UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB/12g
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
AFFORDABLE TELECOMMUNICATIONS
TECHNOLOGY CORPORATION
(Name of Small Business Issuer in its Charter)
----------------------------------------------
TEXAS 76-0548546
(State or Other Jurisdiction of Incorporation) (IRS Employer Identification No.)
6227 Southwest Freeway, Houston, Texas 77074
(Address of Principal Executive Offices) (Zip Code)
713-988-8884
------------
(Issuer's telephone number)
Securities Registered under Section 12 (b) of the Exchange Act:
Title of each class Name of each exchange on which
to be registered each class is to be
------------------- ------------------------------
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01
----------------------------
(Title of class)
Page 1 of 51
PART I
Item 1. Description of Business
======================================
Organization
- - ------------
Affordable Telecommunications Technology Corporation, a Texas
corporation, a development stage company, was incorporated on July 10,
1997. (hereinafter the "Company" or the "Registrant"). The Company is
engaged in the business of serving as a reseller and provider of wireless
telecommunications services, paging services and related services, and
also plans on providing an Automatic Meter Reading service (AMR). The
Company presently operates a retail stores in the Houston market under the
name "The Wireless Store", which store commenced operations on September
1, 1998. The market for its telecommunication products and services
principally is the Texas Gulf Coast Area. See "Business of the Company"
below. The Company has a letter of intent to acquire ten additional stores
in Texas and Louisiana. See the discussion of the "Pending Acquisition -
Letter of Intent" under "Business of the Company" below.
Business of the Company
- - -----------------------
Principal Products, Services and Markets
Affordable Telecommunications Technology Corporation, a development
stage company, has been in business since 1997. The Company had only
limited operations and did not generate its first operating revenues until
the third quarter of fiscal 1998, following the opening of its retail
store on September 1, 1998. The Company presently markets and sells both
prepaid and post-paid (regular billing) wireless telecommunications
products and services, primarily in the Texas Gulf Coast area, through its
Houston, Texas retail store.
During the past five years, banks and retail stores have made a
strong push to expand consumer credit, and lowering credit requirements.
As a result, the institutions and retail outlets extended credit to people
who have overspent their income, and find it difficult to make even
minimal monthly payments. A recent article in The Houston Chronicle
reported that notwithstanding the current expansion of the US economy,
consumer debt and personal bankruptcies have reached all-time highs. This
is a principal reason that why Company has determined to offer and will
continue to offer its products and services on a pre-paid basis for
customers requiring or desiring this availability.
With such a large number of prospects for prepaid cellular services -
a number that would increase substantially in the event of any economic
downturn - the potential untapped market for these services among persons
and firms without adequate credit could be substantial. According to GTE
MobilNet, eight out of ten new applicants for service require a deposit as
a condition of sale of service. Yet, of these eight applicants, only one
pays the deposit, while the seven customers who did not or could not pay
the deposit, or approximately 2 million customers within GTE's Houston
service are potential users of prepaid cellular telephone service offered
by the Company.
The Company believes that the primary source of new entrants into its
market area will be firms engaged in providing PCS to cellular customers.
Unlike current analog cellular technology that has offered by AT&T, GTE
MobileNet and Houston Cellular Telephone Company , PCS transmits data by
using digital technology. Digital PCS technology has advantages over
analog cellular such as incoming caller ID; clearer voice quality, and an
ability to serve a larger number of users simultaneously.
The Company, on October 12, 1999, entered into a letter of intent
with Beeper Boutique, which owns and operates eight stores in Texas and
Louisiana, and has a present customer base of over 19,000 active pager
subscribers. This acquisition, assuming the successful completion, of
which there can be no assurance, should enable the Company to expand its
service and customer base, and enjoy certain economies of scale, and be
able to provide service from six different wireless carriers to a larger
customer base. See the discussion under "Letter of Intent" below.
The Company has contracts to market the wireless service from the
following wireless telecommunications service providers: Nextel, Sprint
PCS, Bell South Wireless, Houston Cellular Telephone Company, Page-Mart,
Comsat Mobile Communications and Globalstar Telecommunications Co.
The Company has negotiated a joint venture with Link-Two
Communications Incorporated, which holds numerous radio paging licenses
that cover Southwest Texas. Link-Two offers nationwide service with two-
way digital messaging on a wide area network. The purpose of the joint
venture will be to establish one-way and two-way paging, messaging and
data service over a network throughout Texas. The venture with Link-Two
will enable the Company to provide Automatic Meter Reading service (AMR)
in its market. This service will enable local utility providers to read
customer's meters without physical entry into a residence or business.
This AMR system is presently in a test period in Southeast Texas, and the
Company believes that the test will be successful and lead to new revenue
streams for the Company. The technology for the AMR service was developed
in Israel and has proven successful in reducing costs for the utility
users of such service. AMR is also being marketed in other regions in the
US, and the Company is the sole provider in Southeast Texas.
In order to expand its market and customer base, the Company has
expanded its products and services offering the same to both prepaid and
regular customers, and believes that this should enable the Company to
appeal to market segments including small business and middle-and-upper
income users. The Company initially offered its products and services
primarily to individuals who could not obtain adequate credit for service
from major telecommunication providers on satisfactory terms.
Through a recently announced venture between AirTouch Cellular, the
Company now offers Globalstar Telecommunications satellite phone, which
includes the Globalstar handsets, accessories and service. The Globalstar
service provides customers with satellite telephone service world-wide and
is distributed and marketed throughout North America, with the Company now
offering this satellite communication service throughout Texas.
In addition, the Company offers paging, messaging and information
products and services through third party networks, including PageMart and
Bell South Wireless Data.
Distribution Methods of the Products and Services
- - -------------------------------------------------
The Company presently utilizes two principal methods, for the
distribution of its products and services in the Texas Gulf Coast market,
as described below. The Company plans efforts to further develop multiple
distribution channels in its market(s) to enable the Company to provide
more effective and extensive marketing of products and services, which
should also reduce its reliance on any single distribution source. The
Company's present distribution methods for products and services are (i)
direct retail distribution and (ii) agreements with third party
independent distributors/dealers of wireless cellular services and
products.
In addition, the Company is actively seeking to increase its base of
new customers through retail stores that the Company operates and
acquires. While dealer and direct sales channels remain important
components of the Company's growth strategy, the Company believes that
retail stores produce the best combination of lower customer acquisition
costs and higher retention rates, resulting in improved margins and
profitability. See the discussion below with respect to "Retail Sales" and
"Letter of Intent-Acquisition of Stores".
Retail Sales: The Company currently conducts its retail operations through
one retail location in Houston, Texas. The plan is to expand to include
retail stores strategically located in smaller neighborhoods throughout
the Texas Gulf Coast area in order to capitalize on favorable demographics
and retail traffic patterns. The Company believes that its retail focus
with an increasing retail presence should help accomplish the following
goals, among others:
- - - attracting and maintaining new customers from the consumer market
segment;
- - - enabling new customers to receive personal product and service
instructions through trained professional wireless sales representatives,
which increases customer retention rates;
- - - and reducing the incremental expense associated with new customer
subscription.
Dealers: The Company currently has dealer agreements with six large
wireless dealers as well as smaller Houston wireless communication
dealers, offering wireless services including paging and PCS. In exchange
for a wholesale price on activation's and airtime, these dealers solicit
customers for the Company's prepaid cellular service. These agreements
increases sales volume for the dealers and provides a valuable source of
new customers for the Company.
Direct Sales: The Company has adopted plans to commence distribution of
its products and services through a direct sales force, with the primary
area covering the Houston and Texas Gulf Coast area, which should increase
its ability to achieve and maintain a higher customer base.
The Company primarily uses its retail stores for the distribution and
sale of the telecommunication products and services presently being
offered. The Company also intends to enter into dealer agreements with
third parities who are established dealers of cellular products and
services in its market in Texas, for the purpose of expanding its
potential for sales and marketing of such products and services.
Status of any publicly announced new Products or Service
- - --------------------------------------------------------
The status of all publicly announced products and services are
discussed fully under "Business of the Company".
Competitive Business Conditions--Small Business Issuer's Competitive
Position in the Industry and Methods of Competition
The paging industry is highly competitive and has few barriers to
entry. Companies in the industry generally compete on the basis of price,
coverage, speed and quality of transmission, system reliability and
service. Many of the Company's competitors have substantially greater
financial, technical and other resources than the Company.
Several companies, including Paging Network ("PageNet") and Mobile
Telecommunications Technology Corp. ("Mtel"), currently offer national
paging services to their subscribers. The Company will also compete will
numerous other local, regional and national paging companies. In addition,
the United State Congress and the FCC have authorized the use of newly
allocated spectrum for mobile and portable radio communications services,
including specifically for narrow band PCS. Through its auction process,
the FCC has issued narrowband PCS licenses, and the licensees are in the
process of constructing their facilities. Some of the primary uses
envisioned by narrowband licenses are advanced voice paging and two-way
acknowledgment paging.
It is expected that companies offering narrowband-advanced paging
will compete with one-way paging companies. In addition, some companies
may utilize their broadband PCS licenses to offer paging services in
conjunction with their product and service offerings to users. There can
be no assurance that additional competitors will not enter markets served
or proposed to be served by the Company or that the Company will be able
to compete successfully.
The Company must be able to compete with large retail chains, direct
providers and others offering products and services in the wireless
telecommunication and paging industry. There can be no assurance that it
will be able to compete with larger, more established providers, having
far greater economic, personnel and other resources, and operating
histories. Notwithstanding the foregoing, the Company believes that it
will indeed be successful in competing because its primary focus is to
market its products into the niche market for small and mid-sized income
users.
The Company believes that it has certain competitive advantages. The
Company charges no monthly access fee for its prepaid service, unlike many
of its competitors. The Company offers a plan that provides customers with
both equipment and specified amount of time on a prepaid basis, giving the
customer the benefit of buying only what they want to spend on airtime
while (i) eliminating the Company's credit risk, (ii) substantially
reducing the Company's receivable reserves, together with labor, software
and overhead items required to monitor receivable and (iii) making the
float attributable to the prepayments available to increase opportunities
for internally-financed growth, or otherwise maximize the shareholder
returns.
The Company's size and relatively low overhead permit it to respond
more flexibly to market changes, either directly by offering new services
including PCS, voice paging and prepaid home telephone service and voice
mail services). Further, the Company can adopt the flexible, informal and
personal services and procedures attractive to the credit-disadvantaged
and other individuals and small business.
The Paging and Cellular Industry
- - --------------------------------
Radio paging began more than 4 decades ago as an adjunct to telephone
answering services, delivering tone-only messaging to subscribers.
Beginning on the 1970's, cost-effective technological innovations and
regulatory reforms help accelerate the use of paging services. Advances in
microprocessor technology facilitated dramatic reductions in the size and
weight of pagers. In 1982, the FCC increased the number of available
channels for paging, further stimulating the growth of the industry.
During the 1980's, the paging industry expanded significantly.
Factors contributing to the growth in the paging industry include:
(i) a continuing shift toward service-based economy which resulted in
need to keep in contact at all times, for business purposes; (ii)
increasing mobility among workers and management; (iii) increasing
awareness of the benefits of mobile communications for both business and
personal use; (iv) a reduction in the price of paging equipment and
service; (v) product distribution at the retail level; and (vi) increasing
availability of information service-based offerings.
In addition, the benefits of mobile and wireless communications have
gained widespread acceptance as a result of the growth of cellular
communications. The Company believes that paging growth will continue to
grow with the wireless communication industry generally, because it
believes paging is the most cost-effective form of mobile communications.
Since paging is form of one-way communication, it is less expensive than
communicating by cellular telephones. Pagers and airtime required to
transmit an average message cost less than the equipment and airtime for
cellular telephones. in fact, some users of cellular telephones use a
pager in conjunction with their telephones to screen incoming calls and to
minimize usage-based charges.
The availability of value added paging products and services is
creating demand within certain market segments which previously had not
been attracted by the benefits of basic paging services alone. Demand for
paging services is anticipated to increase further as a result of
technological advances which permit messaging to be integrated into
business tools (such as laptop and palm computers) and into consumer
products (such as wristwatches).
The United States cellular telephone industry historically operated
as a regulated quasi-monopoly in virtually market, with GTE MobilNet and
Houston Cellular Telephone Company as the dominant market participants in
Houston, Texas. The industry, however, is expanding and becoming more open
to new entrants as a result of the continuing emergence of new wireless
communication technologies, including the advance of digital technology.
Cellular industry growth has also been aided by nationwide roaming
agreements which have made it possible for customers to use their cellular
telephones nearly everywhere in the United States. This ubiquity of
service is one of the cellular industry's greatest strengths as medium for
communication, and offers significant potential opportunities for future
growth.
The following table summarizes certain key domestic cellular industry
statistics published by the Cellular Telecommunications Industry
Association for the period from December 31, 1992 to December 31, 1996
(the latest date for which data are available):
<TABLE>
December 31,
<S> <C> <C> <C> <C> <C>
Cellular Industry Statistics 1996 1995 1994 1993 1992
Total Service Revenues $23.6 $19.1 $14.2 $10.9 $7.8
(dollars in billions)
Cellular Customer 44.0 33.8 24.1 16.0 11.0
(in millions )
Customer Growth 30.0% 40.0% 50.8% 45.1% 46.0%
(year-over-year)
Average Monthly Bill per $47.70 $51.00 $56.21 $61.49 $68.68
Customer (dollars)
Penetration-Average 8.3% 6.5% 4.7% 3.1% 2.2%
Carrier*
</TABLE>
* Represents the total nationwide cellular penetration, divided by two to
reflect two cellular licenses in each market during the above periods.
As the above table reflects, the total number of domestic US cellular
customers grew by approximately 30% during 1996, compared to 1995, and
cellular industry penetration as of December 31, 1996 was 16.6%, with
overall growth penetration growing between 1992 and 1996 at a compounded
annual rate of 400%. While the penetration rate has increased, the average
monthly cellular telephone bill has declined. This decline can be
attributed to an increase in cellular telephone users who have limited
incomes or use cellular telephone service as a means of security after
dark, as well as intense price competition and the advent of new digital
technology replacing analog service, at sharply reduced rates.
The wireless industry gained almost 14 million new subscribers by the
end of 1998 - a growth rate of nearly 15% in one year according to the
Cellular Telecommunications Industry Association (CTIA). To put this into
context, it took the industry nine-and-a-half years to gain its first 13
million subscribers.
Sprint PCS has publicly stated that it represented 12.2 percent of
the new subscribers, the most for any provider in 1998. According to
Sprint PCS, it had 836,000 new subscribers in the fourth quarter, which is
an industry record according to the CTIA.
CTIA has published projections of tremendous growth in the US
wireless industry, with total new subscriber likely to reach 18 million by
the end of 1999. CTIA has stated that it believes wireless service
penetration will reach 70% of the telephone user population in the US by
2007. It is predicted that average revenue per subscriber per month will
rise from $40 to $45 for voice service alone. This doesn't take into
account future revenues from Internet access type wireless services, and
data communications, which are being increasingly marketed and introduced,
in the 4th quarter 1999 and continuing in 2000 and thereafter. CTIA has
published further projections that subscribership will grow as people use
wireless as their second-line or even as their primary phone service, with
lower prevailing long distance rates and other services, as opposed to
land line service.
Names of Principal Suppliers
The principal service providers offered by the Company include
Nextel, Sprint PCS, Bell South Wireless, Houston Cellular Telephone
Company, Comsat Mobile Communications and Globalstar Telecommunications
Co. for cellular service and Page-Mart, and Houston Cellular Telephone
Company for paging and wireless phone service.
<TABLE>
<CAPTION>
Licenses, Franchises, Concessions, Royalty Agreements or Contracts
<S> <C>
Nextel: Expiration 3/31/01 with automatic renewal
Sprint PCS: Expiration 9/08/01 with automatic renewal
Houston Cellular Telephone Company: Expiration 8/10/01 with automatic renewal
PageMart: Expiration 5/05/00 with automatic renewal
ComSat: Expiration 6/28/02 with automatic renewal
Globalstar Satellite: Expiration 10/15/00 with automatic renewal
GTE Wireless Incorporated: Expiration 3/09/01 with automatic renewal
</TABLE>
Nextel pays a commission for each new subscriber that is activated
every month, from a low of $ 100 to a high of $ 250. The Company also
receives a residual of 5% of the subscribers' future revenue stream.
During the past year, the Company has averaged 150 subscribers per month
for the Nextel wireless telephone/paging service, for which Nextel has
paid the Company a total of $142,000 in commissions. If a subscriber
disconnects service within 6 months of commencing service, Nextel will
charge the Company back for the original commission paid. Nextel also
accrues cooperative advertising funds of $ 30 per now subscriber per
month. The Company must use co-op advertising funds for advertising and
promotions within 180 days of accrual, and claims for reimbursement must
be submitted within 90 days of the Company incurring the expense. This
contract with Nextel is non-exclusive, and Nextel may offer the service
and equipment to competing dealers and retail outlets.
Sprint MCI pays an Activation Retention Credit (ARC) for each new
subscriber that is activated every month. The commission varies from a low
of $ 5 to a high of $ 25, and the Company also receives exclusivity credit
of $ 10 per subscriber per month. During the past year, the Company has
averaged 55 subscribers per month. Sprint PCS has paid $ 30,720 in
commissions. If a subscriber disconnects service within 31 days of
connection, Sprint PCS will charge the Company back for the original
commission paid. Sprint PCS also accrues cooperative advertising funds of
$ 35 per new subscriber per month and the Company must use co-op
advertising funds for advertising and promotions within 180 days of the
accrual, and claims for reimbursement must be submitted within 90 days of
the Company incurring that expense. This contract is non-exclusive.
Houston Cellular Telephone Company pays a commission for each new
subscriber that is activated every month. The commission varies from a low
of $ 100 to a high of $ 250. During the past 2 months that the Company has
been offering this service, it has averaged 30 subscribers per month.
Houston Cellular Telephone Company has paid $12.000.00 in commissions. If
a subscriber disconnects service within 3 months of connection, Houston
Cellular Telephone Company will charge the Company back for the original
commission paid. Houston Cellular Telephone Company also accrues
cooperative advertising funds of $ 30 per subscriber per month. The
Company must use co-op advertising funds for advertising and promotions
within 160 days of the accrual, and claims for reimbursement must be
submitted within 90 days on the Company incurring the expense. This
contract is non-exclusive.
GTE Wireless provides cellular airtime to the Company on a prepaid
basis under a resale agreement. The Company purchases cellular airtime at
a wholesale rate and then resells the airtime to the public at a profit
The cost to the Company is $ .25 per minute, and the retail price to the
public is $ .50 per minute, which results in a gross profit to the Company
of $.25 per minute for prepaid cellular service. Since the inception of
the prepaid program, the Company has sold in excess of 100,000 minutes
This contract is non-exclusive.
PageMart Wireless will from time to time sell one way paging products
and services to the Company. PageMart makes its local, regional,
nationwide and international one-way paging networks available to the
Company. The Company purchases access to the network at a discounted rate
and resells this service to the general public at a profit. The Company
bills the public customers for access to the network on monthly, quarterly
or annual basis, with the customers prepaying for access to the paging
network. This contract is non-exclusive.
Comsat Personal Communications, Inc. has appointed the Company as a
non-exclusive agent to provide Comsat products and services to the public.
The Company receives a commission of $ 100 for each unit sold, which
commission is paid 60 days following the sale of a unit. The Company is
eligible for payment of 5% commission for airtime revenue collected by
Comsat from the subscriber.
Airtouch Satellite Services US, Inc. d/b/a. Globalstar Satellite has
appointed the Company as a non-exclusive agent to provide Globalstar
products and services to the public. The Company receives a commission of
$ 100 to S 200 for each unit sold, which commission are paid 60 days
following the sale of a unit. If a subscriber disconnects service within 4
months of connection and purchase, Airtouch Satellite Services will charge
the Company back for the original commission paid. The Company is eligible
for payment of 5% commission for monthly airtime revenue collected by
Airtouch Satellite Services from the subscriber.
Bell South Wireless Data has appointed the Company as a non-exclusive
sales representative to solicit new subscribers to utilize the Bell South
(BSWD) two-way wireless data network. BSWD will pay a commission for each
new subscriber that is activated every month, a commission varies from a
low of $20 to a high of $60. In addition, BSWD also accrues cooperative
advertising funds of $ 5 per new subscriber per month. The Company must
use co-op advertising funds for advertising and promotions within 180 days
of the accrual, and claims for reimbursement must be submitted within 90
days of the Company incurring the expense. BSWD also accrues Market
Development funds of $ 15 per new subscriber and the Company is eligible
for payment of 4.5% residual for monthly airtime revenue collected.
Status of any publicly announced new Products or Services
- - ---------------------------------------------------------
The Company is conducting final due diligence of its pending acquisition
of Beeper Boutique. The Company reasonably expects to close the
transaction on or before December 1, 1999. Upon such acquisition, the
Company will amend this Form 10-SB/12g to reflect the financial statements
of Beeper Boutique.
Pending Acquisition - Letter of Intent
- - --------------------------------------
The Company has entered into a letter of intent to purchase ten
stores from Beeper Boutique, which stores operate in the Texas Gulf Coast
and Louisiana markets. Beeper Boutique presently serves in excess of
19,000 customers for with paging services in its markets and the Company
believes that this acquisition will enable it to significantly increase
its customer base for its full line of wireless services including the
pager service presently marketed by Beeper Boutique. While there can be no
assurance that the acquisition will be completed successfully, the Company
is presently in negotiations to complete this acquisition following
completion of its due diligence.
The terms of the pending acquisition provide for payments of $250,000
upon execution of the final agreement; a note in the amount of $530,000 at
12% interest per annum with monthly payments commencing January, 2000
through October, 2001 and a $605,000 note with interest at 12% per annum,
with payment in cash or restricted shares of the common stock of the
Company, based upon the average of the daily closing bid price of the
shares at payment.
In connection with the contemplated acquisition of Beeper Boutique,
the Company will assume the leasehold obligations on the ten Beeper
Boutique stores located in Texas and Louisiana. See the discussion under
"Description of Property" (Item 3) below, with regard to the stores of
Beeper Boutique including monthly rent and lease expiration. The Company
believes that the store facilities of Beeper Boutique are adequate to
permit the Company to expand its wireless equipment and service business
into the existing facilities.
See the discussion under "Management's Discussion and Analysis", Item
2 below, and under "Description of Property", Item 3 below, with respect
to the Company's obligation to be assumed upon the completion of the
acquisition of Beeper Boutique
Need for any Government Approval is necessary and the small Business
Issuer has not yet received that Approval, discuss the Status of the
Approval within the Government Approval Process
At present, there are no specific regulations or approvals required
by or from the Federal or state government or any agency for marketing the
products and services offered by the Company, and there are no present or
anticipated regulations that have or may have any effect upon the Company
or its business. The Company is a reseller of telecommunications products
and services.
Estimate of the Amount spent during each of the last two fiscal Years on
Research and Development Activities, and if applicable the Extent to which
the cost of such Activities are borne directly by Customers
The Company's business activities involve the reselling of products
and services manufactured by third parties and as a result, the Company
has not incurred any research and development costs. Further, in
connection with the Link-Two joint venture for AMR service, no R & D
expense has been incurred by the Company, nor are any anticipated, as the
Company will be a reseller and dealer of the AMR service.
Costs and Effects of Compliance with Environmental Laws (federal, state
and local)
The Company has no costs nor is there any effect from environmental
laws associated with the operation of the Company's retail store business.
Number of total Employees and Numbers of full Time Employees
The Company's present retail store in Houston, Texas, employs 8
persons, including Mr. Bethke, who is the Company's sole full-time
salaried officer. See "Executive Compensation" below.
Reports of Security Holders
The Company has not made any reports to security holders during the
past fiscal year.
Item 2. Management's Discussion and Analysis of Finical Condition
and Results of Operations
==================================================================
Results of Operations
- - ---------------------
During the Company's fiscal year ended December 31, 1998, the Company
had sales of $48,470, compared to no revenues from inception on July 10,
1997, through the year ended December 31, 1997, respectively. The
financial statements attached hereto include audited financial statements
for the year ended December 31, 1998, and the period from inception
through December 31, 1997, as well as interim audited financial statements
for September 30, 1999, compared to unaudited financial statements for the
comparable period of the prior year.
The Company incurred a net loss of $206,044 ($0.06 per Share) during
fiscal 1998, compared to a net loss of $7,500 ($0.00 per Share) for the
period from inception through December 31, 1997.
For the nine month period ended September 30, 1999, the Company had
sales of $212,532, compared to sales of $7,813 during the nine month
period ended September 30, 1998. The Company had a net loss of $270,959
($0.07 per Share) during the nine month period ended September 30, 1999,
compared to a net loss of $83,540 ($0.02 per Share) for the nine month
period ended September 30, 1998, respectively.
There are no known trends, events or uncertainties that have had or
that are reasonably expected to have a material adverse impact on the net
sales or revenues or income from continuing operation of the Company.
There is an increasing trend toward use of pagers and wireless cellular
telephones and other wireless equipment by all segments of the population,
including prepaid and regular use. The Company expects to benefit from
this trend in its Texas Gulf Coast market and, if it completes the
acquisition of Beeper Boutique, it expects that it will benefit from the
increased market in both South Texas and Louisiana.
The causes for the material changes from period to period in one or
more line items of the small business issuer's financial statements is the
direct result of the commencement of the Company's store operations.
There are no seasonal aspects that had a material effect on the
financial condition or results of operation of the Company.
Liquidity and Capital Resources
- - -------------------------------
The Company, at September 30, 1999 had current assets of $95,010,
compared to current assets of $156,097 at December 31, 1998. The decrease
in current assets is the result of a reduction in cash, accounts
receivable, and deposits/prepaid expenses, but also the Company had an
increase in inventory. The increase in inventory consists of wireless
telephone equipment including, cellular and paging equipment and
accessories, located at the Company's retail store.
The Company's current liabilities were $156,686 at September 30,
1999 compared to $144,424 at December 31, 1998, reflecting a slight
increase of 8.5%. The Company's non-current liabilities were $638,778 at
September 30, 1999 and $731,388 at December 31, 1998, which represented
long term debt and capital leases.
There is a trend that the Company is aware of that could adversely
impact upon its liquidity, relating to the acquisition under the Letter of
Intent of the six Beeper Boutique retail stores. Other than the expenses
and impact upon liquidity from the planned Beeper Boutique acquisition,
which the Company hopes to fund with its securities, cash flow from
operation, and from possible investment capital, the terms and conditions
of which the Company is presently unsure of, the Company has no plans for
any large capital expenditures.
There is also a trend in the wireless industry toward rapid
technological change and development, but such trend should not adversely
impact upon resellers and retail operators such as the Company. As a
result, the Company does not know of any trends, events or uncertainties
that have or are reasonably likely to have a material impact on its short-
term or long term liquidity. The Company's liquidity has been the result
of operating revenues as well as sales of the Company's securities to
private investors.
See the discussion under "Recent Sales of Unregistered Securities"
(Item 10) below. During late 1997 and early 1998, the Company issued a
total of 2,300,000 shares, at par value, to the Company's president and
its two directors, without cash consideration. In connection with a
private placement, the Company issued a total 845,300 shares for total
consideration, net of commissions, equal to $339,830. Further, during
1999, in connection with the private placement to private investors, the
Company issued 610,710 shares in consideration of $217,590, net of
commissions. In addition, during 1998 and 1999, the Company issued a total
of 495,000 shares for legal services, valued at $232,500. The Company
believes that such sales and the issuance of shares for legal services
were at the fair market price/value of the shares at the respective dates
of sale. See "Statement of Changes in Shareholders Equity, dated September
30, 1999", which is part of the Financial Statements, Item 13 below.
As discussed under "Business of the Company; Pending Acquisition -
Letter of Intent" above, in the event that the Company completes the
acquisition of Beeper Boutique, the Company will have a material
commitment for capital expenditures, which will include $250,000 in cash
payable upon the execution of the final agreement. In addition, the
Company will become obligated under notes for Beeper Boutique, as
follows: a note with two payments of $32,500 each due on November 30, 1999
and December 30, 1999; a note in the amount of $530,000, payable on a
monthly basis with interest at 12% per annum, payments scheduled to
commence on January 1, 2000 at the rate of $30,000 per month for 10 months
and at the rate of $21,000 per month for 12 months; and a note in the
amount of $605,000, payable on January 15, 2000, with interest at 12% per
annum, at the Company's option in cash or the issuance of restricted
shares of the Company's stock, based upon a price of $.625 per share,
which is equal to the average of the daily closing price of the shares
during September, 1999. This will result in the issuance of 968,000 shares
to pay the $605,000 note. The sources of such funds are presently
projected to include the following: investment from private investors,
following the filing and effective date of this Form 10-SB/12g; revenues
from operations; and institutional financing. The Company does not know at
present the terms and conditions of the financing from investors or any
institutional financing. However, with respect to the operations of Beeper
Boutique, the current monthly revenues generated by Beeper Boutique are
approximately $305,0000 and its expenses are approximately $265,000.
Assuming the successful completion of the acquisition, in addition
to its obligations to fund the purchase of Beeper Boutique as set forth
above, the Company has agreed to assume the lease obligations for the ten
Beeper Boutique retail stores (See "Description of Property", Item 3
below) as well as the following obligations:
Obligation Assumed:
- - -------------------
All invoices due and payable by Beeper Boutique, dated November 1,
1999 or later, and specifically for air time, equipment, carrier charges,
utilities and any miscellaneous expenses relevant to the day-to-day
operations of Beeper Boutique; all guarantees by Beeper Boutique to
customers except for any obligation for the return of merchandise for 30
days after the closing date or no later that November 30, 1999; the
maintenance of Beeper Boutique's bank accounts to which customer's
insufficient items and/or credit card chargebacks are made; and contact
obligations with the following vendors:
LOGIX local dial up service 56k dedicated telephone lines to all store
locations;
Dolphin Capital (Copier) $298.35 per month through February, 2001;
IOS Capital (2-line fax machine) $133.41 per month through January, 2001;
First Sierra (Computer Network) $2,417.13 per month through May, 2001;
Transference of lock boxes deposit accounts for all monies received after
October 31, 1999;
Transference of all utility services to Buyer no later that 90 days from
the date of closing; and
Setting up and contracting for new credit card processing services and
direct deposits of credit card charges into buyer's account.
Beeper Boutique, as noted above, has monthly revenues that exceed
its expenses, and the operations of Beeper Boutique, upon completion of
the acquisition, will cover the obligations referred to above.
Year 2000
- - ---------
The Year 2000 issue results from certain computer systems and
software applications that use only two digits (rather than four) to
define the applicable year. As a result, such systems and applications may
recognize a date of "00" as 1900 instead of the intended year 2000, which
could result in data miscalculations and software failures. The Company
has conducted a preliminary assessment of its key computer systems and
software applications and believes they are Year 2000 compliant. The
Company is in the process of communicating with all key suppliers,
financial institutions and customers to identify and coordinate the
resolution of any Year 2000 issues that might arise. Based on the initial
assessment, the Company believes the cost of addressing the Year 2000
issue should not have a material impact on the Company's financial
position or results of operations.
Item 3. Description of Property
================================
The Company presently leases 4,783 square feet of retail store/office
space at 6227 Southwest Freeway, Houston, Texas, for $3,183.96 per month.
The condition of the Company's leased facilities in Houston, Texas are
excellent, and are sufficient for its use and operation of the Company's
present level of operations. The Company, as noted above, has entered into
a Letter of Intent to purchase ten retail stores from Beeper Boutique,
which stores are located in Texas and Louisiana. Assuming the successful
completion of the acquisition, the Company will be assuming the leasehold
obligations for each of the ten Beeper Boutique stores. The following is a
summary of the information regarding each of the stores:
<TABLE>
<CAPTION>
<S> <C> <C>
Beeper Boutique Store Monthly Rent Lease Expiration
Location
3333 Katy Freeway, $4,457.01 May 30,2000
Houston, TX
Almeda Mall, $2,771.38 October 31, 2003
Houston, TX
San Jacinto Mall, $2,924.42 January 31, 2001
Houston, TX
Greenspoint Mall, $2,883.33 January 31, 2003
Houlston, TX
Parksdale Mall, $3,837.44 January 31, 2001
Beaumont, TX
Post Oak Mall, $2,493.90 December 31, 2000
Bryan, TX
Northgate Mall, $1,238.33 September 30, 2002
Lafayette, LA
Music City Mall, $ 750.00 May 31, 2000
Odessa, TX
University Mall, $1,000.00 July 31, 2001
Nachadoges, TX
Richland Mall, $2,358.03 December 31, 2001
Waco, TX
</TABLE>
The Company believes that the above store facilities, assuming successful
completion of the Beeper Boutique acquisition, will be sufficient for the
foreseeable future.
Item 4. Security Ownership of Certain Beneficial Owners and Management
======================================================================
As of October 30, 1999, the security ownership of the following
persons and entities, who were either executive officers, directors of the
Company or were known to the Company to own more than five percent (5%) of
the Company's outstanding voting securities was as follows:
<TABLE>
<S> <C> <C> <C>
(1) (2) (3) (4)
Title of Class Name and Address Amount and Nature Percent of Class (a)
of Beneficial of Beneficial
Owner Ownership
- - -----------------------------------------------------------------------------
Common Stock Steven H. Bethke 2,000,000 shares 48.6%
6227 Southwest
Freeway, Houston,
TX
Common Stock Jane Ellen Karp 50,000 shares 1.2%
4600 S. Orange
Blvd.
Highland Beach, FL
Common Stock Norman George 50,000 shares 1.2%
11911 Carraige
Hill Dr.
Houston, TX
</TABLE>
(a) Based upon 4,113,666 shares issued and outstanding at October 30,
1999.
(b) Mr. Bethke is the Company's president, CEO and chairman. Ms. Karp is a
director and Mr. George is the Company's chief financial officer and a
director.
Item 5. Directors, Executive Officers, Promoters and Control Persons
======================================================================
Directors and Executive Officers
--------------------------------
<TABLE>
<S> <C> <C>
Name Age Title
- - -------------------------------------------------------------------------
Steven H. Bethke 40 President and Chairman
Jane Ellen Karp 55 Director
Norman George 59 Chief Financial Officer and
Director
</TABLE>
All directors hold office until the next annual meeting of
stockholders of the Company and until their successors have been elected
and shall qualify. Officers serve at the discretion of the Board of
Directors.
Mr. Bethke previously was employed as General Manager of Houston
Telephone and Paging (HT&P), from July, 1995 to September, 1996. Prior to
joining HT&P, he was employed as a consultant to HT&P from January, 1995
to July, 1995. Prior to joining HT&P as a consultant, he was employed by
Everon America, Inc. (which is the North American marketing company for
Samson Electronics LTD, a Korean electronics manufacturer, including
paging equipment) as North American Sales Manager from August 1994 to
July, 1995. Mr. Bethke was Manager of Indirect Distribution with
MobileComm (a Bell South company) from June 1993 to August, 1994. Prior to
that time he was employed as Manager of Distribution for Houston Cellular
Telephone Company from November 1988.
Ms. Karp, a Director, is presently President of Karp Development Co.,
Inc., a real estate development concern in Highland Beach, Florida,
involved in the purchase, development, design, and marketing of
residential real estate in the Northeast. Ms. Karp also sits on several
Boards for various charitable enterprises including Parkinson's Disease
and City of Hope Special Projects.
Mr. George, a Director and Chief Financial Officer of the Company,
was hired as Chief Financial Officer on September 1, 1998. Prior to
joining the Company, he was self -employed with ownership interest in
numerous retail companies over the past twenty five (25) years. He
formerly was employed for 10 years by Peat, Marwick and Mitchell as a
retail consultant. He is a graduate of the University of Texas with a
degree in Finance and Accounting.
Item 6. Executive Compensation
==============================
The information set forth below concerns the compensation to the named
executive officers of the Company for each of the past three years. No executive
officer of the Company has an employment agreement with the Company and the tree
executive officers serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Long Term Compensation
Annual Compensation Awards Payouts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restrict Securities
Name and Annual ed Underlaying LTIP All other
Principal Compan- Stock Options/SAR's Payouts Compensation
Position Year Salary($) Bonus($ sation($) Award(s)($) (#) ($) ($)
- - ---------------------------------------------------------------------------------------------------
Steven H.
Bethke 1998 $60,000 0 0 0 0 0 0
President,
CEO,
Director
Steven H.
Bethke 1997 $55,000 0 0 0 0 0 0
President,
CEO,
Director
Jane
Ellen 1998 0 0 0 0 0 0 0
Karp
Director
Jane
Ellen 1997 0 0 0 0 0 0 0
Karp
Director
Norman
George, 1998 0 0 0 0 0 0 0
CFO and
Director
Norman
George, 1997 0 0 0 0 0 0 0
CFO and
Director
</TABLE>
Item 7. Certain Relationships and Related Transactions
======================================================
During fiscal 1997 and 1998 and to date, the Company has had no
transactions with related parties. The only transactions with its officers and
directors include the salary payable to its chief executive officer, Steven H.
Bethke, and the issuance of shares at par value during 1998, prior to the
commencement of trading in the shares, to Mr. Bethke and its director, Ms.
Karp, and its other director, who also serves as the Company's chief financial
officer.
Item 8. Legal Proceedings
=========================
The Company is not a party to any litigation that is material.
Item 9. Market for Common Equity and Related Stockholder Matters
================================================================
The Company's common stock is traded over-the-counter in what is referred
to as the "pink sheets". As of November 10, 1999, there was one market maker in
the Company's stock. The following information with respect to the high and low
market prices was obtained from the Company's records. Trading the in Company's
shares commenced on June 1, 1999
<TABLE>
<S> <C> <C>
Bid Price Bid Price
1999 High Low
Quarter Ending June 30 $.38 $.13
Quarter Ending Sept. 30 $.88 $.38
Period Ending November 10 $.625 $.625
</TABLE>
The Company is filing this Form 10-SB/12g for the purpose of enabling the
Company's shares to commence trading on the NASDAQ Bulletin Board. The
Company's Form 10-SB/12g must be declared effective by the SEC prior to the
Company being approved for trading on the NASDAQ Bulletin Board, and until such
time as the Form 10-SB/12g is declared by the SEC, the shares will continue to
be quoted on the "pink sheets". The Company must make application following the
effective date of the Form 10-SB/12g in order to have its shares quoted on the
NASDAQ Bulletin Board. As of November 10, 1999, there were 120 holders of the
Company's common stock. The Company has never paid a dividend and does not
anticipate that any dividends will be paid in the near future.
Item 10. Recent Sales of Unregistered Securities
=================================================
The Company sold the following unregistered shares as set forth below
since its inception. In connection with the transactions, no commissions were
paid to any person or entity, and no underwriter was involved, nor was any
officer, director or affiliate of the Company paid or given any consideration.
<TABLE>
<S> <C> <C> <C>
Date Class of Title and Amount of Nature and Amount of
persons/purchasers Securities Consideration (1)
- - --------------------------------------------------------------------------
9/97-2/98 Officers/Directors 2,300,000 Shares Issued at Par Value
for Services
07/15/98 Private Investors 62,300 Shares Cash $ 6,230
12/30/98 Legal Consultant 375,500 Shares Services valued
at $ 187,500
12/30/98 Private Investors 683,000 Shares Cash $ 333,500
7/15/99 Legal Consultant 120,000 Shares Services valued
at $ 45,000
4/05/99 Private Investors 610,710 Shares Cash $ 217,590
- - - 9/30/99
</TABLE>
All cash transactions involved sophisticated private investors and were sold
pursuant to a private offering exemption. All shares issued above bear the
appropriate restrictive legend. See "Statement of Changes in Shareholders
Equity, dated September 30, 1999", which is part of the Financial Statements,
Item 13 below.
Item 11. Description of Securities
===================================
The Company's authorized capital stock consists of 20,000,000 shares of
common stock, par value $.01 per share. The holders of shares of the Company's
common stock shall have one vote on each matter submitted to shareholders for
vote, including the election of directors. There are no cumulative voting
rights for shares of common stock and therefore, the holders of a majority of
the Company's outstanding shares of common stock, will be able to elect the
entire board of directors. The board of directors of the Company has the
authority to designate the management of the Company and therefore control the
Company. Present management of the Company including its executive officers and
directors, collectively own 51% of the issued and outstanding shares and
therefor can control the Company, based upon the total shares presently issued
and outstanding.
Item 12. Indemnification of Directors and Officers
===================================================
The Company's By Laws provides that the Company indemnify the Company's
directors and officers fullest extent allowed by the laws of Texas, the state
of incorporation of the Company.
Item 13. Financial Statements
==============================
The financial statements for the fiscal years ended December 31, 1998 and
1997, and for the nine month periods ended September 30, 1999 and 1998, are
attached hereto.
Item 14. Changes In and Disagreement With Accountants on Accounting and
Financial Disclosure.
==========================================================================
None.
Item 15. Exhibits and Reports on Form 8-K.
===========================================
Exhibit No. Document Description
<TABLE>
<S> <C>
3.1 Articles of Incorporation (to be filed by amendment)
3.2 Bylaws (to be filed by amendment)
10(iii) Material Contracts (to be filed by amendment
23 Consent of Independent Public Accountant
</TABLE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
AFFORDABLE TELECOMMUNICATIONS TECHNOLOGY CORPORATION
Date: November 12, 1999 By: /s/ Steven H. Bethke, President
Affordable Telecommunications Technology Corporation
----------------------------------------------------
(a development stage company)
Financial Statements
--------------------
For the nine month period ended September 30, 1999
Affordable Telecommunications Technology Corporation
----------------------------------------------------
(a development stage cmpany)
Index to Financial Statements
-----------------------------
PAGE NO.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 32
Statements of Operations 33
Balance Sheets 34
Statements of Stockholder's Equity (Deficit) 35
Statement of Cash Flows 37
Notes to Financial Statements September 30, 1999 39
Notes to Financial Statements December 31, 1998 45
Hillard & Smith, P.C.
Certified Public Accountants
----------------------------
101 Southwestern Boulevard, Suite 216
Sugar Land, Texas 77478
212-242-2997 Fax: 281-242-9300
Independent Auditor's Report
----------------------------
To the Board and Stockholders of
Affordable Telecommunications Technology Corporation
We have audited the accompanying balance sheet of Affordable
Telecommunications Technology Corporation (a development stage company) as
of September 30, 1999 and the related statements of operations, changes in
stockholders equity and cash flows for the nine months then ended. 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 audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. 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 the 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 Affordable
Telecommunications Technology Corporation as of September 30, 1999 and the
results of its operations and its cash flows for the period then ended
September 30, 1999 are in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 of the
notes to the financial statements, the Company has devoted a significant
amount of effort to developing its retail location and marketing its
wireless communication products and services. There can be no assurance
that the Company will be able to operate profitably. The financial
statements do not include any adjustments that might result from the
outcome of these uncertainties.
Hilliard & Smith, P.C.
Sugar Land, Texas
September 30, 1999
Affordable Telecommunications Technology Corporation
----------------------------------------------------
(a development stage company)
Statement of Operations
September 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sep. 30, 99 Sep. 30, 98 Dec. 31, 98
Sales
Phone, pager and accessory sales $192,076 $ 7,813 $48,470
Commissions $20,455 - 23,755
Total sales 212,532 7,813 72,225
------- ----- ------
Cost of goods sold 124,254 7,256 42,535
------- ----- ------
Gross Profit $88,278 $557 29,690
------- ----- ------
Expenses
Advertising 24,123 6,361 19,945
General and administrative 32,132 9,836 16,975
Contract labor - - 79,831
Payroll 203,041 27,386 -
Services performed for common stock 5,255 - 26,755
Depreciation and amortization 12,680 8,862 23,167
Interest expense 13,571 11,982 47,007
Legal and professional fees 7,201 10,632 3,382
Other taxes 13,445 - 50
Rent expense 31,137 6,368 12,736
Repairs and maintenance 4,057 611 865
Telephone and utilities 12,586 2,059 5,021
------- ------ -------
Total expense 359,236 84,097 235,734
------- ------ -------
Net Ordinary Income $(270,959) - $(206,044)
--------- ------ ---------
Net Other Income/Expense 8,032 - -
---------- -------- ---------
Net Loss $(262,927) $(83,540) $(206,044)
========== ======== =========
</TABLE>
Retail Operations commenced in September 1998.
The accompanying notes are integral part of these financial statements
Affordable Telecommunications Technology Corporation
----------------------------------------------------
(a development stage company)
Balance Sheet
September 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Sep. 30, 99 Dec. 31, 98
ASSETS
Current Assets
Cash $30,182 $53,849
Accounts receivable 29,880 13,456
Inventory 34,948 35,608
Deposit and prepaid expense 35,184
------- -------
Total Current Assets $95,010 156,097
------- -------
Fixed Assets
Equipment held under capital lease 677,576 677,576
Other property and equipment 36,839 36,839
Accumulated depreciation (34,575) (22,659)
------- -------
Total Fixed Assets 679,840 691,756
------- -------
Noncurrent Assets
Deposits 98,221 4,499
Organizational costs, net amortization 3,814 4,577
------- -------
Total Noncurrent Assets 102,035 9,076
------- -------
Total Assets $876,885 $856,929
======== ========
Current Liabilities
Accounts payable-trade $40,872 $10,352
Accrued liabilities 55,814 2,206
Current portion of long term liabilities 96,890 131,866
------- -------
Total Current Liabilities 193,576 144,424
------- -------
Noncurrent Liabilities
Long term debt and capital leases 601,888 586,964
------- -------
Total Liabilities 795,464 731,388
------- -------
Equity
Common stock, $0.01 par value; 41,615 34,308
authorized 20,000,000 shares,
issued and outstanding
4,161,500 shares in 1999 and
outstanding 3,430,800 shares
in 1998
Additional paid-in capital 543,778 332,277
Deficit accumulated (468,972) (206,044)
Treasury stock, at cost, 70,000 shares (35,000) (35,000)
------- -------
Total Stockholders' Equity 81,421 125,541
Total Liabilities and
Stockholders' Equity $876,885 $856,929
======== ========
</TABLE>
The accompanying notes are integral part of these financial statements
Affordable Telecommunications Technology Corporation
----------------------------------------------------
(a development stage company)
Statement of Changes in Stockholder's Equity
September 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Treasury Stock
Common Stock Additional Deficit Number
Number of paid-in accumu- of Acquisition Sharesholder's
Shares Par Value Capital lated Shares costs equity
- - --------------------------------------------------------------------------------------------------------------------------------
Issuance of common shares to
Company's President at par 2,000,000 $20,000 - - - - $20,000
Issuance of common shares to two
of the Company's board
members in February, 1998 at
par value of $0.01 per share 100,000 1,000 - - - - 1,000
Issuance of common shares to
Company's President in February,
1998 200,000 2,000 - - - - 2,000
at par value of $0.01 per share
Issuance of common shares per-
sonate to the confidential
private placement memorandum
during 1998, net of expenses
at $0.50 per share 683,000 6,830 326,670 - - - 333,500
at $0.10 per share 62,300 623 5,607 - - - 6,230
at $0.01 per share 100,000 100 - - - 100
Common shares reacquired in 1998 (70,000) (35,000) (35,000)
Issuance of common shares
services in 1998 at par
$0.01 per share 375,500 3,755 - - - - 3,755
Issuance of common shares
services in 1999 at par $0.01
per share 120,000 1,200 - - - - 1,200
Issuance of common shares
pursuant to the confidential
private placement memoran-
dum during 1999, net of expenses
at $0.50 per share 304,210 3,042 153,876 - - - 156,918
at $0.40 per share 12,500 125 4,875 - - - 5,000
at $0.25 per share 60,000 600 14,400 - - - 15,000
at $0.20 per share 200,000 2,000 38,000 - - - 40,000
at $0.10 per share 34,000 340 350 - - - 690
Net Loss (468,972) - - (468,972)
- - ---------------------------------------------------------------------------------------------------------------------------
Balance as of May 31, 1999 4,251,510 $41,615 $543,778 $(468,972) (70,000) $(35,000) $81,421)
===========================================================================================================================
</TABLE>
The accompanying notes are integral part of these financial statements
Affordable Telecommunications Technology Corporation
----------------------------------------------------
(a development stage company)
Statement of Cash Flows
September 30, 1999
<TABLE>
<S> <C> <C> <C>
Period Ending Period Ending Year Ended
Sep. 30, 1999 Sep. 30, 1998 Dec. 31, 1998
Cash Flows from operating
Activities
Net Income $(262,927) $(83,540) $(206,044)
Adjustments to reconcile net
income to
net cash from operating
activities:
Depreciation and amortization $12,680 $8,758 $ 23,167
Common stock shares
issued for services - - 26,755
Increase in receivables (16,424) - (13,456)
Decrease (increase)
in inventory 660 (23,411) (35,608)
Increase in deposit and
prepaid expenses (40,538) (19,763) (57,683)
Increase in accounts payable 30,520 - 10,352
Increase in accrued liabilities 53,606 - 2,206
------- --------- ---------
Total Adjustments $40,504 $(34,416) $(44,267)
------- --------- ---------
Net Cash used in
operating activities $(222,423) $(117,956) $(250,311)
Cash flows from
investing activities:
Capital expenditures
for fixed assets $- $(665,518) $(36,838)
Payments for organi-
zational costs - $(2,982) (5,086)
Net cash used in
investing activities $- $(668,500) $(41,924)
Cash flows from financing
activities:
Proceeds from additions
to long term debt $14,924 $707,106 $96,212
Payments on long term debt (34,976) - (54,958)
Expenditures related to
the sale of stock - - -
Proceeds from investors 218,808 91,930 347,830
Purchase of treasury stock - - (35,000)
Net cash provided by
financing activities $198,756 $799,036 $346,084
Net increase in cash
and cash equivalents $(23,667) $12,580 $53,084
Cash and equivalents at
beginning of year 53,849 - -
Cash and cash equivalents at
end of September 30, 1999 $30,182 $12,580 $53,849
Non-cash disclosures
Fixed assets acquired
from capital leases - $665,518 $677,576
Common shares issued
for services - - 26,755
-------- -------- --------
Total - $665,518 $704,331
-------- -------- --------
</TABLE>
Retail operations commenced 9/1/1998
Notes to Financial Statements September 30, 1999
================================================
Note 1. Organization
- - --------------------
Affordable Telecommunications Technology Corporation (the "Company")
was incorporated in the State of Texas on July 10, 1997. The Company plans
to sell wireless communication products (telephone and pagers) from one
retail location and through outside sales consultants. Many customers
purchase prepaid wireless services. The Company primarily operates in
Harris County and immediate surrounding areas.
The Company is in its development stage as it has limited operating
history. The Company has devoted a significant amount of time to developing
its business plan. There can be no assurance that the Company will be able
to successfully market its services or generate significant revenues to
operate profitably.
Note 2. Summary of Significant Accounting Policies
- - --------------------------------------------------
Basis of Presentation
The accompanying financial statements are presented in conformity with
generally accepted accounting principles.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and certificates of
deposit, if any, which mature within three months of the date of purchase.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statement and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Inventory is valued at the lower of cost (first-in, first-out method)
or market. In determining market value, allowances for excess and obsolete
items are provided. Cost is determined using the average cost method. All
items included in inventory at June 30, 1999 are goods purchased for
resale.
Concentrations of Credit Risk
The Company's financial instruments that are subject to credit risk
consist primarily of cash and cash equivalents and accounts receivable. The
Company provides wireless credit extended to the customer in the form of
accounts receivable. The Company places its cash in high credit quality
institutions. At times, such investments may be in excess of the FDIC
insurance limits.
Note 3. Capital Leases
- - ----------------------
The Company is the lessee of assets under capital leases expiring in
various years through 2003. The assets and liabilities under capital lease
s are recorded at the lower of the present value of the minimum lease
payments or the fair value of the asset. The assets are depreciated over
the lower of their related lease terms or their estimated productive lives.
Depreciation of assets under capital leases is included in depreciation
expense and totals $ 24,144 for 1999.
Following is a summary of property held under capital leases, all of
which are stated at
the fair value of the asset:
<TABLE>
<S> <C>
Seven 900 MHz Base Station 300W System $ 652,012
Computer equipment 6,542
Fixtures and office furniture 12,987
Telephone equipment 6,035
--------
677,576
Less accumulated depreciation (24,144)
--------
$653,432
========
</TABLE>
Minimum future lease payments remaining under the capital leases as of June
30, 1999 for each of the next five years and in the aggregate are:
<TABLE>
<S> <C>
For the year ending December 31: Amount
- - -------------------------------- -------
1999 $97,741
2000 195,482
2001 191,045
2002 182,169
2003 91,084
Total minimum lease payments 757,521
---------
Less amount representing interest (176,833)
Present value of net minimum lease Payments $580,688
=======
</TABLE>
Interest rates on capitalization leases are 10.75%, and are imputed
based on the lower of the Company's incremental borrowing rate at the
inception of each lease or the lessor's implicit rate of return. In all
instances, the Company' incremental borrowing rate was used.
The Leases contain the following provisions:
At the end of the initial five-year term, the lease for the seven base
stations allows the equipment to be purchased for $ 1.00 with 90 days
written notice.
At the end of the initial three-year term, the lease for the computer
equipment, fixtures and office furniture contains three options:
Purchase the equipment at market value, (2) return of the equipment in good
working order, (3) continue rent at 50% of the current rate. At the end of
the initial three-year term, the lease for the telephone equipment states
that the company is to return the equipment to the lessor in good working
order.
Note 4. Long-Term Debt
- - ----------------------
<TABLE>
<S> <C>
Long term debt at December 31, 1998 consists of Amount
the following;
Due in monthly installments of $ 540, interest 19,794
included at 10.75%, payable through August
2003, collateralized by inventory, accounts
receivable and equipment.
Due in monthly installments of $ 272 capital 5,542
lease payment, interest included, payable
through August 2001 for telephone equipment
Due in monthly installments of $ 15,181 capital 601,548
lease payment, interest included, payable
through June 2003 for seven 900 MHz Base Station
300W System
Due in monthly installments of $ 837 capital 17,878
lease payment, interest included, payable
through August 2001 for computers, fixtures
and equipment
Due in monthly installments of $ 1,621, 74,068
interest included at 10.75%, payable through
October 2003, collateralized By inventory,
accounts receivable and equipment
-------
Total 718,830
Less current maturities (131,866)
--------
Long term debt $586,964
========
</TABLE>
Annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
For the year ending December 31: Amount
- - -------------------------------- -------
1999 131,866
2000 148,106
2001 163,864
2002 173,866
2003 101,128
--------
Total $718,830
========
</TABLE>
Note 5. Common Stock
- - --------------------
The Company is authorized to issue and sell up to 20,000,000 shares of
common stock at an amount fixed by the board but at no time less than par
value which is currently set at $ .01 per share. Dividends may be declared
and paid at the discretion of the Company's Board of Directors. No
dividends have been declared in 1998.
The Company sold 915,300 shares of common stock through a confidential
private placement memorandum dated February 9, 1998. The memorandum was
made pursuant to Regulation D, rule 504 of the Securities and Exchange
Commission and similar limited offering exemptions provided by state laws
to a limited number of investors who meet the investor suitability
standards which were described in the document. The funds received from the
memorandum were designated for working capital and marketing expense. The
memorandum's deadline has been extended through February 9, 2000.
At December 31, 1998, the Company had outstanding warrants to purchase
up to 500,000 shares of the Company's stock at $ 1.25 per share. The
warrants can be exercised at any time up to June 2001. The following
schedule summarizes the changes in the number of shares of the capital
stock:
<TABLE>
<S> <C>
Beginning balance on July 10, 1997
Shares issued and outstanding as of December 31, 1997 2,000,000
Shares issued to two of the Company's Board members in 100,000
February
Share's sold pursuant to the confidential Private 207,000
placement memorandum during February to June 98
Share's subsequently sold during the Period of July to 638,300
December 1998
Share's issued in consideration of Services and 575,500
commissions during 1998
Share's issued in consideration of Services and 120,000
commissions during 1999
Shares subsequently sold during the period January to 472,866
June 1999
Shares subsequently sold during the period July to 137,844
September 1999
---------
Shares issued and outstanding As of September 30, 1999 4,251,510
=========
</TABLE>
Subsequent to June 30, 1999, the Company intends to take all steps
necessary to become listed on the National Association of Security Dealers
(NASD) "Over the Counter-Bulletin Board".
Note 6. Federal Income Taxes
- - ----------------------------
Under Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" ("SFAS No. 109"), deferred taxes reflect the net tax
effects of temporary differences between carrying amounts of assets and
liabilities for financial reporting purposes and the amount used for income
tax purposes. The significant component to the Company's deferred tax
liability as of December 31, 1998 would be the timing difference between
depreciation for financial reporting purposes and depreciation for tax
purposes.
Note 7. Deposits and Prepaid Expense
- - ------------------------------------
At December 31, 1998, the Company made payment of $ 50,000 to their
attorney for fees and expenses to go public.
Note 8. Organizational Costs
- - ---------------------------
Organizational costs consist of miscellaneous expenses incurred during
the start up of the company totaling $ 4,322. These costs will be amortized
over a five-year period. Amortization expense for 1999 and accumulated
amortization as of June 30, 1999 are $ 509, respectfully.
Note 9. Commitments and Contingencies
- - -------------------------------------
Contractual Agreement
In 1998, the Company entered into a joint venture agreement with Link2
for wireless service. Under the agreement, the Company is to provide retail
locations and staff for pager service. Link2 is to provide the network
operating system service, installation and maintenance service for the
infrastructure, all FCC license service and satellite linking service.
Revenue under this agreement is to be shared equally. No revenue under this
agreement has been recognized in 1999.
The Company has entered into a resale contract with Sprint PCS in
which 350 phones per quarter are to be ordered. In addition, the Company
has agreed to market and sell only Sprint PCS product and not any other
wireless PCS telecommunication product or service.
Additionally, the Company has entered into an agreement with GTE
Wireless to market and sell prepaid analog cellular telephone service.
The Company has entered into an agreement with Houston Cellular
Telephone Company to market and sell analog and digital cellular telephone
service.
The Company has entered into an agreement with Nextel to market and
sell digital iDen telephone service.
The Company has entered into an agreement with Bell South Wireless
Data to market and sell two-way interactive paging service.
Note 9. Commitments and Contingencies (continued)
- - -------------------------------------------------
Contractual Agreement continued
The Company has entered into an agreement with Globalstar Satellite
Services to market and sell satellite communication services.
The Company has entered into an agreement with Comsat Satellite
Services to market and sell satellite communication services.
The Company has entered into an agreement with PageMart Wireless, Inc.
to market and sell local, statewide, national and international one-way
paging services.
Operating Lease
The Company leases office space under an operating lease expiring in
2003. The lease is subject to escalation clauses for increases in the
lessor's operating costs. Minimum future rental payments under this non-
cancelable operating lease at June 30, 1998 are summarized as follows:
<TABLE>
<S> <C>
For the year ending December 31 Amount
- - ------------------------------- ------
1999 $ 19,104
2000 $ 38,208
2001 $ 39,163
2002 $ 40,500
2003 $ 23,625
---------
Total minimum rental payments $ 160,600
=========
</TABLE>
Rental expenses for the quarter ended June 30, 1999 was $ 10,240
Note 10. Subsequent Event
- - -------------------------
Effective January 1, 1999, the Company entered into a staff leasing
agreement with Staff Leasing of Texas, LP. Under this agreement, the
Company pays Staff leasing a leasing fee which includes all federal and
state taxes, workers compensation and administrative fees.
Notes to Financial Statements December 31, 1998
===============================================
Note 1. Organization
- - --------------------
Affordable Telecommunications Technology Corporation (the "Company")
was incorporated in the State of Texas on July 10, 1997. The Company sells
wireless communication products (telephones and pagers) from one retail
location and through outside sales consultants. Many customers purchase
prepaid wireless services. The Company primarily operates in Harris County
and immediate surrounding areas.
The Company is in its development stage as it has limited operating
history, has not generated significant revenue and has an accumulated
deficit. The Company has devoted a significant amount of its efforts to
developing its retail location and marketing other wireless communication
products and services. There can be no assurances that the Company will be
able to successfully market its services or generate significant revenues
to operate profitably.
Note 2. Summary of Significant Accounting Policies
- - --------------------------------------------------
Basis of Presentation
The accompanying financial statements are presented in conformity with
generally accepted accounting principles.
Cash and Cash Equivalents
Cash and cash equivalents include Gash in banks and certificates of
deposit, if any, which mature within three months of the date of purchase.
Inventory
Inventory is valued at the lower of cost (first-in, first-out method)
or market. In determining market value, allowances for excess and obsolete
items are provided. Cost is determined using the average cost method. All
items included in inventory at December 31, 1998 are goods purchased for
resale.
Property and Depreciation
Property and equipment are stated at cost. Improvements or betterments
of a permanent nature are capitalized. Routine maintenance and repairs are
expensed as incurred, The Company also acquired property under capital
leases as described in Note 3. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets, ranging
from 3 to 20 years. Depreciation for 1998 totaled $22.658.
The carrying amount of long-life assets is reviewed periodically. If
the asset-carrying amount is not recoverable, the asset is considered to be
impaired and the value is adjusted.
Note 2. Summary of Significant Accounting Policies (continued)
- - --------------------------------------------------------------
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statement and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Concentrations of Credit Risk
The Company's financial instruments that are subject to credit risk
consist primarily of cash and cash equivalents and accounts receivable. The
Company provides wireless communication products to some of its customers
on account. Collateral is not required for credit extended to the customer
in the form of accounts receivable. The Company places its cash in high
credit quality institutions. At times, such investments may be in excess of
the FDIC insurance limits.
Note 3. Capital Leases
- - ----------------------
The Company is the lessee of assets under capital leases expiring in
various years through 2003. The assets and liabilities under capital leases
are recorded at the lower of the present value of the minimum lease
payments or the fair value of the asset. The assets are depreciated over
the lower of their related lease terms or their estimated productive lives.
Depreciation of assets under capital leases is included in depreciation
expense and totals $19,851 for 1998.
Following is a summary of property held under capital leases, all of
which are stated at the fair value of the asset:
<TABLE>
<S> <C>
Seven 900 MHz Base Station 300W Systems $ 652.012
Computer equipment 6,542
Fixtures and office furniture 12,987
Telephone equipment 6.035
-------
677,576
Less accumulated depreciation (19,851)
-------
$ 657,725
=======
</TABLE>
Note 3. Capital Leases (continued)
- - ----------------------------------
Minimum future lease payments remaining under capital leases as of December
31, 1998 for each of the next five years and in the aggregate are:
<TABLE>
<S> <C>
For the year ending December 31 Amount
- - ------------------------------- ------
1999 $ 195.482
2000 195.482
2001 191,045
2002 182,169
2003 91,084
-------
Total minimum lease payments 855,262
Less amount representing interest (176,833)
-------
Present value of net minimum lease payments $ 678,429
=======
</TABLE>
Interest rates on capitalized leases are 10-75% and are imputed based
on the lower of the Company's incremental borrowing rate at the inception
of each lease or the lessor's implicit rate of return. In all instances,
the Company's incremental borrowing rate was used.
The leases contain the following provisions:
At the end of the Initial five-year term, the lease for the seven base
stations allows the equipment to be purchased for $1.00 with 90 day written
notice.
At the end of the Initial three year term, the lease for computer
equipment, fixtures and office furniture contain three options: (1)
purchase of the equipment at market value. (2) return of the equipment in
good working order, (3) continuing rent at 50% of the current rate.
At the end of the initial three-year term, the lease for telephone
equipment states that the Company is to return the equipment to the lessor
in good working order.
Note 4.Long-Term Debt
- - ---------------------
Long term debt at December 31. 1998 consists of the following:
<TABLE>
<S> <C>
Amount
Due in monthly installments of $540, $ 19.794
interest included at 10.75%, payable
through August 2003, collateralized by
inventory, accounts receivable and
equipment
Due in monthly installments of $272 capital 5.542
lease payment, interest included, payable
through August 2001 for telephone equipment
Due In monthly Installments of $15,181 601,548
capital lease payment, interest included,
payable through June 2003 for seven 900 MHz
Base Station 300W Systems
Due in monthly installments of $837 capital 17.878
lease payment, interest included, payable
through August 2001 for computers, fixtures
and equipment
Due in monthly installments of $1,621, 74,068
interest included at 10.75%, payable
through October 2003, collateralized by
inventory, accounts receivable and
equipment
-------
Total 718,830
Less current maturities (131,866)
-------
Long-term debt $ 586,964
=======
</TABLE>
Annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
For the year ending December 31 Amount
- - ------------------------------- ------
1999 $ 131,866
2000 148,106
2001 163,864
2002 173,866
2003 101,128
-------
Total $ 718,830
=======
</TABLE>
Note 5. Common Stock
- - --------------------
The Company is authorized to issue and sell up to 20,000,000 shares of
common stock at an amount fixed by the board but at no time less than par
value which is currently set at $.01 per share. Dividends may be declared
and paid at the discretion of the Company's Board of Directors. No
dividends have been declared in 1998.
The Company sold 845,300 shares of common stock through a confidential
private placement memorandum dated February 9,1998. The memorandum was made
pursuant to Regulation D, Rule 504 of the Securities and Exchange
Commission and similar limited offering exemptions provided by state laws
to a limited number of investors who meet the investor suitability
standards which were described in the document. The funds received from the
memorandum were designated for working capital and marketing expense. The
memorandum's deadline has been extended through August 9, 1999.
At December 31, 1998, the Company had outstanding warrants to purchase
up to 500.000 shares of the Company's stock at $1,25 per share. The
warrants can be exercised at any time up to June 2001.
The following schedule summarizes the changes in the number of shares of
capital stock:
<TABLE>
<S> <C>
Beginning balance on July 10. 1997 Shares issued to 2.000.000
the Company's president in February
Shares issued to two of the Company's board members 100.000
in February
Share's sold pursuant to the confidential private 207,000
placement memorandum during February to June 1998
Share's subsequently sold during the period of July 638,300
to December 1998
Share's issued in consideration of services and 575,500
commissions during 1998
-------
Shares issued and outstanding as of December 31, 1998 3.520,800
=========
</TABLE>
Subsequent to December 31, 1998, the Company intends to take all steps
necessary become listed on the National Association of Securities Dealers
("NASD") "Over the Counter-Bulletin Board".
Note 6. Federal Income Taxes
- - ----------------------------
Under Statement of Financial Accounting Standards No. 109, "Accounting
for income Taxes" ("SFAS No. 109"), deferred Income taxes reflect the net
tax effects of temporary differences between carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes. The significant component of the Company's deferred
tax liability as of December 31, 1998 would be the timing difference
between depreciation for financial reporting purposes and depreciation for
tax purposes.
No deferred tax asset or liability provision is required at December 31,
1998.
Note 7. Deposit and Prepaid Expense
- - -----------------------------------
At December 31, 1998, the Company made payment of $50,000 to their
attorney for fees and expenses to go public as described in Note 5. In
addition, the Company paid rent of $3,184 for January 1999 in December
1998.
Note 8. Organizational Costs
- - ----------------------------
Organizational costs consist of miscellaneous expenses incurred during
the start-up of the Company totaling $5.086. These costs will be amortized
over a five-year period. Amortization expense for 1998 and accumulated
amortization as of December 31, 1998 are $509, respectively.
Note 9. Commitments and Contingencies
- - -------------------------------------
Contractual Agreement
In 1998, the Company entered into a joint venture agreement with Link2
for wireless service. Under the agreement, the Company is to provide retail
locations and staff for pager service. Link2 is to provide the network
operating system service, installation and maintenance service for the
Infrastructure, all FCC legal license service and satellite linking
service. Revenue under this agreement is to be shared equally. No revenue
under this agreement has been recognized in 1998.
The Company has entered into a resale contract with Sprint PCS in
which 350 phones per quarter are to be ordered, In addition, the Company
has agreed to market and sell only the Sprint PCS product and not any other
wireless PCS telecommunication product or service.
Additionally, the Company has an agreement with GTE Wireless to market
and sell prepaid analog cellular telephone service.
Note 9. Commitments and Contingencies (continued)
- - -------------------------------------------------
Operating Lease
The Company leases office space under an operating lease expiring in
2003. The lease is subject to escalation clauses for increases in the
lessors operating costs.
Minimum future rental payments under this non-cancelable operating lease at
December 31, 1998 are summarized as follows:
<TABLE>
<S> <C>
For the year ending December 31 Amount
- - ------------------------------- ------
1999 $38,208
2000 38,208
2001 39,163
2002 40.500
2003 23,625
------
Total minimum rental payments $ 179.704
=======
</TABLE>
Rental expense for the year ended December 31, 1998 was $12,736.
Note 10. Subsequent Event
- - -------------------------
Effective January 1, 1999, the Company entered into a staff leasing
agreement with Staff Leasing of Texas, L.P. Under this agreement, the
Company pays Staff Leasing a leasing fee which includes all federal and
state taxes, workers' compensation and administrative fees.
In March `1999, the Company issued 180,000 additional shares at par
value of $.01 per share for services performed and commissions earned.
Subsequent to December 31, 1998, the Company has sold 40,000 shares of
common stock for $15,950.
