UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Amendment 1
DIRECT WIRELESS COMMUNICATIONS, INC.
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(Name of small business issuer in its charter)
TEXAS 4812 74-3002154
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
2068 N. Valley Mills Drive, Waco, Texas 76710; Tel. (512) 583-4500
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(Address and telephone number of principal executive offices)
2068 N. Valley Mills Drive, Waco, Texas 76710
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(Address of principal place of business or intended principal place of business)
Bill G. Williams, 2068 N. Valley Mills Drive, Waco, Texas 76710; (512) 583-4500
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(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public
As soon as practicable after effective date of this registration statement.
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If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box: [x ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434 check the following box.[ ]
Calculation of Registration Fee
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Title of each class of Dollar amount to be Proposed maximum Proposed maximum Amount of
securities to be registered offering price per aggregate offering registration fee
registered share price
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Common Stock $920,775 $0.09 $920,775 $239.00
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PURSUANT TO RULE 457(C) FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE THE
DOLLAR AMOUNT OF COMMON STOCK TO BE REGISTERED AND THE PROPOSED OFFERING PRICE
PER SHARE AND THE PROPOSED AGGREGATE OFFERING PRICE ARE ESTIMATED ON THE BASIS
OF THE AVERAGE OF THE BID AND ASKED PRICES OF THE COMMON STOCK AS OF AUGUST 29,
2002.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until
the registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
2
CROSS REFERENCE SHEET
ITEM NUMBER PAGE IN PROSPECTUS
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ITEM 1. FOREPART OF THE REGISTRATION STATEMENT AND OUTSIDE
FRONT COVER OF PROSPECTUS. FRONT, INSIDE COVER
ITEM 2. INSIDE FRONT AND OUTSIDE BACK COVER
PAGES OF PROSPECTUS. INSIDE COVER
ITEM 3. SUMMARY INFORMATION AND RISK FACTORS. 6
ITEM 4. USE OF PROCEEDS. 14
ITEM 5. DETERMINATION OF OFFERING PRICE. N/A
ITEM 6. DILUTION. N/A
ITEM 7. SELLING SECURITY HOLDERS. 19
ITEM 8. PLAN OF DISTRIBUTION. 14
ITEM 9. LEGAL PROCEEDINGS. N/A
ITEM 10. DIRECTORS, OFFICERS, PROMOTERS AND CONTROL PERSONS. 15
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL 17
OWNERS AND MANAGEMENT.
ITEM 12. DESCRIPTION OF SECURITIES. 23
ITEM 13. INTEREST OF NAMED EXPERTS AND COUNSEL. 24
ITEM 14. DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION 23
FOR SECURITIES ACT LIABILITIES.
ITEM 15. ORGANIZATION WITHIN LAST FIVE YEARS. 15,17,18
ITEM 16. DESCRIPTION OF BUSINESS. 9
ITEM 17. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. 12
ITEM 18. DESCRIPTION OF PROPERTY. 13
ITEM 19. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 19
ITEM 20. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. 14
ITEM 22. EXECUTIVE COMPENSATION. 17
ITEM 23. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL REPORTING. N/A
3
DIRECT WIRELESS COMMUNICATIONS, INC.
10,230,830 SHARES OF COMMON STOCK
NO PAR VALUE PER SHARE
This prospectus relates to 5,000,000 shares of our common stock we are offering
for our own account and 5,230,830 shares that are being offered by 38 of our
existing security holders. We will offer the shares registered for our account
through N.C. Capital Markets, Inc., which will sell the securities in the market
in brokerage transactions at prevailing prices at the time of the sales or in
negotiated transactions for which we will pay commissions not to exceed 6%.
There will be no minimum purchase requirement and all funds received by us from
the sales will be added to our general funds. We have not arranged any escrow to
assure the sale of any minimum amount of stock.
The selling security holders have advised us that they intend to sell the shares
being registered for them from time to time in the trading market at prices
prevailing at the time of their sales, or in negotiated transactions at prices
related to the prevailing market prices of the stock at the times of sales. We
will not receive any of the proceeds of sales made by our existing security
holders.
Our common stock is currently traded in the over-the-counter market. The trading
symbol for our common stock is DWCM.
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD CONSIDER A PURCHASE ONLY IF YOU CAN
AFFORD A LOSS OF YOUR ENTIRE INVESTMENT.
SEE "RISK FACTORS" AT PAGES 2 THROUGH 8 OF THIS PROSPECTUS.
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Underwriting Discounts
Price to Public And Commissions Proceeds to Registrant
Per Share Total Per Share Total Per Share Total
$0.10 $500,000 $0.06 $30,000 $0.094 $470,000
Underwriting Discounts Proceeds to Selling
Price to Public And Commissions Security holders
Per Share Total Per Share Total Per Share Total
$0.10 $523,083 $0.06 $31,385 $0.094 $491,698
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 26, 2002.
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UNTIL (DECEMBER 25, 2002) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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Direct Wireless Communications, Inc. will furnish to its shareholders annual
reports containing audited financial statements and quarterly reports containing
unaudited financial statements.
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TABLE OF CONTENTS
Page
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Summary Information 6
Risk Factors 7
Risks Associated with the Direct Wireless Corporation Technology 7
Risks Associated with our Operations 7
Risks Associated with the Market for our Common Stock 8
Proposed Business 9
Properties Plan of distribution 14
Use of Proceeds 14
Market for Common Equity and Related Stockholder Matters 14
Directors, Executive Officers, Promoters and Control Persons 15
Executive Compensation 17
Security Ownership of Certain Beneficial Owners and Management 17
Certain Relationships and Related Transactions 19
Selling Security Holders 19
Description of Securities 23
Interest of Named Experts and Counsel 24
Indemnification of Officers and Directors 23
Available Information 24
Index to Financial Statements F-1
5
SUMMARY INFORMATION
BEFORE YOU MAKE AN INVESTMENT DECISION, YOU SHOULD READ THE FOLLOWING
SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION ABOUT OUR COMPANY AND OUR
COMMON STOCK AND OUR FINANCIAL STATEMENTS AND NOTES TO THOSE FINANCIAL
STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD ALSO CONSIDER THE
INFORMATION DISCUSSED IN "RISK FACTORS."
We are a Texas corporation in the development stage. Direct Wireless Corporation
incorporated us on April 6, 2001 to market and/or license a unique, low-cost,
high capacity voice and data mobile digital wireless communications technology.
Direct Wireless Corporation developed that technology and holds the patents on
it.
This technology is designed to greatly reduce the cost currently incurred by
traditional wireless companies when building their cell towers and related
hardware. This is done primarily by replacing their expensive hardware with
software contained entirely in the mobile telephone.
The major features of this technology include:
o Extremely low cost wireless communication cell towers and support
electronics that can extend coverage to vast rural areas with quality
handset coverage in diverse topographies.
o Ability to connect quickly and efficiently with existing cellular and
personal communication networks as well as with the local public
telephone system for long distance communications.
o Phones that can operate in any part of the globe, even if the basic
cellular or personal communication system cannot.
Direct Wireless Corporation has granted us a license to market and/or sublicense
the technology in the territory of the United States. As a part of the initial
license fee, we must pay Direct Wireless Corporation during the 10-year term of
the license agreement the sum of $10,000,000, which Direct Wireless Corporation
will use to complete the development and testing of a prototype market system
utilizing the technology. We have already made payments to Direct Wireless
Corporation of $176,645 A prototype telephone using the technology in its
present form has not yet been completed. We have not yet begun any operations.
Our address is 2068 N. Valley Mills Drive, Waco, TX 76710. Our telephone number
is 512-583-4500.
6
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS
MAY SUFFER AS A RESULT OF ANY OF THOSE RISK FACTORS. THAT COULD CAUSE THE
TRADING PRICE OF OUR COMMON STOCK TO DECLINE AND YOU MAY LOSE ALL OR A PART OF
THE MONEY YOU PAID TO BUY OUR STOCK IN THIS OFFERING.
RISKS ASSOCIATED WITH THE DIRECT WIRELESS CORPORATION TECHNOLOGY.
NO WORKING PROTOTYPE HAS YET BEEN DEVELOPED.
At the present time there is no working prototype telephone that employs the
Direct Wireless technology. If a working prototype can not be completed we will
not be able to derive any income from our proposed operations.
THERE MAY NOT BE SUFFICIENT DEMAND FOR THE TECHNOLOGY.
When and if a new prototype is completed, our business will be primarily the
marketing and/or licensing of the Direct Wireless Technology to existing service
providers within the wireless industry who want to economically extend their
service into rural areas and/or to rural utility companies that want to
diversify their businesses by becoming wireless service providers. If we cannot
find enough service providers or utilities that anticipate sufficient demand to
justify obtaining a license from us, we will not have profitable operations.
WE DO NOT OWN THE PATENTS.
We do not own the patents for the technology. If the technology covered by the
patents becomes obsolete, we may have to rely on Direct Wireless Corporation to
obtain any new patents or improvements of the existing patents.
RISKS ASSOCIATED WITH OUR OPERATIONS.
WE HAVE NO OPERATING HISTORY.
We were organized in April 2001 with minimum capitalization. We remain in the
development stage with no operating history upon which an evaluation of our
prospects can be made.
WE HAVE LIMITED OPERATING CAPITAL.
Our operating capital is limited. We must raise capital to pay the licensing fee
required to begin operations. There is no assurance that we can do so.
7
DEPENDENCE ON MANAGEMENT.
The license agreement contains provisions that have the effect of preventing any
change in our management without the consent of the management of Direct
Wireless Corporation. Therefore our stockholders must rely on the existing
officers and directors to operate the company.
MANAGEMENT PERSONNEL WILL NOT DEVOTE FULL TIME TO OUR BUSINESS.
Our officers and directors are the same as the officers and directors of Direct
Wireless Corporation. The officers and directors will continue to devote part of
their time to the business of Direct Wireless Corporation and therefore will not
devote full time to our business.
LIMITED EXPERIENCE OF MANAGEMENT.
Our officers and directors do not have any experience in licensing digital
wireless communications equipment. The commercial success of our company depends
on our ability to successfully market and/or sublicense the technology. We may
not be able to employ additional personnel with the necessary experience for
successful marketing activities.
WE MAY BE UNABLE TO COMPLETE PAYMENT OF THE REQUIRED LICENSE FEE.
The license agreement requires us to pay Direct Wireless Corporation a license
fee of $10,000,000 during the term of the license. We have already paid
$176,645 of the fee to Direct Wireless Corporation, but we may be unable to
generate sufficient income to pay the remainder of the fee.
RISKS ASSOCIATED WITH THE MARKET FOR OUR COMMON STOCK
THE TRADING MARKET IN OUR COMMON STOCK HAS DEVELOPED ONLY RECENTLY.
Prior to September 25, 2001 Direct Wireless Corporation owned all of our common
stock. On that date Direct Wireless Corporation distributed 1,490,633 shares of
shares of our common stock as a stock dividend to its stockholders of record on
May 15, 2001. On September 26, 2001, we split our shares 7-1. At July 31,2002
there were 23,582,917 shares of our common stock outstanding held by 306
shareholders of record. The trading market has only recently developed and the
volume of shares traded is limited. The prices at which our common stock is
traded can vary depending on the volume of trading.
OUR COMMON STOCK IS A PENNY STOCK.
Our common stock is classified as a "penny stock" as that term is defined in the
regulations under the Securities Exchange Act of 1934. Broker-dealers that
recommend our stock to their customers are required to comply with disclosure
and record-keeping provisions applicable to penny stocks, which are in addition
to the requirements that normally apply to the activities of broker-dealers. The
effect of those additional requirements may impede the development of an active
trading market in our common stock.
8
A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK WILL BECOME ELIGIBLE FOR SALE
UNDER RULE 144; SALES MADE UNDER THAT RULE MAY ADVERSELY AFFECT THE MARKET PRICE
OF OUR COMMON STOCK.
At the date of this prospectus our officers, directors and affiliates own
10,047,639 shares of our common stock. Beginning in September 2002, those shares
will become eligible for sale under Rule 144. In addition, 6,521,133 shares are
owned by other persons who acquired the shares in private transactions. Of those
shares, 5,230,830 are being registered for sale, but any of those shares that
remain unsold for a period of two years from the date of this prospectus will be
eligible for sale at that time under Rule 144.
Rule 144 permits persons who are not affiliates of a company who acquired the
company's stock in private transactions and who have held the stock for at least
one year to make sales in brokerage transactions in any three month period of
the greater of 1% of the number of shares outstanding or the average weekly
trading volume. After the stock has been held for at least two years, sales may
be made without the restrictions on volume and manner of sale.
Rule 144 also allows affiliates to make sales in the same manner as
non-affiliates, but affiliates are always restricted under the rule to sales in
brokerage transactions and to sales of the greater of 1% of the outstanding
shares or the average weekly trading volume in any three-month period.
ABSENCE OF FUTURE DIVIDENDS.
We do not anticipate that we will pay cash dividends in the foreseeable future,
even if our operations become profitable.
OUR PROPOSED BUSINESS
Direct Wireless Corporation was formed in 1997 for the purpose of developing and
exploiting a wireless telephone technology intended to eliminate the need for
expensive control towers and related equipment currently in use in the cellular
communications industry. To the present its sole business has been the
development of patents relating to wireless telephone technology. Several
communications industry consultants to Direct Wireless Corporation strongly
advised that company to protect its patents and improvements on those patents,
as well as any new patents that it might obtain, from any potential claims by
completely separating the marketing and licensing functions from the business of
developing and patenting wireless communications technology. Specifically, they
advised Direct Wireless Corporation to transfer the marketing functions to a
separate corporation.
Direct Wireless Corporation has followed that advice. In April 2001 it organized
us under the name Direct Wireless Communications, Inc., and has now licensed us
to market and/or sublicense in the United States the wireless communications
technology it has developed and on which it holds the patents. On October 17,
2001 Direct Wireless further separated itself from the marketing function by
divesting itself of all ownership of our stock by distributing its entire
holdings as a stock dividend to its stockholders. It no longer owns any equity
interest in us.
9
THE TECHNOLOGY WE WILL MARKET AND SUBLICENSE.
GENERAL DESCRIPTION OF THE TECHNOLOGY.
We have acquired from Direct Wireless Corporation the right to market and
sublicense the technology covered by three patents, No. 5,995,849 issued on
November 30, 1999, No. 6,141,531 issued on October 31, 2000, and No. 6,374,078
issued April 16, 2002. Expenditures by Direct Wireless Corporation for patent
costs have been $81,803.00. These patents relate to a new wireless
communication system (named Timed Shared Full Duplex) that uses radio
frequencies for transmitting and receiving voice and data signals. The
technology covered by the patents uses a self-contained radio network with
several different routes for the wireless signals to take within that network
and many different routes to connect that self-contained network to other
outside networks.
The internal network consists of telephone handsets that allow for wireless
communication that is not controlled from a central point and can travel along
multiple communication routes. If several handsets are within range, they can
communicate directly through signal extenders (radio repeaters) without the need
for a central control center, unlike cellular or other mobile wireless
communication systems. If the handsets are farther apart, they can communicate
through signal extenders (radio repeaters) and network extenders (connectors to
the public telephone network) that relay the call to destination handsets, also
eliminating the need for a central call control center. The internal network
also has the capability of communicating with outside telephone networks, such
as existing public telephone systems, satellite communication systems, or
emergency radio or paging systems.
The Time Shared Full Duplex wireless transmission system has been proven to
operate effectively in laboratory tests performed in late 1998 through early
1999. This initial system transmitted data at a lower rate than the technology
currently in development and was only in single channel form. Expenditures by
Direct Wireless Corporation for this phase were $381,711.00.
To reach higher data transmission rates and greater reliability than were
achieved in the initial prototype, the wireless program was moved to Southwest
Research Institute, a large research and design company located in San Antonio,
Texas, which is not affiliated with Direct Wireless Corporation, where a
complete systems specification analysis was completed over a 12 weeks period in
late 1999 through early 2000 for a cost to Direct Wireless Corporation of
$338,797.97. The systems specification analysis is a document demonstrating that
from the scientific standpoint the system will work as designed and that the
patented technology can be developed from components currently available. Based
on the system specification analysis it prepared, Southwest Research Institute
has now proposed a contract to Direct Wireless Corporation for the completion
and testing of a new prototype and market ready system capable of the higher
transmission rates.
When compared to currently deployed personal wireless communications systems
that broadcast at data rates of up to 28 kilobits per second, the quality of the
Direct Wireless Time Shared Full Duplex technology is expected to be superior.
The Method of data transmission covered by
10
Direct Wireless Corporation patents can reach speeds of up to 200 kilobits per
second through the handsets. The more data that can be transmitted in a wireless
phone call, the higher quality the signal and the better the sound a person
hears. Also, because of the patented broadcasting methods, cell towers do not
control the Direct Wireless phone call. The quality of the wireless call is then
designed to be higher due to less electronic signal processing.
UNIQUENESS OF THE DIRECT WIRELESS CORPORATION TECHNOLOGY.
The method used today in the wireless communications industry evolved when the
wireless industry began to serve the public in the early 1980s. At that time no
computer chips were available that could be included in handsets; accordingly
the handsets, which are actually hand-held, bi-directional radios, had to be
controlled by electronic devices contained in control towers in order to make
sure that they stayed on the right frequencies and to prevent the overlapping of
conversations. The essential feature of this method was then, and is today, that
the tower controls all aspects of the wireless communication; the handset makes
no broadcast decisions. This traditional system, in place today, requires
control towers and control equipment that are expensive to build and makes it
economically impractical to provide wireless service to sparsely settled areas.
The Direct Wireless Corporation technology differs from all other wireless
communications systems because the handsets contain miniature computers that
allow the handset to make virtually all broadcast decisions, eliminating the
need for expensive towers and associated control equipment. The handsets can
communicate directly with one another through signal extenders, or the range of
their signals can be extended through the use of inexpensive towers that do not
have to contain expensive control equipment. As a result, wireless service can
be provided economically to sparsely settled and remote areas.
THE LICENSING AGREEMENT WITH DIRECT WIRELESS CORPORATION.
The technology licensing agreement under which we have acquired the rights to
market and sublicense the technology in the territory of the United States
provides that we shall pay to Direct Wireless Corporation an initial license fee
of 1,448,425 shares of our common stock (10,138,975 as adjusted for a subsequent
7-1 stock split) and the sum of ten million dollars. The shares of common stock
were delivered to Direct Wireless Corporation on September 26, 2001 and
distributed by that company on October 17, 2001 as a stock dividend to its
stockholders of record on May 15, 2001. We have already paid Direct Wireless
Corporation $176,645. The remaining $9,823,355 must be paid according to the
terms of the license agreement, which requires us to pay on a quarterly basis
sixty percent (60%) of the all our revenues until the license fee is paid in
full. In addition to the initial license fee, we must also pay a royalty in the
amount of thirty percent of all royalty fees we receive from marketing or
sublicensing the technology. The technology license agreement is for an initial
term of ten (10) years. We have two (2) renewal options of ten (10) years each.
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Direct Wireless Corporation may terminate the technology license agreement upon
the occurrence of any of the following events:
o we fail to make timely payments of royalties;
o we dissolve, cease active business operations, liquidate or become
bankrupt;
o our management changes from the current management.
These provisions of the technology license agreement effectively prevent any
hostile takeover by means of a proxy solicitation, a tender offer for our stock
or any other device, so during the term of the technology agreement we will
remain under control of the management of Direct Wireless Corporation.
MANAGEMENT'S PLAN OF OPERATIONS.
At the present time, our cash requirements for operations are limited. We
currently pay no cash compensation to our officers and directors. We are using
office space provided at no charge by Direct Wireless Corporation.
After field tests have begun, we intend to make a public offering of its common
stock to raise enough additional capital to permit it to pay Direct Wireless
Corporation the remaining amount of the initial license fee for the purpose of
completing and testing a prototype of the system. We expect 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, we will begin negotiations with prospective licensees
and manufacturers in preparation for the performance testing and the
manufacturing of the production systems and handsets. We expect 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, we will concentrate our 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.
We do not expect to perform any product research and development or purchase any
plant or significant equipment in the next twelve months. However, before
marketing operations begin, we expect to employ personnel with marketing
experience.
OUR 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. We intend 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.
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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.
We intend 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. We do 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, we will employ any
sales personnel necessary 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 we do 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. Moreover, the company is not aware of any other existing
technologies that would allow established cellular service providers to expand
their services economically into sparsely settled or rural areas.
Furthermore, we will not be required to apply for separate licenses from the
Federal Communications Commission. 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, any existing service provider that has existing licenses
and wishes to extend the nature of its services may use the technology.
OUR EMPLOYEES.
At present our employees are our officers and directors, who are also officers
and directors of Direct Wireless Corporation. Bill Williams and Robert Braswell
expect to devote 70% of their time to our business. When we have raised
sufficient capital to make payments on the license fee that will allow
commencement of the development of a prototype, Jerry Petermann expects to
devote 50% of his time to our business. When we begin business operations it
will be necessary to hire additional personnel. We do not anticipate any
difficulties in hiring appropriate persons.
PROPERTIES
At the present time, we occupy office space provided by Direct Wireless
Corporation. We do not anticipate a need for any additional space until tests of
the technology have been completed. We do not own any communications equipment.
13
PLAN OF DISTRIBUTION
Promptly upon the effectiveness of the registration statement of which this
prospectus is a part, we will begin offering our common stock on a continuous
basis through N.C. Capital Markets, Inc. That company will place our stock by
means of sales in the trading market through broker dealers at prices prevailing
in the market at the time of the sales, or will sell in negotiated transactions
for which we will pay commissions not to exceed 6%. We do not know at this time
how long the offering will continue, but it is our intention to continue the
offering until such time as all shares of the common stock registered for our
account have been sold.
There is no minimum amount of shares that must be purchased. We have not
established any escrow account; funds received from sales will be added to our
general funds as received.
USE OF PROCEEDS
All the proceeds of the offering that we receive will be added to our general
funds. We expect to use $5898 to pay current liabilities. Any remaining funds
received will be used to make payments for the license fee to Direct Wireless
Corporation for use by that company in the development of a working prototype
handset and signal extenders for the Direct Wireless digital telephone.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At the present time our common stock is traded in the over-the-counter market,
but is not eligible for quotation on the National Association of Securities
Dealers Bulletin Board. Our common stock is considered "penny stock" as that
term is defined in the regulations adopted by the Securities and Exchange
Commission under the Securities Exchange Act of 1934. Those regulations impose
on brokers and dealers effecting transactions in penny stocks certain disclosure
and record-keeping requirements in addition to those that normally apply, which
could have the effect of impeding the development of any market in the common
stock. We intend to take all actions necessary to have its stock eligible for
quotation on the National Association of Securities Dealers Bulletin Board.
The range of the high and low bids for our common stock as reported by
Bloomberg.com since September 2001 is as follows:
HIGH BID LOW BID
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Fourth quarter 2001 $1.01 $ .10
First quarter 2002 $ .44 $ .14
Second quarter 2002 $ .15 $ .025
14
The 10,047,639 shares of our common stock owned by our officers and directors
and control persons of the company will become eligible for sales under Rule 144
beginning in September 2002. After that time, those officers, directors and
control persons may each sell under Rule 144 in any three month period the
greater of 1% of the number of shares of our common stock outstanding or the
average weekly trading volume in our common stock during a four week period
preceding the filing of a notice of intended sales under the rule. Sales by our
officers, directors and control persons under Rule 144 must be made in brokerage
transactions or in transactions directly with a market maker and the person
making a sale may not solicit or arrange for the solicitation of offers to buy
the securities or make any payment in connection with the offer and sale of the
securities to any person other than the broker who executes a sell order.
In addition, 6,521,133 shares are owned by other persons who acquired the shares
in private transactions. Of those shares, 5,230,830 are being registered for
sale, but any of those shares that remain unsold for a period of two years from
the date of this prospectus will be eligible for sale at that time under Rule
144.
At, July 31,2002, we had 306 record holders of our common stock. Since inception
we have never paid any cash dividends on our common stock and we do not
anticipate that we will pay cash dividends in the foreseeable future.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our executive officers and directors are:
NAME AGE POSITION
---- --- --------
Bill G. Williams 67 Chief Executive Officer and Chairman of the Board
Robert S. Braswell, IV 47 President, Director
Jerry W. Petermann 52 Vice President and Chief Technology Officer, Director
W. Steven Walker 52 Secretary/Treasurer, Director
The present directors were appointed in May 2001 and will serve until their
successors are elected at an annual meeting of the shareholders. Thereafter
directors will serve a term of one year.
MR. WILLIAMS has been Chairman of the Board and CEO of Direct Wireless
Corporation since September 1997. During the period from 1995 until September
1997 he was self-employed in entrepreneurial activities that culminated in the
founding of Direct Wireless Corporation. He was previously Chairman of the Board
and Chief Executive Officer of Cafe Quick Enterprises, Inc from 1988-1995. Cafe
Quick is in the vending industry market and uses a unique patented air
impingement technology to cook fresh frozen food in a vending machine. Mr.
Williams and his management team acquired the technology, developed the
prototype and ultimately licensed the technology worldwide. From 1985 to 1988,
Mr. Williams was Chairman of the Board and
15
CEO of Ameritron Corporation, a multi-business public holding company. In his
capacity as chairman, Mr. Williams was instrumental in acquiring thirty-seven
businesses over a period of five years. Prior to his employment with Ameritron
Corporation, Mr. Williams was involved in real estate projects and land
development. Mr. Williams is co-inventor of the Direct Wireless Communication
System.
MR. BRASWELL has been President of Direct Wireless Corporation since November
1999 and a member of the board of directors since January 1999. He was an
independent businessman with eighteen years experience in the common carrier
freight business, working for Central Freight Lines, Inc from 1974-1992. During
his tenure Mr. Braswell worked in all aspects of the Company operations. His
last position with Central Freight Lines was Director of Data Processing for
Shop Maintenance and Inventory Control. He managed the parts, tires and fuel
inventories in addition to the Maintenance Reporting System. During this period,
Mr. Braswell was a study group chairman and a committee member of the Board of
Directors for the American Trucking Association Maintenance Council. Before
joining Direct Wireless Corporation, 1992-1999 he was engaged in business
evaluations, real estate development and new home construction. Mr. Braswell
graduated from the University of Houston in 1983 with a Bachelor of Business
Administration in Organizational Behavior Management.
MR. PETERMANN has been Vice President of Direct Wireless Corporation since
January 1999. Mr. Petermann is co-inventor of the Direct Wireless Communication
System and has been continuing the development of system features and
capabilities since October 1997. He served as a consulting engineer to Direct
Wireless Corporation from October 1997 until January 1999, during which time he
was engaged in developing the system features and capabilities and writing the
patent applications for Direct Wireless Corporation. From 1995 until October
1997 he was a design engineer for Ramtech Electronics, a company that was then
in the business of electronics design and assembly. Mr. Petermann has a long
career, beginning in 1972, as an engineer and inventor in a variety of
disciplines. As founder of Warrington Laboratories he developed several
successful concepts and inventions for clients that include the Department of
Defense, U.S. Navy, Los Alamos National Laboratories, Housing and Urban
Development and the United Nations, among others. He has extensive experience in
concept-to-patent management, research and development firms, manufacturers and
patent attorneys. Mr. Petermann holds a Bachelor of Applied Science in
Telecommunications from the University of Mary Hardin-Baylor, 1972.
MR. WALKER is Secretary/Treasurer of Direct Wireless Corporation and acts as
principal legal advisor to the Company. For approximately twenty-five years Mr.
Walker has been engaged in the private practice of law with emphasis in
commercial and business litigation and corporate finance. He has been a Board
Member of several public companies and represents a number of corporations. Mr.
Walker received a Bachelor of Arts Degree with Honors from the University of
Texas, Austin, Texas, and a Doctor of Jurisprudence Degree from the University
of St. Mary's School of Law, San Antonio, Texas. He received his law license in
November of 1976.
16
EXECUTIVE COMPENSATION
We do not have any revenue producing operations at the present time, and it may
be some period of time before revenues are produced in amounts sufficient to pay
executive salaries. When we have sufficient revenues we intend to pay annual
executive salaries as set forth in the following compensation table
NAME PROPOSED SALARY
---- ---------------
Bill G. Williams $100,000
Robert S. Braswell, IV 70,000
Jerry W. Petermann 60,000
W. Steven Walker 42,000
On September 26, 2001 we issued for services rendered 7,000,000 shares of common
stock to our officers, who have been serving without payment of salaries, as
follows: Bill G. Williams: 2,459,000; Robert S. Braswell IV: 2,100,000 Jerry W.
Petermann: 1,400,000; and W. Steven Walker: 1,050,000 .At the present time,
there are no other cash or stock bonus, stock option plans, pension plans or
similar compensation plans.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At December 31, 2001, the following persons were beneficial owners of 5% or more
of our common stock.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
--------------- ----------------------- ----------------
Shirley Williams 3,584,438 Direct 15.27%
4800 Ridgeview
Waco, TX 76710
Bill G. Williams 3,584,438 Indirect (1) 15.27%
2068 N. Valley Mills Dr.
Waco, TX 767101
Robert S. Braswell IV 2,602,153 Direct (2) 11.08%
2068 N. Valley Mills Dr. 780,000 Indirect (3) 3.32%
Waco, TX 767101
Jerry W. Petermann 1,704,512 Direct 7.26%
Vice President and Director
2068 N. Valley Mills Dr.
Waco, TX 767101
17
W. Steven Walker 1,376,536 Direct 5.86%
Secretary, Treasurer
And Director
800 Airport Freeway
Irving, TX 75062
------------------------------------------------------------------
(1) These shares are owned of record by Shirley Williams, Mr. Williams' wife.
(2) Includes 11,667 shares are owned by Mr. Braswell and his wife as joint
tenants.
(3) Includes 226, 676 shares are owned by Mr. Braswell's wife, 140,000 shares
owned by a corporation controlled by Mr. Braswell and 413,324 shares owned
by his minor children.
Our officers and directors own shares of our common stock as shown in the
following table.
NUMBER OF SHARES
NAME AND POSITION BENEFICIALLY OWNED PERCENT OF CLASS
----------------- ------------------ ----------------
Bill G. Williams 3,584,438 Indirect 15.27%
Chairman and CEO
2068 N. Valley Mills Dr.
Waco, TX 767101
Robert S. Braswell IV 2,602,153 Direct 11.08%
President and Director 780,000 Indirect 3.32%
2068 N. Valley Mills Dr.
Waco, TX 767101
Jerry W. Petermann 1,704,512 Direct 7.26%
Vice President and Director
2068 N. Valley Mills Dr.
Waco, TX 767101
W. Steven Walker 1,376,536 Direct 5.86%
Secretary, Treasurer
And Director
800 Airport Freeway
Irving, TX 75062
All officers and directors as 10,047,639 42.80%
a group ( four persons)
Information as to the nature of the security holdings of officers and directors
is given in the notes to the preceding table.
18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Direct Wireless Corporation organized us on April 6, 2001. On that date we
issued 1000 shares of common stock to Direct Wireless Corporation (7000 shares
as adjusted for the subsequent 7-1 stock split) in consideration of the
furnishing of initial capitalization of $1000. Direct Wireless Corporation can
therefore be considered to be a promoter.
On May 15, 2001, we entered into an agreement with Direct Wireless Corporation
under which we were licensed to market and/or sublicense the Direct Wireless
Corporation technology in the territory of the United States. As partial payment
for the license agreement, we issued to Direct Wireless Corporation 1,489,633
shares of our common stock (10,434,431 shares as adjusted for a 7-1 stock split
effective September 26, 2001). In addition, the license agreement requires
Direct Wireless Communications, Inc. to pay royalties and an aggregate of ten
million dollars cash to Direct Wireless Corporation. In December 2001 we paid to
Direct Wireless Corporation the sum of $176,645 as partial payment of the
required cash fee.
On September 26, 2001, we issued an aggregate of 7,000,000 shares of our common
stock in consideration of services rendered to our officers and directors as
follows: Bill G. Williams: 2,459,000; Robert S. Braswell IV: 2,100,000; Jerry W.
Petermann: 1,400,000; and W. Steven Walker: 1,050,000
SELLING SECURITY HOLDERS
The following table gives the names and addresses of the selling security
holders. Opposite each name is the number of shares of our common stock the
security holder owns at the date of this prospectus. Each selling security
holder has advised us that he intends to sell the shares in trading transactions
or negotiated transactions at the prices prevailing at the time of each sale. If
a selling security holder sells all of the shares registered for him, he will
not have any remaining ownership of our common stock.
None of the selling security holders has held any position or office, nor has
had any material relationship, with us since inception.
We have advised the selling security holders that as a result of any sales of
our common stock, they may be deemed to be underwriters as the term is defined
in the Securities Act of 1933. We have also advised them that Regulation M
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, among other things, prohibits them, or any associate of
theirs, from bidding for our common stock while they are engaged in making sales
of the common stock. We have also advised them that they will be required to
comply with the prospectus delivery requirements of the Securities Act of 1933
in connection with any sales of our common stock we have registered for their
accounts.
19
NAME AND ADDRESS NO. OF SHARES OFFERED
Richard Lynn Arnett 31,373
2525 Wallingwood Drive Bldg 14
Austin, TX 78746
Gary Balusek 10,459
1400 N. Loop 340
Waco, TX 76705
Randy Balusek 10,454
1400 N. Loop 340
Waco, TX 76705
Rodney Balusek 10,452
1400 N. Loop 340
Waco, TX 76705
Baptist Community Services 1,238,452
6110 W. 34th Street
Amarillo, Texas 79109
Marc Barrett 369,565
3000 Sherwood Forest
Waco, Texas 76710
Johnny Becker 143,938
7580 Grissom Road
San Antonio, TX 78252
J.D.J. Properties 62,244
7580 Grissom Road
San Antonio, TX 78252
N.K. Bitting 38,903
2205 Lear Lane
Austin, TX 78745
Diana Callan Braswell 63,583
3913 Old Mill Road
Waco, TX 76710
Diana Callan Braswell Trust 311,110
3913 Old Mill Road
Waco, TX 76710
20
Braswell Family Enterprises, Ltd. 254,333
3913 Old Mill Road
Waco, TX 76710
Braswell Family Management Trust 46,667
3913 Old Mill Road
Waco, TX 76710
Stan Brown 381,626
7267 S. 3rd St. Road
Waco, TX 76706
Centennial Advisors LLC 550,000
2209 Peachford Circle
Dunwoody, CA 30338
The Compeller Group Ltd. 350,000
371 Merrick Rd.
Rockville Center, NY 11970
Estate of Austin Cooper 200,000
C/O Lynda Westbrook Kimbrell
2219 Bell Castle Court
Richmond, TX 77469
Jan B. and Leila-Mary Dryselius 121,655
50 Patti Lane
Houston, TX 77024
Denna Dunlap 36,716
903 State Highway31
Mount Calm, TX 76673
Empire Relations Group 200,000
33 S. Service Rd. Suite 122
Jericho, NY 11753
Economy Family Living Trust 37,716
6405 Lange Circle
Dallas, TX 75214
Alison M. Fung 17,948
3418 Steward Circle
Waco, TX 76708
21
Ronald R. Gamez 71,098
1607 N.W. 23rd Street
San Antonio TX 78201
Michael L. Gibson 27,232
7633 Southwestern Blvd.
Dallas, TX 75225
Bill Hayner 38,903
2522 McKinney Avenue
Dallas, TX 75201
John R. and Loriece Helton 70,000
1118 S. Old temple Road
Lorena, TX 76655
David and Sandra Holecek 41,412
312 Virginia Road
Waco, TX 76705
Joe L. Long 127,838
47 Lakeshore Drive
Corpus Christi, TX 78413
Kay C. Long 70,573
47 Lakeshore Drive
Corpus Christi, TX 78413
Bruce A. Mohan 31,373
P.O. Box 5393
Waco, TX 76708
N.C. Capital Markets 100,000
18592 MacArthur
Suite 315
Irvine California 92612
Granila Norris 6,669
193 Oceanview Avenue
Mystic, CT 06355
Albert V. Rowe, Sr. 16,613
32007 Jenkins Mill Road
Franklin, VA 232851
22
Jessie C. Sanchez 15,000
507 Donaldson
San Antonio, TX 78201
Mary Y. Schroeder 5,397
P.O. Box 121
Pflugerville, TX 78691
Dale Tietz 38,903
103 Tumbleweed
Austin, TX 78733
Ron Travis 31,121
3523 McKinney Avenue
Dallas, TX 75204
Vela Limited Partnership 50,573
P.O. Box 420
Seguin, TX 78156
DESCRIPTION OF SECURITIES
We are authorized to issue 200,000,000 shares of common stock, no par value.
There are presently outstanding 23,582,917 shares. Holders of the common stock
are entitled to one vote per share for the election of directors and on all
other matters submitted to a vote of shareholders. They are also entitled to
dividends declared by the directors out of funds legally available for payment
of dividends. Holders of the common stock do not have any cumulative voting
rights or any preemptive or similar rights.
Our Transfer Agent is Corporate Stock Transfer, 3200 Cherry Creek Drive South,
Denver, Colorado 80209; telephone (303) 282-48700.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
We do not have any provision of our Articles of Incorporation or By-Laws that
require us to indemnify our officers and directors on account of any liability
they incur as a result of their actions as officers or directors. However,
Section 2.02-1 of the Texas Business Corporation Act permits the indemnification
of directors, officers, agents and employees of a corporation if the person
seeking indemnity acted in good faith and reasonably believed, if a director,
that his conduct was in the corporation's best interests, and, if not a
director, that his conduct was not opposed to the corporation's best interests,
and in the case of a criminal proceeding, had no reasonable cause to believe his
conduct was unlawful. Indemnity is not permitted if a person is found liable to
the corporation and is limited to expenses actually incurred in the case of a
person
23
found liable on the basis of personal benefit improperly received by him.
Section 2.02-1 also provides that a corporation shall indemnify directors and
officers against reasonable expenses incurred in connection with a proceeding if
they are wholly successful, on the merits or otherwise, in the defense of the
proceeding.
A determination whether to pay indemnity in any preceding may be made by a
majority of a quorum of the board of directors, or a by committee of the board
of directors appointed for such purpose, or by special legal counsel, or by a
vote of the stockholders, but directors who are defendants or respondents in a
proceeding may not vote on the matter.
Section 2.02-1 also authorizes a corporation to purchase insurance on behalf of
directors, officers and employees against liability asserted against them as a
result of their capacities as such. Direct Wireless Communications, Inc. does
not have any insurance on behalf of directors, officers or employees.
We have been informed that in the opinion of the Securities and Exchange
Commission indemnification for liabilities arising under the Securities Act of
1933, which may be permitted to our officers and directors or control persons
pursuant to the provisions of the Texas Business Corporation Act, is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable
INTEREST OF NAMED EXPERTS AND COUNSEL
The financial statements of Direct Wireless Communications, Inc. included in
this prospectus and the registration statement have been included in reliance on
the report of Darilek, Butler & Co., P.C., independent certified public
accountants, included in this prospectus, and on the authority of that firm as
experts in accounting and auditing.
W. Steven Walker, Esq., who has rendered an opinion on the validity of the
Company's common stock, is our Secretary/Treasurer and
General Counsel.
AVAILABLE INFORMATION
We have filed a registration statement with the Securities and Exchange
Commission on Form SB-2 under the Securities Act of 1933 with respect to the
shares of our common stock being offered by the selling shareholders. This
prospectus does not contain all of the information described in that
registration statement and the related exhibits. Statements in this prospectus
concerning the contents or provisions of contracts or other documents are not
necessarily complete, and in each instance we refer you to the copy of the
document on file as an exhibit to the registration statement.
A copy of the registration statement and the related exhibits may be inspected
without charge at the Commission's office at 450 Fifth Street, NW, Washington,
D.C. 20549. Copies of all or any
24
part of the registration statement may be obtained from these offices upon
payment of the fees specified by the Commission. Information on the operations
of the Commission may be obtained by calling 1-800-SEC-0300.
We have filed the registration statement electronically with the Commission. The
Commission maintains a website that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission. The address of that website is http://www.sec.gov.
-------------------
25
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Balance Sheet F-3
Statement of Loss F-4
Statement of Changes in Stockholders' Equity F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7
F-1
DARILEK, BUTLER & CO., P.C.
2702 N. Loop 1604 E., Suite 202
San Antonio, Texas 78232
210-979-0055 phone
210-979-0058 fax
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Direct Wireless Communications, Inc.
San Antonio, Texas
We have audited the accompanying balance sheet of Direct Wireless
Communications, Inc. (a Develoment Stage Company) as of June 30, 2002 and the
related statements of income and cash flows for the period from inception (April
6, 2001) to June 30, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Direct Wireless Communications,
Inc. as of June 30, 2002 and the results of its operations and its cash flows
for the initial period then ended in conformity with accounting principles
generally accepted in the United States of America, consistently applied.
"Darilek, Butler & Co., P.C."
San Antonio, Texas
August 21, 2002
F-2
DIRECT WIRELESS COMMUNICATIONS, INC.
(a Development Stage Company)
Balance Sheet
June 30, 2002
ASSETS:
Current Assets
Cash $ 452
A/R Stockholder and Other 3,721
Investments in Mutual Funds 8,824
-------------
Total Assets $ 12,997
=============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Advance from Shareholder $ 1,043
-------------
Total Current Liabilities 1,043
Stockholders' Equity
Common Stock, No Par Value, 200,000,000 Shares Authorized, 680,135
23,473,117 Issued and Outstanding
Additional Paid-In Capital 15,019
Deficit Accumulated During Development Stage (683,200)
-------------
Total Stockholders' Equity 11,954
-------------
Total Liabilities and Stockholders' Equity $ 12,997
=============
The Accompanying Notes are an Integral Part of These Financial Statements.
F-3
DIRECT WIRELESS COMMUNICATIONS, INC.
(a Development Stage Company)
Statement of Loss
From the Three Months Ended, Six Months Ended and
Period of Inception (April 6, 2001) to June 30, 2002
Three Months Six Months From Inception
Ended Ended (April 6, 2001) to
6/30/2002 6/30/2002 6/30/2002
---------------- -------------- -------------------
Revenue $ 326 $ 326 $ 326
Expenses
Advertising 415 2,740 2,740
Bank Charges 0 20 20
Stock Transaction Fees 887 2,581 2,581
Entertainment and Meals 0 339 339
Professional and Consulting Fees 95,210 98,395 420,761
License Fees 0 42,210 219,190
Administrative Fees 0 5,100 20,119
Outside Services 0 0 2,732
Office Expense 100 958 3,488
Other 0 7,000 7,215
Postage and Delivery 0 0 986
Telephone 470 749 1,572
Travel 0 129 685
Repairs and Maintenance 0 0 55
Insurance 0 0 182
Dues and Subscriptions 0 (100) 300
Auto Expense 0 0 271
Rent 290 290 290
---------------- -------------- -------------------
97,372 160,411 683,526
Net Loss Before Provision for Federal Income Tax $ (97,046) $ (160,085) $ (683,200)
Provision for Federal Income Tax 0 0 0
---------------- -------------- -------------------
Net Loss $ (97,046) $ (160,085) $ (683,200)
================ ============== ===================
Average Outstanding Shares $ 22,591,237 $ 22,473,104 $ 11,217,092
================ ============== ===================
Loss Per Share $ (.00) $ (.01) $ (.06)
================ ============== ===================
The Accompanying Notes are an Integral Part of These Financial Statements.
F-4
DIRECT WIRELESS COMMUNICATIONS, INC.
(a Development Stage Company)
Statement of Changes in Stockholders' Equity From the Date of Inception (April
6, 2001) to June 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 (523,115) (523,115)
------------ ---------- ------------ -------------- ------------
Balance - December 31, 2001 21,454,620 $ 493,476 $ 15,019 $ (523,115) $ (14,620)
------------ ---------- ------------ -------------- ------------
Stock Issued to Officers as Loan Fees 100,000 7,000 0 0 7,000
Stock Issued for Cash 467,500 87,950 0 0 87,950
Services for Escrowed Shares 0 4,650 0 0 4,650
Stock Issued for Services 1,450,997 87,059 0 0 87,059
Net Loss 0 0 0 (160,085) (160,085)
------------ ---------- ------------ -------------- ------------
Balance - End of Period 23,473,117 $ 680,135 $ 15,019 $ (683,200) $ 11,954
============ ========== ============ ============== ============
The Accompanying Notes are an Integral Part of These Financial Statements.
F-5
DIRECT WIRELESS COMMUNICATIONS, INC.
(a Development Stage Company)
Statement of Cash Flows
From the Date of Inception (April 6, 2001) to June 30, 2002
From Inception
Six Months (April 6, 2001)
Ended to
6/30/2002 6/30/2002
------------------ ------------------
Cash Flows From Operating Activities
Net Loss $ (160,085) $ (683,200)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used for) Operating Activities:
Services Contributed 0 15,019
Services Provided for Stock 98,709 414,205
Loss On Investments 0 218
Decrease in Accounts Payable (6,507) 0
Increase in Other Receivable (21) (21)
------------------ ------------------
Net Cash Provided (Used) by Operating Activities (67,904) (253,779)
Cash Flows From Investing Activities
Purchase of Mutual Funds 0 (9,043)
------------------ ------------------
Net Cash Provided (Used) by Investing Activities 0 (9,043)
Cash Flows From Financing Activities
Cash from Sale of Stock 87,950 265,930
Advance from Direct Wireless Corporation (8,100) (2,500)
Advance from Shareholder (9,200) (156)
------------------ ------------------
Net Cash Provided (Used) by Financing Activities 70,650 263,274
Net Increase (Decrease) in Cash 2,746 452
Cash, at Beginning of Period (2,294) 0
------------------ ------------------
Cash, at End of Period $ 452 $ 452
================== ==================
Non-Cash Transactions:
Services Contributed for Administration $ 0 $ 15,019
================== ==================
Stock Issued for Professional and Consulting Services $ 98,709 $ 414,205
================== ==================
The Accompanying Notes are an Integral Part of These Financial Statements.
F-6
DIRECT WIRELESS COMMUNICATIONS, INC.
(a Development Stage Company)
Notes to Financial Statements
June 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.
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 effect 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.
F-7
DIRECT WIRELESS COMMUNICATIONS, INC.
(a Development Stage Company)
Notes to Financial Statements
June 30, 2002
Note B - Related Party Transactions
-----------------------------------
Direct Wireless Corporation provides office space and administrative services to
the Company for the period ended June 30, 2002. The estimated value for the
services provided totaled $5,100 for the six months ended June 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 $42,210 of license fees expensed
that have been paid to Direct Wireless for the six-month period ended June 30,
2002 and $219,190 from inception. No amortization of such fees have occurred
during the development stage.
Note D - Subsequent Events
--------------------------
Subsequent to June 30, 2002, the Company was committed to issuing an additional
1,574,494 shares. Of these shares, 1,274,494 was deposited to an escrow fund
(see Note E) and held by an escrow agent to be sold for the benefit of the
Company. An additional 300,000 shares were issued to individuals for services
and/or cash payment.
Note E - 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 June 30,
2002, the escrow agent has no shares remaining in the escrow fund.
Note F - Federal Income Taxes
-----------------------------
At June 30, 2002, the Company had net operating loss carryforwards totaling
$586,154 which expire in 2021. Realization of deferred assets resulting from the
NOL carryforwards have been offset by a valuation allowance.
F-8
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 2.02-1 of the Texas Business Corporation Act provides that a corporation
may indemnify a person who was, is, or is threatened to be made a defendant or
respondent in any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, arbitrative, or investigative, any appeal in such an
action, suit, or proceeding, and any inquiry or investigation that could lead to
such an action, suit or proceeding, against judgments, penalties, fines,
penalties and reasonable expenses actually incurred in connection with the
proceeding.. If such person was, is, or is threatened to be named a defendant or
respondent because the person is or was a director, indemnity may be paid only
if it is determined that the person conducted himself in good faith and
reasonably believed, in the case of conduct in his official capacity as a
director, that his conduct was in the corporation's best interests, and in all
other cases that his conduct was not opposed to the corporation's best
interests, and in the case of any criminal proceeding he had no reasonable cause
to believe his conduct was unlawful. A director may not be indemnified in
respect of any proceeding in which he is found liable on the basis that personal
benefit was improperly received by him or in which he is found liable to the
corporation, except to the extent of reasonable expenses actually incurred by
him in connection with the proceeding, but no indemnity shall be made in respect
of any proceeding in which the person shall have been found liable for willful
or intentional misconduct in the performance of his duty to the corporation. A
determination to pay such indemnity must be made by either: (1) a majority vote
of a quorum consisting of directors who at the time of the vote are not named
defendants or respondents in the proceeding; or (2) if such a quorum cannot be
obtained, by a majority vote of a committee of the board of directors,
designated to act in the matter by a majority vote of all directors, consisting
solely of two or more directors who at the time of the vote are not named
defendants or respondents in the proceeding; or (3) by special legal counsel
selected by the board of directors or a committee of the board: or (4) by the
shareholders in a vote that excludes the shares held by the directors who are
named defendants or respondents in the proceeding. A provision contained in the
articles of incorporation, the by-laws or a resolution of shareholders or
directors, or an agreement that makes indemnification mandatory shall be deemed
authorization of indemnification. A corporation may indemnify officers,
employees and agents to the same extent as directors.
Section 2.02-1 provides that a corporation shall indemnify a director or officer
against reasonable expenses incurred by him in connection with a proceeding in
which he is named defendant or respondent because he is or was a director or
officer if he has been wholly successful, on the merits or otherwise, in the
defense of the proceeding.
Section 2.02-1 also provides that if, upon application by a director or officer,
a court of competent jurisdiction finds that a director or officer is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, it may order the indemnification it finds is proper and
equitable; but if the person is found liable to the corporation or is found
liable on the basis that personal benefit was improperly received by him, the
indemnification shall be limited to expenses actually incurred in connection
with the proceeding.
Section 2.02-1 also permits payment of reasonable expenses incurred by a
director or officer in advance of final determination of the proceeding after
the corporation receives a written affirmation by the person of his good faith
belief that he has met the standard of conduct necessary for indemnification and
a written undertaking to repay the amount paid or reimbursed if it is ultimately
determined that that he has not met the standard or that indemnification against
expenses incurred by him is prohibited by Section 202-1.
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ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Registration fee $ 239.00
Blue Sky fees $ 1,000.00*
Postage $ 100.00*
Printing and engraving $ 500.00
Accounting and legal $ 5565.00
Electronic filing fee $ 600.00*
Miscellaneous $ 100.00
------------------ ---------
Total $ 8,104.00*
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On April 6, 2001, the company was organized by Direct Wireless Corporation and
thereafter issued to Direct Wireless Corporation 1000 shares of its common stock
in exchange for the initial capitalization of $1000 and became a wholly owned
subsidiary of Direct Wireless Corporation. On May 15, 2001 the company issued
and sold 1,489,633 shares of its common stock to Direct Wireless Corporation as
partial consideration for the grant of a license to the company to market and/or
sublicense wireless telephone technology on which Direct Wireless Corporation
holds the patents. On September 26, 2001, we split our shares 7-1. In the
opinion of management the licensing agreement does not have any definitive value
at this time.
On September 26, 2001 the company issued 7,000,000 shares of its common stock to
four officers and directors in consideration for services rendered.
In October 2001 the company issued an aggregate of 2,112,500 shares of common
stock to twelve persons in consideration of financial and other consulting
services performed for the company and an aggregate of 1,470,000 shares to an
institution and to the company's president and family members (a total of five
persons) for an aggregate consideration of $105,000.
In November 2001 the company issued 26,493 shares to two persons for services
rendered.
In December 2001 the company issued 150,000 shares to a financial institution
for services rendered.
In January 2002 the company issued 1,965,944 shares to an aggregate of 32
persons for services rendered.
In March 2002, the company issued 50,000 shares to each of two offices and
directors for services rendered.
In April 2002, the company issued 550,000 shares to Centennial Advisors LLC for
financial consulting services.
In May 2002, the company issued 350,000 shares to The Compeller Group, Ltd. and
200,000 shares to Empire Relations Group, Inc. for financial consulting
services.
In July 2002, the company issued 100,000 shares and warrants to purchase 100,000
shares at $.06 per share to N.C. Capital Markets, for services.
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In each of the transactions, the company relied on the exemption contained in
Section 4(2) of the Securities Act of 1933 for transactions by an issuer not
involving any public offering.
ITEM 27. EXHIBITS.
3.1 Articles of Incorporation. Registrant incorporates by reference Exhibit
3.1 to Registration Statement on Form SB-2, File No. 333-62216, filed
6/04/2001.
3.1 (a) Articles of Amendment to Articles of Incorporation. Registrant
incorporates by reference Exhibit 2.2 to Form10-QSB, File No. 333-62216,
filed 11/14/2001.
3.2 By-Laws. Registrant incorporates by reference Exhibit 3.2 to
Registration Statement on Form SB-2, File No. 333-62216, filed 6/04/2001.
4.1 Copy of Specimen Certificate for shares of common stock. Registrant
incorporates by reference Exhibit 4.1 to Registration Statement on Form
SB-2, File No. 333-62216, filed 6/04/2001.
4.2 Excerpt from By-Laws. Registrant incorporates by reference Exhibit 4.2
to Registration Statement on Form SB-2, File No. 333-62216, filed
6/04/2001.
23.5 Consent of Darilek Butler & Co.P C .
23.6 Consent of W. Steven Walker, Esq.
5.1 Opinion of W. Steven Walker, Esq.
ITEM 28. UNDERTAKINGS.
Registrant undertakes as follows:
1. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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2. To file, during any period in which it offers or sells securities, a post
effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in the volume
of the securities offered (if the total dollar value of securities offered would
not exceed that which was registered) any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of a
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) Include any additional or changed material information in the plan of
distribution.
3. For determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
4. File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Waco,
State of Texas on August 15, 2002.
Direct Wireless Communications, Inc.
By: /s/Bill G. Williams, Chief Executive Officer
-------------------------------------------
(Signatures and Title)
Bill G. Williams, Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
Signator Date
/s/Bill G. Williams September 24, 2002
-----------------------------------------------------
Bill G. Williams, Principal Executive Officer
/s/W. Steven Walker September 24, 2002
-----------------------------------------------------
W. Steven Walker, Principal Financial Officer
/s/Robert S. Braswell, IV September 24,2002
--------------------------------------------
Robert S. Braswell, IV, Principal Accounting Officer
/s/Bill G. Williams September 24, 2002
------------------------------------------------------
Bill G. Williams, Chairman of the Board
/s/Robert S. Braswell, IV September 24, 2002
--------------------------------------------
Robert S. Braswell, IV, Director
/s/Jerry W. Petermann September 24, 2002
-----------------------------------------------------
Jerry W. Petermann, Director
/s/W. Steven Walker September 24, 2002
-----------------------------------------------------
W. Steven Walker, Director
S-1
EXHIBITS
Index to exhibits
Exhibits 5.1 Opinion Steven W. Walker E-2
Exhibits 23.6 Consent Steven W. Walker E-3
E-1