UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended SEPTEMBER 30, 2001
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number 333-62216
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DIRECT WIRELESS COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS 74-3002154
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
106 E. 6TH STREET, SUITE 650, AUSTIN, TX 78701
(Address of principal executive offices)
(512)-583-4500
Issuer's telephone number)
NONE
(Former name, former address and former fiscal year, if
changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 10,434,431
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Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements Page
Balance Sheet 1
Statement of Loss and Accumulated Deficit 2
-
Statement of Changes in Stockholders' Equity 3
Statement of Cash Flows 4
Notes to Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
Item 1. Recent Developments in Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 9
Item 6. Exhibits and Reports in Form 8-K 8
Signatures 9
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DIRECT WIRELESS COMMUNICATIONS, INC. Page 1
(A Development Stage Company)
Balance Sheet
September 30, 2001
ASSETS:
Current Assets
Cash $ 688
--------
Total Current Assets 688
License - Direct Wireless Corporation 62,645
--------
$ 63,333
========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Accounts Payable - Related Party $ 2,371
--------
Total Current Liabilities 2,371
Stockholders' Equity
Common Stock, No Par Value, 200,000,000 Shares Authorized, 10,434,431
Issued and Outstanding 63,645
Additional Paid-In Capital 9,917
Deficit Accumulated During the Development Stage (12,600)
--------
Total Stockholders' Equity 60,962
--------
Total Liabilities and Stockholders' Equity $ 63,333
========
DIRECT WIRELESS COMMUNICATIONS, INC. Page 2
(A Development Stage Company)
Statement of Loss and Accumulated Deficit
For the Period from Inception (April 6, 2001) to September 30, 2001
Three Months Ended Inception to
9/30/01 9/30/01
-------- --------
Revenue $ 0 $ 0
Expenses
Legal Fees 551 2,051
License Fees 0 320
Administrative Fees 5,412 10,229
-------- --------
5,963 12,600
Net Loss $ (5,963) $(12,600)
-------- --------
Deficit Accumulated During the Development Stage - Beginning of Period (6,637) 0
-------- --------
Deficit Accumulated During the Development Stage - End of Period $(12,600) $(12,600)
======== ========
DIRECT WIRELESS COMMUNICATIONS, INC. Page 3
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
For the Period from Inception (April 6, 2001) to September 30, 2001
Additional
Common Paid-In Retained
Shares Stock Capital Earnings Total
---------- ---------- ---------- ---------- ----------
Balance - Beginning of Period 0 $ 0 $ 0 $ 0 $ 0
Stock Issued - At Inception 1,000 1,000 0 0 1,000
Paid-In Capital - Services Contributed 0 4,817 0 4,817
Net Loss 0 0 (6,637) (6,637)
---------- ---------- ---------- ---------- ----------
Balance - June 30, 2001 1,000 $ 1,000 $ 4,817 $ (6,637) $ (820)
---------- ---------- ---------- ---------- ----------
Stock Issued - September 27, 2001 10,155,029 0 0 0 0
As Direct Wireless Corporation
Dividend
Stock Issued - September 27, 2001 278,402 62,645 0 0 62,645
For Cash
Paid-In Capital - Services Contributed 0 5,100 0 5,100
Net Loss 0 0 (5,963) (5,963)
---------- ---------- ---------- ---------- ----------
Balance - September 30, 2001 10,434,431 $ 63,645 $ 9,917 $ (12,600) $ 60,962
========== ========== ========== ========== ==========
DIRECT WIRELESS COMMUNICATIONS, INC. Page 4
(A Development Stage Company)
Statement of Cash Flows
For the Period from Inception (April 6, 2001) to September 30, 2001
Three Months Ended Inception to
9/30/01 9/30/01
-------- --------
Cash Flows From Operating Activities
Net Income (Loss) $ (5,963) $(12,600)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used for) Operating Activities:
Services Contributed 5,100 9,917
Increase in:
Accounts Payable 551 2,371
-------- --------
Net Cash Provided (Used) by Operating Activities (312) (312)
Cash Flows From Investing Activities 0 0
Cash Flows From Financing Activities
Cash from Stock Issued 1,000 1,000
-------- --------
Net Increase (Decrease) in Cash 688 688
Cash, at Beginning of Period 0 0
-------- --------
Cash, at End of Period $ 688 $ 688
======== ========
DIRECT WIRELESS COMMUNICATIONS, INC. Page 5
(A Development Stage Company)
Notes to Financial Statements
September 30, 2001
Note A - Summary of Significant Accounting Policies
- ---------------------------------------------------
NATURE OF OPERATIONS
Direct Wireless Communications, Inc. (the Company) is a development stage
company that was incorporated on April 6, 2001. On May 15, 2001, the Company
entered into a Technology Licensing Agreement with Direct Wireless Corporation
(Direct Wireless). Under this agreement, Direct Wireless was granted a license
to market and/or sublicense in the United States the wireless telephone
communications technology on which Direct Wireless holds the patents. The
Company has not yet begun operations. Upon completion of the working prototype
telephone employing the technology, the Company intends to market and sublicense
the technology primarily to existing service providers who desire to extend
their services to sparsely settled areas or to public utilities who have
customers in such areas and desire to provide wireless services to them.
BASIS OF ACCOUNTING
The financial statements of the Company have been prepared on the accrual basis
of accounting. Revenue is recognized as earned and expenses are recorded when
accrued. This basis of accounting conforms to generally accepted accounting
principles.
INTERIM FINANCIAL STATEMENTS
The accompanying financial statements are prepared as of September 30, 2001,
which is an interim reporting period for the Company. The Company's fiscal year
ends on the last day of the calendar year for financial reporting purposes. The
Company's first fiscal year will be ending as of December 31, 2001.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions effect the reported amounts on assets and
liabilities, disclosure of contingent assets and liabilities, and the reported
revenue and expenses. Actual results could differ from those estimates.
Note B - Related Party Transactions
- -----------------------------------
During the period ended September 30, 2001, the Company incurred legal expenses
and license fees related to incorporating and organizing the startup operations
of the Company. These expenses were paid for by Direct Wireless Corporation, an
entity related to the Company through common ownership. Total expenses incurred
for the three months ended September 30, 2001 were $551.
DIRECT WIRELESS COMMUNICATIONS, INC. Page 6
(A Development Stage Company)
Notes to Financial Statements
September 30, 2001
Note B - Related Party Transactions (Continued)
- -----------------------------------------------
Direct Wireless Corporation also provided office space and administrative
services to the Company for the period ended September 30, 2001. The estimated
value for the services provided totaled $5,100 for the three months ended
September 30, 2001 and are recorded as administrative services in the
accompanying financial statements.
Note C - Subsequent Events
- --------------------------
Subsequent to September 30, 2001, the Company issued an additional 10,877,694
shares of common stock. The additional shares consist of 1,470,000 issued for
$105,000 in cash, 7,000,000 shares issued to officers and directors, 1,000,000
shares in escrow for future sale, and 1,407,694 shares issued to other parties
for services provided to the Company.
Note D - License Agreement
- --------------------------
On May 15, 2001, the Company entered into a license agreement with Direct
Wireless Corporation (see Note A). Under the terms of the agreement, the Company
has agreed to pay $10,000,000 to Direct Wireless for rights obtained within the
agreement. Payment will occur as the Company receives money from the sale of
sub-licenses. The Company has also agreed to pay Direct Wireless a percentage of
all fees collected from licensed products.
The accompanying financial statements include $62,645 in capitalized license
fees. No amortization of such fees have occurred to date.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. Page 7
MANAGEMENT'S PLAN OF OPERATIONS.
At the present time, Direct Wireless Communications, Inc. has no cash
requirements. It pays no compensation to its officers and directors and is being
given office space at no charge by Direct Wireless Corporation. In addition,
Direct Wireless Corporation will bear the costs of distributing the stock
dividend to its stockholders.
To begin any operations, however, it will be necessary for Direct Wireless
Communications, Inc. to raise funds in the next twelve months. The company has
begun discussions with several financial institutions concerning its financing
requirements. Within the next six months management intends to make a private
placement of shares of common stock to accredited investors under Regulation D
promulgated under the Securities Act of 1933. Management intends to raise
$3,000,000 in this manner for payment to Direct Wireless Corporation for the
purpose of conducting field tests of the electronic components and circuitry
specified in the completed systems specification analysis.
After field tests have begun, Direct Wireless Communications, Inc. intends to
make a public offering of its common stock to raise enough additional capital to
permit it to pay Direct Wireless Corporation the remaining $7,000,000 of the
initial license fee for the purpose of completing and testing a prototype of the
system. Management expects that the field tests and the final phase of the
testing can be completed within the next twelve months.
While Direct Wireless Corporation completes development of the new
pre-production prototype, management of Direct Wireless Communications, Inc.
will begin negotiations with prospective licensees and manufacturers in
preparation for the performance testing and the manufacturing of the production
systems and handsets. Management expects this process to take the next six to
eight months to complete all the tasks necessary for a successful demonstration
of the technology. Once this phase of the development is complete, management
will concentrate its efforts for the next four months on negotiating and signing
contracts with licensees for territories and for equipment purchases. Down
payments on any contracts signed will represent the first income from operations
for the company.
Direct Wireless Communications, Inc. does not expect that it will perform any
product research and development or purchase any plant or significant equipment
in the next twelve months. However, before marketing operations begin, the
company expects to employ personnel with marketing experience.
MARKETING STRATEGY.
Many regions in the United States are too sparsely settled to justify the
expense of central call control centers required for cellular and other wireless
technology. Because the Direct Wireless Corporation technology needs no central
control center it is particularly suited to operate in these remote or isolated
areas. The company intends to market the technology in rural areas of the United
States that have limited cellular service or no wireless services of any kind.
Rural, as defined by the Office of Management and Budget in Washington, D.C.,
and accepted for use by the U.S. Census and other government agencies, is
generally defined as non-metropolitan areas of open country where less than
2,500 persons live. According to the 1990 United States census, 23% of the
population was accountable to rural, non-metropolitan areas. This figure appears
to be on the rise: according to the 1998 World Bank Economic Indicators, 34%, or
62 million people then lived in non-metropolitan, rural areas of the United
States.
Page 8
The company intends to market and sublicense the technology to existing service
providers who desire to extend their service to these sparsely settled areas or
to public utility companies that have customers in these areas and desire to
provide wireless services to their existing customers. The company does not
intend to begin marketing activities until it appears that the field tests and
final tests of the technology will be successfully completed. At that time, the
company will employ sales personnel to present to existing providers of cellular
and other telephone services the opportunity to extend their services to
sparsely populated areas their services have not yet reached.
Under this marketing strategy the company does not expect competition from
established cellular and/or other service providers, which are primarily located
in urban markets and cannot afford to enter these rural markets because of the
high cost of their equipment.
Direct Wireless Communications, Inc. will not be required to apply for separate
FCC licenses. The technology does not set any requirements for pre-assigned
licenses from the Federal Communications Commission. Direct Wireless Corporation
has represented that the handsets may be manufactured to function normally on
cellular and other wireless communication licensed frequencies where enough
signal space and unoccupied licenses are available, as well as in ranges where
no Federal Communications Commission licenses are required. Accordingly, the
technology may be used by any existing service provider that has existing
licenses and wishes to extend the nature of its services.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There is currently no litigation affecting the Company or in which the
Company is engaged as a party.
ITEM 2. CHANGES IN SECURITIES.
On September 25, 2001, the Company amended its articles of
Incorporation which amendment increased the number of authorized shares from
10,000,000 to 200,000,000 shares. A true and correct copy of such Articles of
Amendment are attached to this 10QSB Report as Exhibit 2.2.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There has been no material default by the Company in the payment of
principal, interest, a sinking or purchase fund installment or other material
default in the Company's Senior Securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters have been submitted to a vote of the holders of the common
stock or other securities of the Company during the reporting period other than
for the amendment to the articles of the corporation.
ITEM 5. OTHER MATTERS
There are no other matters upon which the Company is reporting.
Page 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Attached as Exhibit 2.2 hereof is a copy of the Articles of
Amendment of the Company.
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
SIGNATURES
In accordance with the requirement of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Direct Wireless Communications, Inc.
Registrant
Date: November 8, 2001 /s/ Robert S. Braswell IV
-------------------------------
Printed Name
Title President
Date: November 8, 2001 /s/ W. Steven Walker
--------------------------------
Printed Name W. Steven Walker
Title Secretary