UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended JUNE 30, 2003
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number 333-62216
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DIRECT WIRELESS COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS 74-3002154
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2068 N. VALLEY MILLS DR. WACO, TEXAS 76710
(Address of principal executive offices)
(512) 583-4500
(Issuer's telephone number)
(Former address)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 29,825,564
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Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
TABLE OF CONTENTS
PART I Financial Information
Item 1. Financial Statements Page
----
Balance Sheet 1
Statements of Loss and Accumulated Deficit 2
Statement of Changes in Stockholders' Equity 3
Statements of Cash Flows 4
Notes to Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
Item 1. Recent Developments in Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports in Form 8-K 9
Signatures 9
Certifications 10-12
DIRECT WIRELESS COMMUNICATIONS, INC.
(A Development Stage Company)
Balance Sheet
June 30, 2003
6/30/03
-------
ASSETS:
Current Assets
Cash $ 9,770
---------
Total Current Assets 9,770
---------
Other Assets
Accounts Receivable - Stockholders 1,200
Accounts Receivable - Sale of Escrow Shares 5,179
Accounts Receivable - Related Party 0
---------
6,379
---------
Total Assets $ 16,149
=========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Accounts Payable - Trade $ 3,128
---------
Total Current Liabilities 3,128
---------
Total Liabilities 3,128
---------
Stockholders' Equity
Common Stock, No Par Value, 200,000,000 Shares Authorized 29,825,564 Shares
Issued and Outstanding 905,299
Additional Paid-In Capital 45,618
Deficit Accumulated During Development Stage (937,896)
---------
Total Stockholders' Equity 13,021
---------
Total Liabilities and Stockholders' Equity $ 16,149
=========
1
DIRECT WIRELESS COMMUNICATIONS, INC.
(A Development Stage Company)
Statements of Loss
For the Quarter Ended June 30, 2003, Six Months Ended
June 30, 2003 and the Period from April 6, 2001 (Date of Inception)
to June 30, 2003
Quarter Six Months April 6, 2001
Ended Ended (Inception) to
June 30, June 30, June 30,
2003 2003 2003
---- ---- ----
Revenues
Capital Gain (Loss) on Sale of Assets $ 0 0 $ (20)
Dividend Income 0 0 64
Miscellaneous Income 0 0 326
---------- ---------- ----------
Total Revenues 0 0 370
---------- ---------- ----------
Expenses
Administrative Fees 5,100 10,200 45,619
Advertising 507 507 3,577
Auto Expense 0 0 271
Bank Charges 8 210 310
Dues and Subscriptions 0 59 859
Insurance 0 0 276
License Fees 400 15,900 240,440
Meals and Entertainment 0 17 357
Office Expense 0 254 5,144
Other Expense 0 427 545
Outside Services 550 1,038 5,254
Postage and Delivery 203 274 2,339
Professional and Consulting Fees 19,363 25,603 616,930
Rent Expense 290 580 1,740
Repairs and Maintenance 0 184 239
Stock Transaction Fees 1,433 1,776 9,861
Telephone 32 64 1,900
Travel 816 1,920 2,605
---------- ---------- ----------
Total Expenses 28,702 59,013 938,266
---------- ---------- ----------
Net Loss Before Provision for Federal Income Tax (28,702) (59,013) (937,896)
Provision For Federal Income Tax 0 0 0
---------- ---------- ----------
Net Loss $ (28,702) $ (59,013) $ (937,896)
========== ========== ==========
Average Outstanding Shares 29,825,564 29,826,354 17,613,108
Loss Per Share $ (0.00) $ (0.00) $ (0.05)
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DIRECT WIRELESS COMMUNICATIONS, INC
Statement of Changes in Stockholders' Equity
For the Period from April 6, 2001 (Date of
Inception) to June 30, 2003
Deficit
Accumulated
Common Stock Additional During Total
----------------------- Paid-In Development Stockholders'
Shares Amount Capital Stage Equity
------ ------ ------- ----- ------
Balance - April 6, 2001 (Inception) 0 $ 0 $ 0 $ 0 $ 0
Contributed Services 0 0 45,618 0 45,618
Stock Issued for Cash 2,469,150 256,455 0 0 256,455
Stock Issued to Direct Wireless Corporation 10,138,975 0 0 0 0
Stock Issued to Officers 7,100,000 0 0 0 0
Stock Issued for Services 6,242,439 580,746 0 0 580,746
Stock Held In Escrow 1,452,000 0 0 0 0
Cash Received for Sale of Escrowed Shares 2,423,000 68,098 0 0 68,098
Net Loss 0 0 0 (937,896) (937,896)
---------- ---------- ------------ ----------- ----------
Balance - June 30, 2003 29,825,564 $ 905,299 $ 45,618 $ (937,896) $ 13,021
========== ========== ============ =========== ==========
3
DIRECT WIRELESS COMMUNICATIONS, INC.
(a Development Stage Company)
Statements of Cash Flows
From the Date of Inception (April 6, 2001) to June 30, 2003
From Inception
Six Month (April 6, 2001)
Ended to
6/30/2003 6/30/2003
--------- ---------
Cash Flows From Operating Activities
Net Loss $ (59,013) $(937,896)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used for) Operating Activities:
Services Contributed 10,200 45,619
Services Provided for Stock 17,150 580,746
Loss On Investments 0 0
Decrease in Accounts Payable (5,289) 3,128
Increase in Other Receivable 0 0
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Net Cash Provided (Used) by Operating Activities (36,952) (308,403)
Cash Flows From Investing Activities
Sale (Purchase) of Mutual Funds 0 0
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Net Cash Provided (Used) by Investing Activities 0 0
Cash Flows From Financing Activities
Cash from Sale of Stock 34,482 324,552
Advance from Direct Wireless Corporation 15,500 0
Advance (to) from Shareholder and Broker (3,339) (5,179)
--------- ---------
Net Cash Provided (Used) by Financing Activities 46,643 318,173
Net Increase (Decrease) in Cash 9,691 9,770
Cash, at Beginning of Period 79 0
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Cash, at End of Period $ 9,770 $ 9,770
========= =========
Non-Cash Transactions:
----------------------
Services Contributed for Administration $ 10,200 $ 45,619
========= =========
Stock Issued for Professional and Consulting Services $ 17,150 $ 580,746
========= =========
4
DIRECT WIRELESS COMMUNICATIONS, INC.
(a Development Stage Company)
Notes to Financial Statements
June 30, 2003
Note A - Summary of Significant Accounting Policies
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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 Communications was granted a license to market and/or
sublicense in the United States the wireless telephone communications technology
on which Direct Wireless holds the patents. The Company has not yet begun
operations. Upon completion of the working prototype telephone employing the
technology, the Company intends to market and sublicense the technology
primarily to existing service providers who desire to extend their services to
sparsely settled areas or to public utilities who have customers in such areas
and desire to provide wireless services to them.
BASIS OF ACCOUNTING
The financial statements of the Company have been prepared on the accrual basis
of accounting. As such, revenue is recognized as earned and expenses are
recorded when accrued. This basis of accounting conforms to generally accepted
accounting principles.
INTERIM FINANCIAL STATEMENTS
The accompanying financial statements are prepared as of June 30, 2003, which is
an interim reporting period for the Company. The Company's fiscal year ends on
the last day of the calendar year for financial reporting purposes. The
Company's fiscal year will be ending as of December 31, 2003.
BASIS FOR ASSIGNING AMOUNTS TO EQUITY SECURITIES ISSUED FOR OTHER THAN CASH
Shares of common stock issued to individuals and/or companies for other than
cash have been assigned amounts equal to the fair value of the service provided
or the fair value of the shares of the Company issued, whichever was most
readily determinable.
CASH FLOWS
For the purpose of the cash flow statement, cash and cash equivalents represent
funds deposited in banks and investments maturing within three months.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities, and the reported
revenue and expenses. Actual results could differ from those estimates.
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DIRECT WIRELESS COMMUNICATIONS, INC.
(a Development Stage Company)
Notes to Financial Statements
June 30, 2003
Note B - Related Party Transactions
-----------------------------------
Direct Wireless Corporation provides office space and administrative services to
the Company for the period ended June 30, 2003. The estimated value for the
services provided totaled $10,200 for the six months ended June 30, 2003 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 $15,900 of license fees expensed
that have been paid to Direct Wireless for the six-month period ended June 30,
2003 and $240,439 from inception. No amortization of such fees have occurred
during the development stage.
Note D - Escrow Agreement
-------------------------
The Company has established an irrevocable escrow agreement with a brokerage
firm. The funds received from the sale of escrow shares were recorded as
additional capital in the accompanying financial statements. As of June 30,
2003, the escrow agent has 1,452,000 shares remaining in the escrow fund.
Note E - Federal Income Taxes
-----------------------------
At June 30, 2003, the Company had net operating loss carryforwards totaling
$937,806, which expire in 2023. Realization of deferred assets resulting from
the NOL carryforwards have been offset by a valuation allowance.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
MANAGEMENT'S PLAN OF OPERATIONS.
At the present time, Direct Wireless Communications, Inc. has no cash
requirements. It pays no compensation to its officers and directors and is being
given office space at no charge by Direct Wireless Corporation.
To begin any operations, however, it will be necessary for Direct Wireless
Communications, Inc. to raise funds in the next twelve months. The company has
begun discussions with several financial institutions concerning its financing
requirements. Within the next six months management intends to make a private
placement of shares of common stock to accredited investors under Regulation D
promulgated under the Securities Act of 1933. Management intends to raise
$3,000,000 in this manner for payment to Direct Wireless Corporation for the
purpose of conducting field tests of the electronic components and circuitry
specified in the completed systems specification analysis.
After field tests have begun, Direct Wireless Communications, Inc. intends to
make a public offering of its common stock to raise enough additional capital to
permit it to pay Direct Wireless Corporation the remaining $7,000,000 of the
initial license fee for the purpose of completing and testing a prototype of the
system. Management expects that the field tests and the final phase of the
testing can be completed within the next twelve months.
While Direct Wireless Corporation completes development of the new
pre-production prototype, management of Direct Wireless Communications, Inc.
will begin negotiations with prospective licensees and manufacturers in
preparation for the performance testing and the manufacturing of the production
systems and handsets. Management expects this process to take the next six to
eight months to complete all the tasks necessary for a successful demonstration
of the technology. Once this phase of the development is complete, management
will concentrate its efforts for the next four months on negotiating and signing
contracts with licensees for territories and for equipment purchases. Down
payments on any contracts signed will represent the first income from operations
for the company.
Management also recognizes the current market conditions and will in addition to
the above seek to acquire or merge with an operating company in order to enhance
shareholder value become an operating company and take advantage of current
economic conditions to add value to under priced profitable companies.
Direct Wireless Communications, Inc. does not expect that it will perform any
product research and development or purchase any plant or significant equipment
in the next twelve months. However, before marketing operations begin, the
company expects to employ personnel with marketing experience.
MARKETING STRATEGY.
Many regions in the United States are too sparsely settled to justify the
expense of central call control centers required for cellular and other wireless
technology. Because the Direct Wireless Corporation technology needs no central
control center it is particularly suited to operate in these remote or isolated
areas. The company intends to market the technology in rural areas of the United
States that have limited cellular service or no wireless services of any kind.
Rural, as defined by the Office of Management and Budget in Washington, D.C.,
and accepted for use by the U.S. Census and other government agencies, is
generally defined as non-metropolitan areas of open country where less than
2,500 persons live. According to the 1990 United States census, 23% of the
population was accountable to rural, non-metropolitan areas. This figure appears
to be on the rise: according to the 1998 World Bank Economic Indicators, 34%, or
62 million people then lived in non-metropolitan, rural areas of the United
States.
7
The company intends to market and sublicense the technology to existing service
providers who desire to extend their service to these sparsely settled areas or
to public utility companies that have customers in these areas and desire to
provide wireless services to their existing customers. The company does not
intend to begin marketing activities until it appears that the field tests and
final tests of the technology will be successfully completed. At that time, the
company will employ sales personnel to present to existing providers of cellular
and other telephone services the opportunity to extend their services to
sparsely populated areas their services have not yet reached.
Under this marketing strategy the company does not expect competition from
established cellular and/or other service providers, which are primarily located
in urban markets and cannot afford to enter these rural markets because of the
high cost of their equipment.
Direct Wireless Communications, Inc. will not be required to apply for separate
FCC licenses. The technology does not set any requirements for pre-assigned
licenses from the Federal Communications Commission. Direct Wireless Corporation
has represented that the handsets may be manufactured to function normally on
cellular and other wireless communication licensed frequencies where enough
signal space and unoccupied licenses are available, as well as in ranges where
no Federal Communications Commission licenses are required. Accordingly, the
technology may be used by any existing service provider that has existing
licenses and wishes to extend the nature of its services.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There is currently no litigation affecting the Company or in which the
Company is engaged as a party.
ITEM 2. CHANGES IN SECURITIES.
There have been no material changes in securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There has been no material default by the Company in the payment of
principal, interest, a sinking or purchase fund installment or other material
default in the Company's Senior Securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters have been submitted to a vote of the holders of the common
stock or other securities of the Company during the reporting period other than
for the amendment to the articles of the corporation .
ITEM 5. OTHER MATTERS.
There are no other matters upon which the Company is reporting.
8
PART II--OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) No reports on Form 8-K were filed during the quarter for which this report
is filed.
SIGNATURES
In accordance with the requirement of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Direct Wireless Communications, Inc.
Registrant
Date: July 31, 2003 /s/ Robert S. Braswell IV
----------------------------------
Printed Name Robert S. Braswell IV
Title President
Date: July 31, 2003 /s/ W. Steven Walker
----------------------------------
Printed Name W. Steven Walker
Title Secretary
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CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert S. Braswell IV, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Direct
Wireless Communications Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
10
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: July 31, 2003
/s/ Robert S. Braswell IV
-------------------------
Robert S. Braswell IV
President, Chief Financial Officer and Chief Accounting Officer
11
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the form 10-QSB of Direct Wireless
Communications Inc. for the quarter ended June 30, 2003, I, Robert S.
Braswell IV, President and Chief Financial Officer of Direct Wireless,
hereby certify pursuant to 18 U.S.C. ss.1350, as adopted pursuant to
ss.906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge
and belief, that;
such Form 10-QSB for the quarter ended, June 30, 2003, fully complies
with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and the information contained in such Form 10-QSB
for the quarter ended, fairly presents June 30, 2003, in all material
respects, the financial condition and results of operation of Direct
Wireless Communications Inc.
/s/ Robert S. Braswell IV
-------------------------
Robert S. Braswell IV
President and Chief Financial Officer
12