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, 2002
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number 333-62216
---------
DIRECT WIRELESS COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS 74-3002154
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2068 N. VALLEY MILLS DR. WACO, TEXAS 76710
(Address of principal executive offices) (Zip Code)
(512) 583-4500
(Issuer's telephone number)
N/A
(Former address)
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: 24,820,564
----------
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
TABLE OF CONTENTS
PART I FINANCIAL INFORMATIONS 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 8
Item 6. Exhibits and Reports in Form 8-K 9
Signatures 9
DIRECT WIRELESS COMMUNICATIONS, INC. Page 1
(a Development Stage Company)
Balance Sheet
September 30, 2002
ASSETS: 9/30/2002
---------
Current Assets
Cash $ 20
A/R Stockholder and Other 6,200
---------
Total Assets $ 6,220
=========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Total Current Liabilities $ 0
---------
Stockholders' Equity
Common Stock, No Par Value, 200,000,000 Shares Authorized, 775,226
24,820,564 Issued and Outstanding
Additional Paid-In Capital 15,019
Deficit Accumulated During Development Stage (784,025)
---------
Total Stockholders' Equity 6,220
---------
Total Liabilities and Stockholders' Equity $ 6,220
=========
DIRECT WIRELESS COMMUNICATIONS, INC. Page 2
(a Development Stage Company)
Statement of Loss
From the Three Months Ended, Nine Months Ended and
Period of Inception (April 6, 2001) to September 30, 2002
Three Months Nine Months From Inception
Ended Ended (April 6, 2001) to
9/30/2002 9/30/2002 9/30/2002
------------- -------------- -------------------
Revenue $ 201 $ 527 $ 527
Expenses
Advertising 49 2,789 2,789
Bank Charges 53 73 73
Stock Transaction Fees 1,490 4,071 4,071
Entertainment and Meals 0 339 339
Professional and Consulting Fees 95,921 194,315 516,682
License Fees 1,235 43,445 220,425
Administrative Fees 0 5,100 20,119
Outside Services 796 796 3,528
Office Expense 311 1,269 3,799
Other 0 7,000 7,215
Postage and Delivery 37 37 1,023
Telephone 199 948 1,771
Travel 0 129 685
Repairs and Maintenance 0 0 55
Insurance 0 0 182
Dues and Subscriptions 500 400 800
Auto Expense 0 0 271
Rent 435 725 725
------------ ------------ ------------
101,026 261,436 784,552
Net Loss Before Provision for Federal Income Tax $ (100,825) $ (260,909) $ (784,025)
Provision for Federal Income Tax 0 0 0
------------ ------------ ------------
Net Loss $ (100,825) $ (260,909) $ (784,025)
============ ============ ============
Average Outstanding Shares 24,820,564 23,255,591 13,240,749
============ ============ ============
Loss Per Share $ (.00) $ (.01) $ (.06)
============ ============ ============
DIRECT WIRELESS COMMUNICATIONS, INC. Page 3
(a Development Stage Company)
Statement of Changes in Stockholders' Equity
From the Date of Inception (April 6, 2001) to September 30, 2002
Deficit
Accumulated
Common Stock Additional During
------------------------ Paid-In Development
Shares Amount Capital Stage Total
---------- -------- ------- --------- ---------
Balance - Beginning of Period 0 $ 0 $ 0 $ 0 $ 0
Contributed Services 0 0 15,019 0 15,019
Stock Issued for Cash 2,001,650 168,645 0 0 168,645
Stock Issued to Direct Wireless Corporation 10,138,975 0 0 0 0
Stock Issued to Officers 7,000,000 0 0 0 0
Stock Issued for Services 2,213,995 315,496 0 0 315,496
Stock Held In Escrow 77,500 0 0 0 0
Cash Received for Sale of Escrowed Shares 22,500 9,335 0 0 9,335
Net Loss 0 0 0 (523,116) (523,116)
---------- -------- ------- --------- ---------
Balance - December 31, 2001 21,454,620 $493,476 $15,019 $(523,116) $ (14,621)
---------- -------- ------- --------- ---------
Stock Issued to Officers as Loan Fees 100,000 7,000 0 0 7,000
Stock Issued for Cash 467,500 89,650 0 0 89,650
Services for Escrowed Shares 0 4,650 0 0 4,650
Stock Issued for Services 2,798,444 180,450 0 0 180,450
Net Loss 0 0 0 (260,909) (260,909)
---------- -------- ------- --------- ---------
Balance - End of Period 24,820,564 $775,226 $15,019 $(784,025) $ 6,220
========== ======== ======= ========= =========
DIRECT WIRELESS COMMUNICATIONS, INC. Page 4
(a Development Stage Company)
Statement of Cash Flows
From the Date of Inception (April 6, 2001) to September 30, 2002
From Inception
Nine Months (April 6, 2001)
Ended to
9/30/2002 9/30/2002
--------- ------------
Cash Flows From Operating Activities
Net Loss $(260,909) $(784,025)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used for) Operating Activities:
Services Contributed 0 15,019
Services Provided for Stock 192,100 507,596
Loss On Investments 0 218
Decrease in Accounts Payable (6,507) 0
Increase in Other Receivable (5,000) (5,000)
--------- ---------
Net Cash Provided (Used) by Operating Activities (80,316) (266,192)
Cash Flows From Investing Activities
Sale (Purchase) of Mutual Funds 8,825 (218)
--------- ---------
Net Cash Provided (Used) by Investing Activities 8,825 (218)
Cash Flows From Financing Activities
Cash from Sale of Stock 89,649 267,630
Advance from Direct Wireless Corporation (5,601) 0
Advance from Shareholder (10,243) (1,200)
--------- ---------
Net Cash Provided (Used) by Financing Activities 73,805 266,430
Net Increase (Decrease) in Cash 2,314 20
Cash, at Beginning of Period (2,294) 0
--------- ---------
Cash, at End of Period $ 20 $ 20
========= =========
Non-Cash Transactions:
- ----------------------
Services Contributed for Administration $ 0 $ 15,019
========= =========
Stock Issued for Professional and Consulting Services $ 192,100 $ 507,596
========= =========
DIRECT WIRELESS COMMUNICATIONS, INC. Page 5
(a Development Stage Company)
Notes to Financial Statements
September 30, 2002
Note A - Summary of Significant Accounting Policies
- ---------------------------------------------------
NATURE OF OPERATIONS AND DESCRIPTION OF DEVELOPMENT STAGE ACTIVITIES
Direct Wireless Communications, Inc. (the Company) has been in the development
stage since the date of incorporation on April 6, 2001. The Company is primarily
engaged in the activity of developing technology for a wireless telephone
system. 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. As such, 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, 2002,
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 fiscal year will be ending as of December 31, 2002.
BASIS FOR ASSIGNING AMOUNTS TO EQUITY SECURITIES ISSUED FOR OTHER THAN CASH
Shares of common stock issued to individuals and/or companies for other than
cash have been assigned amounts equal to the fair value of the service provided
or the fair value of the shares of the Company issued, whichever was most
readily determinable.
CASH FLOWS
For the purpose of the cash flow statement, cash and cash equivalents represent
funds deposited in banks and investments maturing within three months.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities, and the reported
revenue and expenses. Actual results could differ from those estimates.
DIRECT WIRELESS COMMUNICATIONS, INC. Page 6
(a Development Stage Company)
Notes to Financial Statements
September 30, 2002
Note B - Related Party Transactions
- -----------------------------------
Direct Wireless Corporation provides office space and administrative services to
the Company for the period ended September 30, 2002. The estimated value for the
services provided totaled $5,100 for the nine months ended September 30, 2002
and are recorded as administrative services in the accompanying financial
statements.
Note C - License Agreement
- --------------------------
Effective April 30, 2001, the Company entered into a license agreement with
Direct Wireless Corporation. Under the terms of the agreement, the Company has
agreed to pay $10,000,000 under the terms of the license agreement to be paid as
the Company gains money from the sale or sales of sub-licenses for the United
States. The Company has also agreed to pay a percentage of all fees collected of
licensed products to Direct Wireless under the terms of the agreement.
The accompanying financial statements include $43,445 of license fees expensed
that have been paid to Direct Wireless for the nine month period ended September
30, 2002 and $220,425 from inception. No amortization of such fees have occurred
during the development stage.
Note D - Escrow Agreement
- -------------------------
The Company has established an irrevocable escrow agreement with a brokerage
firm. The funds received from the sale of escrow shares were recorded as
additional capital in the accompanying financial statements. As of September 30,
2002, the escrow agent has no shares remaining in the escrow fund.
Note E - Federal Income Taxes
- -----------------------------
At September 30, 2002, the Company had net operating loss carryforwards totaling
$784,025 which expire in 2021. Realization of deferred assets resulting from the
NOL carryforwards have been offset by a valuation allowance.
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.
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.
There have been no material changes in securities.
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.
PART II--OTHER INFORMATION (CONTINUED) Page 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 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: September 30, 2002 /s/ Robert S. Braswell IV
----------------------------------
Printed Name Robert S. Braswell IV
Title President
Date: September 30, 2002 /s/ W. Steven Walker
----------------------------------
Printed Name W. Steven Walker
Title Secretary