10-Q/A 1 airtouchform10qa093011.htm AIRTOUCH FORM 10-Q/A, AMENDMENT NO. 1 09/30/11 airtouchform10qa093011.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _________________

Commission File No.: 333-146478

AIRTOUCH COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
20-8820679
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

1401 Dove Street
Suite 330
Newport Beach, CA 92660
(Address of principal executive offices)

Issuer’s telephone number:   (949) 825-6570                    
   
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   x  No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x     No  o

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

Large accelerated filter  ¨
  
Accelerated filter  ¨
Non-accelerated filter  ¨
(Do not check if a smaller reporting company)
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.  Yes    o   No   x

APPLICABLE ONLY TO CORPORATE ISSUERS

As of November 15, 2011, there were 19,379,569 shares of our common stock outstanding.

Transitional Small Business Disclosure Format:    Yes   ¨   No   x
 
 
 
 

 
 
Quarterly Report on Form 10-Q for the quarter ended September 30, 2011
 
Table of Contents
 
 
Page
 
PART I. FINANCIAL INFORMATION
   
 
 
 
 
 
 
 
 
 
     
PART II. OTHER INFORMATION
   
 
 
 
 
 
 
 


 
1

 
 
EXPLANATORY NOTE
 
AirTouch Communications, Inc. (the “Company”) is filing this Amendment No. 1 to Quarterly Report on Form 10-Q (“Amendment”) for the quarter ended September 30, 2011 to reflect the restatement of its consolidated financial statements for the three months and nine months ended September 30, 2011.  The Company is restating its previously consolidated financial statements for the periods ended September 30, 2011 to correct an error that resulted from the inadvertent failure to record (i) a noncash charge in the amount  $292,755 and the Company’s issuance of  161,743 shares of common stock in consideration of the Company’s failure to file a secondary registration statement by an agreed date and (ii) a noncash charge in the amount of $85,975 related to the Company’s issuance of  47,500 shares of common stock  as placement agent fees in connection with capital raising efforts.   
 
This Amendment amends and restates the Company’s Quarterly Report on Form 10-Q filed on November 15, 2011 (“Original Form 10-Q”) to reflect noncash charges in the aggregate amount of $378,730 and the Company’s issuance of 47,500 shares of its common stock during the three and none month periods ended September 30, 2011.  In addition, this Amendment also updates Item 4 of Part I concerning the Company’s disclosure controls and procedures.  Finally, this Amendment also includes updated interactive data files to give effect to the above-described restatements and updated certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2 and 32.1 and 32.2.  The remaining disclosure contained within this Amendment consists of all other disclosures contained in the Original Form 10-Q. This Amendment does not reflect events occurring after the filing of the Original Form 10-Q or modify or update those disclosures in any way other than as required to reflect the effects of the above-described restatements.
 


AIRTOUCH COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
   
September 30, 2011 (unaudited)
   
December 31, 2010
 
Current assets
           
    Cash   $ 5,914,380     $ 201,299  
    Certificate of deposit     2,000,000       -  
    Restricted certificate of deposit     30,020       -  
    Inventory     710,462       329,118  
    Prepaid expenses     318,213       1,000  
    Deferred financing costs     -       46,400  
    Total current assets     8,973,075       577,817  
                 
Deposits
    18,984       23,394  
                 
Property and equipment, net
    240,555       155,847  
                 
Intangible assets, net
    183,386       183,228  
                 
Total assets
  $ 9,416,000     $ 940,286  
 
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
 
Current liabilities
           
    Accounts payable   $ 85,316     $ 390,618  
    Accrued expenses     357,211       576,442  
    Current portion of capital lease obligation     7,703       6,181  
    Notes payable     -       94,500  
    Convertible notes payable     -       3,035,000  
    Derivative liability     -       55,413  
    Total current liabilities     450,230       4,158,154  
                 
Capital lease obligation, net of current portion
    2,339       8,328  
                 
Total liabilities
    452,569       4,166,482  
                 
Stockholders' equity (deficit)
               
    Preferred stock, 25,000,000 shares authorized, par value
    $0.001, none issued or outstanding
    -       -  
    Common stock, 100,000,000 shares authorized, par value
    $0.001, 19,217,826 and 7,114,712 share issued and
    outstanding as of September 30, 2011 and December 31, 2010,
     respectively (1).
    19,218       7,115  
    Additional paid-in capital (1)     22,185,503       3,453,485  
    Noncontrolling interest in variable interest entity     94,849       -  
    Accumulated deficit     (13,336,139 )     (6,686,796 )
    Total stockholders' equity (deficit)     8,963,431       (3,226,196 )
                 
Total liabilities and stockholders' equity (deficit)
  $ 9,416,000     $ 940,286  
 
(1) The December 31, 2010 capital accounts of the Company have been retroactively restated to reflect the equivalent number of the common shares based on the exchange ratio of the merger transaction. See Note 2.
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
 
2

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Three Months Ended September 30
   
Nine Months Ended September 30
 
   
2011
(unaudited)
   
2010
(unaudited)
   
2011
(unaudited)
   
2010
(unaudited)
 
                         
Net revenue
  $ -     $ 138,910     $ 477,217     $ 142,844  
Cost of sales
    -       131,021       354,399       133,091  
Gross profit
    -       7,889       122,818       9,753  
                                 
Operating expenses
                               
Research and development
    639,050       213,837       1,679,259       954,238  
Selling, general, and administrative
    1,048,346       534,999       2,027,732       1,632,474  
     Total operating expenses
    1,687,396       748,836       3,706,991       2,586,712  
                                 
Net loss from operations
    (1,687,396 )     (740,947 )     (3,584,173 )     (2,576,959 )
                                 
Other (income) expenses
                               
Gain on cancellation of debt
    -       -       -       (227,376 )
Interest expense
    11,946       80,614       712,732       368,537  
Finance charge
    11,137       -       316,009       -  
Option/Warrant liability expenses
    125,306       -       387,703       -  
Change in fair value of derivative
liability
    -       23,430       (31,907 )     -  
Adjustment in fair value of warrants
issued
    -       -       1,176,222       -  
Other expense
    393,018       (65,675 )     424,861       25,080  
     Total other expenses, net
    541,407       38,369       2,985,620       166,241  
                                 
Net loss
  $ (2,228,803 )   $ (779,316 )   $ (6,569,793 )   $ (2,743,200 )
                                 
Gain attributable to noncontrolling interest in
variable interest entity
  $ 99,623       -     $ 79,549       -  
                                 
Net Loss attributable to the Company
    (2,328,426 )     (779,316 )     (6,649,342 )     (2,743,200 )
                                 
Loss per share-basic and diluted
  $ (0.12 )   $ (0.15 )   $ (0.56 )   $ (0.59 )
                                 
Weighted average common shares
outstanding (2) - basic and diluted
    19,217,826       5,120,317       11,789,172       4,678,631  
 
(2) The capital accounts of the Company have been retroactively restated to reflect the equivalent number of common shares based on the exchange ratio of the merger transaction in determining the basic and diluted weighted average shares.  See Note 2.
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
3

 

AIRTOUCH COMMUNICATIONS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
 
   
Common stock
   
Additional paid in
    Noncontrolling interest     Accumulated        
   
Shares
   
Amount
   
capital
   
 in VIE
   
deficit
   
Total
 
Balance at December 31,
2009
    5,352,984     $ 5,353     $ 1,053,259           $ (1,836,421 )   $ (777,809 )
                                               
Sale of common stock
    928,564       929       1,399,127             -       1,400,056  
Issuance of common stock
in lieu of interest
    2,043       2       5,962             -       5,964  
Cancellation of common stock
    (85,633 )     (86 )     79             -       (7 )
Conversion of debt,
including accrued interest,
into common stock
    916,754       917       995,058             -       995,975  
Net loss
    -       -       -             (4,850,375 )     (4,850,375 )
Balance at December 31,
2010
    7,114,712     7,115     $ 3,453,485           $ (6,686,796 )   $ (3,226,196 )
                                               
Sale of common stock
    205,463       205       249,796             -       250,001  
Conversion of warrants
    179,825       180       104,820             -       105,000  
Recapitalization
    1,083,333       1,083       (1,083 )           -       -  
Stock option expense
    -       -       37,078             -       37,078  
Net loss
    -       -       -             (2,304,682 )     (2,304,682 )
Balance at March 31,
2011 (unaudited)
    8,583,333     8,583     $ 3,844,096           $ (8,991,478 )   $ (5,138,799 )
                                               
Conversion of debt,
including accrued interest,
into common stock
    2,753,214       2,753       5,503,675             -       5,506,428  
Stock option expense
    -       -       101,346             -       101,346  
Change in fair value of
derivative liability
    -       -       1,869,906             -       1,869,906  
Noncontrolling interest in
variable interest entity
    -       -       -     $ (4,774 )     -       (4,774 )
Net loss
    -       -       -       -       (2,016,234 )     (2,016,234 )
Balance at June 30,
2011 (unaudited)
    11,336,547     $ 11,336     $ 11,319,023     $ (4,774 )   $ (11,007,712 )   $ 317,873  
                                                 
Sale of common stock, net
of $1,336,920 of costs
    6,000,000       6,000       10,657,080       -       -       10,663,080  
Conversion of warrants into
common stock
    1,958,779       1,959       (1,959 )     -       -       -  
Cancelled common stock
    (125,000 )     (125 )     (125 )     -       -       -  
Stock option expense
    -       -       125,307       -       -       125,307  
Stock issued for service provided      47,500        48        85,927         -        -         85,975  
Noncontrolling interest in
variable interest entity
    -       -       -       99,623       -       99,623  
Net loss
    -       -       -       -       (2,328,426 )     (2,328,426 )
Balance at September 30,
2011( unaudited)
    19,217,826     $ 19,218     $ 22,185,503     $ 94,849     $ (13,336,139 )   $ 8,963,431  

The accompanying notes are an integral part of these condensed consolidated financial statements. 
 
 
 
4

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30
 
   
2011
(unaudited)
   
2010
(unaudited)
 
Operating Activities:
           
Net loss
  $ (6,569,793 )   $ (2,743,200 )
Adjustments to reconcile net loss to net cash used in operating activities
               
Depreciation and amortization
    40,695       78,561  
Conversion of accrued interest into common stock
    -       25,084  
Share-based compensation for services rendred   $  85,975        -  
Stock based compensation
    263,730       243,501  
Change in fair value of derivative liability
    1,814,493       -  
Changes in operating assets and liabilities
               
Accounts receivable
    -       (31,942 )
Inventory
    (381,344 )     (418,128 )
Prepaid expenses
    (317,213 )     (34,773 )
Deposit
    4,410       -  
Deferred financing costs
    46,400       (55,800 )
Accounts payable
    (305,302 )     300,564  
Accrued expenses
    (219,231 )     (183,166 )
Net cash used in operating activities
    (5,537,180 )     (2,819,299 )
                 
Investing Activities:
               
Investment in patents
    (14,927 )     (14,737 )
Investment in certificates of deposit
    (2,030,020 )     -  
Purchases of equipment
    (110,634 )     (79,214 )
  Net cash used in investing activities
    (2,155,581 )     (93,951 )
                 
Financing Activities:
               
Proceeds from the sale of convertible notes
    2,471,428       2,510,000  
Proceeds from the sale of common stock, net of costs
    11,018,081       650,055  
Proceeds from noncontrolling interest
    15,300       -  
Payments on lease obligation
    (4,467 )     -  
Payments on notes payable
    (94,500 )        
Payments on notes payable – related party
    -       (120,000 )
Payments on convertible notes payable
    -       (30,000 )
  Net cash provided by financing activities
    13,405,842       3,010,055  
                 
Net increase in cash
    5,713,081       96,805  
                 
Cash at beginning of period
    201,299       36,505  
                 
Cash at end of period
  $ 5,914,380     $ 133,310  
                 
Supplemental disclosure of cash flow information
               
Cash paid for interest
  $ 69,240     $ 181,723  
                 
Supplemental disclosure of non-cash financing transactions
               
Issuance of common stock in lieu of interest payments
  $ -     $ 5,964  
Conversion of debt into common stock
  $ -     $ 500,000  
Payment of equipment by capital lease
  $ -     $ 22,956  
Gain on cancellation of debt
  $ -     $ 227,376  
Issuance of common stock in exchange for cancellation of debt
  $ -     $ 231,562  
Issuance of common stock for services
  $ 105,000     $ -  
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
5

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. ORGANIZATION AND BUSINESS
 
Waxess USA, Inc. was incorporated on February 4, 2008 under the laws of the state of Delaware.  On February 4, 2011, Waxess USA, Inc. merged with Waxess Acquisition Corp., a wholly owned Delaware subsidiary of Waxess Holdings, Inc., formerly International Vineyard, Inc.,  a publicly held Delaware shell corporation with minimal assets and no operations (the “Merger”).  Upon closing of the transaction, Waxess USA, Inc., the surviving corporation in the Merger with Waxess Acquisition Corp., became a wholly-owned subsidiary of Waxess Holdings, Inc. (sometimes referred to hereinafter as “Subsidiary”).
 
On February 3, 2011, Waxess Holdings, Inc. filed an Amended and Restated Certificate of Incorporation in order to, among other things, increase the authorized capital stock to 125,000,000 shares, which is divided into two classes as follows: 100,000,000 shares of Common Stock, par value $0.001 per share, and 25,000,000 shares of “blank check” preferred stock, par value $0.001 per share.  Unless the context specifies otherwise, as discussed in Note 2, references to the “Company” refers to Waxess Holdings, Inc. and Waxess USA, Inc. after the Merger.
 
At the closing of the Merger, each share of Waxess USA, Inc.’s common stock issued and outstanding immediately prior to the closing of the Merger was exchanged for the right to receive 1.19883186 shares of common stock of Waxess Holdings, Inc.  Accordingly, an aggregate of 7,500,000 shares of common stock of Waxess Holdings, Inc. were issued to the holders of Waxess USA, Inc.’s common stock.
 
In connection with the Merger, 8,141,042 shares of common stock were cancelled resulting in 1,083,333 shares of common stock held by persons who were stockholders of Waxess Holdings, Inc. prior to the Merger remaining outstanding.  These 1,083,333 shares constitute “public float” and are the only shares of registered common stock and accordingly are the only shares available for resale without further registration or an exemption therefrom.

On July 21, 2011, the Company filed an amendment to its Certificate of Incorporation with the Secretary of State of Delaware to change its name to “AirTouch Communications, Inc.”  The Company is engaged in the development and marketing of phone terminals capable of converging traditional landline, cellular and data services based on its patent portfolio.  Waxess USA currently offers its cell@home product through various channels, including several of the major US carriers, and is working to bring its higher performance, lower cost next generation Home Connex and Focal Point products to the market. On August 26, 2011, Waxess USA filed an amendment to its Articles of Incorporation with the Secretary of State of California to change its name to “AirTouch, Inc.”
 
2.  REVERSE MERGER ACCOUNTING
 
The Merger was accounted for as a reverse-merger and recapitalization in accordance with generally accepted accounting principles in the United States (“GAAP”).  AirTouch, Inc. is the acquirer for financial reporting purposes and AirTouch Communications, Inc. is the acquired company. Consequently, the assets and liabilities and the operations that will be reflected in the historical financial statements prior to the Merger will be those of AirTouch, Inc. and will be recorded at the historical cost basis of AirTouch, Inc., and the consolidated financial statements after completion of the Merger will include the assets and liabilities of the Company and AirTouch, Inc., historical operations of AirTouch, Inc. and operations of the Company from the closing date of the Merger.  Common stock and the corresponding capital amounts of the Company pre-merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the Merger. In conjunction with the Merger, AirTouch, Inc. received no cash and assumed no liabilities from AirTouch Communications, Inc.  All members of the Company’s executive management are from AirTouch, Inc.
 
 
6

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements primarily reflect the financial position, results of operations and cash flows of Company (as discussed above).  The accompanying unaudited condensed consolidated financial statements of Company have been prepared in accordance with GAAP for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”).  Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for annual financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011, or for any other period.  Amounts related to disclosures of December 31, 2010, balances within those interim condensed consolidated financial statements were derived from the audited 2010 consolidated financial statements and notes thereto filed on Form 8-K/A on April 27, 2011.
 
Use of Estimates
 
These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for Company included in AirTouch Communications, Inc. Form 8-K/A filed on April 27, 2011 with the SEC.  In preparing these condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements and the reported amount of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.  Significant estimates and assumptions included in the Company’s condensed consolidated financial statements relate to the recognition of revenues, the estimate of the allowance for doubtful accounts, the estimate of inventory reserves, estimates of loss contingencies, valuation of long-lived assets, deferred revenues, accrued other liabilities, and valuation assumptions related to share based payments and derivative liability.
 
Going Concern
 
The Company sustained operating losses during the nine months ended September 30, 2011 and the year ended December 31, 2010.  The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and/or obtaining additional financing from its members or other sources, as may be required.
 
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
 
In 2011, Management plans are to obtain additional contracts from customers to improve profitability and raise additional capital to build the infrastructure to support the growth of the Company. 
 
 
7

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Principles of Consolidation
 
The condensed consolidated financial statements include the accounts of the Company and Subsidiary.    In April 2011, the Company acquired a 49% interest in AirTouch Labs, a California corporation (“Labs”).  Labs provides certain research and development services to the Company via exclusive contractual agreements.  Labs also manages third party research and development firms on behalf of the Company.  As a result of the Contractual Agreements, the Company maintains the ability to control Labs, is entitled to substantially all of the economic benefits from Labs and is obligated to absorb all of Labs’ expected losses.  Therefore, the Company consolidates Labs in accordance with SEC Regulation SX-3A-02 and Accounting Standards Codification (“ASC”) 810, Consolidation. All intercompany transactions and balances have been eliminated in consolidation.
 
Cash and Cash Equivalents
 
Cash equivalents are comprised of certain highly liquid investments with maturities of three months or less when purchased.  The Company maintains its cash in bank deposit accounts which at times may exceed federally insured limits.  The Company had no cash equivalents as of September 30, 2011 and December 31, 2010.
 
Certificate of Deposit

During the nine months ended September 30, 2011 the Company invested $2,030,020 in certificates of deposit.  The certificates of deposit carry a term of 12 months and earn interest at 0.40% compounded monthly.  $30,020 of these certificates of deposit is used as collateral for the Company’s credit card program.
 
 Accounts Receivable
 
Accounts receivable consists of trade accounts arising in the normal course of business. No interest is charged on past due accounts.  Accounts for which no payments have been received after 30 days are considered delinquent and customary collection efforts are initiated.  Accounts receivable are carried at original invoice amount less a reserve made for doubtful receivables based on a review of all outstanding amounts on a monthly basis.
 
Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition and credit history, and current economic conditions.  There was no allowance for doubtful accounts at September 30, 2011.
 
Accounts receivables are written off when deemed uncollectible.  Recoveries of accounts receivable previously written off are recorded when received.  There were no accounts receivables at September 30, 2011 or December 31, 2010.
 
Inventory
 
Inventory is stated at lower of cost or market on a first-in, first-out basis. Inventory consists of purchased finished goods and parts used by the contract manufacturer. There was no reserve for inventory at September 30, 2011 and December 31, 2010.
 
 
8

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Deferred Financing Costs
 
Deferred financing costs incurred from the sale of convertible debt are capitalized and amortized over the remaining life of the convertible debt.  Deferred financing costs were zero and $46,400 at September 30, 2011 and December 31, 2010, respectively.
 
Equipment
 
Equipment is stated at cost. Major improvements and betterments are capitalized. Maintenance and repairs are expensed as incurred. Equipment is depreciated over five years. Depreciation is computed using the straight-line method for financial reporting purposes.
 
Depreciation expense for the nine months ended September 30, 2011 and 2010 was $25,926 and $59,735, respectively. Tooling equipment is purchased for use by the contract manufacturer and the contract firm performing research and development services.

Patents
 
Patents consist of legal costs associated with filing and maintaining patent applications.  The Company accounts for patents in accordance with ASC 350-30 and ASC 360. The Company amortizes the capitalized patent costs on a straight-line basis over a period of 10 years, which is management’s estimated useful life of the patents.  Amortization expense for the nine month period ended September 30, 2011 and 2010 was $14,769 and $18,826, respectively.

Long-Lived Assets
 
In accordance with ASC 350-30, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.
 
The Company’s management currently believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company’s products under development will continue. Either of these could result in future impairment of long-lived assets.
 
 
9

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Fair Value of Financial Instruments
 
The fair value accounting guidance defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”  The definition is based on an exit price rather than an entry price, regardless of whether the entity plans to hold or sell the asset.  This guidance also establishes a fair value hierarchy to prioritize inputs used in measuring fair value as follows:  
 
·  
Level 1:  Observable inputs such as quoted prices in active markets;  

·  
Level 2:  Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and  

·  
Level 3:  Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
 
The carrying value of the Company’s restricted certificates of deposit as September 30, 2011 consisted of Level 2 assumptions used in their valuation, which are based on significant other observable inputs of interest rates and time to maturity.

The carrying value of the Company's derivative liability at December 31, 2010 consisted of Level 2 assumptions used in its valuation, which are based on significant other observable inputs of variable reference rates and volatilities. There was no derivative liability at September 30, 2011.
 
This carrying value of accounts payables and accrued expenses approximates the fair value due to their short-term maturities.
 
Revenue Recognition
 
Revenues are derived from the sale of product purchased from a contract manufacturer.  The Company recognizes revenue on arrangements in accordance with FASB ASC No. 605, “Revenue Recognition.” In all cases, revenue is recognized 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 provided; (c) the Company’s price to the buyer is fixed or determinable, as documented on the accepted purchase order or similar documentation; and (d) collectability is reasonably assured.
 
Research and Development Costs
 
Research and development costs consist of expenditures for the research and development of new products and technology related to the Company’s products. The Company expenses all costs associated with research and development. Research and development costs for the nine months ended September 30, 2011 and 2010 totaled $1,679,259 and $954,238, respectively.
 
 
10

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Advertising Costs
 
Advertising costs are expensed as incurred. Advertising and promotional expense for the nine months ended September 30, 2011 and 2010 totaled approximately $34,000 and $31,000, respectively, and are included in selling, general and administrative expense in the accompanying statements of operations.
 
Shipping and Handling Costs
 
Shipping and handling costs are charged to operations when incurred and are included in selling, general, and administrative expenses in the accompanying statements of operations. Shipping and other related costs for the nine months ended September 30, 2011 and 2010 totaled approximately $15,164 and $23,000, respectively.
 
Income Taxes
 
Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
 
The Company calculates a provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment and interpretation of statutes is required. Additionally, the Company uses tax planning strategies as a part of its tax compliance program. Judgments and interpretation of statutes are inherent in this process.
 
Derivative Accounting Policy
 
Convertible Notes Payable and Derivative Liabilities: The Company accounts for convertible notes payable and warrants in accordance with ASC Topic 815 (“Derivatives and Hedging”). This standard requires the conversion feature of convertible debt be separated from the host contract and presented as a derivative instrument if certain conditions are met. ASC 815-40-15, formerly Emerging Issue Task Force (EITF) 00-19, "Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock" and ASC 815-40-25, formerly EITF 05-2, "The Meaning of ‘Conventional Convertible Debt Instrument;’ in issue No. 00-19" were also analyzed to determine whether the debt instrument is to be considered a conventional convertible debt instrument and classified in stockholders' equity.
 
All convertible notes payable were evaluated and determined not to be conventional convertible debt instruments and therefore, because of certain terms and provisions including liquidating damages under the associated registration rights agreement, embedded conversion options were bifurcated and accounted for as derivative liability instruments. The stock warrants issued in conjunction with the convertible notes payable were also evaluated and determined to be a derivative instrument and, therefore, classified as a liability on the balance sheet. The accounting guidance also requires that the conversion feature and warrants be recorded at fair value for each reporting period with changes in fair value recorded in the consolidated statements of operations.
 
11

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Derivative Accounting Policy (Continued)
 
On April 28, 2011, holders of $5,217,500 of the face amount of the Company’s convertible notes exercised their right to convert their notes into common stock of the Company. In connection with the consummation of the Private Placement, the Bridge Warrants held by the investors were converted into three year warrants to purchase an aggregate of 5,267,500 shares of the Company’s common stock at an exercise price of $2.00 per share.  See Note 9.

Loss per Share
 
Basic loss per share is computed by dividing earnings to common stockholders by the weighted average number of common shares outstanding (including shares reserved for issuance) during the period. Diluted loss per share includes potentially dilutive securities such as warrants using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting period. The equity instruments attached to the convertible notes were not included in the earnings per share calculations because the inclusion would have been anti-dilutive.
 
Recent Accounting Pronouncements
 
Accounting standards promulgated by the FASB change periodically. Changes in such standards may have an impact on the Company’s future financial statements. The following are a summary of recent accounting developments.
 
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
 
In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011-04”). ASU 2011-04 redefines many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is effective for the Company beginning in the first quarter of 2012 and is to be applied prospectively. The Company anticipates that the adoption of this standard will not materially expand its consolidated financial statement footnote disclosures.
 
4. RESTRICTED CERTIFICATES OF DEPOSIT

On July 12, 2011, the Company entered into a collateral agreement in the amount of $30,000 with a term of 12 months. This agreement collateralizes the Company’s credit card program.
 
5. CONCENTRATIONS
 
During the nine months ended September 30, 2011, the Company derived 89% and 11%, respectively, of its revenue from two customers.  There were no outstanding receivables from these customers at September 30, 2011.
 
During the year 2010, the Company derived 36% of its revenue each from two customers and 12% of its revenue from one customer. There were no outstanding receivables from these customers at December 31, 2010.
 
 
12

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
5. CONCENTRATIONS (CONTINUED)

During 2010, approximately 86% of the Company’s purchases included in cost of sales were from one supplier. There were no amounts outstanding to this supplier at December 31, 2010.
 
6.  INVENTORY
 
Inventories consist of the following:
 
             
    September 30, 2011     December 31, 2010  
Raw materials
  $ 48,998     $ 75,000  
Work in process
    361,545       -  
Finished goods
    299,919       254,118  
Total
  $ 710,462     $ 329,118  
 
7.  PROPERTY AND EQUIPMENT, NET
 
Property and equipment consists of the following:

   
September 30, 2011
   
December 31, 2010
 
Machinery and tooling
 
$
351,800
   
$
351,800
 
Furniture and fixtures
   
26,486
     
22,956
 
Equipment
   
130,373
     
23,269
 
Less: Accumulated depreciation
   
(268,104
)
   
(242,178
)
Total property and equipment, net
 
$
240,555
   
$
155,847
 
 
8. INTANGIBLE ASSETS, NET
 
The components of all intangible assets were as follows:
 
   
September 30, 2011
   
December 31, 2010
 
Patents
  $ 259,359     $ 244,457  
Trademark
    2,822       2,797  
Less: Accumulated amortization
    (78,795 )     (64,026 )
Total intangible assets, net
  $ 183,386     $ 183,228  
 
 
13

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
8. INTANGIBLE ASSETS, NET (CONTINUED)

Amortization expense relating to the patents for the nine months ended September 30, 2011 and 2010 totaled $ 14,769 and $18,826, respectively.  Future amortization expense for these assets is as follows.
 
2011 (3 months remaining)
 
$
4,924
 
2012
   
19,693
 
2013
   
19,693
 
2014
   
19,693
 
2015
   
19,693
 
Thereafter
   
99,690
 
Total
 
$
183,386
 

We accumulated $2,822 on our balance sheet for prosecution and related processing fees for trademark registration initiatives with the US Patent and Trademark Office.
 
9.  NOTES PAYABLE
 
In December 2010, the Company converted an outstanding account payable in the amount of $94,500 to a note payable.  The note paid interest at a rate of 5.25% per annum and was due on July 1, 2011.  Interest only payments were due on the first of each month. This note was paid off in July 2011.
 
On March 3, 2011, the Company issued certain notes to borrow $26,000.  The notes accrued interest at a rate of 5%.  The face amount of the notes together with the accrued interest was due on the earlier of 90 days or when the Company raised $5 million through the sale of equity securities. These notes were paid off on April 3, 2011.
 
On March 17, 2011, the Company issued a note to borrow $121,433.  The note accrued interest at a rate of 10% per annum.  The face amount of the note together with the accrued interest was due on the earlier of six months or when the Company raised $5 million through the sale of equity securities. This note was paid off on April 14, 2011.
 
10.  BRIDGE LOANS
 
As of September 30, 2011, the Company had sold an additional $2,282,500 of convertible notes to private investors (“Bridge Facility”).  The notes were sold in various amounts with a term of six months and a stated rate of interest of 10% compounded annually.  The notes provide for a three-year warrant to purchase an amount of common stock equal to the face amount of the note divided by the lower of the price per share of the common stock as determine by a Financing Event (defined below) or 100% of the fair market value of the common stock at the date of the note.  In connection with the sale of the convertible notes, the Company incurred certain costs that were paid to placement agents for assistance with the sale of the convertible notes.  These costs were accounted for as deferred financing costs and are amortized over the term of the convertible notes using the effective interest rate method.  On April 28, 2011, notes in the amount of $5,506,428 including interest were converted into 2,753,214 shares of common stock. 

During 2010, holders of $3,035,000 of notes with these terms agreed to extend the terms of the notes to the earlier of six months from the maturity date of the original note or the closing of a debt or equity financing with a minimum of $2 million in gross proceeds (“Financing Event”), and to convert their notes into common stock equal to the amount of the note plus accrued interest divided by the lower of the stock price as determined by the closing of the Financing Event or 100% of the fair market value of the common stock at the date of the note.  In exchange for their agreement to extend the term of the note and to convert the note into equity the note holders received twice the amount of warrants provided under their original note and warrant agreement.  
 
 
14

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
10.  BRIDGE LOANS (CONTINUED)
 
Pursuant to ASC Topic 470 "Debt with Conversion and Other Options," the Company previously recorded a debt discount in the amount of $524,483 based on the fair value allocation of the embedded conversion feature and the fair value allocation of the warrants.  The debt discount was eliminated in April 2011 when the convertible notes were converted into the Company’s common stock.    
 
11.  SHARE-BASED COMPENSATION
 
Stock Option
 
The Company records stock-based compensation expense related to stock options and the stock incentive plan in accordance with ASC 718, “Compensation – Stock Compensation.”
  
11.  SHARE-BASED COMPENSATION (CONTINUED)
 
The Company adopted a stock incentive plan in February 2011.  The Company has authorized 1,500,000 shares of common stock for issuance to officers and employees.  The Plan provides for grants of options to purchase common stock at the fair market value of such shares on the grant date.
 
The options vest quarterly over a two-year period beginning on the grant date.  Options granted under the plan are incentive stock options and non-qualified stock options under the U.S. Internal Revenue Code.  The contractual term of the options is ten years. For the nine months ended September 30, 2011 the Company issued stock options from the plan to purchase 1,528,196 shares of the common stock of the Company.
 
Total stock-based compensation expense included in general and administrative expense for the nine months ended September 30, 2011 was $263,730.  ASC 718, “Compensation – Stock Compensation” requires that the only the amount of compensation expense expected to vest be recognized.
 
The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model and the assumptions in the following table.  The expected volatility is based on the daily historical volatility of comparative companies, measured over the expected term of the option.  The risk-free rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term closest to the expected term of the option.
 
The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.
 
The following assumptions were used to determine the fair value of the options at date of issuance on September 30, 2011:
 
Expected volatility (%)
55.75%
Risk-free interest rate (%)
0.19%
Expected term (in years)
3
Dividend yield
0%
 
As of September 30, 2011, there was $710,719 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of 3 years.  The Company’s current practice is to issue new shares to satisfy option exercises.  Compensation expense for all stock-based compensation awards is recognized using the straight-line method.
 
 
15

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 
11.  SHARE-BASED COMPENSATION (CONTINUED)
 
The following table summarizes the Company’s stock option activity and related information for the nine months ended September 30, 2011:
 
   
Options
   
Weighted average exercise price
   
Weighted average remaining contractual term (years)
   
Aggregate Intrinsic Value
 
Balance, January 1, 2011
                       
Granted
    671,754     $ 2      -       -  
Exercised
    -       -     -        -  
Forfeited or expired
     -       -      -        -  
Vested and expected to vest at March 31, 2011
    -       -      -        -  
Exercisable, March 31, 2011
     -       -      -        -  
Balance, March 31, 2011
    671,754     $ 2       3       -  
Granted
    520,096     $ 2        -       -  
Exercised
    -       -        -        -  
Forfeited or expired
    -       -        -        -  
Vested and expected to vest at June 30, 2011
    297,963       -        -        -  
Exercisable, June 30, 2011
    -       -        -        -  
Balance, June 30, 2011
    1,191,850     $ 2       3          
Granted
    336,346     $ 2       3       -  
Exercised
    -       -        -        -  
Forfeited or expired
    -       -        -        -  
Vested and expected to vest at September 30, 2011
    297,963       -        -        -  
Exercisable, September 30, 2011
    -       -        -        -  
Balance, September 30, 2011
    1,528,196     $ 2        -       -  

 
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the fair value of the Company’s stock on the last day of the quarter and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their option on that day.  This amount changes based on the fair market value of the Company’s stock.
 
As of September 30, 2011 there were no options in the money as the exercise price exceeded the fair value of the stock on that date.
 
 
16

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
11.  SHARE-BASED COMPENSATION (CONTINUED)
 
The unrecognized compensation expenses for the nine months ended September 30, 2011 is as follow:

Balance, January 1, 2011
    -  
Compensation expenses incurred
  $ 438,078  
Recognized compensation expenses
    37,078  
Balance, March 31, 2011
    401,000  
Compensation expenses incurred
    328,519  
Recognized compensation expenses
    101,346  
Balance, June 30, 2011
  $ 628,173  
Compensation expenses incurred
    207,852  
Recognized compensation expense
    125,306  
Balance, September 30, 2011
  $ 710,719  

12.  DERIVATIVE LIABILITY
 
Warrants
 
The conversion features of both the convertible notes payable and related warrants met the definition of a derivative liability due to the contract obligations.  Derivative instruments are measured at fair value at each reporting period with gains and losses recognized in current earnings.  The Company calculated the fair value of these instruments using the Black-Scholes pricing model. The significant assumptions used in the calculation of the instruments fair value are detailed in the table below.  
 
On April 28, 2011, the convertible notes were either paid in full or converted; therefore, the liability associated with the derivative component of the warrant was eliminated at June 30, 2011.  The result was a reclassification of the derivative liability to additional paid in capital in the amount of $1,869,906.    
 
The following table represents the Company’s derivative liability activity for both the embedded conversion features and the warrants for the nine months ended September 30, 2011: 

Issuance of derivative financial instrument
 
$
1,901,813
 
Reclassification to equity upon conversion of debt
   
(1,869,906
Change in derivative liability
   
31,907
 
Total
 
$
-
 
 
 
17

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12.  DERIVATIVE LIABILITY (CONTINUED)
 
The following assumptions were used to determine the fair value of the warrants as of the date the derivative component of the warrant was eliminated:

Volatility
 
55.63%
Expected dividend
 
-
Expected term
 
 6 months to 3 years
Risk free rate
 
0.77%
Weighted average strike price
 
$2.79

As described in Note 9, during the year 2010 and the nine months ended September 30, 2011, the Company issued financial instruments in the form of warrants and convertible notes payable with conversion features; granted warrants to purchase 182,125 shares of common stock to service providers; and granted a warrant in connection with entering into an agreement with Brightpoint, Inc.
 
13. CAPITAL LEASE
 
The Company is the lessee of office furniture under a capital lease expiring in February 2013.  The assets and liabilities held under capital lease are initially recorded at the lower of the present value of the minimum lease payments or the fair value of the asset.
 
The assets are depreciated over the lower of the related lease terms or their estimated productive lives.  Depreciation of assets under capital lease is included in depreciation expense for the nine months ended September 30, 2011.
 
The following is a summary of property and equipment held under capital lease:
 
Office furniture
 
$
22,956
 
Less: Accumulated depreciation
   
(11,478
)
Property held under capital lease, net
 
$
11,478
 
 
Depreciation of assets held under this capital lease for the nine months ended September 30, 2011 and 2010 was $6,887  and $4,591, respectively. The implicit interest rate under this capital lease is 35%.
 
Minimum future lease payments under this capital lease as of September 30, 2011, for each of the next 20 months and in the aggregate are as follows:
 
2011 (3 months remaining)
 
$
2,429
 
2012
   
9,714
 
2013
   
      31
 
Total minimum lease payments
   
12,174
 
Less: Amount representing interest
   
(2,132
Present value of obligations under capital lease
   
10,042
 
Less: Current portion of obligations under capital lease
   
(7,703
)
Long-term portion of obligations under capital lease
 
$
2,339
 
 
 
 
18

 

AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
14.  COMMITMENTS AND CONTINGINCIES
 
During the ordinary course of business, the Company encounters various legal claims which, in the opinion of management, will not materially affect the Company.
 
The Company leases office space in California under an operating lease. The Company signed a twenty-five month lease beginning on May 17, 2010 through June 17, 2012. The Company is required to pay monthly rental payments of approximately $4,200. Total rent expense for the nine months ended September 30, 2011 totaled approximately $37,700.
 
On October 28, 2011, the company entered into a new operating lease agreement which amended the existing lease for office space. The amended lease has an initial term of 36 months commencing on November 1, 2011 and includes minimum lease payments of  approximately $249,100.  The lease includes an option to extend the lease for an additional three year period at a lease rate which approximates fair market value.

Future minimum payments are as follows:
 
2011 (3 months remaining)
 
$
4,200
 
2012
   
84,200
 
2013      86,700  
2014      74,000  
Total Minimum Lease Payments
 
$
249,100
 

15.  RELATED PARTY TRANSACTIONS
 
There were no related party transactions during the nine months ended September 30, 2011 and 2010, except as set forth below.
 
On March 31, 2010, $227,376 of unpaid salary and related accrued interest was forgiven by its Chief Executive Officer, which is included in other income in the statement of operations for the nine months ended September 30, 2010.  The unpaid salary was bearing interest at 11.25% per annum.  Unpaid interest on accrued salaries to the Chief Executive Officer was $0 and $22,978 at September 30, 2011 and December 31, 2010, respectively.

During the nine months ended September 30, 2011, payments for research and development costs in the amount of $1,475,769 were paid to Waxess Research & Development which was eliminated during consolidation.  The Company owns 49% of Waxess Research & Development, which on August 26, 2011 filed an amendment to its Articles of Incorporation with the Secretary of State of California to change its name to “AirTouch Labs, Inc.”
 
16.  STOCKHOLDERS’ EQUITY
 
Common Stock
 
Pursuant to the terms and conditions of the Merger on February 4, 2011 (see Note 1 and 2) each share of AirTouch, Inc.’s common stock issued and outstanding immediately prior to the closing of the Merger was exchanged for the right to receive 1.19883186 shares of AirTouch Communications, Inc. common stock.  An aggregate of 7,500,000 shares of AirTouch Communications, Inc. common stock were issued to the holders of AirTouch, Inc.’s common stock and represents approximately 87% of the outstanding shares of AirTouch Communications, Inc.  Additionally, 1,083,333 shares of common stock held by stockholders of AirTouch Communications, Inc. prior to the Merger remain outstanding. These 1,083,333 shares constitute the “public float” and are the only shares of registered common stock and accordingly are the only shares available for resale without further registration or an exemption therefrom.

 
 
19

 

AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
16.  STOCKHOLDERS’ EQUITY (CONTINUED)
 
During 2011, the Company sold 6,000,000 shares of common stock together with 6,000,000 warrants for $12,000,000 to various parties less $1,336,920 of issuance costs.
 
During the three months ended September 30, 2011, the Company issued 161,743 shares of common stock to certain investors when the Company failed to file the registration statement by an agreed upon date.

On September 15, 2011, the Company issued 47,500 s hares, and recorded a noncash charge of $85,975, for financial services provided related to raising equity .
 
On July 27, 2011, the Company converted 8,714,111 of outstanding warrants into 1,958,777 shares of common stock at a conversion rate of 10% to 30%.

On July 1, 2011, the Company cancelled 125,000 shares of common stock originally restricted for marketing purposes.

On April 28, 2011, notes in the amount of $5,506,428 including interest were converted into 2,753,214 shares of common stock.   See Note 9.

On February 4, 2011, the Company converted 179,825 of outstanding warrants into an equal number of shares of common stock.

In February 2011, Brightpoint, Inc. purchased the remaining 205,463 shares under the Agreement for $250,001.  At September 30, 2011, Brightpoint, Inc. owned 4,533,768 shares of the Company’s common stock based on the conversion pursuant to the Merger on February 4, 2011.

During 2010, the Company entered into certain agreements (“Agreements”) with Brightpoint, Inc.  The Agreements appoints Brightpoint, Inc. as the master distributor for all of the Company’s products.  The exclusivity or non-exclusivity of the appointment is determined on a territory by territory basis.  The Agreements also provided for the sale of 787,186 shares of the Company’s common stock to Brightpoint, Inc. for $1,500,000, after which the parties agreed to an additional 100,000 shares for the same consideration.

On July 26, 2010 Brightpoint, Inc. purchased 266,320 shares for $500,000.  On October 1, 2010, Brightpoint, Inc. purchased an additional 266,320 shares for $500,000.  On December 7, 2010, Brightpoint, Inc. purchased 183,160 shares for $250,000.
 
During 2010, the Company sold 774,557 shares of common stock for $1,400,056 to various parties.
 
During 2010, the Company cancelled 71,430 shares of common stock from two shareholders after using best efforts to make contact with them.
 
During 2010, related party notes in the amount of $231,562 were cancelled in exchange for 475,063 shares of common stock.
 
During 2010, $500,000 of convertible notes payable and $20,913 of accrued interest was converted into 289,643 shares of the Company’s common stock with various note holders.
 
As of September 30, 2011, the Company had 13,770,665 warrants outstanding with exercise prices ranging from $2 to $3.  Below is summary of the warrant activities for the nine month period ended September 30, 2011:

Balance, December 31, 2010
    2,985,000  
Granted
    19,499,776  
Exchanged
    (8,714,111 )
Balance, September 30, 2011
    13,770,665  

 
20

 

AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
17.  PROVISION FOR INCOME TAXES
 
The items accounting for the difference between income taxes computed at the federal statutory rate and the benefit for income taxes were as follows:

   
September 30, 2011
   
September 30, 2010
 
             
Provision computed at federal statutory rate
    34.00 %     34.00 %
State tax, net of federal tax benefit
    4.13 %     8.84 %
FMV adjustment on warrants
    (6.49 %)     0.00 %
Other adjustments
    (3.48 %)     0.00 %
Valuation allowance
    (28.17 %)     (42.84 %)
Effective income tax rate
    (0.01 %)     0.00 %
                 

As of September 30, 2011, the Company has estimated federal and state net operating loss carryforwards of approximately $1,040,000 and $10,986,000 , respectively which can be used to offset future federal and state income tax. These net operating loss carryforwards expire in various years through 2031.  
 
Deferred tax assets resulting from the net operating losses are reduced by a valuation allowance, when, in the opinion of management, utilization is not reasonably assured.  The following summarizes the deferred tax assets as of September 30, 2011 and December 31, 2010:
 
   
September 30, 2011
   
December 31, 2010
 
Net operating losses
 
$
4,394,401
   
$
2,577,829
 
Accrued expenses
   
18,307
     
36,719
 
Stock options & warrants
   
105,055
     
22,073
 
Other
   
(1,881
)
   
6,639
 
Less: valuation allowance 
   
(4,515,881
)
   
(2,643,260
)
Net deferred tax asset  
 
$
-
   
$
-
 
 
The Company’s valuation allowance increased by $1,872,621 for the nine months ended September 30, 2011. Due to a potential change in ownership under IRC 382, the amount of net operating loss that the Company may utilize in a future year may be limited under IRC Section 382.
 
The Company periodically evaluates the likelihood of the realization of deferred tax assets, and adjusts the carrying amount of the deferred tax assets by a valuation allowance to the extent the future realization of the deferred tax assets is not judged to be more likely than not.
 
 
21

 
 
AIRTOUCH COMMUNICATIONS, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
17.  PROVISION FOR INCOME TAXES (CONTINUED)
 
The Company considers many factors when assessing the likelihood of future realization of our deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the carry-forward periods available to us for tax reporting purposes, and other relevant factors.
 
At September 30, 2011, based on the weight of available evidence, including cumulative losses in recent years and expectations of future taxable income, the Company determined that it was more likely than not that its deferred tax assets would not be realized.  Accordingly, the Company has recorded a valuation allowance equivalent to 100% of its cumulative deferred tax assets.
 
As a result of the implementation of certain provisions of ASC 740 the Company performed an analysis of its previous tax filings and determined that there were no positions taken that it considered material uncertain.  Therefore, there was no provision for uncertain tax positions for the quarters ended September 30, 2011 and 2010.  Future changes in uncertain tax positions are not expected to have an impact on the effective tax rate due to the existence of the valuation allowance.
 
The Company will continue to classify income tax penalties and interest, if any, as part of interest and other expenses in its statements of operations. The Company has incurred no interest or penalties as of September 30, 2011 and 2010.
 
The following table summarizes the open tax years for each major jurisdiction:
 
 
Jurisdiction
 
 Open Tax Years
 
         
 
Federal
 
2008-2010
 
         
 
State
 
2008-2010
 
 
18.  SUBSEQUENT EVENTS
 
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through November 15, 2011.

On October 28, 2011, the company entered into a new operating lease agreement which amended the existing lease for office space.  The amended lease has an initial term of 36 months commencing on November 1, 2011 and includes minimum lease payments of  approximately $249,100.  The lease includes an option to extend the lease for an additional three year period at a lease rate which approximates fair market value.

On October 3, 2011, the Company entered into a revolving line of credit in the amount of $2,000,000.  Terms of the agreement include interest that accrues at the greater of a) 2.5% or b) Prime less 0.5% and a maturity date of September 1, 2012.  The line is collateralized by a $2,000,000 certificate of deposit.  As of November 15, 2011, the Company had not drawn on the line.

On October 1, 2011, the Company acquired all assets of Waxess Japan in a stock acquisition for $120,000.  The transaction is being recognized as a business combination in accordance with ASC 805, “Business Combinations”.   During the same month  Waxess Japan changed its name to AirTouch Japan.

 
22

 

General

The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, our unaudited condensed consolidated financial statements and related notes included elsewhere in this Report.  Historical results and percentage relationships among any amounts in these financial statements are not necessarily indicative of trends in operating results for any future period. This report contains “forward-looking statements”.  The statements, which are not historical facts contained in this Report, including this Management’s discussion and analysis of financial condition and results of operation, and notes to our unaudited condensed consolidated financial statements, particularly those that utilize terminology such as “may” “will,” “should,” “expects,” “anticipates,” “estimates,” “believes,” or “plans” or comparable terminology are forward-looking statements. Such statements are based on currently available operating, financial and competitive information, and are subject to various risks and uncertainties. Future events and our actual results may differ materially from the results reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, dependence on existing and future key strategic and strategic end-user customers, limited ability to establish new strategic relationships, ability to sustain and manage growth, variability of operating results, our expansion and development of new service lines, marketing and other business development initiatives, the commencement of new engagements, competition in the industry, general economic conditions, dependence on key personnel, the ability to attract, hire and retain personnel who possess the technical skills and experience necessary to meet the service requirements of our clients, the potential liability with respect to actions taken by our existing and past employees, risks associated with international sales, and other risks described herein and in our other filings with the SEC.

           The safe harbor for forward-looking statements provided by Section 21E of the Securities Exchange Act of 1934 excludes issuers of “penny stock” (as defined under Rule 3a51-1 of the Securities Exchange Act of 1934). Our common stock currently falls within that definition.

All forward-looking statements in this document are based on information currently available to us as of the date of this report, and we assume no obligation to update any forward-looking statements, except as may be required under applicable securities law.  Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.
 
  Company History

AirTouch Communications, Inc. (“we” or, the “Company”) was incorporated as a Delaware corporation on April 2, 2007 for the purpose of developing a wholesale and distribution business that specializes in providing French and California sourced wines to the Chinese market.  On February 3, 2011, we amended and restated our certificate of incorporation in order to, among other things, change our name to Waxess Holdings, Inc. and increase our authorized capital stock to 125,000,000 shares of which 100,000,000 are designated as common stock and 25,000,000 are designated as “blank check” preferred stock.

On February 4, 2011, we entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Waxess USA, Inc., a privately held California corporation (“Waxess USA”), and Waxess Acquisition Corp., our newly formed, wholly-owned Delaware subsidiary (“Acquisition Sub”). Upon closing of the transaction contemplated under the Merger Agreement (the “Merger”), Acquisition Sub merged with and into Waxess USA, and then Waxess USA, as the surviving corporation, became a wholly-owned subsidiary of the Company. On July 21, 2011, we amended our Certificate of Incorporation with the State of Delaware to change our name from “Waxess Holdings, Inc.” to “AirTouch Communications, Inc.”
 
Waxess USA began operations in 2004, and was incorporated in California in 2008.  In August 2011, the State of California approved a name change from Waxess USA to AirTouch, Inc.  AirTouch, Inc. is engaged in the development and marketing of phone terminals capable of converging traditional landline, cellular and data services based on its patent portfolio.  The business was started by a group of ex-Uniden executives that observed the migration of landline subscribers to cellular and determined that the migration would continue and create a need for home cellular cordless phones.  AirTouch, Inc. currently offers its DM1000 (cell@home) product through various channels, including several of the major US carriers, and is working to bring its higher performance, lower cost next generation UFO, HomeconneX and Focal Point products to the market.  To date, AirTouch, Inc. has not generated material revenues or earnings as a result of its activities.  As a result of the Merger, AirTouch, Inc. became a wholly-owned subsidiary of the Company and the Company succeeded to the business of AirTouch, Inc. as its sole line of business.
 
 
23

 
Company Overview

We are a technology firm, located in Newport Beach, CA, that was incorporated in 2008 and develops and markets phone terminals capable of converging traditional landline, cellular and data services based on its patent portfolio.   AirTouch, Inc. currently offers its DM1000 (cell@home) product through various channels, including several of the major US carriers, and is working to bring its higher performance, lower cost next generation UFO, HomeconneX and Focal Point products to the market.

Comparison of Nine Months Ended September 30, 2011 to September 30, 2010

Net revenues for the nine months ended September 30, 2011 were approximately $477,000, compared with $143,000 for the nine months ended September 30, 2010.  The increase of $334,000 was the result of the development and certification of the CDMA version of the Company’s first generation product.
 
Gross profit as a percentage of sales during the nine months ended September 30, 2011 was 25.7%, compared to 6.8% for the nine months ended September 30, 2010.  The Company incurred higher than normal production and freight costs in the prior period in an effort to bring the product to market.
 
Operating expenses for the nine months ended September 30, 2011 were approximately $3,707,000, compared to $2,587,000 for the nine months ended September 30, 2010.  The increase of $1,120,000 or 43.3% was primarily due to an approximate $725,000 increase in research and development costs associated with the Company’s next generation product (X1500) and its derivative products, and an increase of approximately $395,000 in selling, general and administrative expenses, resulting from an increase in labor costs as staffing levels increased.    

Other expenses, net for the nine months ended September 30, 2011 were approximately $2,986,000, compared to $166,000 for the nine months ended September 30, 2010.  The $2,820,000 increase was primarily attributable to $1,176,000 in noncash adjustments to the fair value of stock options and warrants issued; a $500,000 increase in interest expense primarily attributable to the convertible notes; a $120,000 increase in interest expenses to bridge notes; a $293,000 noncash charge to other expenses related to the issuance of common stock for not filing the registration statement by an agreed upon date; an $85,975  noncash charge to  stock compensation expense for stock issued in connection with capital raising efforts; and a $227,000 gain on the cancellation of notes during the nine months ended September 30, 2010 that did not occur in the current period.

The resulting net loss for the nine months ended September 30, 2011 was approximately $6,650,000 , compared with a loss of approximately $2,743,000 for the nine months ended September 30, 2010, an increase in net loss of $3,907,000 or 149%.
 
Comparison of Three Months Ended September 30, 2011 to September 30, 2010

Net revenues for the three months ended September 30, 2011 were $0, compared with $139,000 for the three months ended September 30, 2010.  The $139,000 decrease was the result of the Company’s efforts to focus on the development and certification of its next generation products and manage the inventory of its first generation products.
 
Gross profit as a percentage of sales during the three months ended September 30, 2011 was 0.0%, compared to 5.7% for the three months ended September 30, 2010.  The decrease was attributable to no revenue during the quarter.
 
Operating expenses for the three months ended September 30, 2011 were approximately $1,687,000, compared to $749,000 for the three months ended September 30, 2010.  The increase of $939,000 or 125.3% was primarily due to an increase in research and development costs of approximately $425,000 for the Company’s next generation products and an increase of approximately $513,000 in selling, general and administrative expenses.  The increase in Selling, general and administrative expenses was primarily driven by an increase of approximately $211,000 in labor costs resulting from staffing increases; an increase of approximately $62,000 in travel expenses primarily associated with the sale of equity; an increase of approximately $94,000 primarily due to investment relations, public relations, filing fees and other public company costs.

 
24

 
Other expenses, net for the three months ended September 30, 2011 were approximately $541,000 compared to approximately $38,000 for the three months ended September 30, 2010.  The $503,000 or 1,300% increase is primarily due to an increase in financing costs associated with the sale of the Company’s stock; a $293,000 noncash charge to other expenses related to the issuance of common stock for not filing the registration statement by an agreed upon date; and an $85,975 noncash charge to  stock compensation expense for stock issued in connection with capital raising efforts.

The resulting net loss for the three months ended September 30, 2011 was $2,328,000 , compared with a loss of $779,000 for the three months ended September 30, 2010, an increase in net loss of $1,549,000 or 198% .

Liquidity and Capital Resources

As of September 30, 2011, cash was $5,914,380, an increase of $5,713,080 from December 31, 2010.  For the nine months ended September 30, 2011, cash from operations decreased approximately $5,537,000 .  The increase was primarily due to operating losses offset by an increase in the noncash adjustment in connection with the valuation of the warrants issued.  During the nine months ended September 30, 2011, the Company sold convertible notes of varying denominations, which resulted in proceeds totaling $2,471,428.  During the nine months ended September 30, 2011 the Company sold 6,385,288 shares of common stock for $11,018,081.  These proceeds were used to fund the development and commercialization of our second generation product and its derivative products.  As of September 30, 2011 the Company invested $2,030,020 in certificates of deposit.
 
Off-balance Sheet Arrangements

We have no off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is deemed by our management to be material to investors.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

Those material accounting policies that we believe are the most critical to an investor’s understanding of our financial results and conditions are discussed in Notes 2 and 3 of the financial statements.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this item.

ITEM 4 – CONTROLS AND PROCEDURES

(a)  
Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
 
In connection with this Amendment, the Company’s management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out, as of November 2011, a re-evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of September 30, 2011.  Based upon that re-evaluation the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2011  as a result of the improper accounting for common share issuances and financing fees incurred during the three months ended September 30, 2011.
 
 
25

 
(b)  
Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the nine months ended September 30, 2011 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II:  OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS
 
None.
   
ITEM 1A – RISK FACTORS

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.

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

In February 2011, the Company sold 171,386 shares of its common stock to Brightpoint, Inc. for $250,001.  The shares were issued pursuant to an exemption from the registration requirements of the Securities Act provided by Section 3(a)(10) of the Securities Act.
 
During the nine months ended September 30, 2011, we sold $2,471,428 of 10% convertible notes and warrants to purchase 282,500 shares of common stock in an issuance pursuant to an exemption from the registration requirements of the Securities Act as provided by Section 4(2) of the Securities Act.

On October 7, 2011 , the Company issued an aggregate of 161,743 shares of common stock to investors as liquidated damages for failure to timely file a registration statement. The Company relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.
 
ITEM 3 – DEFAULT UPON SENIOR SECURITIES

None.

ITEM 4 – REMOVED AND RESERVED

None.

ITEM 5 – OTHER INFORMATION

None.

 
26

 
ITEM 6 – EXHIBITS

3.1
Certificate of Amendment of Amended and Restated Certificate of Incorporation (Incorporated by reference to the Current Report on Form 8-K, filed with the SEC on July 26, 2011)
101*
The following materials from AirTouch Communications, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 are formatted in XBRL (eXtensible Business Reporting Language):  (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Cash Flow, (iii) the Consolidated Balance Sheets, and (iv) Notes to Consolidated Financial Statements tagged as blocks of text.
101.ins XBRL Instance Document
101.sch XBRL Taxonomy Schema Document
101.cal
XBRL Taxonomy Calculation Linkbase Document
101.def XBRL Taxonomy Definition Linkbase Document
101.lab XBRL Taxonomy Label Linkbase Document
101.pre XBRL Taxonomy Presentation Linkbase Document
 
*           In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
 
 
 
27

 

 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
AIRTOUCH COMMUNICATIONS, INC.
a Delaware corporation
 
       
 November 28, 2011
By:
/s/ Hideyuki Kanakubo 
 
   
Hideyuki Kanakubo 
President, Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
 November 28, 2011
By:
/s/ Jerome Kaiser  
 
   
Jerome Kaiser
Chief Financial Officer
(Principal Financial and Accounting Officer)
 

 
 
 
 
28