UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number: 0-28175
AFFORDABLE TELECOMMUNICATIONS TECHNOLOGY CORP.
TEXAS 76-0548546
6227 SW Freeway, Houston, TX 77074
713-988-8884
_____________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act during the past 12 months ( or for
such shorter period that the registrant was required to file such report (s),
and (2) has been subject to such filing requirements for the past 90 days. Yes [
X ] 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:
Common Stock, $.001 par value 14,483,738 shares outstanding as of July 31,
2000.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. Consolidated Financial Statements (Unaudited) 2
Item 2. Management's Discussion and Analysis 2
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 5
Item 2. Changes in Security 5
Item 3. Default Upon Senior Securities 5
Item 4. Submission of Matters to a Vote of Security Holders 4
Item 5. Other Information 6
Item 6. Exhibits and Reports on Form 8-K 6
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2000 (Unaudited) and December
31, 1999.
Consolidated Statements of Income ( Loss) for the Six months ended June 30,
2000 and 1999 (Unaudited).
Consolidated Statements of Cash Flows for the Three months and Six months
ended June 30, 2000 and 1999 Notes to Consolidated Financial Statements
AFFORDABLE TELECOMMUNICATIONS TECHNOLOGY CORPORATION
INDEX
.......................................................... PAGE NO.
Part I Unaudited Financial Information
Balance Sheets at June 30, 2000 and December 31, 1999 1
Statements of Operations for the six months
ended June 30, 2000 and 1999 .................... 2
Statements of Operations for the three months
ended June 30, 2000 and 1999 .................... 3
Statements of Cash Flows for the six months
ended June 30, 2000 and 1999 .................... 4
Notes to Financial Statements ........................ 5
<TABLE>
<CAPTION>
AFFORDABLE TELECOMMUNICATIONS TECHNOLOGY CORPORATION
BALANCE SHEET
ASSETS
(Unaudited)
<S> <C> <C> <C
December 31,
Current Assets: ....................................... 2000 1999
------------------------
------------------------
Cash ............................................$ 45,936$ 4,962
Accounts receivable ............................. 43,092 19,912
Inventory ....................................... 186,091 59,939
Investment ...................................... 73,137 --
Loans and exchanges ............................. 23,242 --
Prepaid expenses ................................ 191,914 --
------------------------
------------------------
Total current assets ....................... 563,412 84,813
------------------------
------------------------
Property and Equipment
Property and Equipment, at cost - net ........... 1,135,126 643,265
------------------------
------------------------
Other Assets:
Security deposits ............................... 29,266 21,739
Acquisition deposits ............................ -- 82,742
Goodwill ........................................ 475,786 --
Organization expense, at cost - net ............. 3,051 3,560
------------------------
------------------------
Total other assets ......................... 508,103 108,041
------------------------
------------------------
TTotalAassets ...............................$ 2,206,641$ 836,119
========================
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank loan payable ...............................$ 99,329$ 110,000
Current portion of long term debt and capital lea 228,182 148,106
Deferred income ................................. 173,550
Accounts payable, accrued expenses and taxes paya 369,282 54,722
------------------------
------------------------
Total current liabilities .................. 870,343 312,828
------------------------
------------------------
Long-Term Liabilities:
Long term debt and capital leases ............... 591,224 488,320
Loans payable - officers' ....................... 106,531 52,667
------------------------
------------------------
Total long-term liabilities ................ 697,755 540,987
------------------------
------------------------
Total liabilities .......................... 1,568,098 853,815
------------------------
------------------------
Commitments and Contingencies
Stockholders' Equity (Deficit)
Common stock, $.01 par value per share, 20,000,000 shares
authorized, 12,332,138 and 7,133,536
issued and outstanding, respectively ....... 122,999 71,335
Additional paid in capital in excess of par value 1,857,801 625,490
Accumulated deficit ............................. (1,177,257 (679,521)
Stock subscription receivable ................... (130,000) --
Treasury stock .................................. (35,000 (35,000)
------------------------
------------------------
Total stockholders' equity (deficit) ....... 638,543 (17,696)
------------------------
------------------------
Total liabilities and stockholders' equity .$ 2,206,641$ 836,119
========================
========================
</TABLE>
See accompanying notes
-1-
<PAGE>
<TABLE>
<CAPTION>
AFFORDABLE TELECOMMUNICATIONS TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
For the six months ended June 30,
<S> <C> <C>
Revenues: ............................................. 2000 1999
------------------------
------------------------
Sales ...........................................$ 379,973$ 120,353
Cost of Sales:
Purchases ....................................... 190,151 72,689
------------------------
------------------------
Gross profit .......................................... 189,822 47,664
------------------------
------------------------
Expenses:
Contract labor .................................. 229,721 137,230
Professional fees ............................... 137,443 3,235
Bad debts ....................................... 7,656 --
Fees - other .................................... 78,622 --
Equipment rental ................................ 997 --
Insurance ....................................... 2,907 --
Donated services ................................ -- 2,000
Rent ............................................ 51,137 20,491
Security ........................................ 90 --
Repairs and maintenance ......................... 1,117 11,082
Office expense .................................. 12,209 --
Miscellaneous ................................... 24,556 9,165
Automobile expense .............................. 9,568 --
Depreciation .................................... 28,373 24,753
Utilities ....................................... 4,638 --
Telephone ....................................... 20,299 7,900
Contributions ................................... 2,130 --
Travel & entertainment .......................... 939 --
Advertising ..................................... 48,076 13,408
Miscellaneous taxes ............................. 2,323 7,873
Amortization expense ............................ 2,500 --
------------------------
------------------------
Total expenses ............................. 665,301 237,137
------------------------
------------------------
(Loss) from operations ................................ (475,479 (189,473)
Interest expense - net ..................... 22,245 34,616
------------------------
------------------------
(Loss) before provision for income taxes .............. (497,724 (224,089)
Provision for income taxes ...................... 12 --
------------------------
------------------------
Net (loss) ............................................$ (497,736$ (224,089)
========================
========================
(Loss) per share of common stock based upon 9,732,837
and 4,113,666 (weighted average) shares issued, $ (0.05$ (0.05)
respectively ========================
========================
</TABLE>
See accompanying notes
-2-
<PAGE>
<TABLE>
<CAPTION>
AFFORDABLE TELECOMMUNICATIONS TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended June 30,
<S> <C> <C>
Revenues: ............................................. 2000 1999
------------------------
------------------------
Sales ...........................................$ 298,113$ 63,343
Cost of Sales:
Purchases ....................................... 139,108 33,416
------------------------
------------------------
Gross profit .......................................... 159,005 29,927
------------------------
------------------------
Expenses:
Contract labor .................................. 154,968 72,213
Professional fees ............................... 59,314 (9)
Bad debts ....................................... 6,487 --
Fees - other .................................... 78,297 --
Equipment rental ................................ 997 --
Insurance ....................................... 1,843 --
Donated services ................................ -- 2,000
Rent ............................................ 40,630 10,427
Security ........................................ 90 --
Repairs and maintenance ......................... 857 10,990
Office expense .................................. 7,288 --
Miscellaneous ................................... 19,864 8,154
Automobile expense .............................. 6,246 --
Depreciation .................................... 16,252 12,630
Utilities ....................................... 2,757
Telephone ....................................... 15,701 3,572
Contributions ................................... 550 --
Travel & entertainment .......................... 939 --
Advertising ..................................... 22,302 7,009
Miscellaneous taxes ............................. 74 4,469
Amortization expense ............................ 2,246 (254)
------------------------
------------------------
Total expenses ............................. 437,702 131,201
------------------------
------------------------
(Loss) from operations ................................ (278,697 (101,274)
Interest expense - net ..................... 13,582 13,386
------------------------
------------------------
(Loss) before provision for income taxes .............. (292,279 (114,660)
Provision for income taxes ...................... 12 --
------------------------
------------------------
Net (loss) ............................................$ (292,291$ (114,660)
========================
========================
(Loss) per share of common stock based upon 9,732,837
and 4,113,666 (weighted average) shares issued, $ (0.03$ (0.03)
respectively. ========================
========================
</TABLE>
See accompanying notes
-3-
<PAGE>
<TABLE>
<CAPTION>
AFFORDABLE TELECOMMUNICATIONS TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended June 30,
<S> <C> <C>
Cash Flows from Operating Activities: ............................ 2000 1999
----------- -----------
----------- -----------
Net (loss) ....................................................... $ (497,736) $ (224,089)
Adjustment to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation and amortization expense ...................... 30,872 24,753
(Increase) decrease in accounts receivable ................. (23,180) 5,751
(Increase) in investment ................................... (73,137) --
(Increase) in loans and exchanges .......................... (23,242) --
(Increase) in inventory .................................... (126,152) (13,745)
(Increase) decrease in deposits and prepaid expense ........ (191,914) 3,184
Decrease in acquisition deposits ........................... 82,742 --
(Increase) in security deposits ............................ (7,527) --
(Increase) in goodwill ..................................... (477,777) --
Increase in deferred income ................................ 173,550 --
Increase in accounts payable, accrued expenses
and taxes payable ..................................... 314,560 85,668
----------- -----------
----------- -----------
Net cash (used in) operating activities ............... (818,941) (118,478)
----------- -----------
----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment ......................... (520,234) --
----------- -----------
----------- -----------
Net cash (used in) investing activities ............... (520,234) --
----------- -----------
----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock ..................... 1,283,975 145,058
(Increase) in subscriptions receivable ..................... (130,000)
Increase (Decrease) in loans payable ....................... 172,309 (64,919)
Increase in loan payable - officers' ....................... 53,864 --
----------- -----------
----------- -----------
Net cash provided by financing activities ............. 1,380,149 80,139
----------- -----------
----------- -----------
Net increase (decrease) in cash .................................. 40,974 (38,339)
Cash - January 1, ................................................ 4,962 53,849
----------- -----------
----------- -----------
Cash - June 30, .................................................. $ 45,936 $ 15,510
=========== ===========
=========== ===========
Supplemental Disclosures:
Income tax ................................................. $ -- $ --
=========== ===========
=========== ===========
Interest paid .............................................. $ 22,245 $ 34,616
=========== ===========
=========== ===========
</TABLE>
See accompanying notes
-4-
<PAGE>
AFFORDABLE TELECOMMUNICATIONS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
Note 1 - Basis of Presentation:
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the six months period and three months ended
June 30, 2000 are not necessarily indicative of the results to be expected for
the full year.
Note 2 - Material Events:
During the three months ended June 30, 2000, the following events occurred:
The Company issued 3,223,000 shares of its common stock and received
proceeds of $304,500 for the issuance of 1,518,000 shares. Additionally, the
Company issued 705,000 shares for current and future services during the quarter
ended and 1,000,000 shares related to the Company's investments in Cameras and
Beeper Boutique. The Company cancelled the issuance of 56,000 shares previously
issued in error.
Note 3 - Other Events:
On May 3, 2000, the Company acquired all the assets of Intergo Company
d/b/a Cameras, Etc. for 400,000 shares of its common stock (restricted). During
November and December 1999, the Company advanced $22,742 towards the operations
of Intergo which were repaid as part of the purchase price.
a. Cash consideration previously paid $60,000
b. $10,000 cash payment at closing
c. Note payment $300,000 including principal and interest, accruing at 12% per
annum as follows: Beginning June 26, 2000, three (3) monthly payments of
accumulated interest only on the 26th day of each month, then beginning in
the fourth month, twenty (20) monthly payments of 6673.33 with the balance
of principle and interest due May 26, 2002.
d. 500,000 shares of restricted common stock to be registered concurrent with
the Company's next registration on or before December 31, 2000.
Subsequent to June 30, 2000, the Company issued an additional 1,450,000
shares of its common stock, and received proceeds of $280,000.
<PAGE>
Item 2. Management's Discussion and Analysis
Forward-Looking Statements; Market Data
The discussion in this report on Form 10-QSB contains forward-looking
statements that involve risks and uncertainties. The statements contained in
this Report that are not purely historical are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding our expectations, beliefs, intentions or strategies
regarding the future. All forward-looking statements included in this document
are based on information available to us on the date hereof, and we assume no
obligation to update any such forward-looking statements. Our actual results
could differ materially from those described in our forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, our unproven business model and a limited operating history in a new
and rapidly evolving industry; our ability to implement our business plan; and
our ability to manage our growth, retain and grow our customer base and expand
our service offerings.
We make forward-looking statements in the "Management's Discussion and
Analysis of Financial Condition and, Results of Operations" in this Quarterly
Report. These forward-looking statements include, but are not limited to,
statements about our plans, objectives, expectations, intentions and assumptions
and other statements that are not historical facts. We generally intend the,
words "expect", anticipate", "intend", "plan", "believe", "seek", "estimate" and
similar expressions to identify forward-looking statements.
This Quarterly Report contains certain estimates and plans related to us
and the wireless telecommunications industry in which we operate, which assumes
certain events, trends and activities will occur and the projected information
based on those assumptions. We do not know all that our assumptions are
accurate. In particular, we do not know what level of growth in the wireless
telecommunications industry, and particularly in those markets in which we
operate and shall seek to expand. If our assumptions are wrong about any events,
trends and activities, then our estimates for future growth for wireless
telecommunications and our business may also be wrong. There can be assurances
that an of our estimates as to our business growth will be achieved. Results of
Operations
During the three and six months period ended June 30, 2000, we had revenues
of $379,973 and $298,113, respectively compared to revenues of $120,353 and
$63,343, respectively during the comparable three and six month periods of 1999.
The increase in revenues by approximately $259,620 and $ 234,770 during the
three and six month periods ended June 30, 2000 as compared to June 30, 1999 is
principally the result of our acquisition of the business of Beeper Boutique as
well as. our increased marketing, customer base and greater consumer awareness
during the these periods of 2000. See Item 2, Part II, with respect to the
acquisition of the of Beeper Boutique. We incurred a net loss of ($0.03 per
share) during the three month period ended June 30, 2000 and a net loss of
($0.05 per share) during the six month period ended June 30, 2000. This is
compared to a net loss of ($0.03 per share) and ($.05,) respectively for the
comparable three and six month period in 1999. The primary reasons for the net
loss during the three and six month periods ended June 30, 2000 compared to the
same period of 1999 is the result of the acquisition of the business of Beeper
Boutique which was concluded on May 31, 2000, increased professional fees in
connection with the acquisition and the continued costs related to being a
public company under the Securities Exchange Act of 1934 and the issuance of
certain shares for services In addition, we also increased our advertising
expense by approximately $ 45,000.
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 our continuing operation. 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.
We expect to benefit from this trend in the Texas Gulf Coast market. We also
expect continued increased revenues as a result of the completion of the
acquisition of Beeper Boutique. We anticipate that we will benefit from the
increased market share in the South Texas and Louisiana area. There are no
seasonal aspects that have any material effect on our financial condition or
results of operations.
In addition, we are also endeavoring to commence operations in the business
of automatic meter reading ("AMR"), which involves use of our existing wireless
technology for the purpose of reading utility meters for residential and
business customers. This is a new area of growth, we believe, in the South Texas
and Louisiana gulf coast market. However, the business of AMR is developing at
a modest rate and a the Public Utilities Commission in Texas plans public
hearings related to among other issues rates consumers will pay and amounts
utilities may recover. We understand that the Texas Public Utilities Commission
will consider and evaluate how other states have proceeded on the deregulation
of utilities. While there can be no assurance with we will be successful in
developing an AMR business in our market, we consider this business to be part
of our long-term growth plan. We may consider whether to proceed with an AMR
business by acquisition or through internal development, based upon our
evaluation of the growth potential and the resources available to us.
Liquidity and Capital Resources
At June 30, 2000, we had current assets of $ 563,412, compared to current
assets of $84,813 at December 31, 1999, an increase of 564%. The increase in
current assets is primarily the result of an increase in liquid assets of
approximately $ 190,000, increase to $ 191,914 in prepaid expenses, principally
representing shares issued in consideration for future services, and an increase
of $69,405 in loans payable. Inventory increased $ 126,152 during the period
ended June 30, 2000 which represented additional inventory for sale from our two
acquisitions. Our current liabilities at June 30, 2000 were $870,343 which is an
increase of $ 557,515 representing additional liabilities acquired as part of
our acquisitions.
Our non-current liabilities were $ 697,755 at June 30, 2000 compared to
$540,987 at December 31, 1999. The increase is principally the result of the
acquisition of Beeper Boutique, which acquisition included the issuance of one
promissory note in the amount of $300,000.00 with a maturity of two years.
We have completed the acquisition of Beeper Boutique, a transaction that is
likely to adversely impact our liquidity, at least during the short term. This
acquisition of the Beeper Boutique, which operates __ retail wireless pager
stores and assets related to this business, should in the future increase our
liquidity, with positive cash flow from operations. However, we are obligated to
fund our purchase of the Beeper Boutique, with cash and securities as well as
pay the ongoing operating expenses.
We have during the six month period ended June 30, 2000 and thereafter used
proceeds from the sale of restricted securities and to a lesser extent cash flow
from operations to fund our business, and our acquisitions to date. We believe
that for the foreseeable future, will will continue to use our securities to
fund additional acquisitions and for pursuing our growth, until such time as our
cash flow from operations is sufficient, although there can be no assurance
that we will be able to continue to raise debt or equity capital at terms
satisfactory to us, or that our cash flow from operations will become sufficient
to fund future growth. During the six months ended June 30, 2000 and through the
date of this report, we have raised $ 280,000 to private investors.
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. As a result, other than the current portion of
our long-term and capital leases, we do not know of any trends, events or
uncertainties that have or are reasonably likely to have a material impact on
our short-term or long-term liquidity. Our liquidity and ability to fund
operations has been the result of operating revenues as well as sales of our
securities to private investors.
In connection with the acquisition of the Beeper Boutique, for
consideration of $560,000 , our liabilities increased by approximately
$300,000 during the period ended June 30, 2000 from the prior quarter. This is
proncipally due to the liabilities of Beeper Boutique for among other things:
beeper air time, equipment, carrier charges, utilities among other obligations
of Beeper Boutique, all guarantees by Beeper Boutique to customers; and the
maintenance of Beeper Boutique's bank accounts including customer deposits.
Prior to the year ended December 31, 1999, we paid Beeper Boutique a $25,000
deposit and an acquisition extension fee of $35,000. In addition to the payments
prior to the year ended December 31, 1999, we paid $10,000 in cash on the date
of closing of the Purchase Agreement. The remainder of the purchase price of
$560,000 was payable by the issuance of 500,000 shares of restricted common
stock and one promissory note of $300,000 with 12% interest payable beginning
June 26, 2000. See Exhibit __, the Purchase Agreement of the Beeper Boutique.
It is our assumption, based upon its recent operations, that Beeper Boutique
should continue to have monthly revenues that exceed its expenses, and the
operations of Beeper Boutique, will satisfy our obligations under the note
referred to above.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). The new standard requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Under FAS 133, gains or losses resulting from changes in
the values of derivatives are to be reported in the statement of operations or
as a deferred item, depending on the use of the derivatives and whether they
qualify for hedge accounting. The key criterion for hedge accounting is that the
derivative must be highly effective in achieving offsetting changes in fair
value or cash flows of the hedged items during the term of the hedge. The
Company is required to adopt FAS 133 in the first quarter of 2001. To date, the
Company has not engaged in any foreign currency or interest hedging activities
and does not expect adoption of this new standard to have a significant impact
on the Company.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 or SAB 101, Revenue Recognition in Financial
Statements, which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the Commission. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. The
implementation of SAB 101 did not have a material effect on our financial
position or results of operations. In March 2000, the FASB issued Interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation" an
interpretation of APB Opinion No. 25 ("FIN 44"). This Interpretation clarifies
the definition of "employee" for purposes of applying Accounting Practice Board
Opinion No. 25, Accounting for Stock Issued to Employees (`APB 25'), the
criteria for determining whether a plan qualifies as a non-compensatory plan,
the accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and the accounting for an exchange of stock
compensation awards in a business combination. This Interpretation is effective
July 1, 2000, but certain conclusions in this Interpretation cover specific
events that occur after either December 15, 1998, or January 12, 2000.
Management believes that the impact of FIN 44 will not have a material effect on
the financial position or results of operations of the Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE
SENSITIVITY
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we may invest
in may be subject to market risk. This means that a change in prevailing
interest rates may cause the principal amount of the investment to fluctuate.
For example, if we hold a security that was issued with a fixed interest rate at
the then-prevailing rate and the prevailing interest rate later rises, the
principal amount of our investment will probably decline. To minimize this risk
in the future, we intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper,
money market funds, government and non-government debt securities. In general,
money market funds are not subject to market risk because the interest paid on
such funds fluctuates with the prevailing interest rate. As of June 30, 2000,
all of our cash and cash equivalents were in money market and checking funds.
OTHER RISK FACTORS
OUR FAILURE TO MANAGE OUR GROWTH COULD HARM OUR ABILITY TO RETAIN AND GROW
OUR CUSTOMER BASE AND EXPAND OUR BUSINESS SERVICES.
We may not be able to install management information and control systems in
an efficient and timely manner, and our current or planned personnel, systems,
procedures and controls may not be adequate to support our future operations.
Failure to manage our future growth effectively could harm our ability to retain
and grow our customer base and expand our business services which would
materially and adversely affect our business, prospects, operating results and
financial condition.
BECAUSE OUR CUSTOMER ACQUISITION COSTS ARE HIGH, IF WE FAIL TO RETAIN
CUSTOMERS LONG ENOUGH TO PAY BACK OUR UP FRONT INVESTMENT, WE MAY NOT ACHIEVE
AND/OR MAINTAIN PROFITABILITY.
Our customer acquisition costs comprise a significant portion of our
operating costs, including advertising, customer care and customer service on an
on-going basis. Because of our significant up-front investment in each customer,
if our customers terminate their relationships with us before we recover our up
front costs, we may fail to generate a profit from such customers. In addition,
if we fail to reduce our customer acquisition costs, including by increasing the
efficiency of our customer care organization and reducing the costs associated
with the development and offering of new services, our operating results will
suffer.
OUR GROWTH DEPENDS ON OUR ABILITY TO HIRE AND RETAIN HIGHLY QUALIFIED
EMPLOYEES AND EXECUTIVES.
The loss of the services of any of our management team, all but one of whom
are at-will employees, or the failure to attract and retain additional key
employees could harm the continued deployment of our services, the marketing of
our services and the development of new services, our brand and our strategy.
Our future growth and ability to sustain this growth depend upon the continued
service of our officers and other key sales, operations, marketing and support
personnel
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY FROM PERIOD TO
PERIOD WHICH MAY CAUSE OUR STOCK PRICE TO BE EXTREMELY VOLATILE. WE MAY ALSO
FAIL TO MEET OR EXCEED THE EXPECTATIONS OF INVESTORS, CAUSING OUR STOCK PRICE TO
DECLINE.
Our operating results are likely to fluctuate significantly in the future
on a quarterly and an annual basis due to a number of factors, many of which are
outside our control. If we experience such fluctuation, we may fail to meet or
exceed the expectations of investors, causing our stock price to decline or
fluctuate from time to time.
WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL IN THE FUTURE TO SUPPORT OUR
GROWTH, AND EVEN IF WE ARE ABLE TO RAISE ADDITIONAL CAPITAL, IT MAY BE ON
UNACCEPTABLE TERMS, MAY DILUTE YOUR OWNERSHIP OR MAY RESTRICT OUR FLEXIBILITY IN
RUNNING OUR BUSINESS.
We intend to seek additional financing in the future to fund the growth of
our operations, including funding the significant capital expenditures and
working capital requirements necessary for us to complete our business plan. In
order to accomplish this business plan, we must expand our network into
geographic areas throughout the country, beginning with major markets in Texas,
the Gulf Coast and elsewhere, establish relationships with local vendors in
those areas and launch targeted marketing campaigns in those regions. If we are
unable to raise additional capital or are able to raise capital only on
unfavorable terms, we may not be able to complete our business plan which
presently contemplates further acquisitions of existing businesses across the
country, develop or enhance our services, take advantage of future opportunities
or respond to competitive pressures or unanticipated requirements, any or all of
which could hurt our ability to support our growth.
THE SCALABILITY, RELIABILITY AND SPEED OF THE NETWORKS WE RELY UPON MAY
NOT SATISFY CUSTOMER DEMAND.
We may not be able to meet our projected customer numbers while achieving
and maintaining superior performance. This risk will continue to exist as long
as we expand our services geographically to increasing numbers of customers. Our
failure to achieve our performance goals, for a number of reasons including the
reliability and inter-operability of the networks we utilize, would
significantly reduce customer demand for our services, resulting in decreased
revenues and the inability to build our business as planned.
AT PRESENT, WE CANNOT PROVIDE OUR SERVICES UNLESS OUR ACCESS PROVIDERS
SUPPLY US WITH RELIABLE WIRELESS CONNECTIONS AND COOPERATE WITH US FOR THE
TIMELY PROVISION OF CONNECTIONS FOR OUR CUSTOMERS.
We must obtain wireless connections from telephone companies and new
competitive carriers and have their continuing cooperation for the timely
provision of wireless connections for our customers in order for us to provide
our services. Wireless communications service uses the lines provided by local,
regional and national communications carriers, which are under the control of
well-established telephone companies and new competitive carriers and requires a
special connection from our network to the telephone lines. We rely on them to
provide us with these connections, and if we were unable to use and pay the
costs of these connections, we would not be able to provide our customers with
our services. An inability to obtain adequate and timely access to wireless
connections on acceptable terms and conditions from these telephone companies
and competitive carriers and to gain their cooperation in the timely provision
of such connections for our customers could harm our business, as could their
failure to properly maintain the connections we use.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in litigation that arises in the
normal course of our business operations. We are presently a defendant in a
pending suit commenced by Information Leasing Corporation in District Court,
Ohio. The suit is for collection on the sale of two-way wireless communication
equipment purchased by the Company in a joint venture with Link-2
Communications, a Texas corporation with headquarters in Houston. While we
believe that we have meritorious defenses to the action, because of certain
technical difficulties related to the equipment, which we claimed in a counter
suit filed in District Court in Houston, TX, we are presently seeking to settle
the suit and counterclaim at terms acceptable to the Company. In connection with
the settlement, as contemplated, a third private investor will deliver shares of
a public company, not affiliated with us, which will be liquidated to pay a sum
to be determined, and we will issue restricted shares of our common stock to the
third party, in an amount also to be determined. We do not believe that the
settlement will have a material adverse effect upon us or our operations.
Item 2. Changes in Securities
During the three month period ended June 30, 2000, we issued ______ shares
that were not registered under the Securities Act of 1933, as amended (the
"Act"). We relied upon Section 4(2) and the private placement rules under the
Act as the basis for the exemption from the registration requirements of the
Act. The shares were sold to private investors.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Document Description
3(i) Articles of Incorporation (filed as Exhibits 3.1, 3.2 and 3.3
to the Company's
3(ii) Bylaws (filed as Exhibit 3.4 to the Company's Registration Statement
on Form 10-SB and
10 Material Contracts-Beeper Boutique Asset Purchase Agreement
27 Financial Data Schedule
(b) Form 8-K.
During the quarter ended June 30, 2000, we file a Report on Form 8-K dated
June 14, 2000. This report is incorporated by reference.
SIGNATURES
In accordance with Section 12 or 15(d) of the Exchange Act, the small
business issuer has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AFFORDABLE TELECOMMUNICATIONS TECHNOLOGY CORPORATION
By: /s/ Steven H. Bethke
Steven H. Bethke President, Chief Executive Officer and Director
Dated: August , 2000
Houston, TX
