<table>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE
SECURITIES EXCHNAGE ACT OF 1934. December 31, 2001
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transaction period from ______ to ______
Commission file number 333-47395
WIRELESS DATA SOLUTIONS, INC.
(Name of small business issuer as specified in its charter)
Utah 93-0734888
(State of Incorporation) (I.R.S. Employer Identification No.)
2233 Roosevelt Road
Suite #5
St. Cloud, MN 56301
(Address of principal executive offices)
(320)203-7477
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months(or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Not Applicable
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the practicable date:
There were 15,142,434 shares of the Issuer's common stock
outstanding as of December 06, 2002.
Table of Contents
Financial Information
Part I
Item I Financial Statements
Item II Management's Discussion and Analysis or plan of Operation.
Part II
Item I Legal Proceedings
Item II Changes in Securities
Item III Defaults upon Senior Securities
Item IV Submission of Matters to a vote of security holders
Item V Other Information
Item VI Exhibits on Reports on Form 8K
Item 1
WIRELESS DATA SOLUTIONS, INC. AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 2001
Assets
Current Assets
Cash and cash equivalents $ 7,672
Trade accounts receivable, net of estimated
allowance for doubtful accounts of $68,000 94,037
Inventory 116,916
Prepaid expenses 8,691
Total Current Assets 227,316
Property and Equipment
Office fixtures and equipment 59,155
Leasehold improvements 12,894
72,049
Less: accumulated depreciation 40,604
Net Property and Equipment 31,445
Other Assets
Security deposits 5,636
Total Assets $ 264,397
Liabilities and Stockholders= Equity (Deficiency)
Current Liabilities:
Note payable - stockholder $ 50,000
Accounts payable and accrued expenses 315,526
Advance from customers 26,870
Other current liabilities 8,542
Total Current Liabilities 400,938
Other Liabilities:
Due to officers 21,746
Total Liabilities 422,684
Minority interests in consolidated subsidiaries 20,000
Commitment and contingencies
Stockholders= Equity (Deficiciency)
Preferred stock, $.002 par value; 3,000,000 shares
authorized; no shares issued or outstanding -
Common stock, $.001 par value; 25,000,000 shares
authorized; 11,599,420 issued 11,599
Common stock to be issued 518,729
Additional paid-in capital 2,118,902
Accumulated deficit (2,827,517)
Total Stockholders= Deficiency (178,287)
Total Liabilities and Stockholders= Deficiency $ 264,397
WIRELESS DATA SOLUTIONS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Three Months Ended December 31, 2001 and 2000
2001 2000
(Restated)
Revenue
Net product sales $ 155,779 $ 440,995
Repairs and maintenance 10,435 -
Total Revenue 166,214 440,995
Cost of sales 64,325 181,634
Gross profit 101,889 259,361
Operating expenses 201,573 357,807
Operating loss (99,684) (98,446)
Other income (expense)
Interest expense - (2,449)
Interest income 40 -
Total income (expense) 40 (2,449)
Net loss $ (99,644) $ (100,895)
Basic and diluted loss per common share $ (.009) $ (.009)
Weighted average common shares outstanding 11,238,655 10,917,124
WIRELESS DATA SOLUTIONS, INC. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders= Equity
For the Three Months Ended December 31, 2001 and 2000
Common Stock Common
Number Additional Stock Common
of Paid-in Accumulated to be Stock
Shares Amount Capital Deficit Issued Optons Total
Balance, September 30, 2000(Restated) 10,917,124 10,917 $2,007,834 $ (2,098,948) $ 29,545 $ - (50,652)
Stock to be issued for services at
$.41 - - - - 175,000 - 175,000
Stock to be issued for services at
$.38 - - - - 15,675 - 15,675
Net loss for the three months ended
December 31, 2000 - - - (100,895) - - (100,895)
Balance, December 31, 2000 (Restated) 10,917,124 $ 10,917 $ 2,,007,834 $ (2,199,843) $ 220,220 $ - $ 39,128
Balance, September 30, 2001 10,967,124 $ 10,967 $2,026,534 $ (2,727,873) $ 593,729 $ - $ (96,643)
Issuance of common stock for services
at $.04 per share 450,000 450 17,550 - - - 18,000
Issuance of common stock for services
at $.41 per share 182,296 182 74,818 - (75,000) - -
Net loss for quarter ended
December 31, 2001 - - - (99,644) - - (99,644)
Balance, December, 31, 2001 11,599,420 $11,599 $2,118,902 $ (2,827,517) $ 518,729 $ - $(178,287)
WIRELESS DATA SOLUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 2001 and 2000
2001 2000
(Restated)
Cash provided by (used in)
Operating activities:
Net loss $ (99,644) $ (100,895)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 4,089 2,896
Common stock to be issued for services - 15,675
Issuance of common stock for services 18,000 -
(Increase) decrease in assets:
Accounts receivable 40,118 (142,431)
Inventory 7,625 52,236
Prepaid expenses and other assets (3,843) 4,823
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 7,134 4,062
Advances from customers 21,042 (15,255)
Net cash used in operating activities (5,479) (178,889)
Cash Flows from Investing Activities:
Purchase of property and equipment - (4,225)
Cash Flows from Financing Activities:
Advance to officers 1,150 -
Net decrease in cash and cash equivalents (4,329) (183,114)
Cash and cash equivalents, beginning of period 12,001 262,745
Cash and cash equivalents, end of period $ 7,672 $ 79,631
WIRELESS DATA SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Statements
For the Three Months Ended December 31, 2001
Note 1 - General
These consolidated financial statements have not been audited. In the opinion of
management, the consolidated financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly the consolidated
financial position of Wireless Data Solutions, Inc. (WDS) and its majority-owned
subsidiary, Distributed Networks, Inc. (Dinet) (collectively, the Company) as of
December 31, 2001, the results of operations for the three months ended December 31,
2001 and 2000 and the cash flows for the three months ended December 31, 2001 and
2000. However, the operating results and cash flows for the interim periods may not be
indicative of the results expected for a full year.
Certain information and footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting principles have
been omitted. It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto included in the
Companys Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended September 30, 2001.
Note 2 - Related Party
The names and relationships of the related parties referred to in these notes are set forth
below:
Patrick L. Makovec is Chairman/Treasurer of Dinet and WDS, and 8.3%
stockholder in WDS. The company owes Mr. Makovec $15,827 for various
business outlays.
Brian Blankenburg, director of WDS and Dinet, and former president of Dinet, is a
4.8% shareholder in WDS. The Company owes Mr. Blankenburg $20,800 in
common stock for consulting services performed before taking office as president
and a bonus for the year 2001. In addition, the Company owes Mr. Blankenburg
$22,000 for a 2000 performance bonus and $5,919 for various business expense
outlays.
Note 2 - Related Party Transactions and Relationships (continuation)
Prior to 1994, an officer, Patrick Makovec, elected to leave the major portion of his salary
and expenses as a way of infusing additional cash in WDS thereby enabling WDS to
continue its growth pattern. Such salary and expenses was to be disbursed as management
determined, assuming cash flow is adequate. All related salaries and tax items have been
expensed so that there would be no effect on future earnings. On September 30, 2001, Mr.
Makovec converted $250,402 of debt to common stock to be issued at $.25 per share. The
officer has waived the accrued interest on balances from October 1, 1999 through
December 31, 2001
On August 2, 2000, the Company entered into an employment agreement with Robert
Chase, who succeeds Mr. Blankenburg as President of Dinet. (Mr. Blankenburg will
continue to serve as President and CEO of WDS.). Mr. Chase receives certain stock
incentives and a severance package in addition to the normal salary of $85,000 per year
and bonuses. As of December 31, 2001, Mr. Chase has accumulated 265,000 shares of
common stock all of which is restricted and is common stock to be issued at December
31, 2001. This one time benefit to Mr. Chase encouraged him to join the Company. The
severance package contains a sliding payment schedule based on longevity. After three
years his severance would be approximately $85,000
Note 3 - Equity - Stock to be Issued
Contract Services Shares Amount
During the period November 1998 through February
1999, Brian Blankenburg performed consulting
services for the Company, in return for common stock
to be issued at .1089 per share.
190,981
$ 20,800
Employment Agreement
Pursuant to an employment agreement dated August
2000, Robert Chase is entitled to restricted common
stock to be issued for the following periods of
employment:
August 2000 - November 2000 @ $.38 per share
December 2000 - February 2001 @ $.55 per share
March 2001 - May 2001 @ $.58 per share
June 2001 - August 2001 @ $.309 per share
41,250
41,250
41,250
141,250
15,675
22,687
23,925
43,646
Stock Bonuses
As per the actions of the Board of Directors on January
2, 2001, the Company declared the following bonuses
payable in a common stock:
Pat Makovec - @ $.11 per share
Brian Blankenburg - @ $.11 per share
100,000
200,000
11,000
22,000
Litigation Statement
The Company settled a breach of warranty claim with a
former customer for common stock.
April 2002 @ $.20 per share
543,014
108,594
Conversion of Debt
As per the actions of the Board of Directors, Pat
Makovec converted $250,402 of debt to common stock
to be issued at $.25. The conversion was effective
September 30, 2001 and was ratified by the board on
June 11, 2002.
Pat Makovec - @ $.25 per share
1,001,608
250,402
$ 518,729
Note 4 - Going Concern
The Company's financial statements have been presented on the basis that is a going
concern, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business.
As shown in the accompanying financial statements, as of December 31, 2001, the
Company's liabilities exceeded its total assets by $158,287 and the net stockholders
deficiency is $178,287. These conditions create an uncertainty as to the Company's
ability to continue as a going concern. Management of the Company has taken certain
steps intended to reduce operating expenses and restore profitability. The ability of the
Company to continue as a going concern is dependent upon the success of these actions.
The financial statements do not include any adjustments relating to the recoverability of
recorded asset amounts or the amounts of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Note 5 Restatement of Materials Presented in the quarterly
report filed for the quarter ending 12/31/01.
The numbers presented on the 12/31/01 quarterly report were
restated to reflect the numbers which were presented in the
9/30/01 audited financial statements. The company's 12/31/01
quarterly report was not reviewed by the auditing firm.
Item 2
Management's Discussion and Analysis of Financial Conditions &
Results of Operations
This discussion may include certain "forward looking" statements
that reflect our current views with respect to future events and
financial performance. Investors should be aware that actual
results may differ materially from our expressed expectations
because of risks and uncertainties inherent in future events;
particularly those risks identified and set forth below, and
should not unduly rely on these forward looking statements. We
undertake no duty to update the information in this discussion if
any forward looking statement later turns out to be inaccurate.
Business Issues
The need to significantly up-grade mobile data terminal hardware
technology was recognized in a 2000 fiscal year WDS management
business review that included discussions with existing and
potential customers, projected wireless fleet tracking growth
trends that included primary and secondary research sources, a
competitive analysis and an internal capabilities assessment of
DINET. The analysis also determined that the core assets of WDS
were identified as DINET'S substantial customer base in the
concrete construction segment, the broad awareness that DINET
produced high quality mobile data computers, and the publicly
traded stock of WDS that could be utilized to secure capital.
The result of this business review was a strategic business
decision to acquire advanced hardware technologies that would
enhance our competitive position in the concrete construction
market as well as other vertical markets rather than to develop
them internally. The rationale for this decision was based upon
the projected high R&D costs and the long-time frame associated
with internal development. Additionally the review determined
that there were a broad variety of advanced wireless hardware and
software products with significant market potential that had been
designed in small private companies that were under exploited due
to a lack of available capital to market and manufacture the new
technology.
WDS management believed that an "acquisition strategy" would
enable the company to continue to be a leading provider of
wireless fleet tracking technology to the Ready Mixed market, and,
at the same time, enable WDS to exploit other new vertical market
opportunities due to the significant wireless growth opportunities
in vehicle fleet management.
Implementation of the technology acquisition strategy in FY2001
and through the first quarter of FY2002 was impeded for several
reasons:
? In one instance, the proposed acquisition by the company of
very advanced and implemented technology was stymied by
questions about applicable patent rights discovered during the
course of the company's due diligence. While WDS received two
patent attorney opinions that the firm could probably win a
patent challenge the firm did not have the financial resources
to support the extended challenge.
? In FY 2001 the SEC notified WDS management that the auditing
firm that had completed the firms FY2000 audit had not
maintained their continuing education requirements and the SEC
made a determination that WDS had to re-submit their FY2000
audit. However a marked decrease in revenues during fiscal
2001, continuing in fiscal 2002, had deprived the company of
the cash resources needed to pay the new independent auditors
fees selected to resubmit the FY2000 audit as well as pay for
the FY2001 audit. As a consequence, completion of the company's
Annual Report on Form 10-KSB for the year ended September 30,
2001, and of subsequent quarterly reports, was substantially
delayed, thereby, in turn, inhibiting the company's ability to
pursue acquisitions involving use of the company's common stock
as a medium of payment.
? Sales in FY2001 declined approximately 26% from FY2000
significantly impacting the cash flow essential to implementing
the acquisition strategy.
? A customer filed a complaint against Dinet alleging certain
problems with equipment purchased in December 1995 (three years
prior to the employment of the current presidents of both WDS
and Dinet). The complaint included claims against Dinet for
breach of express warranty. This action by the customer also
included the manufacturers of the two-way radio system the
customer had purchased as well as the spectrum network
provider. WDS settled its portion of the action out of court
for $175,000. The payment terms for the settlement include
$75,000 worth of WDS common stock to be issued at $0.41 per
share and $100,000 worth of WDS common stock to be issued at
$0.20 per share. The settlement was reached in July 2001 (the
fourth quarter of FY2001) and the settlement has been accrued
payable in stock. Additionally the legal costs for WDS in
defending the company against this complaint exceeded $100,000.
These business setbacks made it essential for WDS to secure
additional capital to re-submit the fiscal year 2000 audit and
complete the 2001 audit that would bring its filings current.
Subsequently WDS was able to sell common stock in a private
placement and raise $150,000. Management also decided that it was
important to reduce the debt on the WDS balance sheet so that WDS
would be able to resume acquisition and/or merger discussions with
a clean balance sheet. Consequently in the first quarter of FY2002
the WDS management implemented a cost and debt reduction strategy
enabling the company to eliminate over $400,000 in debt in
exchange for common stock, or a significantly reduced, but
immediate, payment in cash. The stock issued or to be issued will
be restricted.
RESULTS OF OPERATIONS (1st qtr. FY2002)
Total revenues for the first quarter of FY2002 declined from
$440,995 in fiscal 2001 to $166,214 in fiscal 2002. This was a
decline of $274,781 or 62%. The decline in revenues is
attributable, in part to the decline in the economy and is also
reflected in the need for WDS to upgrade their hardware
technology, as was discussed under business issues.
The gross profit for the first quarter of this fiscal year was
$101,889 versus $259,361 for the first quarter of the previous
year (FY2001). This was a 60.7% decline in gross profit. However
the gross profit as a percentage of total revenues in FY2002
increased to 61.3% as compared to 58.8% for the same time period
in FY2001.
The cost of sales for the first quarters of FY2002 was $64,235
versus $181,634 for the same time period in FY2001. This was a
decline of 35.3%. However cost of sales for the first quarter
(FY2002) as a percentage of total revenues were 39% in FY2002
versus 41% for the same time frame in FY2001. This percentage
increase is a reflection of the lower total revenues for the first
quarter of FY2002, and highlights the fact that some of the costs
are fixed over our operating range.
Operating expenses for the first quarter of FY2002 were $201,573
versus $357,807 during the same time frame in FY2001. This was a
decrease of 43.6% from FY2001. This decline in operating expenses
in the first quarter is largely attributable to a reduction in
consulting engineering costs of approximately $90,000. A cost
reduction strategy was implemented at WDS at the beginning of
FY2002.
The operating income for the first quarter of FY2002 was a loss of
$99,684 versus a loss of $98,446 for the same time period in
FY2001. The net loss for the first quarter (FY2002) was $99,644
versus $100,895 for the first quarter of FY2001.
Liquidity & Capital Resources
The company's FY2002 second quarter cash position decreased by
approximately $72,000 and this is a direct reflection of the
decline in total revenues of approximately $275,000 versus the
first quarter of FY2001. There was a corresponding decline in
total current assets of $227,626. The result of these changes was
that total assets were $264,396 in the first quarter of FY2002
versus $506,921 in the first quarter of FY2001. This was a decline
in total assets of $279,295.
Total current liabilities for the first quarter of FY2002 were
$400,938 versus $157,817 for the first period of FY2001. The
primary source of this increase was accounts payable, which
increased from $152,740 for the first quarter of FY2001 to
$315,526. This was an increase of $162,786. $90,000 of the
increase in accounts payable was a result of legal fees
attributable to a dispute that a customer brought against WDS and
two other wireless companies, who provided components of a
wireless system purchased by the customer in 1996. Also
contributing to the increase was a $50,000 note from a
shareholder, which provided badly needed working capital.
Also in this same time frame total other liabilities for the first
quarter of FY2002 were $21,746 versus $289,975 for the first
quarter of FY2001. This was a decrease of $268,229. The major
cause of this decline was due to a settlement with Patrick
Makovec, an officer of WDS. Prior to 1994 Makovec, elected to
leave the major portion of his salary and expenses as a way of
infusing additional cash in WDS thereby enabling WDS to continue
its growth pattern. Such salary and expenses was to be disbursed
as management determined, assuming cash flow was adequate. On
September 31, 2001, Mr. Makovec exchanged $250,402 of debt for
1,001,609 shares of common stock to be issued at $0.25 per share.
This conversion reduced the amount due to Mr. Makovec to $17,519
at September 30, 2001. The officer has waived the accrued interest
on balances from October 1, 1999 through June 30, 2001. During the
years ended September 30, 2001 and 2000, this officer's base
compensation was approximately $60,000 for each year.
Total liabilities for WDS in the first quarter of FY2002 were
$422,684 versus $447,796 for the first quarter in FY2001. This was
a slight decrease of $25,109.
The total liability & stockholder's equity for the first quarter
of FY2002 was $264,396 versus $506,921 for the first quarter of
FY2001, which reflect the losses in the year 2001 and the first
quarter of fiscal 2002.
Because of the excess current liabilities relative to the current
assets (approximately $174,000) and the low cash position there
can be no assurances that there will be sufficient cash flow to
fund operations and expenses on an on-going basis. However,
subsequent to this report the company, did a private placement and
sold stock to Alta Mines, which is discussed under Item 5 under
the caption "Recent Sales of Unregistered Securities." The sale of
stock and the resulting influx of cash ($150,000) allowed the
company to complete the audit for 2001 and to prepare and file the
quarterly reports of Form 10QSB for 2002. Also it provided working
capital to address some of the other obligations. It must be
stressed that although there has been an injection of capital
there are no assurances that it will be sufficient to fund
operations and maintain cash flow in the future.
The amount which has been formerly classified as law suit payable
has been reclassified and shown as stock to be issued in the
"shareholders equity section" which consists of $42,800 of common
stock to be issued to Brian Blankenburg, $105,924 of common stock
to be issued to be issued to Robert Chase, $261,402 of common
stock to be issued to a Patrick Makovec, and $108,603 of
additional common stock were issued to Sanact to settle a breach
of warranty claim. This claim arose in 1995 and remained
unresolved by the management of that period. The note payable of
$50,000 was to John Doubek, a major shareholder who borrowed the
loan to the company to ease cash flow problems.
Part II
Item I Legal Proceedings
(none)
Item II Changes in Securities
On October 31, 2001 Dinet reached a settlement with Sanact, prior
to litigation under which they would accept, 182,296 shares of
Wireless Data Solutions common stock in exchange for $75,000 of
the $175,000, which was the total amount of the settlement. A
settlement on the remaining $100,000 was reached in April of 2002
and is discussed in the 3rd quarter 10Q. On November 7, 2001 John
Doubek was issued 450,000 shares of WDS common stock in payment of
legal services which had been performed over a period of time. The
value of the services was $18,000.
In both instances the stock was issued in accordance with rule
144.
Item III Defaults upon senior securities
(none)
Item IV Submission of matters to a vote of security holders
(none)
Item V Other Information
(none)
Item VI Exhibits on Reports on Form 8-K
(none)
SIGNATURES
In accordance with the requirements of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
December 6, 2002 WIRELESS DATA SOLUTIONS, INC.
/s/ Patrick Makovec
Patrick Makovec
Chairman of the Board
CERTIFICATION
PURSUANT TO 18 U.S.C SECTION 1350
AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian Blankenburg, as Chief Executive Officer of Wireless
Data Solutions, certify, pursuant to 18 U.S.C.ss.1350, as
adopted by Section 906 of the Sarbanes-Oxley Act of 2002,
that to my knowledge:
1) The accompanying Quarterly Report on Form 10-Q for
the period ending December 31, 2001 as filed with
the U.S. Securities and Exchange Commission (the
"Report") fully complies with the requirements of
Section 13 (a) or 15 (d) of the Securities
Exchange Act of 1934, as amended; and
2) The information contained in the Report fairly
presents, in all material respects, the financial
condition and results of operations of the
Company.
Dated: December 6, 2002
/s/ Brian Blankenburg
Brian Blankenburg
Chief Executive Officer
CERTIFICATION
PURSUANT TO 18 U.S.C SECTION 1350
AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I Pat Makovec, as Chief Financial Officer of Wireless Data
Solutions, certify, pursuant to 18 U.S.C.ss.1350, as adopted
by Section 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
1) The accompanying Quarterly Report on Form 10-Q for
the period ending December 31, 2001 as filed with the
U.S. Securities and Exchange Commission (the
"Report") fully complies with the requirements of
Section 13 (a) or 15 (d) of the Securities Exchange
Act of 1934, as amended; and
2) The information contained in the Report fairly
presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: December 6, 2002
/s/ Patrick Makovec
Patrick Makovec
Chairman of the Board
</table>