenture for $270,000.

Management plans to continue raising additional capital through a variety of fund raising methods during the next twelve months and to pursue all available financing alternatives in this regard. Management may also consider a variety of potential partnership or strategic alliances to strengthen its financial position. Whereas the Company has been successful in the past in raising capital, no assurance can be given that these sources of financing will continue to be available to it and/or that demand for its equity/debt instruments will be sufficient to meet its capital needs, or that financing will be available on terms favorable to the Company. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

If funding is insufficient at any time in the future, the Company may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of its planned product development and marketing efforts, any of which could have a negative impact on its business and operating results. In addition, insufficient funding may have a material adverse effect on the Company’s financial condition, which could require it to:

· curtail operations significantly;

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· sell significant assets;

· seek arrangements with strategic partners or other parties that may require the Company to relinquish significant rights to products, technologies or markets; or

· explore other strategic alternatives including a merger or sale of the Company.

To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on the Company’s operations. Regardless of whether the Company’s cash assets prove to be inadequate to meet the Company’s operational needs, the Company may seek to compensate providers of services by issuing stock in lieu of cash, which may also result in dilution to existing stockholders.

Inflation.

The impact of inflation on the Company’s costs and the ability to pass on cost increases to its customers over time is dependent upon market conditions. The Company is not aware of any inflationary pressures that have had any significant impact on its operations over the past quarter, and the Company does not anticipate that inflationary factors will have a significant impact on future operations.

Off Balance Sheet Arrangements.

The Company does not engage in any off balance sheet arrangements that are reasonably likely to have a current or future effect on its financial condition, revenues, results of operations, liquidity or capital expenditures.

Obligations.

(a)Contractual Obligations.

The Company has contractual obligations to repay its notes payable and to make payments under its operating lease agreement:

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Payments Due by Period

Contractual Obligations	Total		2007		2008		2009-2011		Thereafter
Convertible debt	$	4,102,249	$	4,102,249	$	—	$	—	$	—
Notes payable		49,924		49,924		—		—		—
Operating leases		240,222		115,452		124,770		—		—
Total contractual cash obligations	$	4,392,395	$	4,267,625	$	124,770	$	—	$	—

(b)Consulting Agreements.

The Company entered into consulting agreements with certain former employees of GCI. The term of the consulting agreements was from the October 4, 2006 to December 31, 2006. The agreements are now at will and can be terminated at any time. As of June 30, 2007, the aggregate monthly cost for these agreements was $20,616. 

(c)Payroll Taxes.

The Company has been notified by the Internal Revenue Service and the California Employment Development Department that the Company has accrued a total of $200,416 in back payroll taxes including penalties and interest. The Company has also been notified that the Internal Revenue Services has recorded a federal tax liens against the Company in the office of the Los Angeles County Recorder aggregating $119,560 and which is included in the accrued total due. The California Employment Development Department may record such a lien in the future. Such lien(s) may affect the ability of the Company raise capital in the future.

Critical Accounting Policies.

The SEC has issued Financial Reporting release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”); suggesting companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company’s most critical accounting policies include: (a) the use of estimates in the preparation of financial statements; (b) revenue recognition; (c) stock based compensation arrangements; (d) warranty reserves; (e) inventory reserves; (f) allowance for doubtful accounts; (g) the deferred tax valuation allowance; (h) valuation of derivative liabilities and classification of conversion features and warrants; and (i) intangible assets. The methods, estimates and judgments the Company uses in applying these most critical accounting policies have a significant impact on the results reported in its financial statements.

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(a)Use of Estimates.

The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates these estimates, including those related to revenue recognition and concentration of credit risk. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

(b)Revenue Recognition.

Revenues result principally from the sale and installation of wireless radio equipment to customers. Equipment sales are recognized when products are shipped. The Company recognizes revenues in accordance with Staff Accounting Bulleting (“SAB”) No. 104, “Revenue Recognition,” when all of the following conditions exist: (a) persuasive evidence of an arrangement exists in the form of an accepted purchase order; (b) delivery has occurred, based on shipping terms, or services have been rendered; (c) the Company’s price to the buyer is fixed or determinable, as documented on the accepted purchase order; and (d) collectibility is reasonably assured.

Orders delivered to the Company by phone, fax, mail or email are considered valid purchase orders and once accepted by the Company are deemed to be the final understanding between the Company and its customer as to the specific nature and terms of the agreed-upon sale transaction. Products are shipped and are considered delivered when (a) for FOB factory orders they leave the Company’s shipping dock or (b) for FOB customer dock orders upon confirmation of delivery. The creditworthiness of customers is generally assessed prior to the Company accepting a customer’s first order.

The WISP operation applies SAB No. 104 to recognize revenue as follows (a) persuasive evidence of an arrangement exists in the form of an order accepted online; (b) revenue recognized ratably as services are rendered over term of the contract; (c) the Company’s price to the buyer is fixed or determinable, as offered online; and (d) collectibility is reasonably assured as credit card is approved and billed and then customer is provided service.

The Company offers installation services to customers and charges separately when such services are purchased. Installation by the Company is not required for the functionality of the equipment. Consequently, installation services are considered a separate unit of accounting under Financial Accounting Standards Board’s Emerging Issues Task Force (“EITF”) No. 00-21, “Revenue Arrangements with Multiple Deliverables.”

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(c)Stock Based Compensation Arrangements.

The Company issues 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 is determined, based upon the closing price of the Company’s common stock on the date of each respective transaction after the period of service or the contract price, whichever is of greater evidence value. These transactions are reflected in the appropriate account of the Company’s financial statements in conformity with generally accepted accounting principles in the accompanying condensed statements of operations.

(d)Warranty.

The Company provides a warranty on all electronics sold for a period of one year after the date of shipment. Warranty issues are usually resolved with repair or replacement of the product. Trends of sales returns, exchanges and warranty repairs are tracked by as a management as a basis for the reserve that management records in the Company’s financial statements. Estimated future warranty obligations related to certain products and services are provided by charges to operations in the period in which the related revenue is recognized. At June 30, 2007, warranty reserve approximated $26,055 is recorded in other current liabilities on the accompanying balance sheet.

(e)Inventory

Inventories are stated at the lower of cost (first-in, first-out) or market. Cost is determined on a standard cost basis that approximates the first-in, first-out method. Market is determined by comparison with recent sales or net realizable value.

Such net realizable value is based on management’s forecasts for sales of the Company’s products or services in the ensuing years. The industry in which the Company operates is characterized by technological advancement, change and certain regulations. Should the demand for the Company’s products prove to be significantly less than anticipated, the ultimate realizable value of the Company’s inventories could be substantially less than amounts shown in the accompanying balance sheet.

The Company deploys its own products in the WISP operation. The standard cost of access points deployed plus related installation costs are capitalized as fixed assets and removed from inventory when deployed.

(f)Allowance for Doubtful Accounts.

In determining the allowance for doubtful accounts, management evaluates the future collectibility of customer receivable balances, on a customer by customer basis, including an individual assessment of the customer’s credit quality, financial standing, and the customer’s ability to meet current or future commitments and the industry and general economic outlook. Based on the severity of the likely loss, the Company provides a reserve against outstanding balances over 60 days. In the event collection efforts are unsuccessful for a customer, the receivable is written off and charged to allowance for doubtful accounts. At June 30, 2007, the Company carried an allowance for doubtful accounts of $25,016.

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(g)Deferred Tax Valuation Allowance.

Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. A deferred tax asset is reduced by a valuation allowance if, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefit, or that future deductibility is uncertain. In accordance with Statement of Financing Accounting Standards No. 109, the Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance.

(h)Derivative Liabilities.

The Company evaluates the conversion feature of convertible notes and free-standing instruments such as warrants (or other embedded derivatives) indexed to its common stock to properly classify such instruments within equity or as liabilities in its financial statements, pursuant to the requirements of the EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” EITF No. 01-06, “The Meaning of Indexed to a Company’s Own Stock,” EITF No. 05-04, “The Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to EITF No. 00-19,” and Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended.

During 2006, the Company accounted for the effects of registration rights and related liquidated damages pursuant to EITF No. 05-04, View C, subject to EITF No. 00-19. Pursuant to EITF No. 05-04, View C, liquidated damages payable in cash or stock were accounted for as a separate liability. The Company accounts for certain embedded conversion features and free-standing warrants pursuant to SFAS No. 133 and EITF No. 00-19, which require corresponding recognition of liabilities associated with such derivatives at their fair values and changes in fair values to be charged to results of operations. As of January 1, 2007, the Company adopted FASB Staff Position (“FSP”) 00-19-2 “Accounting for Registration Payment Arrangements.” This FSP addresses an issuer’s accounting for registration payment arrangements. This FSP specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies.” This FSP further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with other applicable generally accepted accounting principles (GAAP) without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement.

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(i)Intangible Assets and Goodwill.

In October 2006, the Company acquired certain assets of GCI. Management allocated the purchase price according to the provisions of SFAS No. 141, “Business Combinations.” Management acquired three groups of assets: (1) fixed assets, primarily including computers and access points; (2) contracts to provide WISP services to certain timeshare properties generally expiring November 2008; and (3) goodwill. The fixed assets were allocated value in accordance with paragraph 37d of SFAS No. 141 at market value that approximated replacement cost. The contract was recorded in the accompanying balance sheet according to paragraph 37e as it met the criteria of paragraph 39 for contractual rights that are to be recognized as an asset separate from goodwill. The contract was valued at its estimated fair value determined using a discounted cash flow model. The excess of cost over the fair value of assets acquired or goodwill, primarily composed of workforce-in-place as going concern value and other non-separable intangible assets were negligible was valued by calculating the replacement cost of the operation acquired which included recruiting fees and labor cost to start up a similar operation.

Goodwill is periodically reviewed, but not less than annually for impairment as to its realizability in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Factors the Company considers important which could trigger an impairment review include significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of use of acquired assets or the strategy for the overall business, and significant negative industry or economic trends. No triggering events were noted during the six months ended June 30, 2007 based on management’s estimates and assessments. Future events or circumstances could alter this assessment.

Forward Looking Statements.

Information in this Form 10-QSB contains “forward looking statements” within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended. When used in this Form 10-QSB, the words “expects,” “anticipates,” “believes,” “plans,” “will” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include, but are not limited to, statements regarding the adequacy of cash, expectations regarding net losses and cash flow, statements regarding growth, the need for future financing, dependence on personnel, and operating expenses.

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Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those discussed above as well as the risks set forth above under “Factors That May Affect the Company’s Operating Results.” These forward-looking statements speak only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

ITEM 3. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures.

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in its periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to its management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures.

The Company has been informed by its independent registered public accounting firm in connection with the audit of the financial statements as of and for the year ended December 31, 2006 that certain matters were identified involving internal control that this firm considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board. These material weaknesses were:

(a)inadequate segregation of duties in the areas of approving invoices and initiating wire transfers;

(b)insufficient personnel resources and technical accounting expertise within the accounting function to resolve non-routine or complex accounting matters as well as inadequate procedures for appropriately identifying, assessing and applying accounting principles generally accepted in the United States of America, specifically, the accounting for and reporting of debt and equity transactions, and inadequate procedures for appropriately identifying required filings under the SEC rules and regulations; and

(c)lack of an independent audit committee or independent members of the board of directors.

The Company will continue to monitor and evaluate the effectiveness of its controls and procedures on an ongoing basis, and are committed to taking further action and implementing additional improvements, as necessary.

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As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon the evaluation, the Company’s principal executive officer and principal financial officer concluded that its disclosure controls and procedures were not effective, as set forth above, at a reasonable assurance level to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Specifically, the Company did not file the required financial information as required under Rule 3-05 of Regulation S-X in connection with its recent acquisition of GCI. In addition, the Company’s principal executive officer and principal financial officer concluded that its disclosure controls and procedures were not effective, as set forth above, at a reasonable assurance level to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, and/or by management override of the control. The design of any system of controls also 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; over time, controls may become inadequate because of changes in conditions, and/or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective internal control system, misstatements due to error or fraud may occur and not be detected.

Changes in Controls and Procedures.

During the quarter ended June 30, 2007 there were no changes in the Company’s disclosure controls and procedures, or its internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange act), or in other factors that could affect these controls during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, these controls.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

The Company is not party to any material pending legal proceedings, claims or assessments and, to the best of its knowledge, no such action by or against the Company has been threatened, except as follows:

(a) On June 15, 2005, the Company was served with a summons from a third party in a matter entitled Leslie J Bishop and Deborah J. Bishop v. Brian K. Corty and Candy M. Corty, Wireless Think Tank, Inc., and 5G Wireless Communications, Inc., New York Supreme Court (Chenango County). This action seeks actual damages in excess of $80,000 and punitive damages of $300,000 against a former employee of the Company for breach of a residential lease and damage to a residential property in 2001. The claim against the Company alleges that the former employee was a principal in Wireless ThinkTank (a wholly owned subsidiary of the Company) and conducted business from such residence.

In April 2007, the Company was notified by its counsel that the case was settled for $7,500. Such amount was recorded as expense in 2006.

(b) On May 8, 2006 the Company was served with a summons in a matter entitled Brian Vallone and Anne Vallone v. 5G Wireless Communications, Inc., California Superior Court (Orange County). This action, which does not allege a damage amount, includes causes of action for breach of contract, negligent misrepresentation, and fraud, and is concerning equipment that was sold to a wireless internet provider in California who claims that they were unable to generate fees for use and for advertising revenues.

In September 2007, a judgment was entered in favor of Brian Vallone and Anne Vallone in the amount of $19,000. The Company accrued an additional $7,600 to cover legal and court costs incurred by Brian Vallone and Anne Vallone. Such accruals will be reflected by the Company in the three months ended September 30, 2007.

(c)In November 2006 the Company was served with a Notice of Motion for Summary Judgment in Lieu of Complaint filed by Longview Fund, L.P., Longview Equity Fund, L.P., and Longview International Equity Fund, L.P. (“Longview Funds”). In this Motion, filed in New York State Supreme Court on November 2, 2006, the Longview Funds allege that the Company has failed to make payments of interest due on a series of notes issued by the Company, and failed to make payments of interest due on these notes.  The Longview Funds asked the court to enter judgment in their favor for $2,644,987 allegedly due under the notes, plus accrued interest.

Summary judgment was denied by the court, and the Longview Funds were ordered to file a regular complaint, which they did in January 2007. The Company has filed an answer and counterclaims in response to the complaint, asserting numerous defenses and independent claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, and breach of fiduciary duty against the Longview Funds, and Stanley A. Hirschman and Phil E. Pearce (two former directors of the Company). The Longview Funds have filed an answer in response to the Company’s counterclaims; the two former directors have filed a motion to dismiss for lack of personal jurisdiction. However, they subsequently stipulated to submit to discovery on jurisdictional issues, and their motion is adjourned until that discovery is completed.

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On July 10, 2007, the Company entered into a Settlement Agreement and Mutual Release (“Settlement Agreement”) with Longview Fund L.P., Longview Equity Fund L.P., Longview International Equity Fund, L.P. (collectively hereinafter referred to as “Longview”), Stan Hirschman and Phil Pearce, in settlement of all claims relating to that certain lawsuit initiated on or around November 2, 2006 in the Supreme Court of the State of New York, index No. 603826-06 by Longview.

As a condition precedent and in settlement of all claims and counterclaims between the parties, the Company arranged for a third party investor to purchase from Longview for the sum of $1,100,000 all of Longview’s rights and interests to and under the convertible notes, subscription agreements and other related agreements between Longview and the Company and all warrants of the Company beneficially owned by Longview. In addition, Longview agreed to transfer to the Company of all common shares of the Company beneficially owned by Longview, and Longview withdrew its UCC security interest against the Company. The condition precedent was satisfied on July 11, 2007 thus rendering the Settlement Agreement binding and effective that same date. A stipulation of discontinuance was filed with the Court dismissing the complaint and counterclaims with prejudice.

In connection with the transfer of the convertible notes and related agreements from Longview to the third party investor, the third party investor agreed to waive all defaults by the Company on the convertible notes and agreed to relieve the Company of its obligation to register shares related to the conversion features and warrants issued with the notes.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

There were no unregistered sales of the Company’s equity securities during the three months ended on June 30, 2007 that were not previously disclosed in a Form 8-K. There were no purchases of common stock of the Company by the Company or its affiliates during the three months ended June 30, 2007.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Montgomery Convertible Debentures.

The Company is in default to Montgomery because: (1) the Company has not commenced the mandatory redemptions of principal; and (2) the Company has not made interest payments required by the convertible debentures. On March 19, 2007, the Company received $300,000 (gross) on Montgomery debentures; this was the last installment due under this debenture and thus Montgomery waived the registration requirement under the registration rights agreement.

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If the Company fails to deliver to a subscriber unlegended shares as required by the fifth trading day after the unlegended shares delivery date and the subscriber purchases (in an open market transaction or otherwise) shares of common stock to deliver in satisfaction of a sale by such subscriber of the shares of common stock which the subscriber was entitled to receive from the Company (a “Buy-In”), then the Company will (A) pay in cash to Montgomery (in addition to any remedies available to or elected by Montgomery) the amount by which (x) Montgomery’s total purchase price (including brokerage commissions, if any) for the common stock so purchased exceeds (y) the product of (1) the aggregate number of shares of common stock that Montgomery anticipated receiving from the conversion at issue multiplied by (2) the market price of the common stock at the time of the sale giving rise to such purchase obligation and (B) at the option of Montgomery, either reissue a debenture in the principal amount equal to the principal amount of the attempted conversion or deliver to Montgomery the number of shares of common stock that would have been issued had the Company timely complied with its delivery requirements.

Under a Pledge and Escrow Agreement, dated June 13, 2006, the Company has irrevocably pledged to Montgomery 15,212,982 shares of the Company’s common stock. Since an event of default has occurred, Montgomery has the option to declare the obligations to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration, Montgomery has the right to have such shares transferred into its name and sold. Montgomery has not taken this step.      

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

Subsequent Events.

Stock Issuances.

(a)From July 1, 2007 to August 10, 2007 3,333,333 shares were issued from escrow for proceeds of $40,000.

(b)Between July 2, 2007 and July 19, 2007, the Company issued 26,939,683 shares of restricted shares of common stock pursuant to Regulation S for cash proceeds of $142,256.

(c)From July 5, 2007 to September 14, 2007, the Company issued 10,299,259 restricted shares of common stock in exchange for conversion of $63,142 of convertible debt and related accrued interest.

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(d)Between July 13, 2007 and September 17, 2007, the Company issued 400,000 shares of free trading shares of common stock valued at $4,560 to settle legal fees.

(e)On July 16, 2007, 1,015,873 shares held in escrow pursuant to Longview convertible debt financings were returned to treasury and cancelled.

(f)On July 16, 2007, 552,198 shares held by Longview were returned to treasury and cancelled.

(g)Between July 18, 2007 and August 9, 2007, the Company issued 8,500,000 shares of restricted shares of common stock valued at $12,000 for consulting services.

(h)On August 16, 2007 the Company issued 1,005,780 restricted shares of common stock in exchange for conversion of $4,526 of Preferred B stock.

(i)On September 18, 2007, the Company issued $40,000 of convertible debt, which was paid directly to a service provider, which is due and payable on or before January 1, 2008. The interest rate is 14% per annum.

ITEM 6. EXHIBITS.

Exhibits included or incorporated by reference herein are set forth in the Exhibit Index.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	5G Wireless Communications, Inc.
Dated: September 19, 2007	By:	/s/ Jerry Dix
	Jerry Dix
	Chief Executive Officer
Dated: September 19, 2007	By:	/s/ Andrew D. McCormac
	Andrew D. McCormac,
	Chief Financial Officer

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EXHIBIT INDEX

Number	Description
1	Agency Agreement between the Company and May Davis Group, Inc., dated April 1, 2003 (incorporated by reference to Exhibit 1 of the Form 10-QSB/A filed on November 17, 2003).
2.1	Agreement and Plan of Reorganization and Merger between Tesmark, Inc., an Idaho corporation, and the Company (formerly known as Tesmark, Inc.), a Nevada corporation, dated November 10, 1998 (incorporated by reference to Exhibit 2 of the Form 10-SB filed on December 15, 1999).
2.2	Acquisition Agreement between the Company, and Richard Lejeunesse, Curtis Mearns, and Don Boudewyn, a partnership (known as 5G Partners), dated December 15, 2000, as amended (incorporated by reference to Exhibit 10 of the Form 8-K filed on February 14, 2001).
2.3	Share Purchase Agreement between the Company, and Sea Union Industries Pte. Ltd., Richard Lajeunesse, Rita Chou, Peter Chen, Yeo Lai Ann, Tan Lam Im, Choa So Chin, Tan Ching Khoon, Tan Sek Toh, and the Company Communication Pte. Inc. (formerly known as Peteson Investment Pte Ltd.), dated May 5, 2001 (incorporated by reference to Exhibit 2 of the Form 8-K filed on June 5, 2001).
2.4	Purchase Agreement between the Company and Skyhub Asia Holdings Limited, eVision USA.com, and eBanker USA.com, dated May 19, 2001 (incorporated by reference to Exhibit 2.4 of the Form 10-KSB filed on April 18, 2002).
2.5	Definitive Acquisition Agreement between the Company and Wireless Think Tank, dated April 30, 2002 (incorporated by reference to Exhibit 2 of the Form 8-K filed on August 13, 2002).
2.6	Agreement and Plan of Merger between the Company and 5G Wireless Solutions, Inc., dated January 18, 2006 (incorporated by reference to Exhibit 2.6 of the Form 10-K filed on April 7, 2006).
3.1	Articles of Incorporation, dated September 24, 1998 (incorporated by reference to Exhibit 3 of the Form 10-SB filed on December 15, 1999).
3.2	Certificate of Amendment to Articles of Incorporation, dated May 5, 2000 (incorporated by reference to Exhibit 3.3 of the Form SB-2 filed on January 10, 2002).

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3.3	Certificate of Amendment to Articles of Incorporation, dated January 19, 2001 (incorporated by reference to Exhibit 3.1 of the Form 8-K filed on February 14, 2001).
3.4	Certificate of Amendment to Articles of Incorporation, dated January 21, 2003 (incorporated by reference to Exhibit 3.4 of the Form 10-KSB filed on May 8, 2003).
3.5	Certificate of Amendment to Articles of Incorporation, dated September 16, 2004 (incorporated by reference to Exhibit 3.1 of the Form 8-K filed on September 22, 2004).
3.6	Certificate of Correction, dated September 20, 2004 (incorporated by reference to Exhibit 3.2 of the Form 8-K filed on September 22, 2004).
3.7	Bylaws, dated September 25, 2002 (incorporated by reference to Exhibit 3.5 of the Form 10-KSB filed on May 8, 2003).
4.1	2001 Stock Incentive Plan, dated November 1, 2001 (incorporated by reference to Exhibit 10 of the Form S-8 filed on December 10, 2001).
4.2	Non-Employee Directors and Consultants Retainer Stock Plan, dated January 30, 2002 (incorporated by reference to Exhibit 4.1 of the Form S-8 filed on January 31, 2002).
4.3	Amended and Restated Stock Incentive Plan, dated January 30, 2002 (incorporated by reference to Exhibit 4.2 of the Form S-8 filed on January 31, 2002).
4.4	Form of Subscription Agreement Between the Company and investors, dated February 12, 2002 (including the following exhibits: Exhibit A: Form of Notice of Conversion; Exhibit B: Form of Registration Rights Agreement; Exhibit C: Form of Debenture; and Exhibit D: Form of Opinion of Company’s Counsel) (the following to this agreement have been omitted: Exhibit E: Board Resolution; Schedule 3(A): Subsidiaries; Schedule 3(C): Capitalization; Schedule 3(E): Conflicts; Schedule 3(G): Material Changes; Schedule 3(H): Litigation; Schedule 3(L): Intellectual Property; Schedule 3(N): Liens; and Schedule 3(T): Certain Transactions) (incorporated by reference to Exhibit 4.4 of the Form 10-QSB filed on May 20, 2002).
4.5	Escrow Agreement between the Company, First Union Bank, and May Davis Group, Inc., dated February 12, 2002 (incorporated by reference to Exhibit 4.5 of the Form 10-QSB filed on May 20, 2002).

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4.6	Form of Escrow Agreement between the Company, Joseph B. LaRocco, Esq., and investors, dated February 12, 2002 (incorporated by reference to Exhibit 4.6 of the Form 10-QSB filed on May 20, 2002).
4.7	Security Agreement (Stock Pledge) between the Company and investors, dated February 12, 2002 (incorporated by reference to Exhibit 4.7 of the Form 10-QSB filed on May 20, 2002).
4.8	Amended and Restated Non-Employee Directors and Consultants Retainer Stock Plan, dated June 1, 2003 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on June 26, 2003).
4.9	Form of Subscription Agreement Between the Company and investors (including the following exhibits: Exhibit A: Form of Debenture; Exhibit B: Form of Notice of Conversion; Exhibit C: Form of Opinion; and Exhibit D: Subscription Procedures) (the following schedules have been omitted: Schedule 3(a): Subsidiaries; Schedule 3(c): Capitalization; Schedule 3(e): Conflicts; Schedule 3(g): Material Changes; Schedule 3(h): Litigation; Schedule 3(l): Intellectual Property; Schedule 3(n): Liens; and Schedule 3(t): Certain Transactions) (incorporated by reference to Exhibit 4.9 of the Form 10-QSB/A filed on November 17, 2003).
4.10	Form of Subordinated, Convertible Note and Warrants Agreement between the Company and investors (including the following exhibits: Exhibit A: Form of Convertible Subordinated Promissory Note; and Exhibit B: Form of Warrant Agreement) (incorporated by reference to Exhibit 4.10 of the Form 10-QSB filed on November 24, 2003)
4.11	Form of Promissory Note issued by the Company to investors, dated March 4, 2004 (incorporated by reference to Exhibit 4.1 of the Form 10-QSB/A filed on May 28, 2004).
4.12	Form of Note Purchase Agreement between the Company and investors, dated March 4, 2004 (incorporated by reference to Exhibit 4.2 of the Form 10-QSB/A filed on May 28, 2004).
4.13	Form of Warrant issued by the Company to investors, dated March 4, 2004 (incorporated by reference to Exhibit 4.3 of the Form 10-QSB/A filed on May 28, 2004).
4.14	2004 Non-Employee Directors and Consultants Retainer Stock Plan, dated June 8, 2004 (incorporated by reference to Exhibit 4 of the Form S-8 filed on June 21, 2004).

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4.15	Subscription Agreement between the Company, on the one hand, and Longview Fund, LP, Longview Equity Fund, LP, and Longview International Equity Fund, LP, on the other hand, dated September 22, 2004, and Form of Convertible Note (including the following items: Exhibit A1: Form of Class A Warrant; Exhibit A2: Form of Class B Warrant; Exhibit B: Funds Escrow Agreement; Exhibit E: Shares Escrow Agreement; Exhibit F: Form of Limited Standstill Agreement; Exhibit G: Security Agreement; and Exhibit H: Collateral Agent Agreement) (not including the following items: Attachment 1: Disclosure Schedule; Exhibit C: Form of Legal Opinion; Exhibit D: Form of Public Announcement on Form 8-K; Schedule 5(d): Additional Issuances; Schedule 5(q): Undisclosed Liabilities; Schedule 5(s): Capitalization; Schedule 9(e) Use of Proceeds; Schedule 9(q): Limited Standstill Providers; and Schedule 11.1: Other Securities to be Registered) (incorporated by reference to Exhibit 4 of the Form 8-K filed on September 30, 2004).
4.16	Form of Common Stock Purchase Warrant issued by the Company in favor of Pole Star Communications, Inc., dated November 1, 2004 (incorporated by reference to Exhibit 4 of the Form 8-K filed on November 12, 2004).
4.17	Certificate of Designation of Series A Convertible Preferred Stock, dated October 5, 2004 (incorporated by reference to Exhibit 4.17 of the Form 10-KSB filed on March 31, 2005).
4.18	Subscription Agreement between the Company, on the one hand, and Longview Fund, LP, Longview Equity Fund, LP, and Longview International Equity Fund, LP, on the other hand, dated March 22, 2005 (including the following items: Exhibit A: Form of Class A Warrant; Exhibit B: Funds Escrow Agreement; Exhibit C: Security Agreement; Exhibit D: Collateral Agent Agreement; and Exhibit G: Form of Limited Standstill Agreement) (not including the following items: Attachment 1: Disclosure Schedule; Exhibit E: Legal Opinion; Exhibit F: Form of Public Announcement or Form 8-K; Schedule 5(d): Additional Issuances/Capitalization; Schedule 5(q): Undisclosed Liabilities; Schedule 5(x): Subsidiaries; Schedule 9(e) Use of Proceeds; and Schedule 9(p): Limited Standstill Providers) (incorporated by reference to Exhibit 4.1 of the Form 8-K filed on March 31, 2005).
4.19	Form of Secured Convertible Note between the Company, on the one hand, and Holders on the other hand, dated March 22, 2005 (incorporated by reference to Exhibit 4.3 of the Form 8-K filed on March 31, 2005).
4.20	Subscription Agreements between the Company, on the one hand, and Longview Fund, LP, Longview Equity Fund, LP, and Longview International Equity Fund, LP, on the other hand, dated July 20, 2005, July 28, 2005, and August 17, 2005 (including the following items: Exhibit A1: Form of Note; Exhibit A2: Form of Class A Warrant; Exhibit B: Funds Escrow Agreement; Exhibit D: Transfer Agent Instructions; Exhibit F: Form of Limited Standstill Agreement) (not including the following items: Exhibit C: Form of Legal Opinion; Exhibit E Form of Public Announcement; Schedule 4(a): Subsidiaries; Schedule 4(d): Additional Issuances/Capitalization; Schedule 4(q): Undisclosed Liabilities; Schedule 4(u): Disagreements of Accountants and Lawyers; Schedule 8(e) Use of Proceeds; and Schedule 8(q): Providers of Limited Standstill Agreements) (incorporated by reference to Exhibit 4 of the Form 8-K filed on July 25, 2005).

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4.21	Modification and Amendment Agreement, dated July 26, 2005 (incorporated by reference to Exhibit 4.2 of the Form 8-K/A filed on August 3, 2005).
4.22	2006 Stock and Option Plan, dated January 18, 2006 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on January 25, 2006).
4.23	Form of Stock Purchase Agreement between the Company and certain investors, dated February 17, 2006 (including the following items: Exhibit A: Certificate of Designation, and Exhibit C: Form of Registration Rights Agreement. Not including the following items: Exhibit B: Investor Questionnaire; Exhibit D: Form of Opinion of Counsel; Schedule 3(c): outstanding shares; Schedule: 3(g): list of untimely filed reports; and Schedule I: list of investors) (incorporated by reference to Exhibit 4 of the Form 8-K filed on February 21, 2006).
4.24	Certificate of Designation of Series B Convertible Preferred Stock, dated January 25, 2006 (incorporated by reference to Exhibit 4 of the Form 8-K filed on February 21, 2006).
4.25	Subscription Agreement between the Company and Longview Fund, LP, dated April 5, 2006 (including the following items: Exhibit A1: Convertible Note; Exhibit A2: Class A Warrant; Exhibit B: Funds Escrow Agreement (not including the following items: Exhibit C: Form of Legal Opinion; Exhibit D: Transfer Agent Instructions; Exhibit E: Form of Public Announcement; Exhibit F: Form of Limited Standstill Agreement; Schedule 4(a): Subsidiaries; Schedule 4(d): Additional Issuances/Capitalization; Schedule 4(q): Undisclosed Liabilities; Schedule 4(u): Disagreements with Accountants and Lawyers; Schedule 8(e) Use of Proceeds; and Schedule 8(q): Providers of Limited Standstill Agreements (incorporated by reference to Exhibit 4.25 of the Form 10-QSB fled on May 22, 2006).
4.26	Stock Purchase Agreement between the Company and Castellum Investments, S.A., dated May 30, 2006 (including the following items: Exhibit A: Certificate of Designation, and Exhibit C: Form of Registration Rights Agreement. Not including the following items: Exhibit B: Investor Questionnaire; Exhibit D: Form of Opinion of Counsel; Schedule 3(c): outstanding shares; Schedule: 3(g): list of untimely filed reports; and Schedule I: list of Investor) (incorporated by reference to Exhibit 4.9 of the Form 8-K filed on July 14, 2006)

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4.27	Securities Purchase Agreement between the Company and Montgomery Equity Partners, LP, dated as of June 13, 2006 (not including a Disclosure Schedule) (incorporated by reference to Exhibit 4.1 of the Form 8-K filed on July 14, 2006).
4.28	Secured Convertible Debenture between the Company and Montgomery Equity Partners, LP, dated as of June 13, 2006 (incorporated by reference to Exhibit 4.2 of the Form 8-K filed on July 14, 2006).
4.29	Security Agreement, dated as of June 13, 2006, between the Company and Montgomery Equity Partners, LP (incorporated by reference to Exhibit 4.3 of the Form 8-K filed on July 14, 2006).
4.30	Class A Warrant, dated as of June 13, 2006, between the Company and Montgomery Equity Partners, LP (incorporated by reference to Exhibit 4.4 of the Form 8-K filed on July 14, 2006).
4.31	Class B Warrant, dated as of June 13, 2006, between the Company and Montgomery Equity Partners, LP (incorporated by reference to Exhibit 4.5 of the Form 8-K filed on July 14, 2006).
4.32	Class C Warrant, dated as of June 13, 2006, between the Company and Montgomery Equity Partners, LP (incorporated by reference to Exhibit 4.6 of the Form 8-K filed on July 14, 2006).
4.33	Investor Registration Rights Agreement, dated as of June 13, 2006, between the Company and Montgomery Equity Partners, LP (not including Form of Notice of Effectiveness of Registration Statement) (incorporated by reference to Exhibit 4.7 of the Form 8-K filed on July 14, 2006).
4.34	Pledge and Escrow Agreement, dated as of June 13, 2006, between the Company and Montgomery Equity Partners, LP (incorporated by reference to Exhibit 4.8 of the Form 8-K filed on July 14, 2006).
10.1	Employment Agreement between the Company and Jerry Dix, dated February 1, 2002 (incorporated by reference to Exhibit 10.12 of the Form 10-KSB filed on April 18, 2002).
10.2	Employment Agreement between the Company and Don Boudewyn, dated February 1, 2002 (incorporated by reference to Exhibit 10.13 of the Form 10-KSB filed on April 18, 2002).
10.3	Employment Agreement Amendment between the Company and Don Boudewyn, dated April 1, 2002 (incorporated by reference to Exhibit 10.17 of the Form 10-KSB filed on April 18, 2002).

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10.4	Executive Employment Agreement between the Company and Peter Trepp, dated July 4, 2003 (including Exhibit A: Employee Proprietary Information and Inventions Agreement) (the following exhibits have been omitted: Exhibit A – Schedule A: Employee’s Disclosure; and Exhibit A – Schedule B: Termination Certificate Concerning 5G Wireless Communications, Inc. Proprietary Information (incorporated by reference to Exhibit 10 of the Form 10-QSB filed on November 24, 2003).
10.5	Independent Consulting Agreement between the Company and Ghillie Finaz, AG, dated September 22, 2004 (incorporated by reference to Exhibit 10 of the Form 8-K filed on September 30, 2004).
10.6	Form of agreement between the Company and its independent directors (incorporated by reference to Exhibit 10.2 of the Form 10-QSB filed on November 17, 2004).
10.7	Contribution Agreement between the Company and the Company Solutions, Inc. (the following to this agreement have been omitted: Schedule 1: List of Assets; and Schedule 2: List of Liabilities), dated December 31, 2004 (incorporated by reference to Exhibit 10 of the Form 8-K filed on January 7, 2005).
10.8	Guarantor Agreement between 5G Wireless and Al Lang, dated May 25, 2006 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on July 14, 2006).
10.9	Loan Agreement between 5G Wireless and Production Partners, Ltd., dated May 30, 2006 (incorporated by reference to Exhibit 10.2 of the Form 8-K filed on July 14, 2006).
10.10	Consulting Agreement between 5G Wireless and Jason Meyers, dated May 30, 2006 (incorporated by reference to Exhibit 10.3 of the Form 8-K filed on July 14, 2006).
10.11	Loan Agreement between 5G Wireless and Russell Janes, dated June 1, 2006 (incorporated by reference to Exhibit 10.4 of the Form 8-K filed on July 14, 2006).
10.12	Loan Agreement between 5G Wireless and Thomas Janes, dated June 1, 2006 (incorporated by reference to Exhibit 10.5 of the Form 8-K filed on July 14, 2006).
10.13	Asset Purchase Agreement between the Company and Global Connect, Inc., dated as of September 12, 2006 (not including Schedule 1, Schedule 2, Schedule 3 and Schedule 4) (incorporated by reference to Exhibit 10 of the Form 8-K filed on October 11, 2006).
14	Code of Ethics, dated October 5, 2004 (incorporated by reference to Exhibit 14 of the Form 10-KSB filed on March 31, 2005).

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16.1	Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on August 28, 2003).
16.2	Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on September 30, 2004).
16.3	Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K/A filed on September 30, 2004).
16.4	Letter on Change in Certifying Accountant (incorporated by reference to Exhibit 16 of the Form 8-K filed on April 12, 2007).
21	Subsidiaries of the Company (incorporated by reference to Exhibit 21 of the Form 10-QSB filed on August 27, 2002).
31.1	Rule 13a-14(a)/15d-14(a) Certification of Jerry Dix (filed herewith).
31.2	Rule 13a-14(a)/15d-14(a) Certification of Andrew D. McCormac (filed herewith).
32	Section 1350 Certification of Jerry Dix and Andrew D. McCormac (filed herewith).
99	Press release issued by the Company, dated October 4, 2006 (incorporated by reference to Exhibit 99 of the Form 8-K filed on October 11, 2006).

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