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, 2002
[ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number 333-62216_
DIRECT WIRELESS COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS
(State or other jurisdiction of incorporation or organization)
74-3002154
(IRS Employer Identification No.)
2068 N. Valley Mills Dr. Waco, Texas 76710
(Address of principal executive offices)
(512) 583-4500
(Issuer's telephone number)
P. O. Box 15064, Austin, TX 78761-5064
(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: 23,473,117
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements
Page
Statement of (Loss) and Accumulated Deficit
1
Statement of Changes in Stockholders' Equity
2
Statement of Cash Flows
3
Notes to Financial Statements
4 - 5
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
6
PART II
OTHER INFORMATION
Item 1.
Recent Developments in Legal Proceedings
7
Item 2.
Changes in Securities
7
Item 3.
Defaults upon Senior Securities
7
Item 4.
Submission of Matters to a Vote of Security Holders
7
Item 5.
Other Information
7
Item 6.
Exhibits and Reports in Form 8-K
8
Signatures
8
DIRECT WIRELESS COMMUNICATIONS, INC.
Page 1
(a Development Stage Company)
Balance Sheet
June 30, 2002
ASSETS:
6/30/2002
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 Stockholder
$
1,043
Total Current Liabilities
1,043
Stockholders' Equity
Common Stock, No Par Value, 200,000,000 Shares Authorized,
23,473,117 Issued and Outstanding
680,135
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
DIRECT WIRELESS COMMUNICATIONS, INC.
Page 2
(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
Ended
Six Months
Ended
From Inception (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)
$
(.00)
$
(.05)
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
Page 3
Deficit
Accumulated
Common Stock
Additional
During
Shares
Amount
Paid-In Capital
Development 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
DIRECT WIRELESS COMMUNICATIONS, INC.
(a Development Stage Company)
Page 4
Statement of Cash Flows
From the Date of Inception (April 6, 2001) to June 30, 2002
Six Months
Ended
From Inception (April 6, 2001) 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
(16,100)
(10,499)
Advance from Shareholder
(1,200)
7,843
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
DIRECT WIRELESS COMMUNICATIONS, INC. Page 5
(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.
Interim Financial Statements
The accompanying financial statements are prepared as of June 30, 2002,
which is an interim reporting period for the Company. The Company's fiscal
year ends on the last day of the calendar year for financial reporting purposes.
The Company's fiscal year will be ending as of December 31, 2002.
Basis for Assigning Amounts to Equity Securities Issued for Other Than Cash
Shares of common stock issued to individuals and/or companies for other than
cash have been assigned amounts equal to the fair value of the service provided
or the fair value of the shares of the Company issued, whichever was most
readily determinable.
Cash Flows
For the purpose of the cash flow statement, cash and cash equivalents represent
funds deposited in banks and investments maturing within three months.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions 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.
DIRECT WIRELESS COMMUNICATIONS, INC. Page 6
(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 - 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 1,351,994 shares remaining in the escrow fund.
Note E - 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
Item 2. Management's Discussion and Analysis or Plan of Operation. Page 7
Management's Plan of Operations.
At the present time, Direct Wireless Communications, Inc. has no cash
requirements. It pays no compensation to its officers and directors and is
being given office space at no charge by Direct Wireless Corporation.
To begin any operations, however, it will be necessary for Direct Wireless
Communications, Inc. to raise funds in the next twelve months. The company
has begun discussions with several financial institutions concerning its
financing requirements. Within the next six months management intends to
make a private placement of shares of common stock to accredited
investors under Regulation D promulgated under the Securities Act of 1933.
Management intends to raise $3,000,000 in this manner for payment to
Direct Wireless Corporation for the purpose of conducting field tests of the
electronic components and circuitry specified in the completed systems
specification analysis.
After field tests have begun, Direct Wireless Communications, Inc. intends
to make a public offering of its common stock to raise enough additional
capital to permit it to pay Direct Wireless Corporation the remaining
$7,000,000 of the initial license fee for the purpose of completing and testing
a prototype of the system. Management expects that the field tests and the
final phase of the testing can be completed within the next twelve months.
While Direct Wireless Corporation completes development of the new
pre-production prototype, management of Direct Wireless Communications,
Inc. will begin negotiations with prospective licensees and manufacturers in
preparation for the performance testing and the manufacturing of the
production systems and handsets. Management expects this process to take
the next six to eight months to complete all the tasks necessary for a
successful demonstration of the technology. Once this phase of the development
is complete, management will concentrate its efforts for the next four months
on negotiating and signing contracts with licensees for territories and for
equipment purchases. Down payments on any contracts signed will represent the
first income from operations for the company.
Direct Wireless Communications, Inc. does not expect that it will perform any
product research and development or purchase any plant or significant equipment
in the next twelve months. However, before marketing operations begin, the
company expects to employ personnel with marketing experience.
Marketing Strategy.
Many regions in the United States are too sparsely settled to justify the
expense of central call control centers required for cellular and other
wireless technology. Because the Direct Wireless Corporation technology
needs no central control center it is particularly suited to operate in these
remote or isolated areas. The company intends to market the technology in
rural areas of the United States that have limited cellular service or no
wireless services of any kind. Rural, as defined by the Office of Management
and Budget in Washington, D.C., and accepted for use by the U.S. Census and
other government agencies, is generally defined as non-metropolitan areas of
open country where less than 2,500 persons live. According to the 1990 United
States census, 23% of the population was accountable to rural, non-metropolitan
areas. This figure appears to be on the rise: according to the 1998 World Bank
Economic Indicators, 34%, or 62 million people then lived in non-metropolitan,
Rural areas of the United States.
Page 8
The company intends to market and sublicense the technology to existing service
providers who desire to extend their service to these sparsely settled areas or
to public utility companies that have customers in these areas and desire to
provide wireless services to their existing customers. The company does not
intend to begin marketing activities until it appears that the field tests and
final tests of the technology will be successfully completed. At that time,
the company will employ sales personnel to present to existing providers of
cellular and other telephone services the opportunity to extend their services
to sparsely populated areas their services have not yet reached.
Under this marketing strategy the company does not expect competition from
established cellular and/or other service providers, which are primarily located
in urban markets and cannot afford to enter these rural markets because of the
high cost of their equipment.
Direct Wireless Communications, Inc. will not be required to apply for separate
FCC licenses. The technology does not set any requirements for pre-assigned
licenses from the Federal Communications Commission. Direct Wireless
Corporation has represented that the handsets may be manufactured to function
normally on cellular and other wireless communication licensed frequencies where
enough signal space and unoccupied licenses are available, as well as in ranges
where no Federal Communications Commission licenses are required.
Accordingly, the technology may be used by any existing service provider
that has existing licenses and wishes to extend the nature of its services.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
There is currently no litigation affecting the Company or in which the Company
Is engaged as a party.
Item 2. Changes in Securities.
There have been no material changes in securities.
Item 3. Defaults Upon Senior Securities.
There has been no material default by the Company in the payment of principal,
interest, a sinking or purchase fund installment or other material default in
the Company's Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters have been submitted to a vote of the holders of the common
stock or other securities of the Company during the reporting period other
than for the amendment to the articles of the corporation .
Item 5. Other Matters.
There are no other matters upon which the Company is reporting.
PART II-OTHER INFORMATION (CONTINUED) Page 9
Item 6. Exhibits and Reports on Form 8-K.
(a) No reports on Form 8-K were filed during the quarter for which this
report is filed.
SIGNATURES
In accordance with the requirement of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Direct Wireless Communications, Inc.
Registrant
Date: June 30, 2002 s. Robert S. Braswell IV
Printed Name Robert S. Braswell IV
Title President
Date: June 30, 2002 s. W. Steven Walker
Printed Name W. Steven Walker
Title Secretary