<PAGE>
As filed with the Securities and Exchange Commission on February 18, 2000
Commission File No. 333-91717
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------------------
TELECOM WIRELESS CORPORATION
(Name of Small Business Issuer In Its Charter)
UTAH 7370 94-3172556
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification
organization) Code Number) Number)
5299 DTC BOULEVARD, SUITE 1120
ENGLEWOOD, CO 80111
(303) 416-4000
(Address and Telephone Number of Principal Executive Offices)
CALVIN D. SMILEY
PRESIDENT
TELECOM WIRELESS CORPORATION
5299 DTC BOULEVARD, SUITE 1120
ENGLEWOOD, CO 80111
(303) 416-4000
(Name , Address and Telephone Number of Agent for Service)
----------------------------
COPY TO:
GERALD J. LAPORTE, ESQ.
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004-1109
(202) 637-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement in light of market
conditions and other factors.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. / /
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------- ---------------- ------------------- -------------------- ----------------
Title of each class of securities Amount to be Proposed maximum Proposed Amount of
to be registered registered Offering price per maximum registration
Share aggregate offering fee
price
- ----------------------------------------- ---------------- ------------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per 1,826,473 $7.00(2) $12,785,311(2) $3,375.32(3)
share(1)
- ----------------------------------------- ---------------- ------------------- -------------------- ----------------
Common Stock, par value $.001 per 1,545,333 $7.4375(2) $11,493,414(2) 3,034.26(5)
share(4)
- ----------------------------------------- ---------------- ------------------- -------------------- ----------------
Common Stock, par value $.001 per 200,000 $6.875(2) $1,375,000(2) $363.00(7)
share(6)
- ----------------------------------------- ---------------- ------------------- -------------------- ----------------
</TABLE>
(1) Included in initial registration statement.
(2) Estimated solely for the purpose of calculating the registration fee
on the basis of Rule 457(c).
(3) Previously paid with filing of initial registration statement.
(4) Included in Pre-Effective Amendment No. 1.
(5) Previously paid with filing of Pre-Effective Amendment No. 1.
(6) Additional shares included in this Pre-Effective Amendment No. 2.
(7) Paid with this filing.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
- --------------------------------------------------------------------------------
The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
- --------------------------------------------------------------------------------
Subject to Completion, dated February 18, 2000
PROSPECTUS
FEBRUARY ___, 2000
TELECOM WIRELESS CORPORATION
3,571,806 Shares of Common Stock
to be sold by current stockholders
The selling stockholders identified in this prospectus may use the
prospectus to offer and sell up to 3,571,806 shares of the common stock of
Telecom Wireless Corporation from time to time. The selling stockholders will
receive all the proceeds from the sale of these shares. Telecom Wireless will
not receive any of the proceeds.
The common stock of Telecom Wireless has been traded in the
over-the-counter market and quoted through the OTC Bulletin Board under the
symbol "NOYRE." We expect it to continue to trade in that market.
These securities involve a high degree of risk. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 TO READ ABOUT CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE
DECIDING WHETHER TO INVEST IN TELECOM WIRELESS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
In deciding whether to buy the shares offered, you should rely only on
the information contained in this document. Telecom Wireless Corporation has not
authorized anyone to provide you with any information that is different from
this information.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <S>
PROSPECTUS SUMMARY/SUMMARY OF OFFERING............................................................................3
RISK FACTORS......................................................................................................6
A NOTE ABOUT FORWARD-LOOKING STATEMENTS..........................................................................10
USE OF PROCEEDS..................................................................................................13
DETERMINATION OF OFFERING PRICE..................................................................................13
DILUTION.........................................................................................................13
SELLING STOCKHOLDERS.............................................................................................13
PLAN OF DISTRIBUTION.............................................................................................14
SELECTED COMBINED PRO FORMA FINANCIAL DATA.......................................................................16
SELECTED HISTORICAL FINANCIAL DATA FOR COMBINED BUSINESSES.......................................................17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION...............................17
BUSINESS.........................................................................................................30
MANAGEMENT.......................................................................................................49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................................................56
CERTAIN TRANSACTIONS AND RELATIONSHIPS...........................................................................58
TELECOM WIRELESS' STOCK..........................................................................................60
SECURITIES AND EXCHANGE POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES...............................63
EXPERTS..........................................................................................................63
LEGAL MATTERS....................................................................................................64
HOW TO OBTAIN ADDITIONAL INFORMATION.............................................................................64
INDEX TO FINANCIAL STATEMENTS....................................................................................66
</TABLE>
This document may be used only where it is legal to sell these securities. The
information in the document may be accurate on the date on the cover only.
<PAGE>
PROSPECTUS SUMMARY/SUMMARY OF OFFERING
Telecom Wireless Telecom Wireless Corporation intends to become a
leading consolidator in the Internet service provide or
"ISP" business and the competitive local exchange
carrier or "CLEC" business.
The Offering 3,571,806 shares of common stock may be offered by
selling stockholders. The selling stockholders may sell
all or any portion of the shares in this offering in
one or more transactions by a variety of methods,
including through the OTC Bulletin Board or in
negotiated transactions. The selling stockholders will
determine the selling price of the shares. The selling
stockholders will also pay any broker or dealer
commission, fee or other compensation or underwriter
discount. The selling stockholders may sell all or any
portion of the shares in this offering in one or more
transactions by a variety of methods, including through
the OTC Bulletin Board or in negotiated transactions.
The selling stockholders will determine the selling
price of the shares. The selling stockholders will also
pay any broker or dealer commission, fee or other
compensation or underwriter discount.
Use of Proceeds Telecom Wireless will not receive any proceeds from the
sale of the common stock by the selling stockholders.
Trading Symbol and The common stock of Telecom Wireless is traded through
Market the OTC Bulletin Board under the symbol "NOYRE." The
market for the stock is characterized generally by low
volume and broad price and volume volatility. Telecom
Wireless cannot give any assurance that a stable
trading market will develop for its stock.
3
<PAGE>
<TABLE>
<S> <C>
Public Company Status Telecom Wireless has not previously filed annual or quarterly reports with the
Securities and Exchange Commission as a public company. It will begin to do so upon
effectiveness of this offering.
Address and Phone Number The address of the principal executive offices of Telecom Wireless and its
telephone number at that address are:
Telecom Wireless Corporation
5299 DTC Boulevard, Suite 1120
Englewood, Colorado 80111
Telephone No.: (303) 416-4000
</TABLE>
SUMMARY HISTORICAL INDIVIDUAL FINANCIAL DATA
The following table presents summary historical statement of operations
data for Telecom Wireless Corporation and a recently acquired subsidiary of
Telecom Wireless. The historical statement of operations data presented below
have not been adjusted for the pro forma adjustments reflected in the unaudited
pro forma combined financial statements included elsewhere in this prospectus.
TELECOM WIRELESS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
June 30, December 31,
--------------------------------------- -------------------------------------
1998 1999 1998 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Total revenues $ 650,000 $ 523,000 $ 289,000 $ 372,000
Total costs and expenses (2,305,000) (3,968,000) (702,000) (11,937,000)
---------------- ---------------- ---------------- ----------------
Net (Loss) $ (1,655,000) $ (3,445,000) $ (413,000) $ (11,565,000)
================ ================ ================ ================
Net (Loss) per common share-basic and
diluted $ (15.08) $ (.92) $ (.10) $ (.72)
================ ================ ================ ================
Weighted average shares outstanding - basic
and diluted 109,772 3,759,050 4,028,015 16,138,153
</TABLE>
4
<PAGE>
AMERICA'S WEB STATION, INC.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Periods Ended Six Months Ended
December 31, June 30,
------------------------------------- ------------------------------------
1997 1998 1998 1999
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 47,000 $ 171,000 $ 88,000 $ 77,000
Internet operating costs and expenses 127,000 347,000 162,000 113,000
---------------- ---------------- ---------------- ---------------
Net income (loss) $ (80,000) $ (176,000) $ (74,000) $ (36,000)
---------------- ---------------- ---------------- ---------------
</TABLE>
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before deciding
whether to invest in Telecom Wireless Corporation. If any of the contingencies
discussed in the following paragraphs or other materially adverse events
actually materialize, the business, financial condition and results of
operations of Telecom Wireless could be materially and adversely affected. In
such a case, the trading price of Telecom Wireless' common stock could decline,
and you could lose all or part of your investment.
TELECOM WIRELESS HAS EXPERIENCED DIFFICULTY IMPLEMENTING ITS BUSINESS PLAN
Telecom Wireless has an ambitious business plan that it has been
attempting to implement since April 1999. Since the company has experienced
difficulty obtaining financing from traditional sources, execution of most of
its business plan has been delayed. There can be no assurance that the business
plan can be implemented and successfully executed.
SUBSTANTIAL DOUBT EXISTS AS TO TELECOM WIRELESS' ABILITY TO CONTINUE AS A GOING
CONCERN
The independent auditor's report on the June 30, 1999, financial
statements of Telecom Wireless contains an explanatory paragraph which indicates
there is substantial doubt as to the company's ability to continue as a going
concern.
Management projects that Telecom Wireless will continue to incur net
losses and experience negative cash flow for the foreseeable future. This
will require substantial amounts of capital. As of the date of this
prospectus, management does not have commitments for additional financing and
cannot be sure that Telecom Wireless will be able to obtain any such
commitments at all or upon reasonable terms and conditions.
FAILURE TO INTEGRATE ACQUISITIONS SUCCESSFULLY MAY ADVERSELY AFFECT TELECOM
WIRELESS' OPERATING RESULTS
The success of Telecom Wireless will depend to a great extent on its
ability to integrate the operations and management of the businesses that it has
acquired and businesses that it may acquire in the future. Consolidating
acquired businesses and integrating regional operations may take a significant
period of time, will place a significant strain on Telecom Wireless' resources
and could prove to be more expensive than expected. Telecom Wireless may
increase expenditures to accelerate the integration and consolidation of its
acquired operations , but it cannot guarantee this result nor can the company
assure investors that its resources will be sufficient to successfully implement
its expansion program.
6
<PAGE>
MANAGEMENT'S PLANNED AGGRESSIVE GROWTH WILL STRAIN TELECOM WIRELESS' RESOURCES
Management intends to expand the operations of Telecom Wireless rapidly
through acquisitions by aggressively pursuing companies that provide or can
provide a national network system and infrastructure and then expand the network
through the acquisition and installation of necessary equipment, extensive
marketing efforts in new locations and the employment of qualified technical,
marketing and customer support personnel. This rapid growth will place a
significant strain on our managerial, operational and financial resources.
To manage our growth, management must improve the operational systems,
procedures and controls of Telecom Wireless on a timely basis by centralizing
and standardizing Telecom Wireless' operations and upgrading and replacing
outdated infrastructure. If the demands placed on its network resources by a
growing subscriber base outpace its growth and operating plans, the quality and
reliability of our service may decline and relationships with customers may be
harmed as a result.
IF TELECOM WIRELESS IS UNABLE TO ESTABLISH SATISFACTORY PEERING RELATIONSHIPS,
COSTS MAY INCREASE
Management intends to establish and maintain "peering" relationships
with other ISPs and with CLECs so that Telecom Wireless can exchange traffic
without paying transit costs. If management is unable to establish adequate
peering relationships, our costs will increase and our revenues could decrease.
This would harm the business, financial condition and results of operations of
Telecom Wireless.
IF SUPPLIERS FAIL TO PROVIDE TELECOM WIRELESS WITH THE EQUIPMENT IT NEEDS, WE
MAY LOSE CUSTOMERS
7
<PAGE>
There are only a limited number of businesses that can supply Telecom
Wireless with the key components it will need for its planned network
infrastructure, including telecommunications services and networking equipment.
Management cannot be certain that suppliers and telecommunications carriers will
continue to sell or lease their products and services to Telecom Wireless at
commercially reasonable prices or at all. If there are delays in receiving this
equipment, Telecom Wireless may not be able to service its customers.
Difficulties in developing alternative sources of supply, if required, could
adversely affect its business, future financial condition or operating results.
Moreover, failure of telecommunications providers to provide the data
communications capacity required by Telecom Wireless for any reason could cause
interruptions in its ability to provide access services to its customers, which
may materially and adversely affect our business, financial condition and
operating results.
8
<PAGE>
ACQUISITIONS OF ISP SUBSCRIBERS MAY RESULT IN SUBSCRIBER CANCELLATIONS DUE TO
BILLING PROBLEMS AND UNFAMILIARITY WITH TELECOM WIRELESS' SERVICE
As part of management's growth strategy, Telecom Wireless may acquire
businesses, products, technologies and other assets, including ISP subscriber
accounts, or enter into joint venture arrangements that complement our
businesses. In an acquisition of ISP subscribers, Telecom Wireless may
experience subscription cancellations in the short-term period following the
acquisition due to the lack of the acquired subscribers' familiarity with
Telecom Wireless as their ISP and billing issues that may arise due to poor
record keeping and billing administration by the selling company.
ACQUISITIONS OF COMPANIES MAY DISRUPT TELECOM WIRELESS' BUSINESS AND DISTRACT
MANAGEMENT DUE TO DIFFICULTIES IN ASSIMILATING PERSONNEL AND OPERATIONS
If Telecom Wireless acquires another company, Telecom Wireless could
encounter difficulties in assimilating the acquiree's personnel and operations.
This may disrupt our ongoing business and distract management, as well as result
in unanticipated costs and difficulty in maintaining standards, controls and
procedures. Telecom Wireless may be required to incur debt or issue equity
securities to pay for any future acquisitions or to fund any losses or
unanticipated costs of the combined companies.
9
<PAGE>
A NOTE ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains both historical and forward-looking
statements. All statements other than statements of historical fact are, or may
be deemed to be, forward-looking statements. The forward-looking statements in
this prospectus are not based on historical facts, but rather reflect the
current expectations of the management of Telecom Wireless Corporation
concerning future results and events.
The forward-looking statements generally can be identified by the use
of terms such as "believe," "expect," "anticipate," "intend," "plan," "foresee,"
"likely," "will" or other similar words or phrases. Similarly, statements that
describe the objectives, plans or goals of Telecom Wireless are or may be
forward-looking statements.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of Telecom Wireless to be different from any future results,
performance and achievements expressed or implied by these statements. You
should review carefully all information, including the financial statements and
the notes to the financial statements included in this prospectus. In addition
to the factors discussed above under "Risk Factors," the following important
factors could affect future results, causing the results to differ materially
from those expressed in the forward-looking statements in this prospectus:
- the timing, impact and other uncertainties related to pending
and future acquisitions by Telecom Wireless;
- the impact of new technologies;
- changes in laws or rules or regulations of a governmental
agency, including the Federal Communications Commission;
- changes in tax requirements, including tax rate changes, new
tax laws and revised tax law interpretations; and
- interest rate fluctuations and other capital market
conditions.
These factors are not necessarily all of the important factors that
could cause actual results to differ materially from those expressed in the
forward-looking statements in this prospectus. Other unknown or unpredictable
factors also could have material adverse effects on the future results of
Telecom Wireless. The forward-looking statements in this prospectus are made
only as of the date of this prospectus and Telecom Wireless does not have any
obligation to publicly update any forward-looking statements to reflect
subsequent events or circumstances. Telecom Wireless cannot assure you that
projected results will be achieved.
10
<PAGE>
USE OF PROCEEDS
Because this prospectus is solely for the purpose of permitting the
selling stockholders to offer and sell shares, Telecom Wireless will not receive
any proceeds from the sale of the shares being offered. The selling stockholders
will receive all the proceeds. Telecom Wireless has, however, previously
received proceeds from the original issuance of the shares covered by this
prospectus.
DETERMINATION OF OFFERING PRICE
This offering is solely for the purpose of allowing selling
stockholders to sell shares. The selling stockholders may elect to sell some or
all of their shares when they choose, in the near future or at a later date, at
the price at which they choose to sell. As the market develops, the selling
stockholders will determine the price for their shares.
DILUTION
This offering is for sales of shares by selling stockholders. Such
sales will not result in any dilution to the net tangible book value per share
of the common stock of Telecom Wireless before and after the sales. Prospective
investors should be aware, however, that the market price of shares being sold
may not bear any rational relationship to net tangible book value per share.
SELLING STOCKHOLDERS
The following table gives information on the selling stockholders
based on the number of outstanding shares of common stock as of February 16,
2000. The number of shares to be beneficially owned following completion of
the offering is based on the assumption that the stockholder will sell all of
the shares that may be offered for the stockholder's account in this
offering, and that the stockholder will not purchase or sell any other
shares. Stockholders are not required to sell the shares that may be offered
in this offering. Under SEC rules, beneficial ownership includes all shares
of Telecom Wireless common stock issuable within 60 days after the date of
this prospectus upon exercise of outstanding options, warrants, convertible
securities or other rights.
The "No. of Shares Beneficially Owned" and "No. of Shares Offered"
columns in the table include shares assumed to be acquired pursuant to repricing
warrants as an adjustment to the purchase price of an equal number of shares
purchased by the selling stockholder. The repricing shares will be issued,
however, only if the average of the closing bid prices of Telecom Wireless'
common stock for the 20 trading days immediately after the effective date of the
registration statement of which this prospectus is a part is less than $8.75.
Under the terms of the repricing warrants, the repricing shares are required to
be issued at a negligible exercise price, $.001 per share, on or after the 21st
trading day after the effective date if the average is less than $8.75. The
number of repricing shares to be issued will be calculated by taking the number
of shares of common stock originally purchased by the selling stockholder and
multiplying by a fraction, the numerator of which is $8.75 minus the average and
the denominator of which is the average itself. To assure that sufficient
repricing shares would be included in the registration statement, Telecom
Wireless calculated the number of repricing shares to be included by assuming
the average would be 50% of the $8.75 trigger price, or $4.375. This assumption
resulted in a 100% increase
11
<PAGE>
in the number of shares listed in the "No. of Shares Beneficially Owned" and
"No. of Shares Offered" columns in the table over the number of shares
originally purchased for the selling stockholders who hold repricing
warrants. The calculation resulted in the inclusion of 500,297 repricing
shares in the registration statement, which is the total number of repricing
shares included in the "No. of Shares Beneficially Owned" and "No. of Shares
Offered" columns in the following table.
<TABLE>
<CAPTION>
NO. OF
SHARES BENEFICIALLY OWNED
------------------------------- PERCENT OF
REPRICING OUTSTANDING NO. OF
SHARES SHARES NO. OF SHARES
INCLUDED IN REPRESENTED BY SHARES OWNED
NAME TOTAL TOTAL TOTAL OFFERED AFTER SALE
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Anglo Irish Nominees (Trusts) Ltd.
A/C GRC241 20,000 10,000 Less than 1% 20,000 0
Arab Commerce Bank Ltd. 28,570 14,285 Less than 1% 28,570 0
Jack Augsback (1) 103,335 0 Less than 1% 15,100 88,235
Marshall M. Becker 50,000 0 Less than 1% 50,000 0
Steve Bell 2,000 1,000 Less than 1% 2,000 0
Caribbean Investors Group, Ltd 28,570 14,285 Less than 1% 28,570 0
Chelverton Fund Ltd. 48,000 15,000 Less than 1% 48,000 0
Commonwealth Investment Services 50,000 0 Less than 1% 50,000 0
Ltd.
Commtel Services Ltd. 500,000 0 Less than 1% 500,000 0
Robin Costa 50,000 0 Less than 1% 50,000 0
Francis J. Fernandez 14,000 7,000 Less than 1% 14,000 0
Robert L. Franks 2,000 1,000 Less than 1% 2,000 0
Russell French 50,000 0 Less than 1% 50,000 0
GBS Capital Management, Inc. 42,000 0 Less than 1% 42,000 0
Dale Geringer 10,000 5,000 Less than 1% 10,000 0
Richard Geringer 10,000 5,000 Less than 1% 10,000 0
Robert Geringer 4,000 2,000 Less than 1% 4,000 0
William R. Gillespie 4,000 2,000 Less than 1% 4,000 0
Steve Gole 100,000 0 Less than 1% 100,000 0
Daniel A. Gooze 12,000 6,000 Less than 1% 12,000 0
Hampton-Porter Investment Bankers (2) 1,550,000 0 8.9% 550,000 1,000,000
David Hettinger 2,335 1,000 Less than 1% 2,000 335
Haliun Hongorzul 50,000 0 Less than 1% 50,000 0
HyperLight Network Corporation (3) 952,381 0 5.8% 500,000 452,381
JHS Associates, Ltd. Retirement
Account (4) 681,000 53,000 4.0% 106,000 605,000
John Kozik 13,500 6,750 Less than 1% 13,500 0
Victor P. LaRosa 12,000 6,000 Less than 1% 12,000 0
12
<PAGE>
Kenneth R. Levine 165,000 0 Less than 1% 150,000 15,000
Deanna Wallin Lipman 14,281 0 Less than 1% 14,281 0
Marie Walch Loughlin 26,000 13,000 Less than 1% 26,000 0
Mach Products, Inc. 28,000 0 Less than 1% 28,000 0
Gray M. Magee, Jr. 4,000 2,000 Less than 1% 4,000 0
Magid Family Trust 7,000 3,500 Less than 1% 7,000 0
Joshua Mailman 250,000 0 1.5% 250,000 0
Robert L. Primm 4,000 2,000 Less than 1% 4,000 0
Princeton Insurance 8,000 2,000 Less than 1% 8,000 0
Rheta Sue Scammell 14,281 0 Less than 1% 14,281 0
Silenus Limited 20,000 0 Less than 1% 20,000 0
SovCap Equity Partners Ltd. 188,954 90,477 1.1% 188,954 0
Mark Stys 22,650 0 Less than 1% 7,550 15,100
Matthew Talbert 100,000 0 Less than 1% 100,000 0
Thomson Kernaghan & Co. Ltd. 432,000 180,000 2.6% 360,000 72,000
Warren Zee 114,000 57,000 Less than 1% 114,000 0
James and Donita Zeller 2,000 1,000 Less than 1% 2,000 0
---------
TOTALS 3,571,806
---------
---------
</TABLE>
- ------------------------
(1) Telecom Wireless Corporation and Jack Augsback & Associates, Inc., of
which Jack Augsback is the controlling shareholder, are parties to a
Corporate Finance/Placement Agent Agreement under which Telecom Wireless
is required to pay the Augsback firm performance-based compensation for
introduction to resources capable of providing financing to Telecom
Wireless.
(2) Telecom Wireless and Hampton-Porter Investment Bankers are parties to an
Investment Banking Agreement under which Hampton-Porter agreed to
perform a variety of investment banking services for Telecom Wireless.
(3) Telecom Wireless and HyperLight Network Corporation entered into
agreements with respect to a new broadband technology. Disagreements
have arisen and HyperLight purports to have cancelled two of the three
agreements. The parties are in negotiations to resolve these disputes.
(4) John H. Sununu, who controls and is a beneficial owner of JHS Associates,
Ltd. Retirement Account, is a member of the Advisory Board of Telecom
Wireless and a party to a contract with Telecom Wireless that requires him
to provide financial consulting and other services to the company.
After the sales are complete, the selling stockholders owning 1% or
more of the common stock will be Hampton-Porter Investment Bankers - 5.5%,
HyperLight Network Corporation - 2.5%, and JHS Associates, Ltd. Retirement
Account - 3.3%.
13
<PAGE>
PLAN OF DISTRIBUTION
Telecom Wireless is registering this offering of shares on behalf of
the selling stockholders. Telecom Wireless will pay all costs, expenses and fees
related to the registration, including all registration and filing fees,
printing expenses, fees and disbursements of its counsel, blue sky fees and
expenses. The selling stockholders will pay any underwriting discounts and
selling commissions in connection with the sale of the shares.
The selling stockholders may sell the shares covered by this prospectus
from time to time in one or more transactions through the OTC Bulletin Board or
an interdealer quotation system, on one or more securities exchanges, in
alternative trading markets or otherwise, at prices and at terms then prevailing
or at prices related to the then current market price, or in negotiated
transactions. The selling stockholders will determine the prices at which they
sell their shares in these transactions. The selling stockholders may effect the
transactions by selling the shares to or through broker-dealers. In effecting
sales, broker-dealers engaged by the selling stockholders may arrange for other
broker-dealers to participate in the resales. The shares may be sold by one or
more, or a combination, of the following:
- a block trade in which the broker-dealer attempts to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction,
- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account,
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers, and
- privately negotiated transactions.
The selling stockholders may enter into hedging transactions with
broker-dealers. In these transactions, broker-dealers may engage in short sales
of the common stock in the course of hedging the positions they assume with the
selling stockholders. The selling stockholders also may sell the common stock
short pursuant to this prospectus and redeliver the shares to close out these
short positions. The selling stockholders may enter into option or other
transactions with broker-dealers that require the delivery to the broker-dealer
of the shares covered by this prospectus. The broker-dealer may then resell or
otherwise transfer the shares pursuant to this prospectus. The selling
stockholders also may loan or pledge the shares to a broker-dealer. The
broker-dealer may then sell the loaned shares or, upon a default by the selling
stockholder, the broker-dealer may sell the pledged shares pursuant to this
prospectus.
The selling stockholders may engage in other financing transactions
that may include forward contract transactions or borrowings from financial
institutions in which the shares are pledged as security. In connection with any
of these forward contract transactions, the selling stockholders would pledge
shares to secure their obligations and the counterparty to these transactions
would sell the common stock short to hedge its transaction with the selling
stockholder. Upon a default by the selling stockholder under any of these
financings, including a forward contract transaction, the pledgee or its
transferee may sell the pledged shares pursuant to this prospectus. Any such
pledgee or its transferee will be identified in this prospectus by
post-effective amendment to the registration statement of which it is a part.
14
<PAGE>
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling stockholder.
Broker-dealers or agents may also receive compensation from the purchasers of
the shares for whom they act as agents or to whom they sell as principals, or
both. Compensation to a particular broker-dealer may be in excess of customary
commissions and will be in amounts to be negotiated with a selling stockholder
in connection with the sale. Broker-dealers or agents, any other participating
broker-dealers and the selling stockholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act of 1933 in connection
with sales of the shares. Accordingly, any commission, discount or concession
received by them and any profit on the resale of the shares purchased by them
may be deemed to be underwriting discounts or commissions under the Securities
Act of 1933. Because the selling stockholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act of 1933, the selling
stockholders will be subject to the prospectus delivery requirements of the
Securities Act of 1933. Each selling stockholder has advised Telecom Wireless
Corporation that the stockholder has not yet entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of the shares.
The selling stockholders have agreed to sell the shares only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states the shares may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from registration or qualification is available and is complied
with.
The selling stockholders will be subject to applicable provisions of
the Securities Exchange Act of 1934 and the associated rules and regulations,
including Regulation M. These provisions may limit the timing of purchases and
sales of shares of the common stock of Telecom Wireless by the selling
stockholders. Telecom Wireless will make copies of this prospectus available to
the selling stockholders and has informed them of the need for delivery of
copies of this prospectus to purchasers at or before the time of any sale of the
shares.
15
<PAGE>
SELECTED COMBINED PRO FORMA FINANCIAL DATA
The table below presents summary pro forma combined financial data for
the year ended June 30, 1999, combining the historical results of Telecom
Wireless Corporation with the results of its subsidiaries, one of which has been
acquired recently. The pro forma combined financial statements are presented as
if the acquisitions had closed on July 1, 1998.
The summary pro forma financial data include, under the line item
labeled "adjusted EBITDA," our earnings or losses before non-cash compensation
expense, interest, taxes, depreciation and amortization on a pro forma combined
basis for the year ended June 30, 1999. We have included adjusted EBITDA in
these data because it is a measure commonly used by investors to analyze and
compare companies on the basis of operating performance. Adjusted EBITDA is not
a measurement of financial performance under generally accepted accounting
principles and should not be construed as a substitute for operating income, net
income or cash flows from operating activities for purposes of analyzing our
operating performance, financial position or cash flows. Not all companies
define EBITDA in the same way, and our adjusted EBITDA is not necessarily
comparable to EBITDA reported by other companies.
The summary pro forma financial data do not necessarily indicate the
operating results or financial position which would have resulted from our
operation on a combined basis during the period presented, nor does the pro
forma data necessarily represent any future operating results or financial
position. In addition to the summary financial data, you should also refer to
the more complete financial information included elsewhere in this prospectus,
including more complete historic results for the acquired companies, and our
unaudited pro forma combined financial statements and the accompanying notes.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
FISCAL YEAR ENDED
JUNE 30, 1999
---------------------
<S> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Access Revenues $ 159,000
Wireless Cable Revenues 523,000
Other --
------------------
Total Revenues 682,000
Costs and Expenses
Cost of Access Revenues 57,000
Cost of Wireless Cable Revenues 276,000
Stock-Based Compensation 1,548,000
Selling, General and Administrative 2,927,000
Amortization 155,000
Depreciation 222,000
------------------
Total Costs and Expenses 5,185,000
------------------
Income (Loss) From Operations $ (4,503,000)
------------------
------------------
Earnings (Loss) Per Common Share B Basic and
Diluted $ (1.19)
------------------
------------------
Weighted Average Shares Outstanding B Basic
and Diluted 3,787,612
------------------
------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED
FISCAL YEAR ENDED
JUNE 30, 1999
---------------------
<S> <C>
OTHER OPERATING DATA
Cash Flow From Operating Activities $(2,354,000)
Cash Flow Used in Investing Activities (130,000)
Cash Flow From Financing Activities 2,276,000
Adjusted EBITDA (1,659,000)
</TABLE>
SELECTED HISTORICAL FINANCIAL DATA FOR COMBINED BUSINESSES
The following table presents summary historical statement of operations
data for Telecom Wireless Corporation and the company recently acquired by
Telecom Wireless. The historical statement of operations data presented below
have not been adjusted for the pro forma adjustments reflected in the unaudited
pro forma combined financial statements included elsewhere in this prospectus.
TELECOM WIRELESS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
----------------------------------- ----------------------------------
1998 1999 1998 1999
---------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Revenues
Access Revenues $ -- $ -- $ -- $59,000
Wireless Cable Revenues 636,000 517,000 257,000 307,000
Other 14,000 5,000 32,000 7,000
----------------------------------------------------------------
Total Revenues 650,000 523,000 289,000 372,000
----------------------------------------------------------------
Costs and Expenses
Cost of Access Revenues -- -- -- 59,000
Cost of Wireless Cable Revenues 337,000 276,000 163,000 167,000
Stock-Based Compensation 928,000 1,548,000 -- 4,517,000
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
----------------------------------- ----------------------------------
1998 1999 1998 1999
---------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
General, Administrative and Other 1,040,000 2,144,000 538,000 7,194,000
---------------- ------------------ --------------- ------------------
Total Costs and Expenses 2,305,000 3,968,000 701,000 11,937,000
---------------- ------------------ --------------- ------------------
Net (Loss) $(1,655,000) $(3,445,000) $(413,000) $(11,565,000)
---------------- ------------------ --------------- ------------------
---------------- ------------------ --------------- ------------------
Net (Loss) Per Common Share -- Basic and
Diluted $(15.08) $(.92) $(.10) $(.72)
Weighted Average Shares Outstanding -- Basic
and Diluted 109,772 3,759,050 4,028,015 16,138,153
---------------- ------------------ --------------- ------------------
---------------- ------------------ --------------- ------------------
</TABLE>
AMERICA'S WEB STATION, INC.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------- ------------------- -------------------- -------------------
1997 1998 1998 1999
-------------------- ------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Revenues $47,000 $171,000 $88,000 $77,000
-------------------- ------------------- -------------------- -------------------
Internet Operating Costs 24,000 61,000 29,000 25,000
General, Administrative and Other 103,000 286,000 133,000 88,000
-------------------- ------------------- -------------------- -------------------
Total Expenses 127,000 347,000 162,000 113,000
-------------------- ------------------- -------------------- -------------------
Net Income (Loss) $(80,000) $(176,000) $(74,000) $(36,000)
-------------------- ------------------- -------------------- -------------------
-------------------- ------------------- -------------------- -------------------
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND PLAN OF OPERATION
The following discussion and analysis are based on the combined pro
forma results of Telecom Wireless Corporation and the historical results for
each of its subsidiaries for which separate data has been included in this
prospectus. The basis of the pro forma presentation is described under the
caption "Unaudited Pro Forma Combined Financial Statements."
OVERVIEW
The goal of Telecom Wireless Corporation is to become a leading
consolidator in the highly fragmented Internet service provider or "ISP"
industry and in the competitive local exchange carrier or "CLEC" industry.
Telecom Wireless intends to achieve this goal through an aggressive acquisition
strategy. Reductions in operating costs are expected to be achieved through
integration of the operations and systems of acquired businesses, including
centralization of billing, customer support services, marketing and advertising.
Revenues per subscriber are expected to be increased by making available to
customers enhanced Internet products and services. Telecom Wireless will attempt
to reduce customer turnover by maintaining a local presence for acquired
businesses.
Telecom Wireless currently operates an ISP and a wireless cable
television company. Management believes this mix of technologies and markets
will provide the platform on which to validate planned new product offerings and
market assumptions.
BUSINESS PLAN
ACQUIRING AND CONSOLIDATING INDEPENDENT TELECOMMUNICATIONS BUSINESSES.
We expect to acquire businesses that will enable us to provide a
comprehensive range of telecommunications products and services. Although we
expect most businesses will be profitable, the implementation of new services
will require substantial expenditures for equipment in the field. This generally
will result in negative cash flow for at least the first year of operations for
each acquisition.
STANDARDIZING AND CENTRALIZING OPERATIONS TO CAPTURE EFFICIENCIES OF SCALE.
LOCAL PRESENCE. Telecom Wireless will attempt to retain key employees
of acquired companies to ensure a smooth transition and maintain local
institutional knowledge. This will be important, as the local operating units
will be required to maintain local presence as Telecom Wireless develops a
national brand. We believe that consolidation efforts by national ISPs have been
seriously flawed by a lack of sensitivity to the essentially local nature of
many ISP businesses. This has often resulted in sharply increased subscriber
turnover rates after acquisitions and subsequent loss of revenue. We intend to
structure our integration and consolidation efforts to retain the perception by
subscribers of ISP businesses that we acquire that their ISP is a local business
providing superior service to that of national services.
INTEGRATION TEAMS. To help integrate operations, Telecom Wireless will
establish integration teams. Each integration team will consist of skilled
technical and marketing personnel. The integration team will have the
responsibility to help with the overall centralization, standardization, and
eventual branding of the local company as a part of the Telecom Wireless
organization. Additionally Telecom Wireless' accounting staff will work with the
integration team to centralize the accounting and billing systems promptly upon
closing of the acquisition. Upon completion of the initial integration process,
the operating units will begin executing the marketing and branding programs
established by Telecom Wireless to expand its customer base and improve its
customer retention.
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<PAGE>
CONSOLIDATION OF FUNCTIONS. The two major expenses associated with most
ISP and CLEC operations are administrative, primarily personnel, and technical,
including upstream telecommunications and local area networks. These factors
interact with administrative elements common to all ISPs including accounting,
system administration, web hosting and design, telephone and technical support.
To the extent these common elements are consolidated and standardized,
significant savings can be achieved.
- - ACCOUNTING: A high priority for Telecom Wireless is the installation of
a common accounting platform across all ISP acquisitions. Management
currently is evaluating accounting and billing platforms. The selected
platform will be flexible enough to include on one bill all products
and services we may choose to offer in the future and be scalable to
include any number of subscribers.
- - TECHNICAL SUPPORT: Telecom Wireless plans to maintain regional
telephone technical support centers to handle all consumer problems,
service inquiries and new subscriptions. Such centers will reduce the
need for support staff at each location and improve service.
- - WEB DESIGN AND STORAGE: It is our goal to transfer all ISP web design,
maintenance and hosting to a single division. Such a strategy should
eliminate the need for programmers at each local ISP.
- - SYSTEMS ADMINISTRATION: Consolidation of telecommunications is a
challenging goal because of the number of factors that must be
considered for each acquisition. Prior to acquisition, each ISP
maintains its own modem banks, local area network, and routing to the
Internet. In addition, each ISP may have its own upstream Internet
service provider as well as a local exchange carrier. Telecom Wireless
will use care and caution so that the quality of service is not
jeopardized while consolidation is implemented.
IMMEDIATELY BUNDLING VIDEO, VOICE, AND DATA PRODUCTS AND SERVICES.
Increasingly, businesses and consumers are drawn to ISPs that can meet all of
their telecommunications needs. Bundling services provides the ability to become
a "one stop shop" for all customers' needs. We expect bundling to assist us in
retaining existing customers and attracting additional customers.
DEVELOPING AND OFFERING VALUE-ADDED PRODUCTS AND SERVICES. In some
segments of the telecommunications business, the ability to offer value-added
products and services provides a tremendous competitive advantage. By delivering
value-added services, Telecom Wireless will attract and retain customers. A
typical example of a value-added service is voice over Internet protocol, which
allows users to place long distance telephone calls over the Internet at a very
low cost. By installing new hardware that supports not only this service but the
traditional ISP services, Telecom Wireless will be able to begin offering these
types of service to the existing subscribers of acquired ISPs and CLECs.
UNIFIED BRANDING. We intend to use the same brand name in marketing our
products and services. Unified branding should solidify our customer base,
ensure customer loyalty, help us to gain market share and enable us to benefit
from the efficiencies of centralization. In addition, it should enhance our
market visibility and perception. Branding also should enhance our ability to
sell additional products and services. In addition, past industry experience
indicates that unified branding should significantly reduce customer turnover.
WIRELESS BROADBAND NETWORK
Telecom Wireless intends to establish broadband wireless communications
networks in North America for small and medium sized businesses and consumers.
These networks would allow simultaneous real time transmission of voice, video
and data over the Internet. Subject to a trial test of
20
<PAGE>
equipment by Keys Microcable Corporation, we have entered into a contract to
purchase, over a period of five years, $225 million of equipment and services
necessary to establish the networks. Other related costs will be substantial
such as infrastructure, including location agreements for transmitters and
receivers, installation and marketing, and sales. We presently plan to market
the wireless broadband services to subscribers of ISPs we acquire and others in
the communities served by those ISPs.
ABILITY TO IMPLEMENT BUSINESS PLAN
The ability of Telecom Wireless to remain in business and implement its
business plan depends upon a variety of factors, primarily the ability to obtain
financing and the ability to attract and retain employees having the necessary
skills. Funding operations and acquisitions has been and is expected to continue
to be the major impediment to implementing the company's business plan. We need
capital to sustain operations and to consummate acquisitions. Management can
give no assurance that Telecom Wireless' capital requirements can be satisfied
at all or on reasonable terms.
COMBINED RESULTS OF OPERATIONS
REVENUES. Telecom Wireless Corporation and its subsidiaries
historically have derived their revenues primarily from subscription fees paid
by ISP subscribers for dial-up access to the Internet and subscription fees paid
for wireless cable television access. ISP subscription fees vary by the billing
plan within the subscriber base. The vast majority of the plans in effect are
monthly. However, there is a growing acceptance of annual contracts that offer a
discount over the monthly fee.
Wireless cable television subscribers pay monthly cable access fees.
Like ISP subscribers, wireless cable television subscribers pay fees based on
the billing plan they have selected.
COSTS. Our direct costs of sales with respect to ISP and wireless cable
television revenues consist primarily of maintaining sufficient capacity to
provide services to our subscribers. Capacity is a measurement of the provider's
ability to connect subscribers. ISP capacity costs include:
- the cost of leased routers and access servers and recurring
telecommunications costs, including the cost of local
telephone lines to carry subscriber calls to our points of
presence, or "POPs";
- the costs associated with leased lines connecting our POPs
directly to the Internet or to operations centers and
connecting operations centers to the Internet; and
- Internet backbone costs, which are the amounts paid to
Internet backbone providers for bandwidth, which allows
transmission of data from the Internet to subscribers.
Cost of ISP sales revenues will increase as required to support a
growing subscriber base. We will seek to leverage the combined scale of our ISPs
to lower telecommunications costs as a percentage of revenues by:
- negotiating one or more relationships with national backbone
providers to connect our ISPs to the Internet;
- negotiating favorable local loop contracts and establishing
co-location arrangements with local exchange carriers;
21
<PAGE>
- establishing private peering relationships to reduce our costs
and improve access and reliability for our subscribers;
- negotiating discounts with equipment vendors; and
- implementing wireless technology to provide high speed
Internet access to the small office/home office market. The
wireless technology will allow high-speed access at costs less
than reselling the lines from the existing local exchange
carriers.
Costs of sales of wireless cable television revenues consist primarily
of
- content costs;
- frequency license leases;
- technician labor costs; and
- purchase or lease of equipment necessary for the receiving and
retransmission of programming.
General, administrative and other expenses consist primarily of:
- the salaries of our non-technician employees and associated
benefits; and
- the cost of selling, marketing, accounting and legal services
related to merger and acquisition activities.
General, administrative and other expenses include expenses associated
with customer service and technical support, primarily salaries and employment
costs. We expect operations and customer support expenses to increase in the
short term to support new and existing subscribers. New subscribers tend to have
particularly heavy customer service and technical support requirements. Because
we anticipate growth in our subscriber base, we expect these costs to comprise
an increasing percentage of expenses in the near term. In addition, providing
customer service and technical support 24 hours a day, seven days a week, in our
markets will increase these expenses on an absolute basis. In the longer term,
as a percentage of revenues, we believe operations and customer support expenses
should decline as the existing subscriber base becomes less dependent on
customer service, and due to increased operating efficiencies. The consolidation
of the help desk and customer support functions will also offset increased costs
caused by increased demand.
General, administrative and other expenses also include the expenses
associated with acquiring subscribers, including salaries, bonuses, sales
commissions, advertising and referral bonuses. We expect ISP sales and marketing
expense to increase over time with the growth in our ISP subscriber base. On a
percentage of revenue basis, sales and marketing expense is a relatively
variable cost and may increase with our development of unified branding.
In addition, general, administrative and other expense includes
internal and external merger and acquisition costs such as salaries, bonuses,
commissions and accounting, legal and other professional fees. We expect to
reduce merger and acquisition expenses as a percentage of revenues of acquired
businesses through standardization of procedures and documents.
22
<PAGE>
We expect general, administrative and other costs to increase to
support our growth, particularly as we establish a network operations center and
implement common billing and financial reporting systems in the near term. Over
time, we expect these relatively fixed expenses to decrease as a percentage of
revenues. Additionally, as a result of consolidation of the traditional back
office activities such as help desk, technical support, and centralized billing,
we anticipate the reduction of labor costs for our acquisitions. However, we
will incur substantial costs and expenses in connection with our integration and
consolidation efforts, including salaries, travel, software and equipment.
Amortization expense primarily relates, on a pro forma basis, to the
amortization of goodwill and subscriber lists acquired in business acquisitions.
We expect amortization expense to increase as additional acquisitions are closed
and to vary according to the purchase price and tangible assets involved in the
acquisition. Our policy is to amortize the portion of the acquisition purchase
price attributable to subscriber lists, goodwill and other intangible assets
over three to five years. This amortization will reduce income. Therefore, as we
expand our subscriber base through acquisitions, we will experience increasing
amortization expense.
Depreciation primarily relates to our technology and office equipment
and is provided over the estimated useful lives of the assets ranging from three
to nine years using the straight-line method. We expect depreciation expense to
increase as we grow our networks to support new and acquired subscribers and as
we build a network operations center and implement common billing and reporting
systems.
Operating results in the future may fluctuate significantly depending
upon a variety of factors, including capital costs and costs associated with the
introduction of new products and services. Additional factors that may cause
operating results to vary include:
- the pricing and mix of services provided;
- subscriber retention rates;
- changes in pricing policies and product offerings by
competitors;
- demand for Internet access services;
- one-time costs associated with acquisitions; and
- general telecommunications services, performance and
availability.
On a pro forma basis, we have experienced seasonal variation in
Internet and wireless cable television use in Florida, and revenue streams have
fluctuated. As a result, variations in the timing and amounts of revenues could
have a material adverse effect on our operating results. Based on the foregoing
factors, we believe that period-to-period comparisons of our operating results
are not necessarily meaningful and that these comparisons cannot be relied upon
as indicators of future performance.
DISCUSSION OF THE OPERATIONS OF TELECOM WIRELESS CORPORATION
During the fiscal quarter ended June 30, 1999, present management
assumed control of Telecom Wireless and started to plan, document and implement
its merger and acquisition activities. During that and the following fiscal
quarter, substantial time, effort and money were expended to develop and
document M&A due diligence and acquisition forms, documents and procedures. At
the same time, field personnel were actively seeking letters of intent from
acquisition targets. The initial M&A sales and
23
<PAGE>
marketing team was later expanded from two senior managers and one support
person to include two more in sales and two in operations.
Between April and September 1999 Telecom Wireless entered into
non-binding letters of intent to acquire approximately 19 companies, and
definitive agreements for the acquisition of an additional five companies. Due
to the lack of acquisition funds, none of these transactions closed except
America's Web Station, Inc., and Prentice Technologies, Inc., which were
acquisitions largely for Telecom Wireless' common stock. On December 30, 1999,
the acquisition of Prentice was rescinded. In addition, the remaining three
definitive agreements expired by September 30, 1999.
For the years ended June 30, 1998 and 1999, Telecom Wireless had
revenues of $650,000 and $523,000, respectively. For the six months ended
December 31, 1998, and 1999, revenues were $289,000 and $372,000, respectively.
The primary source of its operating revenues for these periods was the wireless
cable television operations of Keys Microcable Corporation, a wholly-owned
subsidiary of Telecom Wireless. Costs incurred resulted in losses from
operations by Keys Microcable of $1,031,000 for the year ended June 30, 1999,
and $300,304 for the six months ended December 31, 1999.
Currently, wireless cable television services are not part of our
strategic plan as the small market in the Key West area limits the value of this
subsidiary. However, Keys Microcable does provide a platform from which we will
be able to test technical, administrative and marketing plans including the plan
for deployment of wireless broadband services described above. By utilizing Keys
Microcable's multimedia distribution system radio frequencies, we are planning
to offer wireless high-speed Internet access to residential and business
customers, market web site development and hosting services, and an improved
billing system. To improve the performance of Keys Microcable, Telecom Wireless
is making investments in equipment and subscriber services.
For the year ended June 30, 1999, and the six months ended December 31,
1999, Telecom Wireless incurred approximately $177,000 and $941,000,
respectively, in M&A-related expenses for outside legal and accounting fees and
costs. Approximately $218,000 of direct external costs as of December 31, 1999,
for accounting, legal and engineering work was classified as deferred
acquisition costs as management believes the acquisition of the companies with
respect to which the costs were incurred are likely to occur if Telecom Wireless
obtains adequate funding for that purpose. Management expects that the level of
M&A costs will decrease with the addition of internal resources to replace more
costly outside professional services.
During the six months ended December 31, 1999, Telecom Wireless
incurred non-cash expenses aggregating approximately $7,330,000 for
depreciation, amortization stock issued for services, stock-based
compensation and imputed interest in connection with financing transactions.
We expect non-cash expenses to continue, but at reduced levels. Our net loss
for the six months ended December 31, 1999, was $11,565,000. However, due to
non-cash expenses, negative cash flow from operations for that period was
$2,959,000.
To fully implement its business plan, Telecom Wireless will be required
to acquire or build a national infrastructure and establish and train
integration and consolidation teams. Since Telecom Wireless has made few
acquisitions, the staff presently required to manage integration and
consolidation is minimal. However, when funding for operations and acquisitions
is obtained, significant additional investment in technical and integration
personnel will be required.
24
<PAGE>
DISCUSSION OF THE RESULTS OF OPERATIONS OF KEYS MICROCABLE CORPORATION
Keys Microcable Corporation, a Florida Corporation, provides wireless
cable television services in Key West, Florida. When current management assumed
control of Telecom Wireless in April 1999, Keys Microcable was in a state of
decline and disarray caused by lack of capital which hindered operations as well
as growth. Non-payment of fees had resulted in cancellation of several popular
channels of programming. Many other programmers were threatening to terminate
service. In addition, there were several claims pending against Keys Microcable.
During fiscal 1999 and the six month period ending December 31, 1999,
the following actions were taken to reverse the financial and operational
conditions of Keys Microcable:
- All claims were settled for $159,000 except a lawsuit arising
from a traffic accident which is currently being settled by
our insurance carrier.
- More favorable payment terms have been renegotiated with key
suppliers of services and programming content.
- Overall overdue payables of greater than 90 days have been
reduced by $130,000.
- Settlement negotiations are underway with an equipment
supplier to return equipment that was received but is not in
use. Management anticipates a credit of $170,000 that will
further reduce overdue payables.
Investments in capital equipment and maintenance programs to improve
signal quality and programming content were also made. These investments have
resulted in a significant increase in customer satisfaction based on surveys of
the subscribers. Investments included enhanced power back up equipment as well
as increased levels of maintenance spares.
Investments were made to increase sales staff and local advertising
programs. Since April 1999 the number of equivalent billing unit subscribers has
increased by over 13% and the number of premium channel subscriptions has
increased over 100%. Increased marketing to developers of new commercial
properties and government agencies could substantially increase the total
subscriber count by the end of the current fiscal year.
Keys Microcable provides Telecom Wireless with a wireless platform on
which to add additional "bundled" services such as Internet access and voice
over Internet protocol . To offer wireless two way high speed Internet access
will require a significant capital investment. This investment may be as high as
$300,000 in capital equipment costs in the second and third fiscal quarters with
$5,000 per month in recurring monthly costs. This new service along with web
site design and hosting is anticipated to generate incremental annual revenues
in excess of $240,000.
25
<PAGE>
DISCUSSION OF AMERICA'S WEB STATION, INC. RESULTS OF OPERATIONS
America's Web Station, Inc., was founded in January 1997 to provide
Internet solutions to the rapidly expanding small- to medium-size business
market in southwest Florida. The initial focus was on high-end database-driven
web sites and e-commerce solutions. Dial-up Internet access and web site hosting
for businesses subsequently was added. In the first quarter of 1998, America's
Web began offering residential Internet service. Revenues increased from $47,000
for the year ended December 31, 1997, to $171,000 for the following fiscal year.
However, for the same periods, general and administrative expenses increased
from $102,000 to $283,000 due to hardware/software purchases and payroll for
additional staff.
For the six months ended June 30, 1999, revenue decreased to $77,000
from $88,000 for the same period in the preceding year primarily due to the time
and effort required of America's Web management to negotiate, document and close
its acquisition by Telecom Wireless in July 1999. However, during the same
periods, general and administrative expenses decreased from $134,000 to $82,000
due to final payment of equipment leases and staff reorganization.
Since the acquisition, hardware and software have been expanded and
upgraded and new sales and marketing staff have been hired. The staff has been
undergoing training with respect to new products and services. Also, America's
Web has implemented a marketing campaign that management believes has been
favorably received by the local business community. At September 30, 1999,
America's Web had 276 Internet access subscribers and 53 web site hosting
customers.
LIQUIDITY AND CAPITAL RESOURCES
Telecom Wireless had a negative cash flow from operations of
$1,421,000 and $2,959,000 for the 12 months ended June 30, 1999, and the six
months ended December 31, 1999, respectively. Cash flow used in investing
activities was primarily for the purchase of equipment and acquisition costs.
Cash flow generated by financing activities was primarily from the issuance of
stock and short-term debt. Substantial additional cash will be required to
implement our business plan.
Since April 1999, Telecom Wireless has funded its operations and
working capital needs primarily through private placements of its equity
securities and short-term debt instruments, lease financing and increases in
current liabilities. These private placements are discussed in Notes 7, 10 and
14 of the consolidated financial statements of Telecom Wireless Corporation
included in this prospectus.
In addition to normal operating expenses and current indebtedness,
Telecom Wireless has incurred substantial obligations payable during 2000
including the following:
- Telecom Wireless entered into a Master Lease Agreement dated as of
July 30, 1999, with the Internet Working Division of Lucent
Technologies Inc., as lessor. Subject to certain conditions, the
lessor has agreed to provide telecommunications and other equipment to
Telecom Wireless and its subsidiaries having a maximum aggregate
purchase price of $20,000,000. Telecom Wireless may lease equipment
with a value of up to $5,000,000 without having to satisfy certain
covenants and financial ratios. To date, Telecom Wireless has received
equipment having a value of approximately $1.2 million. Most of the
equipment presently is in storage in Albuquerque, New Mexico, awaiting
field deployment. Lease payments for the rental of this equipment,
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increasing to approximately $47,000 per month by March 2000, were
scheduled to commence in November 1999, but have been suspended
pending completion of an inventory of equipment delivered. The Master
Lease Agreement meets the requirements of an operating lease for
accounting purposes.
- In December 1999, Telecom Wireless entered into an agreement with
Adaptive Broadband Corporation to purchase broadband wireless
telecommunications equipment and services to establish wireless
communications networks in North America for small- and medium-sized
businesses and consumers. The agreement requires expenditures over its
five-year term of approximately $225 million by Telecom Wireless.
Telecom Wireless is obligated to, but has not yet placed, a purchase
order in the amount of $13,635,375 covering equipment to be delivered
this year including equipment to conduct a trial test through Keys
Microcable Corporation. By March 15, 2000 or upon successful
completion of the test plan, whichever is earlier, Telecom Wireless
must pay Adaptive $3,450,090. Additional payments of $3,392,290 each
are due on the first day of June, September and December 2000. Telecom
Wireless may terminate the agreement without penalty at any time if
Adaptive's product technology is not reasonably competitive in the
fixed wireless broadband market.
Adaptive may terminate the Agreement if it is not satisfied with the
sales or promotional performance of Telecom Wireless. If Telecom
Wireless fails to purchase the amount of equipment specified in the
agreement by the end of any calendar year, it will be subject to a
penalty equal to five percent of the unpurchased equipment. In the
event of termination by Telecom Wireless without cause or termination
by Adaptive with cause, then Telecom Wireless must pay Adaptive five
percent of the purchase price of the unpurchased equipment for the
remainder of the term of the agreement.
- A convertible promissory note in the principal amount of $700,000 is
due and payable in full on April 30, 2000. The conversion rate is
$7.00 per share of common stock. Although the holder has registration
rights with respect to the common stock, it is probable the holder
will not exercise the conversion right unless the market price is
substantially higher than the conversion price on the conversion date.
- HyperLight Network Corporation claims Telecom Wireless is obligated to
pay it $900,000, of which $300,000 purportedly was due December 1,
1999, and $300,000 purportedly is due on each of March 1 and June 1,
2000. The parties are negotiating an agreement to defer the due date
of the past due amount, if any, to February 29, 2000, and, if Telecom
Wireless does not have sufficient cash on that date, to allow payment
in its common stock.
When present management assumed control of Telecom Wireless in
mid-April, 1999, the market for Internet and Internet-related stocks was strong.
However, since about July 1999, the market for many of such securities has been
highly volatile. It has become increasingly difficult for Telecom Wireless to
obtain financing, either debt or equity, to fund operations or acquisitions.
This has forced Telecom Wireless to obtain high cost short-term financing to
cover operating expenses and to forego acquisitions with a significant cash
component.
Telecom Wireless has adopted a three-pronged financing plan with
respect to its ISP operations:
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- Seek mergers, joint ventures or financing arrangements with
larger private or public ISPs and other entities. These
entities may have ISP operational infrastructures already in
place and/or may require a source of acquisitions.
- Seek short- and long-term financing through private placements
of debt and equity securities in the capital markets. If
possible, Telecom Wireless will seek to finance its longer
term requirements with debt rather than equity so as to reduce
dilution to stockholders of Telecom Wireless.
- Mount an aggressive campaign to acquire companies for cash, if
available, and otherwise for registered Telecom Wireless
common stock. This will require substantial working capital to
fund operating and merger and acquisition expenses and to pay
the significant cost of compliance with applicable securities
laws.
There can be no assurance that financing will be available in amounts
or on terms acceptable to Telecom Wireless, if at all. Should Telecom Wireless
be unsuccessful in its efforts to raise capital, it may be required to curtail
operations.
FINANCING ARRANGEMENTS
JACK AUGSBACK & ASSOCIATES, INC. In March 1999, Telecom Wireless
entered into an agreement whereby Jack Augsback & Associates, Inc., West Palm
Beach, Florida, agreed to research and find sources for Telecom Wireless'
various needs of financing and to make introductions to persons capable of
providing such financing to Telecom Wireless. Telecom Wireless agreed to
compensate Augsback in the form of fees of up to 10% of gross proceeds to
Telecom Wireless, stock purchase warrants and expense reimbursement. The
Augsback agreement was effective through December 31, 1999. Pursuant to that
agreement, Augsback introduced Telecom Wireless to investors who purchased
securities for net proceeds to Telecom Wireless aggregating approximately
$3,868,745.
FIRST EQUITY CAPITAL SECURITIES, INC. First Equity Capital Securities,
Inc., New York, New York, raised $1,000,000 in bridge loan financing for Telecom
Wireless and introduced Telecom Wireless to a person which loaned it $700,000.
Telecom Wireless agreed to compensate First Equity in the form of fees of up to
10% of gross proceeds to Telecom Wireless, stock purchase warrants and expense
reimbursement.
On October 15, 1999, Telecom Wireless entered into a supplemental
agreement with First Equity whereby the company agreed, among other things, to
issue five-year warrants to First Equity to purchase 300,000 shares of Telecom
Wireless' common stock at a price of $.001 per share and to provide piggyback
registration rights for the underlying shares. In consideration, First Equity
agreed to waive fees due and payable to it. First Equity has exercised the
warrant.
HAMPTON-PORTER. In December 1999 Telecom Wireless entered into an
Investment Banking Agreement with Hampton-Porter Investment Bankers. Under the
agreement, Hampton-Porter agreed to perform a variety of services on a best
efforts basis including advice and counsel regarding strategic business and
financial plans, negotiations with potential investors, acquisition candidates,
strategic partners and others, introductions to securities broker-dealers,
information and analysis of market-making activities in the common stock of
Telecom Wireless, and due diligence investigations of third persons at the
request of management. The agreement required a non-refundable fee of $500,000
or 550,000 shares of the common stock of Telecom Wireless and three-year
warrants for the purchase of an additional 1,000,000 shares exercisable at $5.50
per share. If the 550,000 shares are not free-trading by March 21, 2000, then
Telecom Wireless will be obligated to issue an additional 200,000 shares to
Hampton-Porter as
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a penalty. The 550,000 shares have been included in this registration
statement. The shares issuable upon exercise of the warrants also have
registration rights.
In addition, Telecom Wireless agreed to pay Hampton-Porter finder's
fees up to five percent of the value of transactions introduced by
Hampton-Porter to Telecom Wireless. The term of the agreement is one year
although it can be terminated by either party on five days' notice.
In January 2000, Hampton-Porter served as placement agent in a
non-public offering to one investor of 100,000 shares of Telecom Wireless common
stock for a purchase price of $2.50 per share and three-year warrants for the
purchase of an additional 75,000 shares at an exercise price of $2.50 per share
for which Telecom Wireless has agreed to pay additional fees.
YEAR 2000 READINESS
Management is not aware of any year 2000 problems experienced or yet to
be resolved by Telecom Wireless or its subsidiaries or any of their major
vendors or service providers. Year 2000 problems are the result of computer
programs using two digits rather than four to define the applicable year. As a
result, date sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. The concern was that lack of year 2000 readiness
could have resulted in system failures or miscalculation causing disruptions of
operations.
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BUSINESS
OVERVIEW
Telecom Wireless Corporation is an Internet communications company
which intends to capitalize on the convergence of video, voice and data
communications on the Internet. The company's business plan calls for initial
rapid growth through acquisitions and subsequent organic growth. Telecom
Wireless intends to accomplish its objectives by providing access or
"connectivity" for Internet and other electronic communications, Internet
content and electronic commerce, and other communications services. Its target
markets include both residential and business customers.
Key elements of Telecom Wireless' business plan are:
- acquiring and consolidating geographically disparate ISPs and
CLECs;
- standardizing and centralizing the back office operations of
acquired companies, integrating their networks into a
broadband network and providing them with national customer
and technical support services directly or by outsourcing;
- developing and offering additional value-added products and
services to customers, especially residential ISP customers,
such as bundled video, voice and data products and services;
and
- building customer loyalty and gaining market share through
unified branding.
Most of Telecom Wireless' business plan has yet to be implemented. The
company now owns and operates an ISP, America's Web Station, Inc., and a
wireless cable television system, Keys Microcable Corporation. Over the past few
months, we have conducted accounting and legal due diligence and, in many cases,
extensive contract negotiations, with several ISP and application service
provider acquisition candidates, although Telecom Wireless currently has no
arrangements, agreements or understandings with potential acquisition
candidates.
The ability of Telecom Wireless to remain in business and implement its
business plan depends upon a variety of factors, primarily financing and the
ability to attract and retain employees having the necessary skills. Funding
operations and acquisitions has been and is expected to continue to be the major
impediment to implementing our business plan. We need capital to sustain
operations and to consummate acquisitions. Management can give no assurance that
Telecom Wireless' capital requirements can be satisfied at all or on reasonable
terms.
CURRENT OPERATIONS
Telecom Wireless currently conducts operations through two
subsidiaries, Keys Microcable Corporation and America's Web Station.
KEYS MICROCABLE CORPORATION. In June 1998, Telecom Wireless acquired
all the issued and outstanding stock of Keys Microcable Corporation. Keys
Microcable has operated a 32-channel wireless cable television system in the
lower Florida Keys and Key West, Florida, since 1994. Television programming
received from satellites is retransmitted to residential, business, and maritime
subscribers in the Key West geographic area. The signals are transmitted from a
single transmitter location and are received by small antennas that are
installed by Keys Microcable at each subscriber location. Typically, each
subscriber location services a single residence or business. There are locations
however, such as
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hotels, condominium associations and marinas that service multiple
subscribers from a single antenna. At some of these locations additional
equipment such as signal amplifiers and splitters are required.
Keys Microcable is performing engineering studies to expand its product
line in its service area to provide wireless Internet services to subscribers
and new customers. The expanded capabilities will include voice-over-Internet
protocol. Keys Microcable served approximately 1,600 cable TV subscribers as of
September 30, 1999.
AMERICA'S WEB STATION, INC. In July 1999, Telecom Wireless acquired all
the stock of America's Web Station, Inc. America's Web was founded in 1997 to
provide Internet solutions to the rapidly expanding small- to medium-size
business market in southwest Florida. The initial focus was on high-end
database-driven web sites and e-commerce solutions. Dial-up Internet access and
web site hosting for businesses subsequently were added. In the first quarter of
1998, America's Web began offering residential Internet service. Its customer
base has grown largely as a result of referrals. At September 30, 1999,
America's Web had 276 Internet access subscribers and 53 web site hosting
customers.
Other than the operations of the Keys Microcable and America's Web
Station subsidiaries, the primary focus of management at present is to raise
necessary capital for both operations and acquisitions. The company's financing
team has had numerous meetings over the past few months with investment bankers
and other potential financing sources. In addition, management has met with
larger ISPs regarding possible management of our acquired ISPs on an outsourcing
basis. Management believes that these efforts will result in financing adequate
to implement our business plan, although we cannot assure whether or when that
will occur.
In addition, Telecom Wireless has entered into two equipment agreements
which will enable it to build the infrastructure required to implement its
business plan, including building a broadband wireless network, when adequate
funding is obtained.
ADAPTIVE BROADBAND CORPORATION. One equipment agreement was entered
into in December 1999 with Adaptive Broadband Corporation. The agreement with
Adaptive Broadband contemplates purchase by Telecom Wireless of broadband
wireless telecommunications equipment and services to establish wireless
communications networks in North America for small- and medium-size businesses
and consumers. Adaptive has represented that its technology offers wireless line
of sight data transmission rates of 25 megabits per second (Mbps) with 100 Mbps
planned for later this year. These transmission rates would provide capacity for
simultaneous real-time video conferencing, transmission of full streaming video,
web surfing and transmission of data files. The wireless point to multi-point
system will enable installation of networks at a lower cost and in a much
shorter period of time as compared to a "wired" network. The system requires
minimal termination equipment at the customer site and generally will utilize
existing building wiring.
Telecom Wireless plans to deploy Adaptive Broadband equipment in both
the licensed multimedia distribution system frequency spectrums as well as the
unlicensed national information infrastructure. The unlicensed national
information infrastructure spectrum was set aside by the FCC to facilitate rapid
and inexpensive wireless access to informational resources by educational
institutions, business, industry, and consumers.
The agreement with Adaptive Broadband requires expenditures over its
five-year term of approximately $225 million by Telecom Wireless. We are
obligated to, but have not yet placed, a purchase order in the amount of
$13,635,375 covering equipment to be delivered this year including equipment to
conduct a trial test through Keys Microcable Corporation. Adaptive Broadband
will provide the test plan for the trial and Telecom Wireless and Adaptive
Broadband will jointly conduct the test.
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Subject to the availability of capital, we plan to rapidly deploy wireless
broadband services in a substantial number of markets. Initial planning for a
five-city rollout is currently under way.
Either party may terminate the agreement if the other party is, among
other things, insolvent, bankrupt or is unable to pay its debts. In addition,
Adaptive Broadband may terminate the agreement if it is not satisfied with the
sales or promotional performance of Telecom Wireless. In the event Adaptive
Broadband should breach the agreement, including infringement of its technology
on the rights of others, the indemnification obligation of Adaptive Broadband to
Telecom Wireless is limited to the purchase price of the infringing product. The
costs to the company of defending infringement litigation and securing necessary
licenses could substantially exceed that amount.
LUCENT TECHNOLOGIES LEASE/FINANCING. Telecom Wireless entered into an
equipment agreement styled as a Master Lease Agreement dated as of July 30,
1999, with the Internet Working Division of Lucent Technologies Inc., as lessor.
Subject to certain conditions, Lucent has agreed to provide telecommunications
and other equipment to Telecom Wireless and its subsidiaries having a maximum
aggregate purchase price of $20,000,000. Telecom Wireless may lease equipment
with a value of up to $5,000,000 without having to satisfy certain covenants and
financial ratios. To date, Telecom Wireless has received equipment having a
value of approximately $1.2 million. Most of the equipment presently is in
storage in Albuquerque, New Mexico.
Among other potential uses, Telecom Wireless may use Lucent equipment
to build a high-capacity asynchronous transfer mode voice and data network,
which will allow Telecom Wireless to provide high quality, high-speed voice and
data network services to corporations, alternative carriers and ISPs. The
revenue generating services that could be offered through such a network include
high-speed asynchronous transfer mode and frame relay backbone connections,
dedicated and dial-up Internet access, and virtual private networks which are
restricted access Internet-based networks established by businesses for internal
use such as among employees, vendors and customers.
POTENTIAL BUSINESS PROSPECTS
Telecom Wireless reviews transactions which may provide business or
investment opportunities in the future. Whether these transactions will result
in benefit to Telecom Wireless is unknown.
HYPERLIGHT NETWORK CORPORATION. Telecom Wireless is investigating a new
technology which involves software and hardware modulation and compression
equipment that appears to be able to transmit data at rates as high as 45 mega
bits per second ("Mbps") over traditional copper pair transmission facilities.
It also appears to be able to support the 45 Mbps transmission over a
coast-to-coast dial-up telephone call and perhaps over fiber cable, wireless and
coaxial cable. The technology is in the development stage. Management has been
informed that the technology currently is undergoing testing to determine
commercial viability by an independent third party.
Telecom Wireless entered into agreements to acquire what management
believes is approximately a 4.9% equity interest in HyperLight Network
Corporation, the entity that purports to own the technology or to have the right
to acquire the technology. The sellers claim we are in default under these
agreements and claim to have terminated two of the agreements. The agreements
purport to obligate Telecom Wireless to pay $1.6 million and deliver 500,000
shares of our common stock for this equity interest. We have delivered the
500,000 shares and have paid $700,000, financed with borrowed funds under a
convertible promissory note due April 30, 2000. Of the remaining $900,000,
sellers claim payment of $300,000 is in default and that $300,000 is due on each
of March 1 and June 1, 2000. In consideration of the agreement of HyperLight to
renegotiate the agreements in good faith, Telecom Wireless delivered to
HyperLight an additional 452,381 shares of common stock.
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The agreements to be renegotiated include a world-wide, non-exclusive,
five-year license agreement which gave us the right to distribute the technology
and to sublicense the technology to the end users, with the exception of the
United States government. The seller purportedly has terminated the license
agreement due to our default.
Whether the sellers will renegotiate the agreements on terms economic
to Telecom Wireless and whether the sellers will provide adequate information
with respect to the viability and ownership of the technology is unknown. In
addition, we are in discussions with venture capitalists and others to provide
the necessary financing. At present, we have no financing commitments and can
give no assurance that financing can be obtained at all or upon reasonable
terms. For all of these reasons, whether the technology will have any value to
Telecom Wireless is speculative.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET.
The Internet has become a global medium that enables millions of people
to obtain and share information, communicate and conduct business
electronically. The Internet has grown rapidly since its introduction to the
general public in the early 1990's. Factors driving the growth in the number of
Internet users and the number of web sites include:
- the large and growing installed base of personal computers;
- advances in the performance and speed and reduction in cost of
personal computers and modems;
- improvements in network infrastructure;
- easier and cheaper access to the Internet;
- the increasing importance of the Internet as a communications
medium, information resource and sales and distribution
channel; and
- reliability of service by Internet access providers.
ACCESSING THE INTERNET.
Internet access services are the means by which ISPs interconnect
business and consumer users to the Internet's resources. Access services vary
from dial-up modem access for individuals and small businesses to high speed
dedicated transmission lines for broadband access by large organizations. An ISP
provides Internet access either by developing a proprietary network
infrastructure or by purchasing access service from a wholesale access vendor,
or through a combination of both. The rapid development and growth of the
Internet have resulted in a highly competitive and fragmented industry
consisting of a few large national and regional ISPs and a substantial number of
local ISPs with small subscriber bases. Most ISPs operate within a single state
or city, with only a handful of ISPs, such as EarthLink and MindSpring, which
are in the process of merging, having expanded the scope of their operations
from a single region to nationwide coverage. Due to the disparity between the
large number of smaller ISPs with limited resources and the emergence of a
limited number of national ISPs with their associated economies of scale, the
ISP industry is expected to undergo substantial consolidation.
GROWTH IN ELECTRONIC COMMERCE.
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For many businesses, the Internet has created a new communication and
sales channel that enables companies to interact with large numbers of
geographically dispersed consumers and businesses. In the last several years,
many companies have emerged that focus solely on the Internet as the preferred
medium for selling products or delivering services directly to purchasers,
bypassing traditional wholesale and retail channels. Furthermore, traditional
businesses are implementing sophisticated web sites to effect electronic
commerce initiatives that offer competitive advantages. These businesses are
deploying an expanding variety of Internet-enabled applications, ranging from
web site marketing and recruiting programs to on-line customer interaction
systems and integrated purchase order and "just-in-time" inventory solutions
for key customers and suppliers. These capabilities require increasingly
complex web sites and support operations. In addition, advances in on-line
security and payment mechanisms are alleviating concerns associated with
conducting transactions in an open-platform environment, thus prompting more
consumers and businesses to use the Internet in conjunction with purchases and
more businesses to offer a greater breadth of electronic commerce services.
OUTSOURCING OF INTERNET OPERATIONS.
As the Web increasingly becomes synonymous with electronic commerce,
businesses are placing greater emphasis on their Internet transaction and
communication operations. Internet-based companies, and to a growing extent,
traditional businesses, require non-congested and scalable Internet operations
to allow them to perform digital communication and commerce transactions
globally over the Internet. Due to constraints posed by the lack of technical
personnel with Internet skills or experience, the high cost of advanced
networking equipment and the complexity of innovative web solutions, many
businesses are unable internally to develop, maintain and continually enhance
their facilities and systems to conduct desired levels of Internet-based
activities. As a result of these constraints and other factors, many businesses
are seeking to outsource their facilities and systems requirements as the
preferred means for providing electronic commerce solutions. To this end, an
increasing demand is developing for:
- dedicated and broadband Internet access services to support
reliable, high speed and/or constantly connected Internet
access and communication;
- web hosting and co-location services which enable businesses
to obtain equipment, technical expertise and infrastructure
for their Internet needs on an outsourced basis; and
- end-to-end electronic commerce solutions to sell goods and
services on the web in a secure transaction environment.
By outsourcing their facilities and systems needs, businesses are able
to focus on their core competencies rather than expending vital resources to
support their Internet operations.
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THE OPPORTUNITY FOR INTERNET SERVICE PROVIDERS.
Management believes the number of businesses and consumers accessing
the Internet will increase significantly in the foreseeable future.
Additionally, as businesses and consumers are developing greater levels of
comfort in the use of the Internet for electronic commerce, businesses are
increasingly implementing sophisticated electronic commerce solutions which, in
turn, require significantly greater bandwidth and other business services. In
response, an increasing number of ISPs are augmenting their basic Internet
access services with a wide range of business services, including web hosting
and Internet security. These ISPs will be positioned to attain greater
economies of scale through lower network expansion and marketing costs on a
per-subscriber basis. Management believes that only a few ISPs, and in
particular, national ISPs, will be in a position to benefit fully from this
continued growth. These ISPs likely will be characterized by:
- quick response to market demands;
- reliable coverage on a nationwide basis;
- superior technical skills and customer support capabilities;
- electronic commerce expertise and business services
capabilities;
- brand name recognition and the ability to exploit multiple
marketing channels; and
- relatively lower network costs.
THE OPPORTUNITY FOR COMPETITIVE LOCAL EXCHANGE CARRIERS.
The passage of the 1996 Telecommunications Act created a legal
framework for competitive telecommunications companies to provide local analog
and digital communications services in competition with the traditional
telephone companies. The 1996 Telecommunications Act eliminated a substantial
barrier to entry for competitive telecommunications companies by enabling them
to leverage the existing infrastructure built by the traditional telephone
companies, which required a $200 billion investment by these telephone
companies and their ratepayers, rather than constructing a competing
infrastructure at significant cost. The 1996 Telecommunications Act requires
traditional telephone companies, among other things, to:
- allow competitive telecommunications companies to lease copper
lines on a line by line basis;
- provide central office space for the competitive
telecommunications companies' digital subscriber line and
other equipment used to connect to the leased copper lines;
- lease access on their inter-central office fiber backbone to
link the competitive telecommunications companies' equipment;
and
- allow competitive telecommunications companies to use their
operational support systems to place orders and access their
databases.
The 1996 Telecommunications Act was designed to create an incentive for
incumbent carriers that were formerly part of the Bell system to cooperate with
competitive carriers. These incumbent
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carriers cannot provide long distance service until regulators determine that
there is competition in the incumbent carrier's local market.
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OUR STRATEGY
The goal of Telecom Wireless is to become a full-service national
provider of Internet connectivity and enhanced Internet services to both the
consumer and business markets by combining national scale with local presence.
We intend to provide broadband connectivity through wireless and other
technologies, if available, to customers at an economical rate and to rapidly
integrate our acquisitions into a national network. Broadband connectivity, if
available, will allow us to offer bundled services at high speeds and to
develop and offer additional value-added products and services.
We intend to create shareholder value by building scale through the
acquisition, consolidating and integrating fragmented, independent ISPs and
CLECs, and then leveraging our large scale to increase revenues and reduce
costs. The key elements of our strategy to accomplishing this goal include:
- acquiring and consolidating independent ISPs and CLECs for
cash and/or our common stock;
- standardizing our acquisition documents and procedures to
minimize costs;
- standardizing and centralizing the back office operations of
our acquisitions to capture operational efficiencies of scale
by leveraging our national network infrastructure and customer
support services;
- developing and offering additional value-added products and
services to increase revenues from existing and future
customers; and
- building customer loyalty and gaining market share through
branding.
GROWTH THROUGH ACQUISITIONS.
We intend to establish a national presence and critical customer mass
by acquiring the stock or assets of, or making significant investments in,
established, independent ISPs and CLECs in selected geographic areas throughout
the U.S. We expect that these acquisitions will broaden our market presence and
expand our ability to offer new products and services. Given the competitive
market pressures, we believe that these providers will continue to be attracted
to and benefit from the consolidation opportunity we provide. At present,
Telecom Wireless does not have any current plans, arrangements, agreements or
understandings with potential acquisition partners.
STANDARDIZE AND CENTRALIZE OPERATIONS AND CAPTURE ECONOMIES OF SCALE.
ISPS. More and more businesses are looking to ISPs as a source of
multi-tiered or bundled products and services. As businesses look to expand
their use of electronic commerce solutions, ISPs must respond by offering the
bandwidth, products and services required to meet this demand. The Internet
provides an additional medium for businesses to market their products and
services, and it provides consumers with a method to research, compare, and
purchase these products and services.
In addition to providing Internet access, ISPs traditionally offer
services to accommodate these needs. During the acquisition process Telecom
Wireless will evaluate each candidate's ability to offer these various services
and a "best in class" will be identified whenever possible. Telecom Wireless
will consolidate the service offerings of each acquisition into this "best in
class" organization. This will reduce costs and build the expertise required to
gain market leadership.
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CLECS. CLECs compete with incumbent local exchange carriers, which are
sometimes referred to as Baby Bells, through low-cost resale agreements and
value-added bundled service packages. Initially, CLECs operated as basic
telephone service resellers. CLECs have evolved by positioning themselves as
integrated communications providers, offering a full suite of
telecommunications services that includes providing customers with voice, data,
Internet and video services. Integrated communications providers are often a
result of strategic partnerships or merged communication companies. The
deregulation of the telecommunications industry, changes in policy, and
technological advances have expanded service options for CLECs.
Telecom Wireless intends to integrate the broadband wireless and
copper pair technology into the CLECs it acquires. The ability to provide a
high bandwidth connection at a significantly lower cost than the Baby Bells
will create opportunities for immediate market penetration and higher margins.
The organizational plan Telecom Wireless implements will be a critical
component of its ability to manage the rapid internal growth and disparate
operational units obtained through acquisitions. Telecom Wireless plans to
consolidate acquired ISPs and CLECs into as many as eight geographically
positioned operating units. At the same time, core administrative functions
must be centralized to obtain scale efficiencies and improve margins. We
currently plan to centralize network and back office administrative operations
in Denver, Colorado.
REGIONAL ROLL-UPS.
Telecom Wireless will hire key individuals from acquired businesses to
ensure a smooth transition and maintain local institutional knowledge. We expect
this will allow local operating units to maintain local presence as Telecom
Wireless develops its national brand. To help integrate acquisitions, Telecom
Wireless will establish integration teams. Each integration team will consist of
skilled technical and marketing personnel. The integration team will have the
responsibility to help with the overall centralization, standardization, and
eventual branding of the local company as a part of the Telecom Wireless
network. Additionally, Telecom Wireless' accounting staff will work with the
integration team to centralize the accounting and billing systems which we
expect to be able to accomplish immediately after the acquisition. Telecom
Wireless expects that integration of other systems initially will require about
60 days for any acquisition, although total integration of operations may take
several months. Upon completion of the initial integration process, the
operating units will begin executing the marketing and branding programs
established by Telecom Wireless to expand its customer base and improve its
customer retention.
CONSOLIDATION OF FUNCTIONS.
In order to maximize operating efficiencies and back office functions,
marketing, research, and network maintenance will be headquartered in one
location. Additionally, Telecom Wireless must take steps to maintain our
existing customers, attract new customers, offer new services, and increase
margins, such as establishing a common billing system, centralizing technical
support functions, and creating a national operations center to monitor the
entire network. Telecom Wireless recognizes that rapid and orderly
consolidation and integration of ISP operations is essential to increase
profitability and for orderly growth. We estimate reductions of ISP operating
costs by approximately 10% with a carefully executed plan of consolidation and
integration. However, the cost of integration and consolidation will be
substantial.
Our aggressive approach to consolidation must be tempered as local,
independent ISPs often are viewed by their subscribers as providing superior
service to that of national ISPs. Management believes that consolidation
efforts by national ISPs have been seriously flawed by a lack of sensitivity to
the
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essentially local nature of many ISP businesses, which often results in
sharply increased subscriber turnover rates after acquisitions, and subsequent
loss of revenue. Telecom Wireless' efforts will be tempered with the
understanding that much of the appeal of acquired ISPs is based on the
perception by subscribers that their ISP is a local business.
- ACCOUNTING: A high priority for Telecom Wireless is installing
a common intranet accounting platform across all ISPs. Telecom
Wireless is currently evaluating accounting and billing
platforms for implementation. The selected platform will be
flexible enough to include on one bill all products and
services we may choose to offer in the future and be scalable
to include any number of subscribers.
- CONSOLIDATED TECHNICAL SUPPORT: Telecom Wireless plans to
maintain a national telephone technical support center to
handle all consumer problems, service inquiries and new
subscriptions. Such a center would reduce the need for support
staff at each location, improve service and facilitate our
national marketing effort.
- WEB DESIGN AND STORAGE: It is our goal to move all ISP web
design and maintenance to one location. Such a strategy should
eliminate the need for programmers at each local ISP.
- SYSTEMS ADMINISTRATION: Because so much of the cost of
operating an ISP is bound up in telecommunications, a natural
inclination is to quickly consolidate the technical operations
that support and monitor telecommunications. Each ISP
maintains its own modem banks, local area network or local
area network, and routing to the Internet. In addition, each
ISP may have its own upstream backbone as well as a CLEC. With
all these interacting factors, we plan to favor the quality of
service over speed of consolidation.
It is not the intent of Telecom Wireless to "re-invent" the wheel when
it comes to establishing these operational elements. While it is possible for
Telecom Wireless to build them internally, Telecom Wireless may seek to acquire
or merge with a national ISP which has many of the elements already in place.
Telecom Wireless may also seek to outsource ISP management to third parties
having excess capacity.
INTEGRATION OF ISPS AND CLECS.
Telecom Wireless' business plan calls for providing high-speed
connectivity and common services across ISPs and to all our subscribers. To
accomplish this goal, we will take a multi-faceted approach to integration of
ISPs. Telecom Wireless presently intends to utilize a "hub and spoke"
configuration.
- CRITICAL MASS: For any ISP to be integrated, it must either: (a) have
sufficient capacity and staff to stand alone profitably and act as a
regional hub for smaller external acquisitions in the same or
contiguous regions or (b) be absorbed as an external acquisition in a
region where a Telecom Wireless hub already exists. These smaller
assets become spokes of the regional wheel.
Our plan calls for hub ISPs to "reside" on network access points
providing redundant high speed access to the Internet. Each hub will
be equipped with high capacity switches capable of handling voice and
data traffic. Where appropriate, Telecom Wireless intends to obtain
CLEC status either by acquisition or application to take advantage of
the options such a designation offers. Collectively, these hubs will
form a larger critical mass justifying
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connection of an asynchronous transfer mode backbone to form a
ubiquitous wide area network to be administered by Telecom Wireless
staff at a central network operations center expected to be housed
in Denver.
In addition to providing a high speed-switching platform, we plan
that each hub ISP will provide the full compliment of connectivity
options including high-speed wireless access via local metropolitan
area wireless networks.
- BASELINE EVALUATION: Each potential acquisition will be evaluated for
baseline service capability, hardware suitability, and strategic
location and importance. Such an evaluation will help in determining
the cost and types of equipment that must be added and/or upgraded,
staffing, and marketing. This evaluation and screening process also
assists in determining a best course to reduce or eliminate the cost
of "last mile" services.
- VERTICAL INTEGRATION OF SERVICES: We expect our ISPs will offer
connectivity options including 56 Kb dial up, dedicated high speed
access including digital subscriber lines, and point-to-point and
multipoint wireless connectivity. Our applications will include web
design and hosting and provision of all necessary components for
electronic commerce, such as construction of relational databases and
market baskets.
ACQUISITION STRATEGY
Growth through acquisitions represents the principal strategy of our
business plan. We expect to deepen and broaden our market presence, strengthen
our Internet connectivity, and enhance service capabilities through
acquisitions. Our early acquisitions will provide regional integration hubs to
validate our technology and marketing plans and provide network infrastructure.
When our hub operations are identified, we will target for acquisition ISPs and
CLECs to increase our density in these markets. We will focus on acquisition
criteria including the following:
- rapid revenue and customer growth;
- low customer turnover;
- limited competition; and
- enhanced products and services offered.
We believe ISPs and CLECs in our target markets will be attracted to
and benefit from the opportunity to affiliate with us, based upon, among other
factors:
- empowering managers to use their local market knowledge to
build market share and density by providing services and
products best suited for these areas; and
- offering a combination of liquidity and upside potential
through equity ownership in a publicly traded entity to
current owners and employees.
We expect that consolidation will create added value through
centralizing operations and systems, sharing of technology, branding and
bundling products and services. We plan to integrate acquired operations at a
divisional group level to:
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- eliminate redundant network costs;
- consolidate operations; and
- retain sales staff and key managers.
Our plan is to pursue a regional acquisition strategy by targeting
independent, local ISPs in selected geographic areas. In each area, we will seek
a larger ISP to serve as the vehicle for integrating and optimizing the networks
and operations. In general, the acquisitions in each region will be consolidated
into integrated operating subsidiaries that are wholly owned by us. In certain
instances, some of the acquired providers may continue to exist as separate,
wholly owned subsidiaries, but operated as part of the local operating region.
MANAGEMENT OF TELECOM WIRELESS' GROWTH
To implement our plan to expand rapidly through acquisitions, we will
need to implement additional management information systems capabilities,
further develop our operating, administrative and financial and accounting
systems and controls, improve coordination between engineering, accounting,
finance, marketing and operations, and hire and train additional personnel.
Our ability to manage rapid growth and disparate operational
methodologies will be dependent upon the operational plan we will implement to
integrate and consolidate these new operations. We plan to employ managers in
each of our geographical divisions to ensure the implementation of our
operational plan and the smooth transition of each of these operations. Our
plan generally is to identify employees of acquisitions who we believe have the
necessary technical and management skills to fill these positions.
We intend to roll our ISPs and CLECs into geographic operating
divisions. We presently plan to have up to seven operating divisions, including
Pacific, Mountain, Southwest, Midwest, Northeast and Atlantic. Acquired
operations will be required to maintain local presence as we begin national
branding. We plan to establish integration teams to help integrate our
acquisitions.
We must establish, complete and expand our national network
infrastructure and support services to supply sufficient geographic reach,
capacity, reliability and security at an acceptable cost. This will require that
we enter into agreements with providers of infrastructure capacity and equipment
and support services. We do not yet know whether any or all of the requisite
agreements can be obtained on satisfactory terms and conditions.
To exchange traffic with ISPs and CLECs without incurring transit
costs, we must establish and maintain peering relationships. As Internet access
and related services have expanded, so have peering relationships and
settlement charges continued to evolve. A small group of dominant national ISPs
have driven corporate peering policies. If the major national ISPs increase
requirements to maintain peering relationships with them, we may have to comply
with those additional requirements to maintain peering relationships. We also
anticipate expanding and adapting our network infrastructure to respond to a
growing customer base, increased demands to transmit larger amounts of data and
changes to our customers' product and service requirements. The expansion and
adaptation of our network infrastructure will require substantial financial,
operational and managerial resources.
While we believe there are various economies and efficiencies of scale
that can be realized as a result of acquiring and integrating businesses,
consolidating these businesses and implementing our strategic integration may
take significant time, will strain our resources, and could subject us to
additional expenses during the integration process. Our efforts to integrate
businesses we have acquired successfully
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and in a timely manner pose special challenges. Whether we are able to do so
effectively will have a material effect on our business, financial condition
and results of operations.
We do not have the capital, personnel, equipment, procedures or
systems in place required to implement our integration, consolidation and
standardization plan. In the short term, the businesses we acquire will operate
on a largely independent basis as subsidiaries of Telecom Wireless, generally
retaining their personnel, systems, procedures and employee benefits. Depending
upon the availability of capital, we will gradually implement the integration,
consolidation and standardization aspects of our business plan. This means
Telecom Wireless may not realize operational cost savings for a significant
period of time. However, to expedite the process, we may seek to acquire or
merge with one or more companies having established operational infrastructures
and the capacity to integrate, consolidate and standardize our operations
quickly and on a cost-effective basis.
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COMPETITION
The market for Internet connectivity and related services is extremely
competitive. We anticipate that competition will continue to intensify as use of
the Internet grows. The rapid growth and potential market size of the Internet
access market has attracted many new start-ups, as well as existing businesses
from different industries. In addition to other national, regional and local
ISPs and CLECs, current and prospective competitors of Telecom Wireless include
long distance and local exchange telecommunications companies, cable television
companies, direct broadcast satellite and wireless communications providers, and
on-line service providers. We believe the primary competitive factors
determining success for ISPs in the markets we expect to serve are:
- a reputation for reliability and high quality service;
- effective customer support;
- access speed;
- pricing;
- effective marketing techniques for customer acquisition;
- ease of use; and
- scope of geographic coverage.
We believe that national providers lack a local presence that customers
demand and local providers lack the technical and human resources required to
offer enhanced services cost effectively. By creating a national network of ISPs
and CLECs, our customers will obtain the benefits of a global infrastructure
with personal, around-the-clock customer support. We believe that national scale
and local presence will result in long term customer loyalty and help expand our
customer base. We intend to enhance this value as we continue to develop by
expanding our network through acquisitions and strategic vendor relationships
and providing a comprehensive array of enhanced, higher-margin products and
services such as electronic commerce.
ISPS.
Our current primary competitors include other ISPs with a significant
national presence which focus on business customers. These competitors include
UUNet, GTE Internet working, PSINet, Concentric Network and DIGEX. While we
believe that our planned level of local service and support and focus on the
target market will distinguish us from these competitors, most of them have
significantly greater market presence, brand recognition, and financial,
technical and personnel resources than we do, and have extensive coast-to-coast
Internet backbones. We also compete with unaffiliated regional and local ISPs in
our targeted geographic regions
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TELECOMMUNICATIONS CARRIERS.
All the major long distance companies, which are also known as
interexchange carriers, including AT&T, MCI, and Sprint, offer Internet access
services and compete with us. The recent sweeping reforms in the federal
regulation of the telecommunications industry have created greater opportunities
for local exchange carriers, including the regional bell operating companies, to
enter the ISP market. To address the Internet connectivity requirements of the
current business customers of long distance and local carriers, interexchange
carriers are partnering with, and/or acquiring, ISPs. The WorldCom/MFS/UUNet
consolidation, the NETCOM/ICG merger, the Intermedia/DIGEX merger, and GTE's
acquisition of BBN are examples. Accordingly, we expect that Telecom Wireless
will experience increased competition from the traditional telecommunications
carriers. Many telecommunications carriers, in addition to their substantially
greater network coverage, market presence, and financial, technical and
personnel resources, also have large existing commercial customer bases.
Furthermore, telecommunications providers may be able to bundle Internet access
with basic local and long distance telecommunications services. Bundling
services may make it more difficult to compete effectively with the
telecommunications providers and may result in pricing pressure that would have
an adverse effect our business, financial condition and results of operations.
We believe combining local presence with a strong technical and data-oriented
sales force could be an important feature distinguishing us from the centralized
voice-oriented sales approach typified by the current Internet connectivity
services offered by the interexchange carriers and local exchange carriers.
CABLE COMPANIES, DIRECT BROADCAST SATELLITE AND WIRELESS COMMUNICATIONS
COMPANIES.
Many major cable companies have announced that they are exploring the
possibility of offering Internet connectivity, by using cable modems and
upgrading their networks. MediaOne Group and TCI have recently announced trials
to provide Internet cable service to residential customers in select areas.
However, the cable companies are faced with large-scale upgrades of their
existing plant, equipment and infrastructure to support connections to the
Internet backbone via high-speed cable access devices. Additionally, their
current subscriber base and market focus is residential, which requires that
they join with business-focused providers or undergo massive sales and marketing
and network development efforts to target the business sector. Several
announcements also have recently been made by other alternative service
companies that are approaching the Internet connectivity market with various
wireless terrestrial and satellite-based service technologies, which currently
offer high-speed Internet access to business customers.
ON-LINE SERVICE PROVIDERS AND CABLE AND TELEPHONE COMPANIES.
The predominant on-line service providers, including America Online,
Microsoft Network, and Prodigy, have all entered the Internet access business by
engineering their current proprietary networks to include Internet access
capabilities. We plan to compete to a lesser extent with these on-line service
providers. The offerings of the on-line service providers may significantly
affect the pricing of our service offerings.
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BROADBAND SERVICE PROVIDERS.
Advanced Internet applications and quicker access require additional
bandwidth. In the last year or two, several cable and telephone companies have
announced plans to deploy broadband services for high speed Internet access
through new technologies such as cable modems and digital subscriber lines.
While these providers have initially targeted the residential consumer, it is
likely that their target markets will expand to encompass our target markets,
which may significantly affect the pricing of our service offerings. As a result
of an increase in the number of competitors, and vertical and horizontal
integration in the industry, we expect to encounter significant pricing pressure
and other competition in the future. Advances in technology as well as changes
in the marketplace and the regulatory environment are constantly occurring. We
cannot predict the effect that ongoing or future developments may have on us or
the pricing of our products and services. We intend to continue to improve our
products and services to remain competitive.
With respect to our potential competitors, we believe that
manufacturers of computer hardware and software products, media and
telecommunications companies and others will continue to enter the Internet
services market, which will intensify competition. In addition, as consumers and
businesses increasingly move on-line in greater numbers, we expect existing
competitors to increase further their emphasis on Internet access and electronic
commerce initiatives, resulting in even greater competition for us in our
markets. The ability of competitors or others to enter into business
combinations, strategic alliances or joint ventures, or to bundle their services
and products with Internet access, could place us at a significant competitive
disadvantage.
GOVERNMENTAL REGULATION
REGULATION OF INTERNET ACCESS SERVICES.
We provide Internet access, in part, using telecommunications services
provided by carriers. Terms, conditions and prices for telecommunications
services are subject to economic regulation by state and federal agencies. As an
Internet access provider, we are not currently subject to direct economic
regulation by the federal Communications Commission or any state regulatory
body, other than the type and scope of regulation that is applicable to
businesses generally. In April 1998, the Federal Communications Commission
reaffirmed that Internet access providers should be classified as unregulated
"information service providers" rather than regulated "telecommunications
providers" under the terms of the Federal Telecommunications Act of 1996. As a
result, our ISP business is not subject to federal regulations applicable to
telephone companies and similar carriers merely because we provide our ISP
services using telecommunications services provided by third-party carriers. To
date, no state has attempted to exercise economic regulation over Internet
service providers.
Governmental regulatory approaches and policies for Internet access
providers and others that use the Internet to facilitate data and communication
transmissions are continuing to develop and in the future we could be exposed to
regulation by the Federal Communications Commission or other federal agencies or
by state regulatory agencies or bodies. For example, the Federal Communications
Commission has expressed an intention to consider whether to regulate providers
of voice and fax services that employ the Internet or Internet protocol
switching as "telecommunications providers" even though Internet access itself
would not be regulated. The Federal Communications Commission is also
considering whether providers of Internet-based telephone services should be
required to contribute to the universal service fund, which subsidizes telephone
service for rural and low income consumers, or should pay carrier access charges
on the same basis as regulated telecommunications providers. To the extent that
we engage in the provision of Internet or Internet protocol based telephony or
fax services, we may become subject to regulations promulgated by the Federal
Communications Commission or states with respect to such
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activities. We cannot assure you that such regulations will not adversely
affect our ability to offer certain enhanced business services in the future.
Furthermore, in a rulemaking proposal issued in August 1998, the
Federal Communications Commission has proposed that if an incumbent local
exchange carrier establishes a separate affiliate to pursue the deployment of
advanced telecommunications services, such as those we intend to offer, and if
that affiliate interconnects with the incumbent local exchange carrier's network
on the same terms and conditions as offered to the incumbent local exchange
carrier's competitors, then the affiliate would not be subject to the
unbundling, discounted resale or co-location obligations in the federal
Telecommunications Act of 1996 that apply to incumbent local exchange carriers.
Rather, the affiliate would be treated like a competitive local exchange
carrier. If the Federal Communications Commission ultimately adopts this or any
similar proposal, we would likely face increased competition from incumbent
local exchange carrier affiliates and our access to providers of high speed data
technology could be curtailed, which could materially and adversely affect our
business, operating results and financial condition.
REGULATION OF THE INTERNET.
Due to the increasing popularity and use of the Internet by broad
segments of the population, it is possible that laws and regulations may be
adopted with respect to the Internet pertaining to content of web sites,
privacy, pricing, encryption standards, consumer protection, electronic
commerce, taxation, and copyright infringement and other intellectual property
issues. We cannot predict the effect, if any, that any future regulatory changes
or developments may have on the demand for our access or enhanced business
services. Changes in the regulatory environment relating to the Internet access
industry, including the enactment of laws or promulgation of regulations that
directly or indirectly affect the costs of telecommunications access, or that
increase the likelihood or scope of competition from national or regional
telephone companies, could materially and adversely affect our business,
operating results and financial condition.
REGULATION OF MULTICHANNEL MULTIPOINT DISTRIBUTION SERVICE LICENSES
Keys Microcable holds several multichannel multipoint distribution
service licenses, sometimes referred to as "wireless cable" licenses, from the
Federal Communications Commission. Although the FCC does not engage in economic
regulation of these licenses, it does regulate the types of services that can be
provided, license terms, and other terms and conditions of service. In 1998, the
FCC permitted multichannel multipoint distribution service licensees to offer
two-way fixed services, in addition to video programming, in order to promote
competition with incumbent local exchange carriers and foster the deployment of
advanced services. This decision significantly expanded the potential service
offerings of multichannel multipoint distribution service licensees, enhancing
the value of this spectrum and leading to greater consolidation of the licenses
by several major telecommunications providers.
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REGULATIONS PERTINENT TO OUR COMPETITIVE LOCAL EXCHANGE CARRIER
OPERATIONS.
To the extent that we conduct business as a competitive local exchange
carrier, the telecommunications services that we provide will be subject to
regulation by federal, state and local governmental agencies. State regulatory
commissions exercise jurisdiction over intrastate services. Municipalities and
other local government agencies may regulate certain aspects of the operations
of competitive local exchange carriers, such as use of rights-of-way. Although
typically start-up telecommunications carriers are not subject to all of the
Federal Communications Commission's regulations applicable to incumbent local
exchange carriers, such as price caps or rate-of-return regulation, the federal
Telecommunications Act of 1996 requires the Federal Communications Commission to
establish a subsidy mechanism for universal telephone service to which our
competitive local exchange carrier subsidiary will be required to contribute
based on its telecommunications revenues. In addition, the federal
Telecommunications Act of 1996 requires all carriers, including competitive
local exchange carriers and incumbent local exchange carriers, to make their
services available for resale by other carriers, to interconnect their networks
and ensure they interoperate and provide non-discriminatory rights-of-way, offer
reciprocal compensation for termination of local telecommunication traffic, and
provide dialing parity and local telephone number portability. The federal
Telecommunications Act of 1996 further reserves to the individual states the
authority to impose state regulation of local exchange services, including state
universal service subsidy programs, so long as the state's regulations are not
inconsistent with the requirements of the federal Telecommunications Act of
1996. We are unable to predict the manner in which any state where we may
receive certification as a competitive local exchange carrier will seek to
regulate our telecommunications operations.
In providing interstate, intrastate and international services, our
competitive local exchange carrier operation would generally be subject to
tariff or price list filing requirements pursuant to which the competitive local
exchange carrier operation will be required to publicly disclose, or in some
instances obtain approval of, its terms, conditions and prices for
telecommunications services prior to or soon after offering such services. In
addition, individual states where our operation conducts activities as a
competitive local exchange carrier may subject us to state certification
proceedings and intrastate and local tariff regulations. These certifications
generally require a showing that the carrier has adequate financial, managerial
and technical resources to offer the proposed services consistent with the
public interest. While uncommon, challenges to these tariffs and certification
proceedings by third parties could cause our competitive local exchange carrier
operation to incur substantial legal and administrative expenses. Many states
also impose additional regulatory requirements, such as minimum service quality
reporting and customer service requirements and uniform local exchange carrier
accounting requirements. Under some state laws, changes in the ownership of a
competitive local exchange carrier's outstanding voting securities may require
prior approval of the state public utility commission. In certain jurisdictions,
an investor who acquires as little as 10% of a competitive local exchange
carrier's voting securities may have to obtain prior approval for the
acquisition of such securities because such ownership interest might be deemed
to constitute an indirect controlling interest in the carrier.
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INTELLECTUAL PROPERTY
We expect to receive authorization to use the products of each
manufacturer of software that is bundled in our software for users with personal
computers operating on the Windows or Macintosh platforms. While certain of the
applications included in our start-up kit for ISP subscribers will be shareware
that we have obtained permission to distribute or that are otherwise in the
public domain and freely distributable, certain other applications included in
the start-up kit will be licensed where necessary. We currently intend to
maintain or negotiate renewals of all existing software licenses and
authorizations as necessary, although we cannot be certain that such renewals
will be available to us on acceptable terms, if at all. We may also enter into
licensing arrangements in the future for other applications.
EMPLOYEES
As of January 28, 2000, Telecom Wireless and its subsidiaries had 22
full-time employees, including executive officers. Five of these employees were
employed by America's Web Station, Inc. and seven were employed by Keys
Microcable. Telecom Wireless' employees are not covered by any collective
bargaining agreement, and it has never experienced a work stoppage. Management
believes that Telecom Wireless' employee relations are good.
PROPERTIES
Telecom Wireless' principal executive offices are located in
approximately 8,215 square feet of leased space at 5299 DTC Boulevard, Suite
1120, Englewood, Colorado 80111. The current monthly lease payment is $16,800.
The lease expires in 2002.
Telecom Wireless also has a lease for office space in West Palm Beach,
Florida covering approximately 7,439 square feet. The lease expires August 1,
2004. The monthly lease payment is approximately $8,369. Due to a change in
Telecom Wireless' business plan, it has advised the landlord that it does not
intend to occupy the premises and the landlord has declared Telecom Wireless to
be in default under the lease. Telecom Wireless may be liable to the landlord
for the amount of unpaid rent under the lease.
America's Web Station, Inc., a subsidiary of Telecom Wireless, operates
out of 1,584 square feet of leased space in Naples, Florida. Telecom Wireless'
Keys Microcable subsidiary is headquartered in leased space in Key West,
Florida, where it also leases land for an unmanned "head end" facility
containing electronic equipment.
LEGAL PROCEEDINGS
No litigation is pending or, to the knowledge of management, threatened
against Telecom Wireless Corporation or any of its subsidiaries that,
individually or collectively, could have a material adverse effect upon Telecom
Wireless' financial condition except as set forth below.
Telecom Wireless is the defendant in Coker & Palmer, Inc. v. Telecom
Wireless Corporation, a lawsuit filed September 3, 1999, in the County Court of
the First Judicial District of Hinds County, Mississippi, Civil Action No.
251-99-4537-CO. Coker & Palmer alleges that Telecom Wireless failed to promptly
disclose to the public through the news media material information that would
reasonably be expected to affect the value of its securities or influence
investors' decisions in connection with a reverse stock split of Telecom
Wireless' common stock effected on or about May 4, 1999. Coker & Palmer alleges
that it incurred losses of $28,613 because of the failure and seeks that amount
in compensatory
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damages plus an unspecified amount in consequential and incidental damages plus
costs. Telecom Wireless has reached an agreement with Coker & Palmer whereby
Telecom Wireless will pay to Coker & Palmer the sum of $14,300 in settlement of
Coker & Palmer's claims.
Telecom Wireless entered into an office lease with One Clearlake Centre
VEF III, LLC, for approximately 7,439 square feet of office space. Prior to
taking occupancy of the space, Telecom Wireless notified the landlord that it
did not intend to occupy the space. The landlord has taken the position that
Telecom Wireless is now in default under the lease and has filed a complaint in
the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County,
Florida, Case No. CL 9910570-AD, seeking damages of approximately $900,000 for
the unpaid rent for the remaining term of the lease including court costs,
interest and a reasonable attorney's fee. Court-ordered mediation of the
dispute has been scheduled for March 6, 2000.
As described above under "Potential Business Prospects," HyperLight
Network Corporation claims Telecom Wireless is in default under certain
agreements, purports to have canceled some of those agreements and has
threatened to file a lawsuit against Telecom Wireless and Mr. Roberts, Chairman
of its Board of Directors. The claims HyperLight has threatened to make include
breach of contract, fraudulent concealment and fraudulent misrepresentation of
certain facts and breach of fiduciary duty. HyperLight also may seek exemplary
damages, although it has not specified the claimed amount of actual or exemplary
damages. Management of Telecom Wireless believes it has meritorious defenses to
any claims that may be made by HyperLight and will vigorously defend any lawsuit
filed by HyperLight.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table identifies the directors and executive officers of
Telecom Wireless:
<TABLE>
<CAPTION>
Beginning of Term of
Name Age Positions Held Service as Director
- ------------------------------- -------- -------------------------------------- ----------------------------------
<S> <C> <C> <C>
James C. Roberts 46 Chairman of the Board of Directors 4/99
Calvin D. Smiley 46 Chief Executive Officer, President 4/99
and Director
Kosta S. Kovachev 48 Chief Financial Officer and Director 4/99
Robert L. Fredrick 54 Senior Vice President 4/99
</TABLE>
No arrangements exist between directors, officers, or other persons
which resulted in the selection or election of any of the above-named persons.
All directors hold office until the next annual meeting of shareholders or until
their successors are duly elected and qualified. Officers serve at the pleasure
of the board of directors. Mr. Roberts and Lynne K. Roberts, an officer of
Telecom Wireless whose professional qualifications are discussed below, are
husband and wife.
The principal occupations of each executive officer and director of
Telecom Wireless for at least the past five years are as follows:
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JAMES C. ROBERTS, 46, has served as Chairman of the Board of Directors
and a director of Telecom Wireless since April 1999 and served as Chief
Executive Officer from April 1999 until January 2000. Mr. Roberts co-founded and
served as President, Chief Operating Officer and a director of Voice and Data
Communications, Inc., Greenwich, Connecticut, an international long distance
company servicing Asia, America, Europe and Latin America, from March 1998 to
November 1998. Previous to that, he served as President and Chief Executive
Officer of CGI Worldwide, Inc. from its inception in 1986 until 1997. CGI was a
multifaceted telecommunications company that designed, engineered, constructed
and developed over 80 cellular, paging and cable television systems around the
world. Before joining CGI, Mr. Roberts spent over ten years in the
telecommunications business, holding senior management positions with McCaw
Cellular Communications, Inc., MCI Communications Corp. and Motorola, Inc.
During this period, Mr. Roberts was responsible for building and operating over
50 cellular, paging and cable TV systems. Mr. Roberts was a charter member of
the Cellular Telephone Industry Association. He holds several university degrees
including a doctoral degree in business administration with emphasis in
international economics from Newport University, Newport Beach, California,
which was conferred in 1992.
CALVIN D. SMILEY, 46, has served as an officer and director of Telecom
Wireless since April 1999. In October 1999, he was elected President of the
company and in January 2000 was elected Chief Executive Officer. From March 1997
to March 1999, Mr. Smiley was President of Communicast, Inc., a turn-key
advertising sales company representing the wireless and cable television
industries based in Denver, Colorado. From September 1995 to February 1997, he
served as Chief Operating Officer and Executive Vice President for Across Media
Networks, LLC, Denver, Colorado, a photo digital classified advertising company.
Before joining Across Media, Mr. Smiley was President of Act One Cable
Television Advertising, Inc. and Cable Advertising Networks, Inc., both
advertising and marketing companies based in Columbus, Ohio, serving rural cable
operators. For fourteen years before September 1995, Mr. Smiley held management
and executive positions with TeleCommunications, Inc. in advertising sales and
marketing. He held various positions in radio and television before joining TCI.
KOSTA S. KOVACHEV, 48, has been an officer and director of Telecom
Wireless since May 1999. From January 1997 to February 1999, Mr. Kovachev served
as a director of Alma Fund Group, a global venture capital firm that he
co-founded. From April 1996 to January 1997, Mr. Kovachev was a Managing
Director of Gem Advisors, Inc., a venture capital firm that specialized in
private placements of funds. From September 1995 to March 1996, Mr. Kovachev was
Managing Director of W.G. Trading, a convertible sales and trading firm. From
April 1994 to August 1995, Mr. Kovachev was Senior Portfolio Director for the
Palladin Group, an investment fund management firm, where he headed the firm's
international funds area. Mr. Kovachev was Managing Director and head of the
international convertible desk at McMahan Securities, a fund management and
broker/dealer firm, from 1992 to 1994. Mr. Kovachev was employed by Morgan
Stanley from 1987 to 1992 where he was promoted to Vice President in
International Convertible Sales. Mr. Kovachev's experience with Wall Street
firms includes employment by Morgan Stanley, Drexel Burnham Lambert and Arnhold
& S. Bleichroeder. Mr. Kovachev graduated with a B.A. from Columbia University,
magna cum laude, Phi Beta Kappa, and received an MBA from the Harvard Business
School.
ROBERT L. FREDRICK, 54, has served as an officer and director of
Telecom Wireless since April 1999 and, in October 1999, was elected to the
position of Senior Vice President. He also serves as President of Keys
Microcable Corporation, a wholly owned subsidiary of Telecom Wireless. Keys
Microcable provides wireless television programming in Monroe County, Florida.
Before joining Keys Microcable, Mr. Fredrick was President of Strategic
Solutions Group Inc. from 1994 to 1998. Strategic Solutions Group provided
business strategy, operational, and product development consulting services to
manufacturers of voice and data equipment for the telecommunications industry.
Mr. Fredrick also served as Senior Vice President, Commercial Services for
Digicon Corporation from 1995 to 1996. Digicon is a
50
<PAGE>
supplier of data and telecommunications services to the federal government.
While at Digicon, Mr. Fredrick was involved in the development of cellular
telephone service in the Middle East and Russia. Mr. Fredrick served as a
General Manager for Optelecom Corporation, a manufacturer of fiber optic
telecommunications hardware, from 1996 to 1998. From 1991 to 1996, he served
as Vice President of Business Development, Vice President of Marketing, and
General Manager of the Storage Systems Business Group of Network Imaging
Corporation, a developer of client server software systems for the
telecommunications industry.
OTHER OFFICERS
The following paragraphs identify other officers of Telecom Wireless:
PAUL L. FRANCIS, 49, has been an officer of Telecom Wireless since
April 1999. He was appointed Chief Technology Officer in October 1999. A British
native, Mr. Francis has more than 30 years' experience in the telecommunications
industry. He has spent the past 19 years as an independent engineer and
consultant. From May 1998 to April 1999, he was associated with Francis Walker &
Co., London, England. He has consulted for such companies as Plessey, British
Petroleum, Reuters and Solomon Brothers. He is an associate member of The
Institute of Incorporated Engineers and is an affiliate of the Engineering
Council in the United Kingdom. In 1979, he earned a Full Technological
Certificate at the Chelmer Institute in the United Kingdom.
ESPER GULLATT JR., 41, has been an officer of Telecom Wireless since
April 1999. He was appointed Vice President-Business Development of Telecom
Wireless in October 1999. Previously, Mr. Gullatt was Chief Executive Officer
and a director of Capstone Group, Inc., Denver, Colorado, a telecommunications
business he founded in January 1994. From October, 1995 to August, 1998, Mr.
Gullatt was Chief Financial Officer and a director of DCC Solutions, Inc.,
Denver, Colorado, a wireless telephone dealer and airtime reseller that he
co-founded. From November, 1988 to October, 1995, Mr. Gullatt served as Chief
Financial Analyst for the Colorado Department of Public Safety. He received a
Bachelor of Accountancy degree from the University of Oklahoma-Norman in 1983,
and was employed as an accountant by Deloitte, Haskins & Sells from January 1981
to March 1982.
LEWIS G. POLLACK, 54, has served as an officer of Telecom Wireless
since April 1999. In October 1999, he was appointed Vice President-Product
Development. Mr. Pollack founded World Lynx, Inc., a regional high-speed
Internet provider based in Little Rock, Arkansas, in 1993 and served as its
Chief Executive Officer until 1998. From 1990 to 1993 he served as Vice
President, Marketing for the Information Management Services Division of
Lockheed Corporation. He also helped establish and from 1986 to 1991 served as
Vice President of Marketing for Program Monitor, Inc., a company in the
electronic home detention business. Mr. Pollack was educated at the University
of California at Los Angeles, where he was a Fellow in special education and
pursued graduate studies in that field. He also received an M.A. from Trenton
State College and a B.A. from Franklin & Marshall College.
LYNNE K. ROBERTS, 48, has served as Vice President-Human Resources and
Secretary of Telecom Wireless since May 1999. From March 1997 through November
1998, she was Vice President of Voice and Data Communications, Inc., a
Greenwich, Connecticut, telecommunications company. From 1986 through February
1997, Ms. Roberts was associated with CGI Worldwide, Inc., Englewood, Colorado,
where her duties included business development for that company. CGI is a
telecommunications company which has designed, engineered, constructed and
developed over 80 cellular, paging and cable television systems around the
world. Before joining CGI, Ms. Roberts was a senior credit analyst with Motorola
Communications, San Mateo, California.
ADVISORY BOARD
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<PAGE>
Telecom Wireless has established an Advisory Board to consist of
persons having experience and expertise in areas relevant to the business of
Telecom Wireless who are not employed by Telecom Wireless. The purpose of the
Advisory Board is to provide information and guidance to the Board of Directors
with respect to Telecom Wireless' business, including technological advances,
pricing strategies, electronic content and services, and financial and
operational structure. To date, only one member of the advisory board has been
identified. When Telecom Wireless obtains the funding required to implement its
business plan, it is expected that the Board of Directors of the company expects
to identify additional advisory board members based upon their experience,
education and other qualifications. To date, no compensation arrangements have
been made for advisory board members.
JOHN H. SUNUNU is the sole current member of the Advisory Board.
Governor Sununu served as Chief of Staff and Counselor to President George Bush
from 1989 to 1992. He had served as Governor of New Hampshire from 1983 until
1989. Since leaving the White House, Governor Sununu has pursued various
business interests and was co-host of CNN's nightly "Crossfire" program from
1992 to 1998. Before becoming Governor of New Hampshire, he was an educator,
engineer and small businessman. He earned his Ph.D. in mechanical engineering
from Massachusetts Institute of Technology in 1966. From 1968 until 1973, he was
Associate Dean of the College of Engineering and Associate Professor of
Mechanical Engineering at Tufts University. He was on the Advisory Board of the
Technology and Policy Program at MIT from 1984 to 1989. From 1963 until his
election as Governor, he was President of JHS Engineering Company and Thermal
Research, Inc. He helped establish and from 1960 until 1965 served as Chief
Engineer of Astro Dynamics, Inc.
EXECUTIVE COMPENSATION
SALARY AND BONUS; EMPLOYMENT AGREEMENTS. No executive officer was paid
more than $100,000 in salary and bonus for services provided to Telecom Wireless
during the fiscal year ended June 30, 1999.
Telecom Wireless has entered into written employment agreements with
three of its four executive officers, but has no written employment agreement
with Mr. Roberts. Except as to Mr. Kovachev, each written agreement has a term
of three years from April 1, 1999, and provides for payment of a base salary,
which may be increased at the end of each year. Mr. Kovachev's employment
agreement will terminate in July 2000. The annual salaries payable by Telecom
Wireless to the executive officers under these agreements and to Mr. Roberts
under an oral understanding with the company's board of directors were as
follows as of the date of this prospectus:
<TABLE>
<CAPTION>
ANNUAL SALARY
-------------
<S> <C>
James C. Roberts $250,000
Calvin D. Smiley $225,000
Kosta S. Kovachev $250,000
Robert L. Fredrick $225,000
</TABLE>
Under the written employment agreements, Telecom Wireless may terminate
the officer's employment at its discretion at any time during the initial
three-year term. However, Telecom Wireless must pay the officer an amount equal
to the officer's base salary for the remainder of the initial term. After the
initial term, the officer's employment may be terminated by Telecom Wireless
without cause upon payment on the termination date of an amount equal to six
times the officer's then monthly base salary. An officer may terminate a written
employment agreement on 30 days' notice to Telecom Wireless.
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<PAGE>
All officers of Telecom Wireless are eligible to participate in the
executive bonus pool, which is fixed at an amount equal to five percent of the
company's adjusted net profits less certain items, including contributions to
pension or profit sharing plans, of which there currently are none,
extraordinary gains or losses, and refunds or deficiencies of federal or state
income taxes paid in a prior year. The maximum bonus payable for any one year
may not exceed 100% of the officer's base salary for the year.
OPTION GRANTS IN LAST FISCAL YEAR. The following table provides
information on options granted to the executive officers of Telecom Wireless
during the fiscal year ended June 30, 1999. All such options are non-qualified
options exercisable at the market price of a share of Telecom Wireless' common
stock on the date of grant. The options have no value unless Telecom Wireless'
stock price appreciates beyond the exercise price and the holder satisfies all
applicable vesting requirements. All the options granted to executive officers
during 1999 vest 33-1/3% per year over three years. They also vest in full on a
change in control of Telecom Wireless. The options reflected in the table were
granted before adoption of Telecom Wireless' 1999 Stock Option and Restricted
Stock Plan, which is discussed below.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE
UNDERLYING EMPLOYEES IN PRICE EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR ($/SHARE) DATE
---- --------------- ----------- --------- ----
<S> <C> <C> <C> <C>
James C. Roberts 2,000,000 36.1% $10.55 Apr. 13, 2004
Calvin D. Smiley 200,000 3.6% $10.55 Apr. 13, 2004
Kosta S. Kovachev 1,000,000* 18.0% $10.55 Apr. 13, 2004
Robert L. Fredrick 500,000 9.0% $10.55 Apr. 13, 2004
</TABLE>
- -----------------------
* Canceled under oral agreement effective in January 2000.
OPTION EXERCISES AND VALUES. None of the options granted to the
executive officers of Telecom Wireless before the end of fiscal year 1999 were
exercisable before the end of that year. In accordance with Securities and
Exchange Commission regulations, the following table nevertheless provides
information on exercises of stock options during the fiscal year and the fiscal
year-end value of unexercised options:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Shares Value Unexercised In-the-Money
Acquired on Realized Options at Fiscal Options at Fiscal
Name Exercise (#) ($) Year End (#) Year End ($)
- ----------------------------- ----------------- --------------- -------------------- ------------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
-------------------- ------------------
<S> <C> <C> <C> <C>
James C. Roberts 0 0 0/2,000,000 0/$3,556,000
Calvin D. Smiley 0 0 0/200,000 0/$355,600
Kosta S. Kovachev 0 0 0/1,000,000* 0/$1,778,000
Robert L. Fredrick 0 0 0/500,000 0/$889,000
</TABLE>
53
<PAGE>
- ------------------
* Canceled under oral agreement effective in January 2000.
GRANT OF ADDITIONAL OPTIONS. In connection with Mr. Smiley's
appointment as chief operating officer of Telecom Wireless in August 1999,
Telecom Wireless granted him options to purchase 300,000 shares of common stock
at an exercise price of $14.42 per share, the market price of a share of Telecom
Wireless' common stock on the date of grant. The options vest in equal
installments over three years beginning one year from the date of grant, and
expire in August 2004. For administrative convenience, these options were not
granted under Telecom Wireless' 1999 Stock Option and Restricted Stock Plan.
1999 STOCK OPTION AND RESTRICTED STOCK PLAN
The Board of Directors of Telecom Wireless adopted Telecom Wireless'
1999 Stock Option and Restricted Stock Plan, which we sometimes refer to below
as the "1999 Plan," to attract and retain qualified personnel. A total of
800,000 shares of Telecom Wireless' common stock may be issued to grantees and
recipients under the plan. The plan allows issuance of both qualified or
incentive stock options and non-qualified options as well as awards of shares of
restricted stock and by its terms continues in effect for ten years. Options and
stock awards may be granted to employees, independent contractors, officers,
directors and consultants at the discretion of the Board of Directors or
committee administering the plan. The board of directors may ask shareholders at
the next annual meeting to increase the number of shares of common stock
reserved for issuance under the 1999 Plan.
The Board of Directors adopted the plan on May 4, 1999, but the plan
must be approved by a vote of the stockholders of Telecom Wireless within one
year of that date to become effective permanently. The plan provides for
appropriate adjustment in the number of shares subject to the plan and to grants
previously made if there is a stock split, stock dividend, reorganization or
other similar change affecting Telecom Wireless' corporate structure or its
equity securities. If shares under a grant are not issued to the extent
permitted before the expiration or forfeiture of the grant, those shares would
again be available for future grants under the plan. No grant may be made under
the plan after May 4, 2009, but awards granted before or on that date may extend
beyond it.
The Board of Directors has delegated administration of the 1999 Plan to
a committee of the Board consisting of two members of the Board. At such time as
Telecom Wireless has any class of equity security which is registered under
Section 12 of the Act, the committee is required to consist of two or more
non-employee directors, the members of which will meet the Securities and
Exchange Commission definition of "disinterested directors" and the IRS
definition of "outside directors." The option exercise price, exercise period,
time of vesting, and other terms of an option, in addition to terms that are
applicable to a stock award, will be determined by the committee. Telecom
Wireless currently does not have any disinterested directors.
All employees, officers, directors, and consultants of Telecom Wireless
or a subsidiary of Telecom Wireless are eligible for options and stock awards
under the 1999 Plan. At this time, it is not possible to predict the number of
employees who will be selected to receive options and/or stock awards under the
1999 Plan, and the number of grantees could vary from time to time.
Unless otherwise fixed by the committee, the term of an option will be
five years from the date of grant, but no option may have a term of more than
ten years from the date of grant.
Stock awards granted under the 1999 Plan may be subject to a restricted
period or may be fully vested as of the date of issuance. The Board, in its sole
discretion, at the time an award is made may
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<PAGE>
prescribe other restrictions in addition to expiration of the restricted
period, such as satisfaction of corporate or individual performance
objectives.
There are no federal income tax consequences to a participant or
Telecom Wireless upon the grant of a stock option granted under the plan.
All stock options, and stock awards for which restrictions prescribed
by the Board have not been satisfied, are non-transferable, other than by will
or by the laws of descent and distribution, and may be exercised during the
grantee's lifetime only by the grantee.
Unvested portions of stock options and stock awards immediately expire
upon termination of employment for any reason other than death or disability,
unless the Board, in its discretion, determines otherwise; vested options may be
exercised for up to three months following the termination, unless termination
is for cause. If Telecom Wireless terminates employment for cause, all
unexercised awards expire upon the termination.
Shares of stock may not be issued or delivered upon exercise of a stock
option or grant of a stock award until the optionee or recipient pays the
exercise price in full, or makes any payment required under a stock grant
agreement, and pays any required tax withholding and, if applicable, the
completion of registration and listing of the shares or qualification as a
private placement and the obtaining of any other required approvals.
The Board of Directors may amend, alter or discontinue the 1999 Plan,
provided that any such amendment, alteration or discontinuance does not impair
the rights of any grantee, without his or her consent, under any stock option or
stock award previously granted. The Board of Directors may not, without
stockholder approval, (i) increase the total amount of stock which may be
purchased or issued through options or awards granted under the 1999 Plan, or
(ii) change the class of employees or consultants eligible to participate in the
1999 Plan.
55
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of February 16,
2000, with respect to each person who owned of record as of that date or is
known to Telecom Wireless to own beneficially more than 5% of the outstanding
shares of common stock and the beneficial ownership of such securities by each
executive officer and director of Telecom Wireless and by all the executive
officers and directors as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL
POSITIONS AND OFFICES COMMON STOCK PERCENT OF
NAME AND ADDRESS HELD OWNERSHIP CLASS
- --------------------------------------- -------------------------------- ------------------------- -----------------
<S> <C> <C> <C>
James C. Roberts Chairman of the Board 11,616,634(1) 61.2%
5299 DTC Blvd., #1120 of Directors and Director
Englewood, CO 80111
Calvin D. Smiley Chief Executive Officer, 228,278(2) 1.2%
5299 DTC Blvd., #1120 President and Director
Englewood, CO 80111
Kosta S. Kovachev Chief Financial Officer and 750,000 4.1%
580 Village Blvd., #140 Director
West Palm Beach, FL 33409
Robert L. Fredrick Senior Vice President 666,667(3) 3.6%
580 Village Blvd., #140
West Palm Beach, FL 33409
Allen Leeds Stockholder 1,000,000 5.5%
108 17th Street
Bellair Beach, FL 34635
HyperLight Network Corporation Stockholder 952,381 5.2%
188 North Lake Drive
Naples, Florida 34102
Hampton-Porter Investment Bankers Stockholder 1,550,000(4) 8.0%
56
<PAGE>
<S> <C> <C> <C>
600 W. Broadway, 14th Floor San
Diego, CA 92101
All executive officers and directors 13,261,278 68.8%
of Telecom Wireless as a group (four ---------- -----
persons)
</TABLE>
(1) Of the shares beneficially owned by Mr. Roberts, 10,616,333
are owned of record by The Roberts Family Trust, of which Mr.
Roberts and Lynne K. Roberts, his spouse, are sole trustees,
and 300,000 are owned of record by Mrs. Roberts. Includes
700,000 shares issuable upon exercise of stock options which
57
<PAGE>
which become exercisable within 60 days at an exercise price
of $10.55 per share.
(2) Includes 128,278 shares issuable upon exercise of warrants
having an exercise price of $5.275 per share and stock options
having an exercise price of $10.55 per share which are
presently exercisable or which become exercisable within
60 days.
(3) Includes 166,667 shares issuable upon exercise of stock
options which become exercisable within 60 days at an
exercise price of $10.55 per share.
(4) Includes 1,000,000 shares issuable upon exercise of warrants
which are presently exercisable at an exercise price of
$5.50 per share.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
PHOENIX COMMUNICATIONS SHARE EXCHANGE
In April 1999, Telecom Wireless acquired all the issued and outstanding
shares of Phoenix Communications, Inc. The stockholders of Phoenix received
13,825,000 shares of the common stock of Telecom Wireless in exchange all of
Phoenix's outstanding shares. Phoenix at the time was, and remains, inactive and
with no assets or liabilities. Accordingly, the value attributed to Phoenix for
accounting purposes was nil. Prior to the transaction, it appears Telecom
Wireless did not have sufficient cash to cover the negative cash flow of its
subsidiary, Keys Microcable Corporation, and was insolvent. The then board of
directors determined that the share exchange was advisable due to the proposal
of the stockholders of Phoenix to provide interim funding, new management and a
long-term management and finance plan.
The stockholders of Phoenix included several present and former members
of the management of Telecom Wireless. Shares of Telecom Wireless' common stock
were issued to the following officers and directors, directly or indirectly, in
the following amounts and for the following deemed values in the exchange:
<TABLE>
<CAPTION>
NAME NO. SHARES
---- ----------
<S> <C>
James C. Roberts(1) 10,450,000
Calvin D. Smiley 100,000
Kosta S. Kovachev 750,000
Robert L. Fredrick 500,000
Lynne K. Roberts 300,000
Allen Leeds 1,000,000
Esper Gullatt, Jr. 100,000
Paul L. Francis 100,000
Lewis G. Pollack 100,000
Shawn P. Richmond 100,000
</TABLE>
(1) Held in the name of The Roberts Family Trust, of which Mr. Roberts and
his spouse, Lynne K. Roberts, are sole trustees.
JOHN H. SUNUNU
On August 31, 1999, Telecom Wireless entered into a Services Agreement
with John H. Sununu, a member of Telecom Wireless' Advisory Board. The Services
Agreement requires Governor Sununu to render financial consulting and other
services to Telecom Wireless for 48 months. As consideration,
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<PAGE>
Telecom Wireless issued to Governor Sununu two stock purchase warrants at the
time the parties entered into the Services Agreement. The first is for the
purchase of 500,000 shares of Telecom Wireless' common stock at an exercise
price of $5.50 per share. The closing price of Telecom Wireless' common stock
on the trading day immediately before the execution and delivery of the
Services Agreement was $13.75 per share. The second warrant is for the
purchase of 720,000 shares of Telecom Wireless' common stock. This warrant
vests at the rate of 15,000 shares per month for 48 consecutive months. The
exercise price for each installment is 50% of the market value of Telecom
Wireless' common stock on the vesting date for that installment. For this
purpose, market value is deemed to be the average of the closing prices for
the 20 trading days preceding the vesting date. In the event of a change in
control, an additional number of installments are to vest and become
exercisable equal to the number of previously vested installments, and the
number of shares included in each monthly installment will double. The
parties can terminate the Services Agreement at any time upon giving ten
days' notice to each other. Telecom Wireless recorded approximately $122,000
of stock-based compensation for the quarter ended September 30, 1999, as a
result of the issuance of these two warrants.
On August 5, 1999, Governor Sununu, through a retirement plan
controlled by him, purchased 53,000 shares of restricted common stock of Telecom
Wireless for $7.00 per share in a private placement. The shares had registration
rights and were accompanied by repricing warrants. The closing price of Telecom
Wireless' publicly traded common stock on the trading day immediately before
Governor Sununu's purchase was $14.38 per share. These 53,000 shares and 53,000
shares issuable under the repricing warrants are among the shares covered by
this prospectus.
KEYS MICROCABLE TRANSACTION
In early 1999, Calvin D. Smiley, the President and a director of
Telecom Wireless, and Esper Gullatt, Jr., the Vice President - Business
Development of Telecom Wireless, entered into a management agreement through an
entity controlled by them whereby they were to receive a 50% equity interest in
Keys Microcable Corporation, a wholly-owned subsidiary of Telecom Wireless, in
consideration of the performance of management services. At that time, Messrs.
Smiley and Gullatt were not associated with Telecom Wireless, so that the
agreement was negotiated at arms' length. However, this agreement was
terminated, after partial performance, in connection with the April 1999 Phoenix
Communications share exchange described above. The Board of Directors, Mr.
Smiley abstaining, has approved a settlement of any claims Messrs. Smiley and
Gullatt may have for an equity interest in Keys Microcable for $650,000, payable
by issuance of warrants for the purchase of 123,222 shares of restricted common
stock of Telecom Wireless at an exercise price of $5.275 per share, which was
50% of the average closing price per share for the 20 trading days preceding
April 12, 1999, the date on which present management assumed control of Telecom
Wireless.
LOAN TO OFFICER
In August 1999, Telecom Wireless loaned $60,000 to Kosta S. Kovachev, a
director of Telecom Wireless and then one of its executive officers. In January
2000 Mr. Kovachev and Telecom Wireless entered into an oral agreement whereby
his employment agreement will terminate in July 2000 and non-qualified options
for the purchase of 1,000,000 shares held by him will be canceled. In addition,
he agreed to deposit 375,000 shares of Telecom Wireless common stock owned by
him into escrow. If certain performance targets are met, the loan will be
forgiven, in whole or in part, and all or a portion of the escrowed shares will
be returned to him.
59
<PAGE>
LOAN FROM OFFICER
In October 1999, James C. Roberts, Chairman of the Board of Directors
of Telecom Wireless, sold an option to Mr. Mailman to purchase 250,000 shares
of Telecom Wireless' common stock from Mr. Roberts for $250,000. The term of
the option is two years and the option exercise price is $.10 per share. Mr.
Roberts loaned the $250,000 to Telecom Wireless. Mr. Mailman has registration
rights with respect to the shares for which the option is exercisable. In
January 2000, the board of directors of Telecom Wireless approved the issuance
of 250,000 shares of its common stock to Mr. Mailman in satisfaction of the
loan. Mr. Roberts, a director, abstained from voting on this transaction.
Telecom Wireless has entered into a consulting agreement with Mr.
Mailman. Mr. Mailman and Allen Leeds, formerly an officer of Telecom Wireless,
are the co-owners of First Broadcast Partners, LLC, a wireless spectrum holding
company based in New York, New York.
TELECOM WIRELESS' STOCK
The authorized capital stock of Telecom Wireless consists of
100,000,000 shares of common stock, par value $.001 per share, and 25,000,000
shares of preferred stock, par value $.001 per share. As of February 16, 2000,
Telecom Wireless had 18,278,355 shares of common stock outstanding, held by
approximately 452 stockholders of record, and was obligated to issue 20,000
shares of preferred stock to one stockholder.
DESCRIPTION OF COMMON STOCK
All shares of Telecom Wireless' common stock have equal voting rights
and, when validly issued and outstanding, have one vote per share in all matters
to be voted upon by the common stockholders. The shares of common stock have no
preemptive, conversion or redemption rights and may only be issued as fully paid
and nonassessable shares. Cumulative voting in the election of directors is not
allowed, which means that the holders of a majority of the issued and
outstanding shares of common stock will be able to elect all Telecom Wireless'
directors should they choose to do so. Each holder of common stock, upon
liquidation of Telecom Wireless, is entitled to receive a pro rata share of
Telecom Wireless' assets available for distribution to common stockholders.
The common stock of Telecom Wireless is traded in the over-the-counter
or OTC market and quoted through the OTC Bulletin Board under the symbol
"NOYR." The market for the common stock is characterized generally by low
volume and broad price and volume volatility. Telecom Wireless cannot give any
assurance that a stable trading market will develop for its stock or that an
active trading market will be sustained. Moreover, the trading price of Telecom
Wireless' common stock could be subject to wide fluctuations due to such
factors as quarterly variations in operating results, competition,
announcements of technological innovations or new products by Telecom Wireless
or its competitors, product enhancements by Telecom Wireless or its
competitors, regulatory changes, differences in actual results from those
expected by investors and analysts, changes in financial estimates by
securities analysts, and other events or factors.
The "E" was added to our symbol "NOYR" to indicate that the common
stock will no longer be eligible for quotation on the OTC Bulletin Board if
Telecom Wireless does not meet the eligibility requirements by February 24,
2000. If we do not timely meet these requirements, the Telecom Wireless common
stock thereafter will be quoted on the so-called "pink sheets" until our
eligibility for the OTC Bulletin Board is reestablished.
60
<PAGE>
The following table sets forth the range of high and low bid quotations
for Telecom Wireless' common stock for each of the quarters within the last two
fiscal years:
HIGH AND LOW BID PRICES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1998 LOW BID HIGH BID
- ------------------------------- ------- --------
<S> <C> <C>
First Quarter $ * $ *
Second Quarter $ * $ *
Third Quarter $ 8-3/4 $12-1/2
Fourth Quarter $ 5 $42-1/2
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1999 LOW BID HIGH BID
- ------------------------------- ------- --------
First Quarter $22-1/2 $61-1/4
Second Quarter $ 5 $33-1/8
Third Quarter $ 8-1/8 $18-3/4
Fourth Quarter $ 3-3/4 $18
</TABLE>
The quotations in the table above reflect inter-dealer prices, without
retail mark-up, mark-down or commissions, and may not represent actual
transactions. They have been adjusted for a one-for-50 reverse stock split
effected on April 23, 1998, and a one-for-five reverse stock split effected on
May 4, 1999.
DESCRIPTION OF PREFERRED STOCK
The board of directors of Telecom Wireless has the authority to issue
shares of the company's preferred stock in one or more series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations and restrictions of the series. As of the
date of this prospectus, the board has authorized the issuance of 20,000 shares
of preferred stock in one series, designated as Redeemable, Non-Voting,
Convertible Preferred Stock - Series 1998-1. Telecom Wireless is obligated to
issue all the shares of such series. Holders of this series are entitled to such
dividends as the board of directors of the company may declare. They have no
voting rights and are not entitled to notices of meetings of stockholders. The
Series 1998-1 preferred stock is convertible into shares of Telecom Wireless
common stock, at the option of the holders, at the conversion rate described
below, upon the filing of a registration statement with the Securities and
Exchange Commission for a public offering of shares of Telecom Wireless. If not
previously converted, these preferred shares are redeemable by Telecom Wireless
at their liquidation value at any time after December 31, 2004. The liquidation
value is $100 per share plus any accumulated but unpaid dividends. The number of
shares into which each share of Series 1998-1 preferred stock is to be converted
will be determined by formula. The conversion rate is $100 divided by 125% of
the price at which a share of Telecom Wireless common stock is offered to the
public under the registration statement for the public offering times the number
of preferred shares to be converted.
SHARES AVAILABLE FOR FUTURE SALE
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<PAGE>
The market price of Telecom Wireless' common stock could drop if
substantial amounts of shares are sold in the public market or if the market
perceives that such sales could occur. A drop in the market price could
adversely affect holders of the stock and could also harm Telecom Wireless'
ability to raise additional capital by selling equity securities. The
securities that may be sold from time to time under this prospectus represent a
market overhang. In addition, based on a market price of the common stock of
$6-7/8 per share as of February 16, 2000, and as of that date, Telecom Wireless
had outstanding and had agreed to issue options, warrants and convertible
securities for the purchase of up to approximately 9,936,134 shares of common
stock at an average price of $7.30 per share, representing approximately 35% of
the company's outstanding shares of common stock on a fully-diluted basis. The
perception that these instruments may be exercised for or converted into common
stock that could be sold into the public market could adversely affect the
market price of Telecom Wireless' common stock. In addition, Telecom Wireless
has entered into registration rights agreements with certain of its
stockholders entitling them to include their shares of common stock in
registration statements for securities filed by Telecom Wireless under the
Securities Act of 1933, as amended. Awareness of the existence of these
registration rights could lead to a perception that sales of the shares subject
to the registration rights could occur, which could materially and adversely
affect Telecom Wireless' stock price or could impair Telecom Wireless' ability
to obtain capital through sales of equity securities. In addition, shares
issued by Telecom Wireless in private transactions over the past two years will
become eligible for sale in the public market under SEC Rule 144.
These shares are restricted securities as defined in Rule 144. Under
that rule, a stockholder who owns restricted shares that have been outstanding
for at least one year is entitled to sell, within any three-month period, a
number of restricted shares that does not exceed the greater of 1% of the then
outstanding shares of common stock, or approximately 182,784 shares as of
February 16,2000, or the average weekly trading volume in the common stock
during the four calendar weeks preceding the sale. Approximately 13,825,000
shares issued in April 1999 in the transaction in which current management
assumed control of Telecom Wireless will be eligible for sale under Rule 144 on
or about April 13, 2000.
In addition, 90 days after effectiveness of the registration statement
of which this prospectus is a part, 190,994 shares issued to employees and
consultants under SEC Rule 701 will become eligible for sale in the public
market. Finally, Telecom Wireless intends to register for public sale all other
shares issued to officers, employees, consultants and others in compensatory
transactions shortly after effectiveness of the registration statement of which
this prospectus is a part. Telecom Wireless intends to include in the
registration shares issuable upon exercise of compensatory stock options and
stock purchase warrants that are not eligible for public sale. As of February
16, 2000, the number of such shares that Telecom Wireless intends to include in
the registration totaled 5,919,275 shares.
Officers of Telecom Wireless holding an aggregate of 12,466,333 shares
of its common stock and options and warrants for the purchase of an additional
2,923,222 shares of common stock have entered into stock sale restriction
agreements whereby they agreed, among other things, that the maximum amount each
could sell during any period of 30 consecutive calendar days would not exceed
the lesser of $25,000 in gross proceeds or 5,000 shares; that no share would be
sold for a price less than $4.25; and that they would not engage in any short
sales of the stock. The board of directors may waive any of the restrictions on
an individual basis and may terminate the agreement at any time.
STATUS AS A REPORTING COMPANY
62
<PAGE>
Telecom Wireless has not previously filed annual or quarterly reports
with the Securities and Exchange Commission as a public company. It will begin
to do so upon effectiveness of this offering, which is the initial offering of
its securities registered with the Securities and Exchange Commission, or, if
earlier, upon effectiveness of its registration statement filed under Section 12
of the Securities Exchange Act of 1934 on December 14, 1999. That registration
statement will become effective 60 days after filing unless withdrawn
beforehand. Effectiveness of either registration statement by February 24, 2000,
will allow the Telecom Wireless common stock to continue to be quoted on the OTC
Bulletin Board.
SECURITIES AND EXCHANGE POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
The Articles of Incorporation of Telecom Wireless Corporation require
it to indemnify its officers, directors, employees and agents against certain
liabilities incurred by them in those capacities if they acted in good faith and
reasonably believed their conduct was in the best interests of Telecom Wireless
or not opposed to it. Telecom Wireless is also required to indemnify a person
who is or was a director, officer, employee or agent of Telecom Wireless and who
was successful, on the merits or otherwise, in defense of any proceeding to
which he was a party, against reasonable expenses, which include attorneys'
fees, incurred by him or her in connection with the proceeding.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Telecom Wireless under the provisions discussed in the previous paragraph, or
otherwise, Telecom Wireless has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in that Act and is, therefore, unenforceable.
EXPERTS
The consolidated balance sheet of Telecom Wireless Corporation and
subsidiary as of June 30, 1999 and the consolidated statements of operations,
stockholders' equity and cash flows for the year then ended included in this
prospectus have been included herein in reliance on the report of Ehrhardt Keefe
Steiner & Hottman PC, independent certified public accountants, given on
authority of that firm as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity and
cash flows of Telecom Wireless Corporation and subsidiary for the year ended
June 30, 1998 included in this prospectus have been included herein in reliance
on the report of Gerstle, Rosen & Associates, P.A., independent certified
public accountants, given on authority of that firm as experts in accounting
and auditing.
The balance sheets of America's Web Station as of December 31, 1997
and 1998 and the statements of operations, stockholders' equity and cash flows
for the period then ended included in this prospectus have been included herein
in reliance on the report of Girardin Baldwin & Associates LLP, independent
certified public accountants, given on authority of that firm as experts in
accounting and auditing.
With respect to the unaudited interim financial information included
herein, the independent certified public accountants have not audited or
reviewed the information and have not expressed an opinion or any other form of
assurance with respect to this information.
The pro forma combined statement of operations and cash flows for
the year ended June 30, 1999 have not been audited or reviewed by the
independent
63
<PAGE>
certified public accountants and they do not express an opinion or purport to
give any other form of assurance on them.
In May 1999, the board of directors of Telecom Wireless appointed
Ehrhardt Keefe Steiner & Hottman P.C. to serve as its principal independent
accountant for the fiscal year ending June 30, 1999. Gerstle, Rosen &
Associates, P.A., reported on the financial statements of Telecom Wireless for
the fiscal year ended June 30, 1998. Its report for that year noted that Telecom
Wireless had suffered recurring losses from operations that raised substantial
doubt about its ability to continue as a going concern. The same matter was
emphasized in the auditor's report for the fiscal year June 30, 1999. There were
no disagreements with the former accountants on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure.
LEGAL MATTERS
Kruse, Landa & Maycock, L.L.C., Salt Lake City, Utah, has passed upon
the legality of the shares offered by this prospectus.
HOW TO OBTAIN ADDITIONAL INFORMATION
Telecom Wireless Corporation has filed a registration statement with
the Securities and Exchange Commission relating to the securities offered by
this prospectus. The prospectus does not contain all of the information set
forth in the registration statement. For further information with respect to
Telecom Wireless and the securities offered by this prospectus, refer to the
registration statement. In addition, Telecom Wireless will become a public
company required to file annual and quarterly reports with the Securities and
Exchange Commission upon the effectiveness of the registration statement or, if
earlier, upon effectiveness of the company's registration statement filed under
Section 12 of the Securities Exchange Act of 1934 on December 14, 1999. That
registration statement will become effective 60 days after filing, unless
withdrawn. You may read and copy the registration statement and any materials
Telecom Wireless files with the Securities and Exchange Commission at the
Securities and Exchange Commission's Public Reference Room at 450 Fifth Street,
N.W., Washington, DC 20549. The public may obtain information on the operation
of the Public Reference Room by calling the Securities and Exchange Commission
at 1-800-SEC-0330. The Securities and Exchange Commission also maintains an
Internet site at www.sec.gov where Telecom Wireless' Securities and Exchange
Commission filings can be viewed.
64
<PAGE>
TELECOM WIRELESS CORPORATION
AND SUBSIDIARIES
FINANCIAL STATEMENTS
AND INDEPENDENT AUDITORS' REPORT
65
<PAGE>
JUNE 30, 1999
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
Independent Auditors' Reports.......................................F-1
Consolidated Financial Statements
Consolidated Balance Sheets.....................................F-3
Consolidated Statements of Operations...........................F-4
Consolidated Statement of Changes in Stockholders' Equity.......F-5
Consolidated Statements of Cash Flows...........................F-6
Notes to Consolidated Financial Statements..........................F-8
AMERICA'S WEB STATION, INC.
Independent Auditors' Report.......................................F-38
Financial Statements
Balance Sheets.................................................F-39
Statements of Operations.......................................F-40
Statement of Changes in Shareholders' Equity...................F-41
Statements of Cash Flows.......................................F-42
Notes to Financial Statements......................................F-43
UNAUDITED PRO FORMA INFORMATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS....................F-49
UNAUDITED PRO FORMA COMBINED STATEMENT OF CASH FLOWS....................F-50
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..............F-51
</TABLE>
66
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Telecom Wireless Corporation
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Telecom Wireless
Corporation and Subsidiaries (the Company) as of June 30, 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the fiscal year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Telecom Wireless
Corporation and Subsidiary at June 30, 1999, and the results of their operations
and their cash flows for the year then ended 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 2 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Ehrhardt Keefe Steiner & Hottman PC
October 26, 1999
Denver, Colorado
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Telecom Wireless Corporation
Boca Raton, Florida
We have audited the accompanying consolidated statements of operations,
accumulated deficit, and cash flows of Telecom Wireless Corporation and
Subsidiary (the Company) for the year ended June 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Telecom Wireless Corporation
and Subsidiary at June 30, 1998, and the results of their operations and their
cash flows for the two years then ended 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 2 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Gerstle, Rosen & Associates, P.A.
September 22, 1998
F - 2
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash $ 620,666 $ 10,056
Accounts receivable, net of allowance of $14,000 (June 30, 1999)
and $26,398 (December 31, 19998) 49,559 148,366
Accounts receivable - employees - 97,600
Stock subscription receivable (paid in full subsequent to year end)
(Note 11) 352,666 -
--------------- ---------------
Total current assets 1,022,891 256,022
--------------- ----------------
Property and equipment, net (Note 4) 589,797 717,791
--------------- ----------------
Intangible assets
Subscribers list (Note 3) - 225,000
Licenses (Note 14) 523,117 524,117
Goodwill (Note 3) - 177,980
Less accumulated amortization (208,247) (279,298)
--------------- ----------------
Net intangible assets 314,870 647,799
--------------- ----------------
Investments (Note 15) - 4,630,952
Idle equipment (Note 14) 181,256 174,285
Deferred acquisition costs - 218,513
Deferred offering costs - 175,000
Other assets 18,961 2,792
--------------- ----------------
Total assets $ 2,127,775 $ 6,823,154
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 618,006 $ 2,007,542
Accrued expenses (Note 5) 140,703 152,429
Short-term notes payable (Note 7) - 1,590,385
Current portion of notes payable (Note 8) - 5,662
--------------- ----------------
Total current liabilities 758,709 3,756,018
Note payable, less current portion (Note 8) - 7,772
Note payable (Note 9) 1,276,841 1,276,841
Accrued interest (Note 9) 91,227 140,105
--------------- ----------------
1,368,068 1,424,718
--------------- ----------------
2,126,777 5,180,736
--------------- ----------------
Commitments and contingencies (Notes 6, 10, 11, 14 and 15)
Stockholders' equity (Notes 9, 10, 11 and 12)
Preferred stock, $.001 par value, 25,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, $.001 par value, 100,000,000 shares authorized,
15,107,920 (June 30, 1999) and 17,220,137 (unaudited)
(December 31, 1999) shares issued and outstanding 15,108 17,219
Additional paid-in capital 6,950,836 20,155,528
Accumulated deficit (6,964,946) (18,530,329)
--------------- ----------------
Total stockholders' equity 998 1,642,418
--------------- ----------------
Total liabilities and stockholders' equity $ 2,127,775 $ 6,823,154
=============== ================
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended For the Six Months Ended
June 30, December 31,
------------------------------------ -----------------------------------
1998 1999 1998 1999
---------------- ---------------- ---------------- ----------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Internet services $ - $ - $ - $ 57,863
Wireless TV revenues 636,074 517,261 257,230 307,055
Other 13,904 5,393 31,543 6,777
-------------- -------------- -------------- --------------
Total revenues 649,978 522,654 288,773 371,695
Internet service operating costs - - - 58,794
Direct costs - wireless TV 337,155 275,705 163,055 166,908
General and administrative 1,039,764 2,051,568 492,678 4,666,285
Stock based compensation (Note 11) 928,252 1,547,560 - 4,516,513
-------------- -------------- -------------- --------------
Total operating expenses 2,305,171 3,874,833 655,733 9,408,500
-------------- -------------- -------------- --------------
Net loss from operations (1,655,193) (3,352,179) (366,960) (9,036,805)
Other income (expense)
Interest expense (Note 9) - (92,341) (45,614) (2,691,635)
Income from subsidiary (Note 3) - - - 163,057
-------------- -------------- -------------- --------------
- (92,341) (45,614) (2,528,578)
-------------- -------------- -------------- --------------
Net loss $ (1,655,193) $ (3,444,520) $ (412,574) $ (11,565,383)
============== ============== ============== ==============
Net loss per common share
Basic and diluted $ (15.08) $ (.92) $ (.10) $ (.72)
============== ============== ============== ==============
Shares used in computing net loss per
common share
Basic and diluted 109,772 3,759,050 4,028,015 16,138,153
============== ============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
Shares Amount
-------------- --------------
<S> <C> <C>
Balance - June 30, 1997 113 $ -
Issuance of common stock for acquisition 519,278 519
Sale of common stock 100,000 100
Issuance of stock for services 78,600 79
Net loss - -
-------------- --------------
Balance - June 30, 1998 697,991 698
Issuance of stock for services 12,000 12
Sale of common stock 155,144 155
Common stock issued in connection with business reorganization (Note 3) 13,825,000 13,825
Proceeds of private offering (net of offering costs of $83,095) (Note 10) 120,000 120
Proceeds of private offering (net of offering costs of $359,994) (Note 10) 297,785 298
Stock based compensation (Note 11) - -
Net loss - -
-------------- --------------
Balance - June 30, 1999 15,107,920 15,108
Proceeds from Private Offering (net of offering costs of $95,625) (Note 10) (unaudited) 127,935 128
Proceeds from Private Offering (net of offering costs of $59,382) (Note 10) (unaudited) 97,227 97
Stock issued for acquisition of Prentice (Note 3) (unaudited) 346,667 347
Stock issued for acquisition of Aweb (Note 3) (unaudited) 28,562 29
Stock issued for cash (unaudited) 100,000 100
Stock issued for services (Note 11) (unaudited) 606,112 605
Warrants issued for in conjunction with bridge loan - immediately exercised (unaudited) 300,000 300
Stock issued for investment (Note 15) (unaudited) 952,381 952
Rescission of Prentice acquisition (Note 3) (unaudited) (346,667) (347)
Stock cancelled in conjunction with Prentice Rescission (Note 3) (unaudited) (100,000) (100)
Options and warrants issued (unaudited) - -
Net loss (unaudited) - -
-------------- --------------
Balance - December 31, 1999 (unaudited) 17,220,137 $ 17,219
============== ==============
<CAPTION>
Additional
Accumulated Paid-in
Deficit Capital
-------------- --------------
<S> <C> <C>
Balance - June 30, 1997 (1,823,558) $ 1,721,246
Issuance of common stock for acquisition (41,675) 41,156
Sale of common stock - 92,400
Issuance of stock for services - 1,000,913
Net loss (1,655,193) -
-------------- --------------
Balance - June 30, 1998 (3,520,426) 2,855,715
Issuance of stock for services - 29,988
Sale of common stock - 290,403
Common stock issued in connection with business reorganization (Note 3) - (13,825)
Proceeds of private offering (net of offering costs of $83,095) (Note 10) - 516,785
Proceeds of private offering (net of offering costs of $359,994) (Note 10) - 1,724,210
Stock based compensation (Note 11) - 1,547,560
Net loss (3,444,520) -
-------------- --------------
Balance - June 30, 1999 (6,964,946) 6,950,836
Proceeds from Private Offering (net of offering costs of $95,625) (Note 10) (unaudited) - 641,242
Proceeds from Private Offering (net of offering costs of $59,382) (Note 10) (unaudited) - 387,771
Stock issued for acquisition of Prentice (Note 3) (unaudited) - 2,426,322
Stock issued for acquisition of Aweb (Note 3) (unaudited) - 199,902
Stock issued for cash (unaudited) - 249,900
Stock issued for services (unaudited) - 2,345,583
Warrants issued for in conjunction with bridge loan - immediately exercised (unaudited) - 2,161,995
Stock issued for investment (Note 15) (unaudited) - 4,630,000
Rescission of Prentice acquisition (Note 3) (unaudited) - (2,426,322)
Stock cancelled in conjunction with Prentice Rescission (Note 3) (unaudited) - 100
Options and warrants issued (unaudited) - 2,588,199
Net loss (unaudited) (11,565,383) -
-------------- --------------
Balance - December 31, 1999 (unaudited) $ (18,530,329) $ 20,155,528
============== ==============
<CAPTION>
Total
Stockholders'
Equity
--------------
<S> <C>
Balance - June 30, 1997 $ (102,312)
Issuance of common stock for acquisition -
Sale of common stock 92,500
Issuance of stock for services 1,000,992
Net loss (1,655,193)
--------------
Balance - June 30, 1998 (664,013)
Issuance of stock for services 30,000
Sale of common stock 290,558
Common stock issued in connection with business reorganization (Note 3) -
Proceeds of private offering (net of offering costs of $83,095) (Note 10) 516,905
Proceeds of private offering (net of offering costs of $359,994) (Note 10) 1,724,508
Stock based compensation (Note 11) 1,547,560
Net loss (3,444,520)
--------------
Balance - June 30, 1999 998
Proceeds from Private Offering (net of offering costs of $95,625) (Note 10) (unaudited) 641,370
Proceeds from Private Offering (net of offering costs of $59,382) (Note 10) (unaudited) 387,868
Stock issued for acquisition of Prentice (Note 3) (unaudited) 2,426,669
Stock issued for acquisition of Aweb (Note 3) (unaudited) 199,931
Stock issued for cash (unaudited) 250,000
Stock issued for services (unaudited) 2,346,188
Warrants issued for in conjunction with bridge loan - immediately exercised (unaudited) 2,162,295
Stock issued for investment (Note 15) (unaudited) 4,630,952
Rescission of Prentice acquisition (Note 3) (unaudited) (2,426,669)
Stock cancelled in conjunction with Prentice Rescission (Note 3) (unaudited) -
Options and warrants issued (unaudited) 2,588,199
Net loss (unaudited) (11,565,383)
--------------
Balance - December 31, 1999 (unaudited) $ 1,642,418
==============
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended For the Six Months Ended
June 30, December 31,
--------------------------------- ---------------------------------
1998 1999 1998 1999
-------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (1,655,193) $ (3,444,520) $ (412,574) $ (11,565,383)
-------------- -------------- -------------- --------------
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 370,423 255,978 91,160 233,048
Stock issued for services 72,741 30,000 30,000 2,346,188
Stock based compensation 928,252 1,547,560 - 2,588,199
Stock issued with bridge financing - - - 2,162,295
Warrants issued - - - -
Allowance for doubtful accounts - - - 12,500
Loss on sale of equipment 18,942 - - -
Changes in assets and liabilities
Accounts receivable (1,803) 12,245 (8,843) (194,014)
Other assets - (3,880) (11,830) 19,126
Accounts payable 127,320 (14,510) 62,317 1,007,958
Accrued expenses 2,831 104,445 (32,934) 382,371
Accrued interest - 91,227 45,614 48,878
Cash overdraft (2,333) - 8,902 -
-------------- -------------- -------------- -------------
1,516,373 2,023,065 184,386 8,606,549
-------------- -------------- -------------- --------------
Net cash used by operating activities (138,820) (1,421,455) (228,188) (2,958,834)
-------------- -------------- -------------- --------------
Cash flows from investing activities
Purchase of equipment (29,244) (121,117) (5,413) (228,353)
Cash acquired from acquisitions - - - 5,878
Acquisition costs - - - (308,143)
License development costs (18,297) - - (1,000)
-------------- -------------- -------------- --------------
Net cash used by investing activities (47,541) (121,117) (5,413) (531,618)
-------------- -------------- -------------- --------------
Cash flows from financing activities
Net activity - due to officer 94,461 (16,667) (2,000) -
Offering costs - - - (175,000)
Payments on short-term notes - - - (127,062)
Proceeds on short-term notes - - - 1,550,000
Proceeds from issuance of common stock 92,500 2,179,305 235,001 1,631,904
-------------- -------------- -------------- --------------
Net cash provided by financing activities
186,961 2,162,638 233,001 2,879,842
-------------- -------------- -------------- --------------
Net increase (decrease) in cash 600 620,066 (600) (610,610)
Cash at beginning of period - 600 600 620,666
-------------- -------------- -------------- --------------
Cash at end of period $ 600 $ 620,666 $ - $ 10,056
============== ============== ============== ==============
</TABLE>
Supplemental disclosure of cash flow information
Cash paid for interest for the years ended June 30, 1998 and 1999 was
$2,387 and $1,411, respectively and $45,614 and $480,462 for the six
months ended December 31, 1998 and 1999 (unaudited).
See notes to consolidated financial statements.
F - 6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing activities:
During the year ending June 30, 1998, Telecom Wireless Corporation (the
Company) issued 28,600 shares of common stock to pay legal fees of
$71,500 for services involved with the acquisition of Keys Microcable
Corporation (the Subsidiary).
During the year ending June 30, 1998, the Company issued a note to
settle the Subsidiary's $1,276,841 credit facility and 30,891 shares of
common stock in exchange for an 18% interest held by the minority
stockholder in Keys. The Company then exchanged 432,202 shares of
common stock for all of the stock of the Subsidiary. In exchange for
issuing the 432,202 shares of common stock, the Company received 82% of
the shares of the common stock of the Subsidiary. Thus the Company
acquired 100% of the outstanding stock of Keys.
During the year ended June 30, 1999, the Company acquired 100% of the
outstanding common stock of Phoenix Communications, Inc. (Phoenix).
During the six months ended December 31, 1999, the Company acquired
100% of the outstanding stock of America's Web Station, Inc. (America's
Web) and 90% of the outstanding common stock of Prentice Technologies,
Inc. (Prentice) (Note 3).
See notes to consolidated financial statements.
F - 7
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Telecom Wireless Corporation (the Company, formerly Stetson Oil Exchange, Inc.)
was incorporated on April 12, 1984 under the laws of the State of Utah.
Subsequent to incorporation, the Company participated in various ventures;
however, it was dormant for a number of years prior to 1998.
In June 1998, the Company acquired Keys Microcable Corporation (Keys) in a
stock-for-stock exchange that was accounted for as a reverse purchase. The
Company exchanged 463,093 shares for all of the outstanding shares of Keys.
The Company was a shell company with no assets or liabilities. After the
transaction, the shareholders of Keys held 89% of the common stock of the
Company.
Keys was incorporated on May 2, 1995 under the laws of the State of Florida
to operate a wireless cable television system which serves the Lower Keys of
Florida. It was formed in 1995 to further the venture of Keys Microcable, JV,
the predecessor company in a tax free exchange of interests. To do this, its
majority shareholder, Wireless Development Group, Inc. (formerly Key West
Wireless Partners, G.P.), had entered into a Joint Venture Agreement with
Satellite Microcable Corp. to jointly develop a wireless cable television
system to serve Key West and the adjacent Lower Keys.
REORGANIZATION
In April 1999, the Company completed a reorganization through a merger with
Phoenix Communications, Inc. by exchanging 13,825,000 shares of common stock
for all the outstanding common stock of Phoenix. The purpose of the merger
was to provide immediate interim funding for the operations of the Company as
Keys had significant liabilities and no cash to meet its needs. The merger
resulted in an immediate change in the Company's management, which presented
an opportunity to provide funding to the Company. At the time of the
merger, Phoenix had no assets, liabilities, equity or operations. After the
merger, Phoenix shareholders held 94% of the common stock of the Company. The
transaction was accounted for at historical cost as Phoenix was a shell
company and acquired control.
The business plan of the Company involves capitalizing on the convergence on
the Internet of video, voice and data through the acquisition of Internet
Service Providers ("ISPs") and Competitive Local Exchange Carriers ("CLECs").
The goal of the Company is to provide broadband connectivity, content, and
electronic commerce via an Internet platform to residential and business
customers in both the United States and abroad.
F - 8
<PAGE>
The Company has acquired, in separate transactions, the stock of one ASP and one
ISP subsequent to year end and plans to continue to acquire companies to expand
its operations.
F - 9
<PAGE>
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPALS OF CONSOLIDATION
The consolidated balance sheet includes the accounts of the parent company,
Telecom Wireless Corporation and its wholly-owned subsidiaries, Keys and
Phoenix, as of June 30, 1999 and America's Web as of December 31, 1999
(unaudited) (Note 3). Affiliated companies in which Telecom does not have a
controlling interest, or which control is likely to be temporary are
accounted for under the equity method. The Company acquired a 90% interest in
Prentice Technologies, Inc. (Prentice). The Prentice transaction was
rescinded in December 1999. The Company's investment in Prentice had been
recorded under the equity method due to the Company having temporary control
of Prentice (Notes 3 and 15). All significant intercompany transactions and
balances have been eliminated.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the financial position of the Company at December 31, 1999 and
1998 and the results of its operations and changes in cash flows for the six
months then ended. The results of operations for the six months ended December
31, 1998 and 1999 are not necessarily indicative of the results to be expected
for a full year.
PROPERTY AND EQUIPMENT
Equipment is recorded at cost and depreciated by the straight-line method over
the estimated useful lives of the assets ranging from 3 to 9 years. Leasehold
improvements are recorded at cost and amortized by the straight-line method over
the terms of the leases, or the estimated useful lives of the assets.
LICENSE DEVELOPMENT COSTS, SUBSCRIBER LISTS AND GOODWILL
Intangibles are capitalized and amortized utilizing the straight-line method.
License development costs are amortized over the life of the license (7 - 8
years), goodwill is amortized over its economic life of 3 years and subscriber
lists are amortized over 3 years.
DEFERRED ACQUISITION COSTS
Deferred acquisition costs consist of costs associated with the Company's
investigation of potential future acquisitions. Indirect acquisition costs,
including salaries, are expensed as incurred. These costs will be capitalized
upon completion of the acquisition or charged to expense if the acquisition is
unsuccessful.
F - 10
<PAGE>
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED OFFERING COSTS
Deferred offering costs represents costs incurred in conjunction with the
Company's equity offering and registration activities. Deferred offering costs
will be offset against net proceeds, if successful, or expensed in operations if
the offering is unsuccessful.
LONG-LIVED ASSETS
The Company assesses valuation of long-lived assets in accordance with Statement
of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
The Company periodically evaluates the carrying value of long-lived assets to be
held and used, including goodwill and other intangible assets, when events and
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved.
REVENUE RECOGNITION
Wireless television revenue and internet service revenue consist of the monthly
fees charged to subscribers. Subscribers are billed at the beginning of each
month and revenue is recognized as service is provided.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising costs to date
have not been significant.
INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
F - 11
<PAGE>
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
In accordance with the provisions of Statement of Financial Accounting Standards
No. 128 (SFAS 128), "Earnings Per Share", basic earnings per share is computed
by dividing net income by the number of weighted average common shares
outstanding during the year. Diluted earnings per share is computed by dividing
net income by the number of weighted average common shares outstanding during
the year, including potential common shares. For the years ended June 30, 1998
and 1999 and the six months ended December 31, 1998 and 1999 all potential
common shares, which included convertible preferred stock, stock options and
warrants, were antidilutive and therefore were excluded from these calculations.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standard No. 130 (SFAS
130), "Comprehensive Income", for the years ending June 30, 1998 and 1999. There
were no components of comprehensive income; consequently, no separate statement
of comprehensive income has been presented.
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 the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts payable
approximates fair value due to the short term maturity of these instruments.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a concentration of
credit risk consist primarily of temporary cash investments. The Company places
its cash investments with high credit quality financial institutions and, by
policy, limits the amount of credit exposure to any one institution. The Company
does, however, on occasion exceed the Federal Deposit Insurance Corporation
federally insured limits.
F - 12
<PAGE>
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
During June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Statement No. 133 establishes new standards
by which derivative financial instruments must be recognized in any entity's
financial statements. Besides requiring derivatives to be included on balance
sheets at fair value, Statement No. 133 generally requires that gains and losses
from later changes in a derivative's fair value be recognized currently in
earnings. Statement No. 133 also unifies qualifying criteria for hedges
involving all kinds of derivatives, requiring that a company document, designate
and assess the effectiveness of its hedges. Statement No. 133 is required to be
adopted by the Company in 2000. Management, however, does not expect the impact
from this Statement to have a material impact on the financial statement
presentation, financial position or results of operations.
NOTE 2 - GOING CONCERN
The Company's financial statements have been prepared assuming that the Company
will continue as a going concern. During the year ended June 30, 1999, the
Company incurred a consolidated net loss of approximately $3,445,000, including
negative cash flow from operations of approximately $1,421,000. Cash
requirements were covered by sales of the Company's equity securities.
The Company will require substantial additional funds to satisfy its working
capital requirements and to meet the objectives of its business plan. Management
plans to obtain these funds primarily from debt and equity placements with
institutional investors and wealthy individuals until such time as its cash
requirements can be satisfied from operations. However, no assurance can be
given that the Company will be able to raise sufficient funds from such sources
or to generate sufficient cash flow from operations to meet its working capital
requirements. The consolidated financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
NOTE 3 - ACQUISITIONS
During the year ending June 30, 1998, the Company agreed to issue a note to
settle the Subsidiary's $1,276,841 credit facility and 30,891 shares of common
stock in exchange for an 18% interest held by the minority stockholder in Keys.
In June 1998, the Company exchanged 432,202 shares of common stock for the
remaining 82% of the common stock of Keys. Thus the Company acquired 100% of the
outstanding stock of Keys. After the merger, Keys' shareholder held 89% of the
outstanding common stock of the Company. This transaction was accounted for at
historical cost through a reverse acquisition by the Company. The Company was a
shell company with no assets or liabilities.
F - 13
<PAGE>
NOTE 3 - ACQUISITIONS (CONTINUED)
In April 1999, the Company completed a reorganization through a merger with
Phoenix Communications, Inc. by exchanging 13,825,000 shares of its common stock
for all the outstanding common stock of Phoenix. At the time of the merger,
Phoenix had no assets, liabilities, equity or operations. After the merger,
Phoenix shareholders held 94% of the outstanding common stock of the Company.
The transaction was accounted for at historical cost as Phoenix was a shell
company and acquired control.
In July 1999 the Company consummated an acquisition of all of the issued and
outstanding common shares of America's Web Station for 28,562 shares of common
stock valued at $199,931 for purposes of the acquisition. The acquisition has
been accounted for as a purchase. The purchase price, including acquisition
costs, was allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 5,878
Accounts receivable, net 14,893
Property and equipment 53,705
Intangible assets 8,743
Subscriber lists 225,000
Other assets 2,957
--------------
311,176
Liabilities assumed (191,814)
--------------
119,362
Consideration given and acquisition costs (255,390)
--------------
Excess purchase price recorded as goodwill $ 136,028
==============
</TABLE>
The following unaudited pro forma data summarizes the results of operations for
the year indicated as if the acquisition of America's Web had been completed as
of the beginning of the period presented. The proforma data gives effect to
actual operating results prior to the acquisition, adjusted to include
depreciation of fixed assets, amortization of intangibles and additional
interest expense. These pro forma amounts do not purport to be indicative of the
results that would have actually been obtained if the acquisitions occurred as
of the beginning of the periods presented of that may be obtained in the future.
<TABLE>
<CAPTION>
Six months ended December 31, 1999 (A)
Revenues $ 371,695
Net (loss) $ (11,565,383)
Basic and diluted (loss) per share $ (.72)
Year ended June 30, 1999
Revenues $ 681,822
Net (loss) $ (3,684,295)
F - 14
<PAGE>
<CAPTION>
<S> <C>
Basic and diluted (loss) per share $ (.89)
</TABLE>
F - 15
<PAGE>
NOTE 3 - ACQUISITIONS (CONTINUED)
(A) The figures for America's Web for the one month ended July 31, 1999
have been excluded as they are immaterial for this presentation.
INVESTMENT IN SUBSIDIARY
Effective September 30, 1999 the Company consummated the acquisition of 90% of
the issued and outstanding common stock of Prentice Technologies, Inc for
346,667 shares of common stock valued at $2,426,669 and issued a $253,750 note
payable.
Effective December 29, 1999, the Company completed the rescission of the
Prentice Transaction. The Company reconveyed its 90% ownership in Prentice
and cancelled the 346,667 shares of its common stock that were originally
issued as partial consideration for the acquisition. The note payable to
Prentice in the amount of $253,750 also was cancelled. No payments had been
made on the note since its issuance in September 1999. Options for the
purchase of 550,000 shares and the 100,000 shares of common stock issued to
the sole shareholder of Prentice also were cancelled. This investment had
been accounted for under the equity method because the Company retained only
temporary control of Prentice.
The Company owes Prentice approximately $57,000 relating to operating costs
incurred while the Company subleased office space from Prentice.
The financial statements for the six months ended December 31, 1999 include
$163,057 of the income from the equity in earnings of Prentice subsidiary from
the date of acquisition to the date of rescission.
F-16
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT
Major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1999
---------------- ----------------
<S> <C> <C>
Service center property and equipment
Office equipment and computer $ 61,091 $ 210,403
Furniture and fixtures 14,696 25,417
---------------- ----------------
75,787 235,820
---------------- ----------------
Wireless television plant
Machinery and equipment 61,752 29,109
Leasehold improvement headend 35,535 35,535
TV transmission equipment 314,387 353,823
Test equipment 26,879 42,057
Subscriber recoverable equipment 121,502 121,771
Subscriber non-Recoverable Equipment 45,997 45,997
Vehicles and Equipment 49,261 107,588
Engineering 10,164 51,623
---------------- ----------------
665,477 787,503
---------------- ----------------
Total property and equipment 741,264 1,023,323
Less accumulated depreciation (151,467) (305,531)
---------------- ----------------
$ 589,797 $ 717,792
================ ================
</TABLE>
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1999
---------------- ----------------
<S> <C> <C>
Accrued lawsuit settlements $ 97,000 $ 60,000
Accrued payroll costs 43,703 92,429
---------------- ----------------
$ 140,703 $ 152,429
================ ================
</TABLE>
NOTE 6 - LEASE OBLIGATIONS
The Company leases certain telecommunications and technology equipment under an
operating lease agreement. The Company has leased equipment for the purpose of
expanding its Internet capabilities.
F - 17
<PAGE>
The equipment presently is in storage in Albuquerque, New Mexico. Lease
payments on this equipment aggregate approximately $45,780 per month and were
scheduled to begin in November 1999.
F - 18
<PAGE>
NOTE 6 - LEASE OBLIGATIONS (CONTINUED)
The future minimum rental payments due under the lease agreements are as
follows:
<TABLE>
<CAPTION>
Year Ending June 30
-------------------
<S> <C>
1999 (six months remaining) $ 274,680
2000 549,360
2001 549,360
----------------
Total $ 1,373,400
================
</TABLE>
NOTE 7 - SHORT-TERM NOTES PAYABLE
On September 1, 1999, the Company obtained various bridge loans totaling
$250,000. The loans bear interest at 10% per year with principal and interest
due and payable in full on the earlier of (a) October 31, 1999 or (b) the
date of receipt by the Company of financing aggregating at least $2,000,000.
These loans are personally guaranteed by a shareholder of the Company. These
loans are past due (Note 15).
On September 23, 1999, the Company obtained various bridge loans totaling
$750,000. The loans bear interest at 10% per year with principal and interest
due and payable in full on the earlier of (a) November 23, 1999 or (b) the
date of receipt by the Company of financing aggregating at least $2,000,000.
These loans are past due (Note 15).
Attached to these loans are warrants for the purchase of 100,000 shares of the
Company's common stock at $7 per share. These warrants terminate after four
years or the date on which a registration statement relating to the shares
underlying the warrants has been in effect for two years. If the loans are not
repaid in full within one month of the date of issuance, the lenders are
entitled to receive an additional 100,000 warrants subject to the same terms as
the repricing warrants issued in conjunction with the private placements
discussed in Note 10. The Company also issued warrants for the purchase of
300,000 shares at an exercise price of $.001. The Company amortized
approximately $2,000,000 of interest expense over the two month term of the
loans related to these warrants (Note 11).
In connection with the acquisition of Prentice Technologies, the Company signed
a $253,750 note payable, due March 2000 with principal and interest of $43,284
payable monthly. Interest is calculated at 8% per annum. The Company completed a
rescission of the transaction with Prentice in December 1999 which resulted in
the cancellation of this note.
The Company assumed notes payable in conjunction with the acquisition of
America's Web which are due on demand. Interest is calculated at 7% - 19% per
annum and the notes are unsecured.
F - 19
<PAGE>
In October 1999, the Chairman of the Board of Directors sold an option to a
consultant to purchase 250,000 shares of Telecom Wireless' common stock from
the Chairman for $250,000. The term of the option is two years and the option
exercise price is $.10 per share. The Chairman loaned the $250,000 to Telecom
Wireless. The Consultant has registation rights with respect to the shares for
which the option is exercisable. In January 2000, the Company issued 250,000
shares of its common stock to the Consultant in satisfaction of the loan. The
Company recognized compensation expense of $1,727,571 determined using the
Black Scholes pricing model with the following assumptions: expected life of
two years, 0% volatility, risk free interest rate 5.5% and a dividend yield
of 0%. In January the option was exercised.
In December 1999 the company signed a note payable to an individual for
$140,000. The principal and interest at 10% per annum and 7500 shares of the
company's common stock are payable on or before April 21,2000. If not paid
until May 21, 2000, the principal and interest as described above are due
along with 15,000 shares of the company's common stock. If not paid until
June 20, 2000 the Company is obligated to issue 50,000 shares of common stock
in full satisfaction of the debt.
In November 1999 the Company signed a $160,000 note payable to a corporation
which bears interest at the prime rate plus 2% per annum, is due on demand
and provides for security consisting of all assets of the Company that are
not already encumbered.
F - 20
<PAGE>
NOTE 8 - NOTE PAYABLE
The Company assumed a note with a financial institution in conjunction with the
acquisition of America's Web. Payments of $364, including interest at 8.9%, are
due monthly and the note is collateralized by a vehicle. The note matures in
April 2002.
Note payable matures as follows:
<TABLE>
<CAPTION>
Year Ending June 30,
--------------------
<S> <C>
2000 $ 5,662
2001 5,662
2002 2,110
---------------
$ 13,434
---------------
---------------
</TABLE>
NOTE 9 - NOTE PAYABLE
AGREEMENT WITH MINORITY SHAREHOLDER
As of June 10, 1998, JRHW17 Corporation (owned by a minority shareholder of
Keys) had advanced Keys $1,276,841. On that date, the Company entered into an
agreement with JRHW17 Corporation to cancel this debt. The Company is obligated
to issue 20,000 shares of the Company's $100 par value Class H Non-voting,
Convertible Preferred Stock, which has not been issued as of December 31, 1999.
The 20,000 shares of Class H stock shall be redeemable by the Company at par
value if not previously converted, provided that the Company shall not exercise
its redemption right prior to January 1, 2005. Class H preferred stock shall be
convertible to common stock of the Company upon the filing of a Registration
Statement with the Securities and Exchange Commission (SEC) for a public
offering of shares of the Company. One half of the shares issuable upon exercise
of the conversion will have "piggyback" registration rights on the first public
offering, the remaining shares resulting from the conversion will have
registration rights on the next subsequent or secondary offering. Subject to
approval of the regulatory authorities and the underwriters, the Class H shares
will convert to common stock of the Company on the following basis: the
conversion rate will be determined at the time of the public offering by first
taking 125% of the price at which a share of the Company's common stock will be
offered to the public. This number so calculated will be the divisor and the par
value per share of Class H stock (i.e., $100.00) will be the dividend and the
quotient will then be the number of common shares into which each share of Class
H stock will be convertible. The common stock received upon conversion by the
Class H stockholder, subject to the foregoing registration rights, shall be
restricted pursuant to SEC Rule 144 and shall contain a legend on each
certificate to that effect.
F - 21
<PAGE>
THE COMPANY WILL REFLECT THE OBLIGATION AS A LIABILITY UNTIL THE CLASS H
PREFERRED STOCK IS ISSUED. THE COMPANY HAS CONTINUED TO RECOGNIZE INTEREST
EXPENSE BASED ON THE DIFFERENCE BETWEEN THE NOTE AND THE PAR VALUE OF THE CLASS
H PREFERRED STOCK TO BE ISSUED.
F - 22
<PAGE>
NOTE 10 - PRIVATE PLACEMENTS
In April 1999, the Company privately placed 120,000 shares of its common stock
at a price of $5 per share. The company received proceeds of $516,905 net of
related costs of $83,095.
In May 1999, the Company privately placed 297,786 shares of its common stock
accompanied by registration rights at a price of $7.00 per share. Proceeds to
the company aggregated $1,724,508, net of $359,994 in offering costs. In July
1999, $352,666 of the proceeds were received and are reflected as a stock
subscription receivable as of June 30, 1999.
In connection with the May 1999 private placement, the Company also issued a
warrant to Thomson Kernaghan & Co., Ltd., a Canadian broker-dealer that acted as
co-placement agent, for the purchase of 45,000 shares of common stock at an
average exercise price of $7.25 per share expiring June 8, 2002. In addition,
the Company issued warrants for the benefit of the purchasers in the name of
Thomson Kernaghan & Co., Ltd., as Agent, for allocation by it as placement
agent, for the purchase of 27,000 shares of common stock at an exercise price of
$7.00 per share expiring on June 8, 2002.
In August 1999, the Company privately placed 105,285 shares of its common stock
accompanied by registration rights at a price of $7.00 per share. Proceeds to
the Company aggregated $641,370 net of $95,625 in offering costs. The Company
issued 22,650 shares of stock to the placement agent.
In September 1999, the Company privately placed 63,893 shares of its common
stock accompanied by registration rights at a price of $7.00 per share.
Proceeds to the Company aggregated $387,868 net of $59,383 in offering costs.
In addition, the Company issued an additional 33,334 shares to one investor
in a private placement at no additional cost for failure to have a
registration statement declared effective on a timely basis.
The purchasers of restricted shares of the Company's common stock in certain
private placements acquired certain registration rights in connection with their
purchases. The rights include a right to require the Company, at its cost, to
file by specified deadlines registration statements covering such common stock
and the shares issuable upon exercise of the repricing warrants issued in
connection with the purchases of the common stock. If a registration statement
is not declared effective within 90 days after the relevant filing deadline, the
Company may be obligated to pay a cash penalty equal to 2% per month of the
final amount of the completed offering until the registration statement is
declared effective. The Company believes it will not have to pay a penalty as
outlined in the agreements. The potential cash penalty as of December 31, 1999
was approximately $30,000.
F - 23
<PAGE>
NOTE 10 - PRIVATE PLACEMENTS (CONTINUED)
The August and September Private Placements contained repricing warrants
which entitle the holder to purchase, at an exercise price of $.001 per
share, that number of shares as equals the number of shares purchased by that
holder multiplied by a fraction the numerator of which is $8.75 minus the
average closing bid prices of the common stock during the twenty (20) days
following the effective date of the registration statement, and the
denominator of which is the average closing bid prices of the common stock
during the twenty (20) days following the effective date. The number of
repricing warrants to be issued is dependent on a future event and therefore
cannot be valued utilizing the Black-Scholes model until all contingent
factors are known. Assuming a $7.00 closing bid price, warrants to purchase
50,628 shares would be issued.
In December 1999, the Company entered into an agreement with an individual to
issue 100,000 shares of the Company's common stock at a purchase price of $2.50
per share and warrants for the purchase of an additional 100,000 shares of
common stock at an exercise price of $2.50 per share. The warrants will be
exercisable at any time within three years from the date of the contract.
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS
CONSULTING AGREEMENT
On June 18, 1998 the Company entered into an option agreement with the former
minority shareholder of Keys, for services rendered, under which the shareholder
has the right to purchase a number of shares of Company's common stock equal to
$400,000 divided by the exercise price of the option. The exercise price of the
option is calculated as the lower of 50% of the closing bid price of the shares
on the trading day immediately prior to the exercise date or 50% of the opening
bid price on the next trading day. The options expire in June 2002. No options
related to this agreement had been exercised as of September 30, 1999. The
options were valued at approximately $487,000 utilizing the Black-Scholes
pricing model with the following assumptions: expected life 4 years, 0%
volatility, risk-free interest rate of 5.5% and a dividend yield of 0%. This
expense has been recognized for the year ended June 30, 1998.
As a part of a June 1, 1998 agreement with a consultant, the Company granted the
consultant, for services rendered, an irrevocable common stock purchase option
exercisable for an aggregate of 185,000 shares of common stock of the Company
through June 2001. The consultant may exercise the option as follows: 5,000
options are exercisable at an exercise price of $2.50 per option, provided that
the bid price of the Company's common stock shall be at least $5.00 per share at
the date of exercise; 80,000 options are exercisable at an exercise price of
$3.75 per option, provided that the bid price of the Company's common stock
shall be at least $7.50 per share at the date of exercise; and 100,000 options
are exercisable at an exercise price of $5.00 per option, provided that the bid
price of the Company's common stock shall be at least $10.00 per share at the
date of exercise. The options were valued at approximately $450,000 utilizing
the Black-Scholes pricing model with the following assumptions: expected life 3
years, 0% volatility, risk-free interest rate of
F - 24
<PAGE>
5.5% and a dividend yield of 0%. This expense has been recognized for the
year ended June 30, 1998.
F - 25
<PAGE>
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
CONSULTING AGREEMENT (CONTINUED)
In early 1999 two current officers of the Company entered into a management
agreement through an entity controlled by them whereby they were to receive a
50% equity interest in Keys in consideration of the performance of management
services. At that time, these officers were not associated with the Company, so
the agreement was negotiated at arms' length. However, this agreement was
terminated, after partial performance, in connection with the Phoenix
Communications share exchange (Note 3). A settlement of the Company's
obligations under this agreement has been made by the issuance of warrants for
the purchase of 123,222 shares of common stock of the Company at an exercise
price of $5.275 per share. The fair value of these warrants was $212,560 based
upon the Black-Scholes pricing model with the following assumptions: expected
life five years, 0% volatility, risk free interest rate of 5.5% and a dividend
yield of 0%. This expense has been reflected in the accompanying financial
statements for the year ended June 30, 1999.
EMPLOYMENT AGREEMENT
In August 1999, in conjunction with the acquisition of Prentice, one of its
officers received an option to purchase 350,000 shares of common stock which
were subject to certain performance requirements. No compensation expense was
reflected in the accompanying financial statements due to the uncertainty of
meeting the performance criteria. These options were cancelled in December 1999.
1999 STOCK OPTION PLAN
In 1999, the Company adopted its Amended and Restated 1999 Stock Option and
Restricted Stock Plan (the Plan). The total number of shares of the Company's
common stock that may be issued to grantees and recipients under the plan is
800,000. The plan allows issuance of both qualified (or incentive) options and
non-qualified options as well as shares of restricted stock (stock awards).
Options and stock awards may be granted to employees, independent contractors,
officers, directors and consultants at the discretion of the Board of Directors
or a committee to be appointed by the Board of Directors. No grant may be made
under the 1999 Plan after ten years, but awards granted prior to that time may
extend beyond it. Unless otherwise stated by the committee that governs the
Plan, the term of an option will be five years from the date of grant, but no
option may have a term of more than ten years from the date of grant.
F - 26
<PAGE>
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
1999 STOCK OPTION PLAN (CONTINUED)
Options granted under the plan vest 20% at the end of each of the five years of
service following the grant date. The board of directors of the Company may
specify terms and conditions other than those noted above. During 1999, 83,868
options were issued under this plan to employees with exercise prices from
$7.73 to $13.53, and none were vested as of June 30, 1999. The exercise prices
of the options were greater than the fair value of the common stock on the date
of grant. The fair value of 45,060 of these options is $0 and 38,808 of these
options have a fair value of $97,408 utilizing the Black-Scholes model with the
following assumptions: expected life of 5 years, 0% volatility, risk-free
interest rate of 5.5% and a 0% dividend yield. As the Company has adopted the
disclosure only provisions of the Statement of Financial Accounting Standard
No. 123, (SFAS 123) "Accounting for Stock-Based Compensation," no compensation
expense has been recognized related to those options.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board No. 25, (APB 25)
Accounting for Stock Issued to Employees; and complies with the disclosure
requirements of SFAS 123. Under APB 25, compensation cost, if any, is
recognized over respective vesting periods based on the difference, on the date
of grant, between the fair value of the Company's common stock and the grant
price.
During 1999, the Company issued options for the purchase of 5,584,414 shares
of the Company's common stock to several employees of the Company. The fair
value of the common stock on the dates of issuance was $7 per share and the
exercise prices are between $2.55 and $10.55 per share. Approximately
$1,548,000 and $222,500 in compensation expense is included in the June 30,
1999 and December 31, 1999, financial statements, respectively. This expense
reflects options granted to employees with exercise prices below fair value
on the date of grant.
The Company issued 27,707 shares of common stock to employees of a subsidiary
which were valued at $7 per share for a total of $193,949. This expense is
reflected as stock based compensation in the financial statements for the six
months ended December 31, 1999.
In October 1999, the majority stockholder of the Company sold an option to
purchase 250,000 shares of the Company's common stock for $250,000 and lent the
proceeds to the Company. The term of the option is two years and the option
exercise price is $.10 per share. The fair value of this option is approximately
$1,700,000 utilizing the Black-Scholes pricing model with the following
assumptions: expected life of 2 years, 0% volatility, risk-free rate of 5.5% and
a 0% dividend yield. Compensation expense will be recognized in October 1999 for
this option. The Company issued 250,000 shares of its common stock in January
2000 to the option holder in payment of the loan and termination of this option.
In November 1999, the Company authorized the issuance of warrants for the
purchase of 300,000 shares of its common stock as partial consideration for
consulting services rendered by a financial consultant. In November 1999, the
consultant indicated its desire to exercise the warrants. In January 2000, the
Company issued the shares underlying the warrants to three individuals
identified by the holder of the warrant.
In December 1999, the Company entered into a one-year investment banking
agreement with an institution. Under the agreement, the investment banker is
to perform a variety of services including advice and counsel regarding
strategic business and financial plans, negotiations with potential
investors, acquisition candidates, strategic partners and other such
services. The agreement requires a non-refundable fee of $500,000 or 550,000
shares of the Company's common stock and a three-year warrant for the
purchase of an additional 1,000,000 shares exercisable at $5.50 per share.
The shares were valued at $2.50 per share based on stock transactions for
cash with unrelated parties in December, 1999 and January 2000. The fair
value of the stock or $1,375,000 will recognized over the one-year term of
the contract. Approximately $114,000 was recognized as stock-based
compensation during December 1999. The warrants had no value as determined by
the Black Scholes pricing model using the following assumptions: expected
life 3 years, 0% volatililty, risk-free interest rate of 5.5% on a 0%
dividend yield. If the 550,000 shares are not free-trading by March 21, 2000,
the Company is obligated to issue an additional 200,000 shares of common
stock as a penalty. The Company also agreed to pay finder's fees with respect
to transactions introduced to the Company by the investment banker. The
investment banking company may assess finder's fees to the Company for a two
and a half-year period subsequent to the term of this agreement.
Had compensation cost for stock-based compensation been determined based on the
fair value on the grant date consistent with the method of SFAS 123, the
Company's net income and earnings per share would have been reduced by (1)
either the fair value of grants to employees at greater than fair market value
based upon calculating the fair value utilizing the Black-Scholes option
pricing model or (2) the fair value of the options will be reflected over the
time of services to be rendered which will correlate the individual employee's
vesting schedule.
F - 27
<PAGE>
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
STOCK-BASED COMPENSATION (CONTINUED)
Net income (loss) and earnings (loss) per share would have been reduced to the
pro forma amounts indicated as follows:
<TABLE>
<CAPTION>
June 30, December 31,
----------------------------------- -----------------------
1998 1999 1998 1999
--------------- --------------- --------------- ---------
<S> <C> <C> <C> <C>
Net income (loss) - as reported $ (1,655,193) (3,444,520) (412,574) (11,565,383)
Net income (loss) - pro forma $ (1,655,193) (3,444,520) (412,574) (11,690,883)
Earnings (loss) per share - basic and
assuming dilution as reported $ (15.08) (.92) (.10) (.72)
Earnings (loss) per share - pro forma $ (15.08) (.92) (.10) (.72)
</TABLE>
Summarized information relating to stock options is as follows:
The following is a summary of options and warrants granted, exercised and
expired:
<TABLE>
<CAPTION>
Currently Exercisable
------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Price of Price of
Options Options
and and
Options Warrants Warrants Options Warrants Warrants
------------- ------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding June 30,
1997 - - -
Granted 350,090 - $ 4.00
Exercised - - -
------------- -------------
Outstanding June 30,
1998 350,090 - 4.00 350,090 - $ 4.00
-------------- --------------
Granted 5,545,060 195,222 9.60 423,222 72,000 3.90
-------------- --------------
Exercised - -
Cancelled (115,090) -
------------- ------------
Outstanding June 30,
1999 5,780,060 195,222 9.52 535,000 195,222 4.17
-------------- --------------
Granted 1,393,265 2,982,287 9.59 38,265 1,895,487 5.14
-------------- --------------
Exercised - (300,000) 5.51
Cancelled (7,000) (580,000)
------------- -------------
Outstanding December 31, 1999 7,166,325 2,297,509 $9.50 573,265 2,090,709 $ 4.60
============= ============= ============= =============
</TABLE>
F - 28
<PAGE>
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
<TABLE>
<CAPTION>
Options and Warrants
OPTIONS AND WARRANTS OUTSTANDING EXERCISABLE
------------------------------------------------- -----------------------------------
Weighted
Weighted Average Weighted
Average remaining Average
Number Exercise Contractual Number Exercise
Outstanding Price Life Exercisable Price
------------- ------------- ----------- ----------- ---------------
Range of Options and Warrants
Exercisable Price
- -------------------------------------------
<S> <C> <C> <C> <C> <C>
June 30, 1999
- -------------
$2.55 - $7.73 1,130,222 $ 4.81 7.38 680,222 $ 3.88
$10.00 - $13.53 4,845,060 10.56 4.75 50,000 8.00
December 31, 1999
- -----------------
$2.55 - $7.73 4,163,974 4.43 6.15 2,663,974 4.60
$10.00 - $13.53 5,299,860 $ 11.01 4.75 - $ -
</TABLE>
The weighted average exercise prices for the options and warrants granted are as
follows:
<TABLE>
<CAPTION>
Weighted
Average Grant
Number of Number of Date Fair
Options Warrants Value
---------------- ---------------- ----------------
<S> <C> <C> <C>
Granted during the year ended June 30, 1998
Less than fair value 350,090 - $ 1.00
Equal to fair value - - -
Greater than fair value - - -
---------------- ----------------
350,090 -
================ ===============
Granted during the year ended June 30, 1999
Less than fair value 400,000 123,222 $ 3.81
Equal to fair value - 42,000 1.05
Greater than fair value 5,145,060 30,000 -
---------------- ----------------
5,545,060 195,222
================ ================
Granted during the period ended December 31, 1999
Less than fair value 2,858,265 300,000 $ 3.26
Equal to fair value - 350,487 1.39
Greater than fair value 661,800 - -
---------------- ----------------
3,520,065 650,487
================ ================
</TABLE>
F - 29
<PAGE>
NOTE 12 - STOCK SPLITS
The Company approved a 1 for 5 reverse stock split to be effective May 3, 1999.
The par value was changed from .006 per share to .001 per share.
All share and per share amounts have been restated to reflect the above stock
splits.
NOTE 13 - INCOME TAXES
No provision for federal and state income taxes has been recorded as the Company
has incurred net operating losses through September 30, 1999. The following
table sets forth the primary components of:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
June 30, December 31,
--------------------------------- ---------------------------------
1998 1999 1998 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Deferred tax asset:
Net operating loss carryforwards $ 690,000 $ 1,330,000 $ 855,000 $ 5,956,000
Valuation allowance (690,000) (1,330,000) (855,000) (5,956,000)
-------------- -------------- -------------- --------------
$ - $ - $ - $ -
============== ============== ============== =============
</TABLE>
At June 30, 1998 and 1999 and December 31, 1998 and 1999, the Company fully
reserved its deferred tax assets. The Company believes sufficient uncertainty
exists regarding the reliability of tax assets such that a full valuation is
appropriate.
At December 31, 1999, the Company had approximately $16,415,000 of federal net
operating loss carryforwards for tax reporting purposes available to offset
future taxable income subject to certain limitations due to change in control.
These net operating losses expire through 2009.
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES
LICENSE RIGHTS
A Joint Venture affiliate of Keys, Satellite Microcable Corporation, has
negotiated lease agreements with ten third-party FCC commercial WCTV (Note 1)
license holders for exclusive use of their licenses for the purpose of
broadcasting WCTV transmissions. As of the report date, some channels are under
STA (Special Temporary Authority) pending issuance of permanent licenses.
F - 30
<PAGE>
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
EMPLOYMENT CONTRACTS
The Company entered into various employment agreements with certain officers for
terms of three years each, expiring March 31, 2002. The agreements call for a
minimum annual salary, aggregating $1,025,000, with increases based on annual
review by the compensation committee. If the Company terminates the employment
agreement without cause, the Company will be obligated to pay the base salary
for the remainder of the initial term.
IDLE EQUIPMENT
The Company purchased 15 transmitters which are not in current use. The Company
has negotiated acceptable terms for return of transmitters to the seller. The
asset is being carried at approximately $175,000, and the Company owes
approximately $210,000 on the transmitters as of September 30, 1999. The seller
has agreed to refund the full purchase price upon return of the equipment, less
damage, if any, handling and shipping.
OFFICE SPACE AND TRANSMISSION TOWERS
Keys entered into a lease agreement for the non-exclusive use of a transmission
tower and the exclusive use of the space within a building which contains
satellite signal receiving equipment. The current lease period has expired as
so the lease is on a month to month basis. Keys has the option to renew the
lease for two additional five year periods. Keys is responsible for its
proportionate share of operating expenses, utilities, insurance and taxes.
On June 1, 1998, Keys entered into a lease agreement expiring May 31, 2001 for
office space in Key West, Florida, at $2,040 per month. This lease is subject
to increases based on the Consumer Price Index and has an option to renew for a
three year period.
On July 30, 1999, the Company entered into a lease agreement for office
facilities in West Palm Beach, Florida. The agreement, expiring July 31, 2004,
requires base monthly rental payments of $8,369, plus operating expenses, with
a 4% annual increase in the base. The Company is responsible for its prorated
share of operating expenses, taxes, utilities and insurance on all office
spaces. The Company is currently in default on this lease and the landlord has
filed a lawsuit to recover costs and rents due over the remaining term of the
lease of approximately $900,000.
F - 31
<PAGE>
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
OFFICE SPACE AND TRANSMISSION TOWERS (CONTINUED)
Total annual minimum base rent commitments for the years ended June 30 are as
follows:
<TABLE>
<CAPTION>
For the Year Ended June 30,
---------------------------
<S> <C>
2000 (6 months remaining) $ 291,594
2001 517,447
2002 498,211
2003 502,513
2004 214,502
Thereafter 9,782
--------------
Total $ 2,034,049
==============
</TABLE>
Total rent expense for the years ended June 30, 1998 and 1999 was $17,053 and
$61,700, respectively and $20,584 and $120,181 for the six months ended
December 31, 1998 and 1999, respectively.
SERVICES AGREEMENT
In August 1999, the Company entered into a Services Agreement with a
consultant whose services began in October 1999. The Services Agreement
requires that the consultant render financial consulting and other services
to the Company. As consideration, the Company issued to the consultant two
stock purchase warrants. The first is for the purchase of 500,000 shares of
the Company's common stock at an exercise price of $5.50 per share, which has
a fair value of approximately $1,500,000 utilizing the Black-Scholes pricing
model with the following assumptions: expected life of 6 years, 0%
volatility, risk-free interest rate of 5.5% and a 0% dividend yield. The
second is for the purchase of 720,000 shares of the Company's common stock
which vests at the rate of 15,000 shares per month for 48 consecutive months,
which has an aggregate fair value of approximately $3,220,000 utilizing the
Black-Scholes pricing model with the following assumptions: expected life of
6 years, 0% volatility, risk-free interest rate of 5.5% and a 0% dividend
yield. This is subject to change as the exercise price on the options issued
in each monthly installment is contingent upon the market value of the common
stock as defined below. Compensation costs were reflected in the accompanying
financial statements, for the six months ended December 31, 1999. The
exercise price for each installment is 50% of the market value of the
Company's common stock on the vesting date for that installment. For this
purpose, market value is deemed to be the average of the closing prices for
the 20 trading days preceding the vesting date of the installment. In the
event of a change in control (as defined), an additional number of
installments shall vest and become exercisable as equals the number of
previously vested installments, and the number of shares included in each
monthly installment will double.
F - 32
<PAGE>
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
PLACEMENT AGENT AGREEMENT
In March 1999, the Company entered into an agreement whereby a placement agent
agreed to research and find sources for the Company's various needs of
financing and to make introductions to persons capable of providing such
financing to the Company. If any person introduced to the Company by the agent
provides any investment capital or other types of financing, the Company is
obligated to pay the agent 10% of the first $10,000,000 of capital, 7.5% of the
following $5,000,000 of capital, and 5% of any balance. The fee is payable in
cash at closing. The Company also agreed to pay the agent a non-accountable
project expense fee in the amount of 1% of the financing.
In addition, the Company agreed to issue five-year warrants to the agent for
the purchase of up to five shares of the Company's common stock for each $100
of funds raised at an exercise price equal to 85% of the fair market value of
the Company's common stock for the 20 trading days prior to closing of the
financing. The holders of the warrants were granted "piggyback" registration
rights with respect to the underlying shares and the Company agreed to pay all
costs of registration. As of September 30, 1999, the Company had issued
warrants for the purchase of up to 150,487 shares of its common stock to the
agent and its affiliates and 22,650 shares of common stock to the agent and its
affiliates. The fees earned under this agreement are included in the offering
costs reflected in these financial statements.
OTHER AGREEMENTS
In August 1999, the Company entered into an agreement with an individual giving
him the right, exercisable at any time until February 1, 2000, to cause the
Company to purchase from him a total of 2,600,000 shares of the capital stock of
International Datacasting Corporation, a Canadian corporation based in Ottawa,
Ontario, Canada ("IDC"). The agreement expired unexercised on February 1, 2000.
F - 33
<PAGE>
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
OTHER AGREEMENTS (CONTINUED)
In August, the Company agreed to enter into a financial consulting agreement
with the same individual to provide financial review, analysis and consulting
services to the Company for a period of one year. As consideration, the Company
agreed to issue to the consultant a three-year warrant for the purchase of
100,000 shares of the Company's common stock at an exercise price of $6.25 per
share. The fair value of these warrants is approximately $170,000 utilizing the
Black-Scholes pricing model with the following assumptions: expected life of
three years, 0% volatility, risk free interest rate of 5.5% and a 0% dividend
yield. The expense will be recognized ratably over his period of service. The
Company can terminate the financial consulting agreement at any time upon the
giving of ten days' written notice.
In April, 1999 the Company entered into a one-year agreement with a consultant
for various public relations services in exchange for shares of the Company's
common stock. The first payment of 17,500 shares was made in July, 1999. An
additional 17,500 shares are required to be issued since the Company elected to
continue these services. The Company recognized approximately $122,000 of
compensation expense for the three months ended September 30, 1999. The value
ascribed to the common stock is $7 as the Company has a history of selling stock
for cash at $7 per share.
In September 1999, the Company acquired what management believes is
approximately a 4.9% equity interest in an entity which purports to own
certain technology. The entity claims the Company is in default and has
terminated two of the three agreements. These agreements obligated the
Company to pay $1.6 million and deliver 500,000 shares of common stock for
this equity interest. The 500,000 shares were delivered in November 1999 and
$700,000 (financed with borrowed funds under a convertible promissory note
due April 30, 2000) has been paid. The entity claims the balance of $300,000
is past due and that $600,000 is due in installments over the next five
months. In consideration of the agreement by the seller to renegotiate the
agreements in good faith, Telecom Wireless delivered to the seller an
additional 452,381 shares of common stock in December 1999. The agreements to
be renegotiated include a worldwide, non-exclusive, five-year license
agreement which the entity purports to have cancelled. The Company has
accounted for the investment at cost was based on the amount of the note and
the fair value of the shares issued as part of transactions. Fair value of
the shares issued were determined based on the fair market value on the date
of issuance, or $7 for the November issuance and $2.50 for the December
issuance. The fair values are consisted with other equity transactions for
cash with unrelated parties.
In December 1999, the Company entered into an agreement with a vendor to
purchase broadband wireless telecommunications equipment and services to
establish wireless communications networks in North America. The agreement
requires expenditures over its five-year term of approximately $225,000,000 by
the Company. The Company is obligated to purchase $13,635,375 of equipment
during the first year of the contract. Upon satisfaction of a trial test of the
system, the Company must pay $3,450,090, with additional payments of $3,392,290
each due on June 1, 2000, September 1, 2000 and December 1, 2000. The Company
must pay the vendor five percent of the purchase price of any equipment that it
was obligated but failed to purchase by the end of each calendar year upon
termination of the agreement by either party.
F - 34
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
NOTE 15 - SUBSEQUENT EVENTS
(Unaudited)
In January 2000, the Company issued 2,300 shares of its common stock to 23
non-officer employees of the Company and its two subsidiaries as a stock
bonus.
In January 2000, the Company issued 1,476,000 shares of its common stock and
warrants for the purchase of a net of 1,100,000 shares of its common stock in
consideration of $690,000 in cash, $625,000 in debt cancellation and
investment banking services to be rendered. Substantially all of the shares
have registration rights.
The 1,000,000 in bridge financing that was due in October and November 1999
is past due with the exception of $375,000 which has been converted to common
stock in January 2000. Demand for payment or conversion on the remaining
balance has not been made.
On January 6, 2000, an independent NASD-licensed broker dealer sold
116,000 shares of Registrant's common stock for $290,000, believing such shares
could be sold pursuant to the exemption from registration provided by Section
3(b) of the Securities Act of 1933, as amended, as implemented by Rule 504 of
Regulation D. On January 21, 2000, corporate counsel advised Registrant that
there was a potential integration issue and the afore-referenced exemption might
not be available.
F-35
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
America's Web Station, Inc.
Naples, Florida
We have audited the accompanying balance sheets of America's Web
Station, Inc. (an S corporation) as of December 31, 1998 and 1997, and the
related statements of operations, changes in stockholders' equity (deficit) and
cash flows for the year ended December 31, 1998 and for the period from January
29, 1997 (inception) through December 31, 1997. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide 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 America's Web
Station, Inc. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the year and period then ended 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 7 to the
financial statements the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regards to these matters
are also described in Note 7. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
GIRARDIN BALDWIN & ASSOCIATES LLP
Certified Public Accountants
Naples, Florida
July 30, 1999
F-36
<PAGE>
AMERICA'S WEB STATION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
---------------------------------------
1998 1997 1999
------------------ ------------------ ------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 32,330 $ 942 $ 5,878
Accounts receivable - trade 10,476 11,877 14,893
---------------- ---------------- ----------------
Total current assets 42,806 12,819 20,771
---------------- ---------------- ----------------
FURNITURE AND EQUIPMENT, at cost 90,066 58,044 90,214
Less accumulated depreciation 27,459 8,259 36,509
---------------- ---------------- ----------------
62,607 49,785 53,705
---------------- ---------------- ----------------
OTHER ASSETS
Goodwill, net of accumulated amortization 1999 -
$1,127; 1998 - $797; 1997 - $139 9,073 9,731 8,743
Other 3,326 347 2,957
---------------- ---------------- ----------------
12,399 10,078 11,700
---------------- ---------------- ----------------
$ 117,812 $ 72,682 $ 86,176
================ ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt $ 22,310 $ 3,945 $ 22,549
Demand notes payable-stockholders 66,360 7,432 77,460
Accounts payable and accrued expenses 6,986 3,437 10,933
---------------- ---------------- ----------------
Total current liabilities 95,656 14,814 110,942
LONG-TERM DEBT, less current maturities 92,157 15,997 80,872
---------------- ---------------- ----------------
Total liabilities 187,813 30,811 191,814
---------------- ---------------- ----------------
COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $.05 per share; 1,500
shares authorized, 1,200 shares issued and
outstanding 60 60 60
Additional paid in capital 186,065 121,940 186,065
Accumulated (deficit) (256,126) (80,129) (291,763)
---------------- ---------------- ----------------
(70,001) 41,871 (105,638)
---------------- ---------------- ----------------
$ 117,812 $ 72,682 $ 86,176
================ ================ ================
</TABLE>
See accompanying notes and accountant's reports.
F-37
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
January 19,
1997
(Inception)
Year Ended through Six Months Ended
December 31, December 31, June 30,
1998 1997 1999 1998
-------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 170,736 $ 47,405 $ 76,708 $ 88,276
-------------- -------------- -------------- --------------
Costs and expenses
Internet service operating costs 60,805 24,024 24,842 28,557
General and administrative 283,415 102,207 82,415 133,646
-------------- -------------- -------------- --------------
344,220 126,231 107,257 162,203
-------------- -------------- -------------- --------------
(Loss) from operations (173,484) (78,826) (30,549) (73,927)
Interest expense 2,513 1,303 5,088 136
-------------- -------------- -------------- --------------
Net (loss) $ (175,997) $ (80,129) $ ( 35,637) $ (74,063)
============== ============== ============== ==============
Earnings (loss) per share, basic and diluted $ (146.66) $ (311.79) $ (29.70) $ (61.72)
====== ====== ===== =====
Weighted average shares outstanding 1,200 257 1,200 1,200
============== ============== ============== ==============
</TABLE>
F-38
<PAGE>
AMERICA'S WEB STATION, INC.
CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
--------------------------------- Paid-in Accumulated
Shares Amount Capital (Deficit) Total
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, January 29, 1997 -
(Inception) - $ - $ - $ - $ -
Capital contributions 1,200 60 121,940 - 122,000
Net (loss) - - - (80,129) (80,129)
-------------- -------------- -------------- -------------- --------------
Balance, December 31,
1997 1,200 60 121,940 (80,129) 41,871
Capital contributions - - 64,125 - 64,125
Net (loss) - - - (175,997) (175,997)
-------------- -------------- -------------- -------------- --------------
Balance, December 31,
1998 1,200 60 186,065 (256,126) (70,001)
Net (loss) (unaudited) - - - (35,637) (35,637)
-------------- -------------- -------------- -------------- --------------
Balance, June 30, 1999
(unaudited) 1,200 $ 60 $ 186,065 $ (291,763) $ (105,638)
============== ============== ============== ============== ==============
</TABLE>
See accompanying notes and accountant's reports.
F - 39
<PAGE>
AMERICA'S WEB STATION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
January 29,
1997
(Inception)
Year Ended through Six Months Ended
December 31, December 31, June 30,
1998 1997 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (175,997) $ (80,129) $ (35,637) $ (74,065)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 19,858 8,398 9,380 9,600
(Increase) decrease in assets:
Accounts receivable 1,401 (11,877) (4,417) (1,454)
Other (2,979) (347) 369 (300)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 3,549 3,437 3,947 (547)
--------------- --------------- --------------- ---------------
Net cash used by operating activities (154,168) (80,518) (26,358) (66,766)
--------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (32,022) (58,044) (148) (23,543)
Payment of goodwill - (9,870) - -
--------------- --------------- --------------- --------------
Net cash used by investing activities (32,022) (67,914) (148) (23,543)
--------------- --------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stockholder loans 58,928 7,432 14,700 104,450
Proceeds from borrowings 100,000 22,368 - -
Principal payments on debt (5,475) (2,426) (14,646) (325)
Proceeds from capital contributions 64,125 122,000 - -
--------------- --------------- --------------- --------------
Net cash provided by financing activities 217,578 149,374 54 104,125
--------------- --------------- --------------- ---------------
Net change in cash and cash equivalents 31,388 942 (26,452) 13,816
Cash and cash equivalents:
Beginning 942 - 32,330 942
--------------- --------------- --------------- ---------------
Ending $ 32,330 $ 942 $ 5,878 $ 14,758
=============== =============== =============== ===============
Supplemental disclosure of cash flow information:
Cash payments for interest $ 2,513 $ 1,303 $ 4,903 $ 138
=============== =============== =============== ===============
</TABLE>
See accompanying notes and accountant's reports.
F - 40
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1999 AND 1998 IS UNAUDITED)
Note 1. Organization and Summary of Significant Accounting Policies
Organization
America's Web Station, Inc. (the Company) formerly known as
Millennium Market Tech, Inc. (Note 4), commenced operations in
January 1997 for the purpose of providing regional internet
services throughout Southwest Florida.
Revenue Recognition
The Company recognizes revenue as services are rendered.
Interim Financial Statements (Unaudited)
In the opinion of management, the accompanying unaudited
financial statements contain all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the
financial position of the Company at June 30, 1999 and the
results of its operations and changes in cash flows for the
six months ended June 30, 1999 and 1998. The results of
operations for the six months ended June 30, 1999 and 1998 are
not necessarily indicative of the results to be expected for a
full year.
Use of 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 the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers
money market accounts to be cash equivalents.
F - 41
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1999 AND 1998 IS UNAUDITED)
Note 1. Organization and Summary of Significant Accounting Policies - Continued
Furniture and Equipment
Depreciation of furniture and equipment is computed under
accelerated methods over the estimated useful lives of the
assets. Depreciation expense for the six months ended June 30,
1999 and 1998 was $9,050 and $9,600, respectively, and totaled
$19,200 and $8,259 for the year and period ended December 31,
1998 and 1997, respectively.
The cost of assets retired or sold, together with the related
accumulated depreciation, is removed from the accounts and any
profit or loss on disposition is credited or charged to
earnings.
Goodwill
Goodwill is recorded as the differences between net assets
acquired and the related purchase price. Amortization is
calculated over an estimated useful life of fifteen years.
Advertising Costs
All advertising costs are expensed as incurred. Total
advertising costs for the years ended December 31, 1998 and 1997
were $11,548 and $18,269, respectively and totaled $3,051 and
$6,002 for the six month periods ended June 30, 1999 and 1998,
respectively.
Income Taxes
The Company, with the consent of its stockholders, elected under
the Internal Revenue Code to be taxed as an S corporation. In
lieu of corporate income taxes, the proportionate share of the
Company's taxable income or loss is recognized by the
stockholders. Accordingly, no provision for income taxes is
included in the accompanying financial statements.
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share is computed based upon
the weighted average number of common shares outstanding during
the period. Diluted earnings per share consists of the weighted
average number of common shares outstanding plus the dilutive
effects of options and warrants calculated using the treasury
stock method. In loss periods, dilutive common equivalent shares
are excluded as the effect would be anti-dilutive.
F - 42
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1999 AND 1998 IS UNAUDITED)
Note 2. Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, June 30,
---------------------------------
1998 1997 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Note payable to financial institution, monthly payments
of $1,500 plus interest at 9.75%, collateralized by all
equipment and personally guaranteed by the
stockholders, final balloon payment due November
2003 $ 98,500 $ - $ 89,500
Note payable to financial institution, monthly payments
of $463, including interest at 8.9%, collateralized by
vehicle, final payment due April 2002 15,967 19,942 13,921
-------------- -------------- --------------
114,467 19,942 103,421
Less current maturities 22,310 3,945 22,549
-------------- -------------- --------------
$ 92,157 $ 15,997 $ 80,872
============== ============== ==============
</TABLE>
Long-term debt matures as follows as of June 30, 1999:
<TABLE>
<CAPTION>
Twelve Months Ending June 30,
------------------------------
<S> <C>
2000 $ 22,549
2001 22,923
2002 22,449
2003 18,000
2004 17,500
--------------
$ 103,421
--------------
--------------
</TABLE>
Note 3. Related Party Transactions
Notes payable to stockholders are unsecured, payable on demand, and
bear interest at 7% to 19%.
F - 43
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1999 AND 1998 IS UNAUDITED)
Note 4. Business Combinations
The Company commenced operations January 1997, as Millennium
Market Tech, Inc. In October 1997, America's Web Station, Inc. was
formed for the primary purpose of changing the name of the
business. Effective January 1998, the Company began operating
under the corporate name America's Web Station, Inc.
The outstanding shares of common stock of Millennium Market Tech,
Inc., which totaled 1,000 shares, were exchanged and canceled in
consideration for the issuance of 1,000 shares of America's Web
Station, Inc. common stock. The combination was accounted for as a
pooling of interests and neither entity recognized a gain or loss.
America's Web Station, Inc. was dormant until the merger occurred.
The Company acquired the assets of Wow Factor in October 1997 for
$12,470, which was accounted for using the purchase method. The
Company's results of operations include the Wow Factor effective
October 15, 1997.
Note 5. Lease Commitment
The Company leases office space and equipment under non-cancelable
operating leases expiring through November 2000. Future minimum
lease payments under the leases as of June 30, 1999 were as
follows:
<TABLE>
<CAPTION>
Twelve Months Ending June 30,
-----------------------------
<S> <C>
2000 $ 28,214
2001 6,809
--------------
$ 35,023
==============
</TABLE>
Rent expense for the six months ended June 30, 1999 and 1998 was
$18,408 and $12,610, respectively and rent expense for the year
and period ended December 31, 1998 and 1997 was $41,634 and
$16,019, respectively.
F - 44
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1999 AND 1998 IS UNAUDITED)
Note 6. Subsequent Event
In July 1999, the Company's stockholders entered into an agreement
to exchange all outstanding shares of the Company for shares in
Telecom Wireless Corporation (TWC). Under the agreement, TWC will
assume or pay approximately $150,000 of the Company's
indebtedness. Such indebtedness includes the note payable to a
financial institution and accounts payable as of the closing date.
Any remaining amount of the $150,000 is to be applied towards the
Company's notes payable to stockholders. Any residual balance then
remaining for notes payable to stockholders will be converted to
additional paid in capital.
Note 7. Uncertainty
The Company incurred cumulative net losses through June 30, 1999
totaling $291,763 and its liabilities are substantially in excess
of its assets.
As discussed in Note 6, the stockholders have entered into an
agreement whereby $150,000 of Company liabilities are to be
assumed or repaid. In addition, TWC has committed to certain
equipment additions and upgrades resulting in increased capacity
for customer services. The Company will also benefit from
administrative, technical and marketing support from TWC.
The Company's continued existence is dependent upon obtaining
additional financing or capital, increasing revenues and/or
reducing expenses. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
F - 45
<PAGE>
UNAUDITED PRO FORMA
STATEMENTS OF OPERATIONS
AND CASH FLOWS
The unaudited pro forma statements of operations and cash flows for the year
ended June 30, 1999 give effect to the business combination of Telecom Wireless
Corporation and America's Web Station, Inc., as if it occurred effective July 1,
1998.
These financial statements include the related pro forma adjustments described
in the notes thereto. The transactions between Telecom Wireless Corporation and
America's Web Station, Inc. have been accounted for under the purchase method of
accounting.
These pro forma statements are not necessarily indicative of the results of
operations or cash flows as they may be in the future or as they might have been
had the transaction become effective on the above mentioned dates.
The unaudited pro forma statements of operations and cash flows should be read
in conjunction with the historical financial statements and notes thereto of
Telecom Wireless Corporation.
F - 46
<PAGE>
TELECOM WIRELESS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Telecom America's
Wireless Web
Corp. Station, Inc. Total
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Internet services $ - $ 159,168 $ 159,168
Wireless cable revenues 517,261 - 517,261
Consulting fees 5,393 - 5,393
------------- ------------- -------------
522,654 159,168 681,822
------------- ------------- -------------
Expenses
Direct expenses 275,705 - 275,705
Internet service operating costs - 57,090 57,090
Stock based compensation 1,547,560 - 1,547,560
Selling, general and administrative 2,051,568 232,182 2,283,750
------------- ------------- -------------
Total cost of sales and expenses 3,874,833 289,272 4,164,105
------------- ------------- -------------
Income (loss) from operations (3,352,179) (130,104) (3,482,283)
Other income (expenses)
Interest income - - -
Interest expense (92,341) (7,465) (99,806)
------------- ------------- -------------
Total other income (expense) (92,341) (7,465) (99,806)
------------- ------------- -------------
Income (loss) before income taxes and minority interest (3,444,520) (137,569) (3,582,089)
Income tax expense (benefit) - - -
------------- ------------- -------------
Income (loss) before minority interest (3,444,520) (137,569) (3,582,089)
Minority interest - - -
------------- ------------- -------------
Net income (loss) (3,444,520) (137,569) (3,582,089)
Dividends on preferred stock - - -
------------- ------------- -------------
Net income (loss) available to common stockholders (3,444,520) $ (137,569) $ (3,582,089)
============= ============= =============
Earnings (loss) per common share - basic and diluted $ (.92)
============
Weighted average shares outstanding - basic and diluted 3,759,050
=============
<CAPTION>
Pro Forma Adjustments Pro Forma
----------------------------- Consolidated
Debit Credit Total
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Internet services $ - $ - $ 159,168
Wireless cable revenues - - 517,261
Consulting fees - - 5,393
------------- ------------- -------------
- - 681,822
------------- ------------- -------------
Expenses
Direct expenses - - 275,705
Internet service operating costs 57,090
Stock based compensation - - 1,547,560
Selling, general and administrative (1) 102,206 - 3,204,706
(2) 818,750 -
------------- ------------- -------------
Total cost of sales and expenses 920,956 - 5,085,061
------------- ------------- -------------
Income (loss) from operations (920,956) - (4,403,239)
-------
Other income (expenses)
Interest income - -
Interest expense - - (99,806)
------------- ------------- -------------
Total other income (expense) - - (99,806)
------------- ------------- -------------
Income (loss) before income taxes and minority interest (920,956) - (4,503,045)
-------
Income tax expense (benefit) - - -
------------- ------------- ------------
Income (loss) before minority interest (920,956) (4,503,045)
-------
Minority interest - - -
------------- ------------- ------------
Net income (loss) (920,956) (4,503,045)
-------
Dividends on preferred stock - - -
------------- ------------- ------------
Net income (loss) available to common stockholders $ (920,956) $ - $ (4,503,045)
============= ============= =============
Earnings (loss) per common share - basic and diluted $ (1.19)
============
Weighted average shares outstanding - basic and diluted 3,787,612
=============
</TABLE>
F - 47
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Telecom America's
Wireless Web
Corp. Station, Inc. Total
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (3,444,520) $ (137,569) $ (3,582,089)
------------- ------------- -------------
Adjustments to reconcile net loss to net cash used by operating
activities
Depreciation and amortization 255,978 19,638 275,616
Stock issued for services 30,000 - 30,000
Imputed value of options granted for services 1,547,560 - 1,547,560
Changes in assets and liabilities
Accounts receivable 12,245 (1,562) 10,683
Other assets (3,880) (2,310) (6,190)
Accounts payable (14,510) 8,043 (6,467)
Accrued expenses 104,445 - 104,445
Accrued interest 91,227 - 91,227
------------- ------------- -------------
2,023,065 23,809 2,046,874
------------- ------------- -------------
Net cash used by operating activities (1,421,455) (113,760) (1,535,215)
------------- ------------- -------------
Cash flows from investing activities
Acquisition of equipment (121,117) (8,627) (129,744)
Net change in other assets - - -
------------- ------------- -------------
Net cash used by investing activities (121,117) (8,627) (129,744)
------------- ------------- -------------
Cash flows from financing activities
Net activity on line-of-credit/floor plans - - -
Net repayments to related party (16,667) (30,822) (47,489)
Sale of common stock/capital contribution 2,179,305 64,125 2,243,430
Net payments on notes payable - (19,796) (19,796)
Net proceeds from notes payable - 100,000 100,000
Net payments on capital leases - - -
Dividends/distributions paid - - -
------------- ------------- -------------
Net cash provided by financing activities 2,162,638 113,507 2,276,145
------------- ------------- -------------
Net increase (decrease) in cash 620,066 (8,880) 611,186
Cash at beginning of period 600 14,758 15,358
------------- ------------- -------------
Cash at end of period $ 620,666 $ 5,878 $ 626,544
============= ============= =============
<CAPTION>
Pro Forma Pro Forma
Acquisition Consolidated
Adjustments Total
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (920,956) $ (4,503,045)
------------- -------------
Adjustments to reconcile net loss to net cash used by operating
activities
Depreciation and amortization 102,206 377,822
Stock issued for services - 30,000
Imputed value of options granted for services - 1,547,560
Changes in assets and liabilities
Accounts receivable - 10,683
Other assets - (6,190)
Accounts payable - (6,467)
Accrued expenses - 104,445
Accrued interest - 91,227
------------- -------------
120,206 2,149,080
------------- -------------
Net cash used by operating activities (818,750) (2,353,965)
------------- -------------
Cash flows from investing activities
Acquisition of equipment - (129,744)
Net change in other assets - -
------------- ------------
Net cash used by investing activities - (129,744)
------------- -------------
Cash flows from financing activities
Net activity on line-of-credit/floor plans - -
Net repayments to related party - (47,489)
Sale of common stock/capital contribution - 2,243,430
Net payments on notes payable - (19,796)
Net proceeds from notes payable - 100,000
Net payments on capital leases - -
Dividends/distributions paid - -
------------- ------------
Net cash provided by financing activities - 2,276,145
------------- -------------
Net increase (decrease) in cash (818,750) (207,564)
Cash at beginning of period - 15,358
------------- -------------
Cash at end of period $ (818,750) $ (192,206)
============= =============
</TABLE>
F - 48
<PAGE>
TELECOM WIRELESS CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
In July 1999 the Company consummated an acquisition of all of the issued and
outstanding common shares of America's Web Station for 28,562 shares of common
stock valued at $199,931 for purposes of the acquisition. The acquisition has
been accounted for as a purchase. The purchase price, including acquisition
costs, was allocated as follows:
<TABLE>
<S> <C>
Cash $ 5,878
Accounts receivable, net 14,893
Property and equipment, net 53,705
Intangible assets 8,743
Subscriber lists 225,000
Other assets 2,957
--------------
311,176
Liabilities assumed (191,814)
--------------
119,362
Consideration given and acquisition costs (225,390)
--------------
Excess purchase price recorded as goodwill $ 136,028
==============
</TABLE>
(1) To record amortization of goodwill and subscriber lists.
(2) To record pro forma effect of new employment agreements with certain
officers.
F - 49
<PAGE>
UNTIL MAY ___, 2000, 90 DAYS AFTER THE DATE OF THE PROSPECTUS, ALL
PERSONS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $ 6,587
Printing and Engraving 125,000
Transfer Agent's Fee and Expenses N/A
Legal Fees and Expenses 175,000
Blue Sky Qualification Fees and Expenses N/A
Accountants' Fees and Expenses 75,000
Miscellaneous Expenses 18,413
--------
Total $400,000
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, Registrant has sold the following
securities without registering them under the Securities Act of 1933:
Present management assumed control of Registrant in April 1999. Records
regarding sales of Registrant's securities prior to that time are incomplete and
many records prior to about May 1998 are largely unavailable. Prior management
has advised Registrant that all available books and records have been delivered
to current management. Registrant has no present affiliation with prior
management.
Between March 10, 1998 and July 20, 1998, Registrant authorized the
issuance of and issued 255,400 shares of common stock and an option for the
purchase of 260,000 shares of common stock to ten individuals and one entity
which appears to have been affiliated with one of such individuals. Management
believes these securities were issued in consideration of services rendered to
Registrant having an unknown value. The securities registration exemption relied
upon by Registrant is unknown.
On or about May 8, 1998, Registrant authorized the issuance of and
thereafter issued 5,200 shares of its common stock to four individuals in
consideration of $2,600. The securities registration exemption relied upon by
Registrant is unknown.
In June 1998, Registrant authorized the issuance of and issued 463,092
shares of its common stock to five persons in exchange for all of the common
stock of Keys Microcable Corporation. Registrant also authorized the issuance to
one of the former shareholders of Keys Microcable Corporation convertible
preferred stock in connection with the conversion to equity of approximately
$1.2 million of debt owed by Keys Microcable Corporation. Registrant also issued
an option for the purchase of shares of its common stock to the same individual.
It appears Registrant relied upon the exemption from securities registration
provided by Section 4(2) and/or Rule 506 of Regulation D under the Securities
Act.
In August 1998, Registrant authorized the issuance of and issued 120,000
shares of common stock to Cavalier Securities, Ltd., or its nominees. Management
believes that all or a substantial portion of these securities were sold for
unknown amount of cash. It appears Registrant relied upon the exemption from
securities registration provided by Rule 504 of Regulation D under the
Securities Act.
<PAGE>
On or about March 26, 1999, Registrant authorized for issuance and
thereafter issued 13,825,000 shares of its common stock in exchange for the
13,500 outstanding shares of the common stock of Phoenix Communications, Inc.,
held by 13 persons of which nine were accredited investors and four were not
accredited investors. The exchange was consummated in April 1999. Of the 13
former shareholders of Phoenix Communications, Inc., 11 either are or have been
members of management of Registrant subsequent to the exchange.
In April 1999, Registrant authorized for issuance and thereafter sold
120,000 shares of common stock for gross proceeds aggregating $600,000 to six
persons pursuant to the exemption from securities registration provided by Rule
504 of Regulation D under the Securities Act. Placement agent fees and costs
aggregating $83,100 were paid to Jack Augsback & Associates, Inc., a
non-affiliated third party, and others.
Registrant entered into Common Stock Purchase Agreements dated May 25,
1999, July 28, 1999, and September 10, 1999, pursuant to which 466,963 shares of
Registrant's common stock thereafter were sold to 28 persons for gross proceeds
aggregating $3,268,745. 22 of such persons were accredited investors, five were
off-shore entities and one was not an accredited investor. Registrant also
issued repricing warrants to purchasers in the offering. Placement agent fees
and costs aggregating $500,020 were paid to Jack Augsback & Associates, Inc.,
and Thomson Kernaghan & Co. Ltd., non-affiliated third parties, and others. Jack
Augsback & Associates, Inc., Thomson Kernaghan & Co. Ltd. and their assignees
also were issued warrants for the purchase of 195,487 shares of the Company's
common stock.
On July 7, 1999, Registrant authorized for issuance and subsequently
issued 17,500 shares of its common stock valued at $122,500 to one entity in
consideration of services rendered to Registrant by that entity. The entity was
an accredited investor.
Effective in April, May and August 1999, Registrant issued non-qualified
options for the purchase of 5,561,192 shares of its common stock for an average
exercise pirce of $9.84 per share to nine officers and one employee of
Registrant of which eight were accredited investors and two were not accredited
investors.
Between April 14, 1999, and January 31, 2000, Registrant issued 38,046
shares of its common stock valued at $250,222 and issued non-qualified and
incentive options for the purchase of 173,668 shares of its common stock for an
average exercise price of $9.27 per share to employees of Registrant and a
subsidiary of Registrant in compensatory transactions pursuant to the exemption
from securities registration provided by Rule 701 under the Securities Act.
In August 1999, Registrant issued warrants for the purchase of up to
500,000 shares of its common stock at an exercise price of $5.50 per share
and additional warrants for the purchase of up to 720,000 shares at exercise
prices to be determined to one individual in consideration of financial
consulting services. The individual was an accredited investor.
Effective in August 1999, Registrant issued warrants for the purchase of
123,222 shares of its common stock at an exercise price of $5.275 per share to
two officers of Registrant, both of whom were accredited investors, in
consideration of management services rendered to a subsidiary of the company
prior to April 1999.
In July and September 1999, Registrant issued 375,229 shares of its
common stock valued at $2,626,603 and options for the purchase of 350,000
shares of its common stock for an average exercise price of $3.92 per share
(but subject to performance standards) in connection with its acquisitions of
America's Web Station, Inc. and Prentice Technologies, Inc. to three
individuals. One individual was an accredited investor and two were not
accredited investors.
<PAGE>
In September and October 1999, Registrant issued for $1,000,000 in cash
promissory notes aggregating $1,000,000 in principal amount and warrants for the
purchase of 200,000 shares of its common stock for an exercise price of $7.00
per share to six persons, of whom five were accredited investors and one was an
off-shore entity. Placement agent fees in the form of a warrant for the
purchase of 300,000 shares of Registrant's common stock for an exercise price
of $.01 per share were paid to First Equity Capital Securities, Inc., a
non-affiliated third party. In November 1999, the warrants were exercised. In
January 2000, Registrant issued the shares underlying the warrants to three
persons as directed by the holder of the warrants. Two of such persons were
accredited investors and the third was an off-shore entity.
In November 1999, Registrant issued to one entity a promissory note in
the principal amount of $700,000 convertible into shares of Registrant's common
stock at a conversion price of $7.00 per share in consideration of the
assignment of certain technology-related equity interests. The entity was an
accredited investor.
In November and December 1999, Registrant issued 952,381 shares of its
common stock valued at $4,630,953 to one entity in connection with its
acquisition of certain technology-related equity interests. This entity was not
an accredited investor.
In December 1999, Registrant issued to one person a promissory note in
the principal amount of $140,000. Registrant is obligated to issue up to 50,000
shares of its common stock in payment or partial payment of the promissory note.
The holder of the note was an accredited investor.
In January 2000, Registrant issued 1,200,000 shares of its common stock
valued at $2,025,000 and warrants for the purchase of 1,000,000 shares of its
common stock at an exercise price of $5.50 per share to three persons in
consideration of $625,000 in debt cancellation and investment banking
services to be rendered. All three persons were accredited investors.
In January 2000, Registrant issued options for the purchase of 300,000
shares of its common stock at an exercise price of $5.80 per share to one
individual in connection with his employment as an officer of Registrant. The
individual was not an accredited investor.
In February 2000, Registrant issued 400,000 shares of its common
stock for $1,000,000 in cash, a promissory note in the principal amount of
$100,000 convertible into common stock at $2.50 per share and warrants for the
purchase of an additional 395,000 shares for an average exercise price of
$2.63 per share to seven persons. Six of such persons were accredited investors
and one was an off-shore entity. Placement agent fees aggregating $100,000 plus
warrants for the purchase of 40,000 shares were paid to Hampton-Porter
Investment Bankers and International Financial Management.
With respect to all of the transactions described above that occurred
after present management assumed control of Registrant in April 1999:
1. The purchasers represented they were taking the securities for
investment and not for distribution.
2. The purchasers acknowledged that the certificates evidencing the
securities would bear a legend restricting transfer under the
Securities Act since they had not been sold in a registered
offering.
3. Except as stated above and except as to transactions claimed to
be exempt from registration pursuant to Rules 504 and 701 under
the Securities Act, the Company believes all purchasers were
accredited investors as defined in the Securities Act.
4. Except as stated above, Registrant relied upon the exemption
from securities registration provided by Section 4(2) and/or
Rule 506 of Regulation D under the Securities Act. Section 4(2)
of the Securities Act covers "transactions by an issuer not
involving any public offering," with respect to the issuance of
securities without registration under the Securities Act of
1933. Registrant believes that the non-accredited investors to
whom the securities were issued pursuant to Rule 506 had such
knowledge and experience in financial and business matters that
they were capable of evaluating the
<PAGE>
merits and risks of the prospective investment. Registrant also
believes that all investors were sophisticated in business and
financial matters, had access to the same type of information
as would be contained in a registration statement and did not
need the protections that registration would afford.
On January 6, 2000, an independent NASD-licensed broker dealer sold
116,000 shares of Registrant's common stock for $290,000, believing such shares
could be sold pursuant to the exemption from registration provided by Section
3(b) of the Securities Act of 1933, as amended, as implemented by Rule 504 of
Regulation D. On January 21, 2000, corporate counsel advised Registrant that
there was a potential integration issue and the afore-referenced exemption might
not be available. On January 21, 2000, Registrant made a rescission offer.
Registrant has since instituted new corporate procedures to insure such
transactions do not occur in the future.
All share amounts in the discussion above have been restated to reflect
the 1-for-50 reverse stock split of the Registrant on April 23, 1998 and the
1-for-5 reverse stock split of the Registrant on May 4, 1999.
ITEM 27. EXHIBITS
The exhibits to this registration statement are listed in the Exhibit
Index, which appears immediately after the signature page and is incorporated in
this Item 27 by this reference.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 2
to Registration Statement to be signed on its behalf by the undersigned, in
Denver, Colorado, on February 17, 2000.
TELECOM WIRELESS CORPORATION,
By: /s/ Calvin D. Smiley
----------------------------------
Calvin D. Smiley
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints James C. Roberts, Calvin D. Smiley and
Kosta S. Kovachev, and each or any of them, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933 and any and all amendments (including
post-effective amendments) to this registration statement and to any
registration statement filed pursuant to Rule 462(b), and to file same, with all
exhibits thereto and, other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- -----
<S> <C> <C>
/s/ James C. Roberts Chairman of the Board and Director February 17, 2000
- -------------------------------
James C. Roberts
/s/ Calvin D. Smiley President, Principal Executive Officer and February 17, 2000
- ------------------------------- Director
Calvin D. Smiley
/s/ Kosta S. Kovachev Principal Financial and Accounting Officer February 17, 2000
- ------------------------------- and Director
Kosta S. Kovachev
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
3.1** Articles of Incorporation of Telecom Wireless as filed with the
Utah Secretary of State on April 12, 1984
3.2** Articles of Amendment to Articles of Incorporation as filed
with the Utah Secretary of State on March 12, 1998
3.3** Articles of Amendment to Articles of Incorporation as filed
with the Utah Secretary of State on April 20, 1999
3.4** Articles of Amendment to Articles of Incorporation setting
forth the Preferences, Limitations, and Relative Rights of
Redeemable, Non-voting, Cumulative Preferred Stock, Series
1998-1 as filed with the Utah Secretary of State on November 9,
1999
3.5** Bylaws of Telecom Wireless
3.6** Articles of Amendment to Articles of Incorporation setting
forth the Amended and Restated Preferences, Limitations, and
Relative Rights of Redeemable, Non-voting, Cumulative Preferred
Stock, Series 1998-1 as filed with the Utah Secretary of State
on January 19, 2000
5.1 Opinion of Kruse, Landa & Maycock, L.L.C.
10.1** Stock Purchase Option dated June 1, 1998, between Telecom
Wireless and Marc L. Baker Consulting, Inc., as amended and
assigned to Joshua Mailman
10.2** Stock Purchase Option dated June 18, 1998 between Telecom
Wireless and Herman L. Walker
10.3** Office Lease Agreement dated January 20, 1999 between Prentice
Point Limited Partnership and The Enterprise Systems Group,
Inc.
10.4** Corporate Finance/Placement Agent Agreement dated March 26,
1999 between Telecom Wireless and Jack Augsback & Associates,
Inc.
10.5** Executive Employment Agreement made and effective as of March
29, 1999 between Phoenix Communications, Inc. (predecessor to
Telecom Wireless) and each of its executive officers
accompanied by a schedule identifying such Agreements to which
Telecom Wireless is a party that are substantially identical
and material details in which such agreements differ from filed
agreement
10.6** Common Stock Purchase Agreement dated April 6, 1999 between
Telecom Wireless and those persons identified on accompanying
schedule
10.7** Nonqualified Stock Option Agreement dated April 13, 1999
between Telecom Wireless and James C. Roberts accompanied by a
schedule identifying other Nonqualified Stock Option Agreements
to which Telecom Wireless is a party that are substantially
identical and material details in which such agreements differ
from filed agreement
10.8** Non-Qualified Stock Option Agreement dated May 4, 1999, issued
to Jay W. Enyart, an employee of Telecom Wireless for the
purchase of 400,000 shares
<PAGE>
10.9** Non-Qualified Stock Option Agreement dated May 4, 1999, issued
to Jay W. Enyart, an employee of Telecom Wireless for the
purchase of 261,192 shares
10.10** Placement Agent Agreement dated May 25, 1999 between Telecom
Wireless and Jack Augsback & Associates, Inc.
10.11** Common Stock Purchase Agreement dated May 25, 1999 between
Telecom Wireless and those persons identified on accompanying
schedule
10.12** Registration Rights Agreement between Telecom Wireless and the
persons listed on the purchaser signature pages thereto
accompanied by a schedule identifying other Registration Rights
Agreements to which Telecom Wireless is a party that are
substantially identical and material details in which such
agreements differ from filed agreement
10.13** Repricing Warrant issued by Telecom Wireless to each of the
persons identified in the accompanying schedule
10.14** Warrant Certificate No. TK-2 dated May 24, 1999 issued by
Telecom Wireless to Thomson Kernaghan & Co., Ltd., as Agent
10.15** Placement Agent Warrant Certificate No. TK-1 dated June 9, 1999
issued by Telecom Wireless to Thomson Kernaghan & Co. Ltd.
10.16** Common Stock Purchase Agreement dated July 28, 1999 between
Telecom Wireless and those persons identified on accompanying
schedule
10.17** Master Lease Agreement dated July 30, 1999 between Lucent
Technologies, Inc. Internetworking Division and Telecom
Wireless
10.18** Warrant Agreement dated August 26, 1999 issued by Telecom
Wireless to Jack Augsback & Associates, Inc. accompanied by a
schedule identifying other Warrant Agreements to which Telecom
Wireless is a party that are substantially identical and
material details in which such agreements differ from filed
agreement
10.19** Services Agreement dated August 30, 1999 between Telecom
Wireless and John H. Sununu
10.20** Letter Agreement dated September 1, 1999 between Telecom
Wireless and First Equity Capital Securities, Inc., as amended
10.21** Bridge Loan Agreement between Telecom Wireless and Commtel
Services Ltd. accompanied by a schedule identifying other
Bridge Loan Agreements to which Telecom Wireless is a party
that are substantially identical and material details in which
such agreements differ from filed agreement
10.22** Guaranty dated September 1, 1999 by Dr. James C. Roberts for
the benefit of Commtel Services Ltd., Kenneth R. Levine and
Stanley Becker, in their capacity as Bridge Lenders
10.23** Common Stock Purchase Agreement dated as of September 10, 1999
between Telecom Wireless and those persons identified on
accompanying schedule
10.24** Agreement and Plan of Merger dated September 21, 1999 among
Telecom Wireless, TWC/Prentice Acquisition Company, Inc. and
Prentice Technologies, Inc.
10.25** Executive Employment Agreement dated September 23, 1999,
between Telecom Wireless Corporation and Shawn P. Richmond
<PAGE>
10.26** Warrant issued by Telecom Wireless to John H. Sununu for the
purchase of 720,000 shares
10.27** Warrant issued by Telecom Wireless to John H. Sununu for the
purchase of 500,000 shares
10.28** Amended and Restated 1999 Stock Option and Restricted Stock
Plan
10.29** Put/Call Agreement between Telecom Wireless and Joshua Mailman,
as amended
10.30** Form of Warrant to Purchase Shares of Common Stock issued to
each of Calvin D. Smiley and Esper Gullatt, Jr. for the
purchase of 61,611 shares
10.31** Form of Stock Sale Restriction Agreement by and between Telecom
Wireless and certain of its present or former officers and/or
directors
10.32** Letter Agreement dated December 6, 1999, regarding investment
by Matthew L. Talbert
10.33** Investment Banking Agreement dated December 9, 1999, by and
between Telecom Wireless Corporation and Hampton-Porter
Investment Bankers
10.34** Office Lease Agreement dated December 21, 1999 between Prentice
Point Limited Partnership and Telecom Wireless Corporation
together with letter agreement dated December 21, 1999, setting
forth additional understandings and agreements in connection
with the Office Lease Agreement
10.35** Settlement Agreement dated December 22, 1999, regarding bridge
loans between Commtel Services Ltd. and Telecom Wireless
Corporation
10.36** Purchase Agreement dated December 22, 1999, between Adaptive
Broadband Corporation and Telecom Wireless Corporation
10.37** Promissory Note dated December 23, 1999, in the original
principal amount of $140,000 payable to Leonard Gorelick
10.38** Subscription Agreement for the acquisition by Telecom Wireless
of 250 shares of Series C Common Stock of HyperLight Network
Corporation
10.39** Assignment and Subscription Agreement for the acquisition by
Telecom Wireless of a 2% of 100% of the liquidating
distribution of VisionTek, L.P.
10.40** Interim Funding Agreement dated September 13, 1999, between
HyperLight Network Corporation and Telecom Wireless
10.41** Technology Marketing and License Agreement dated September 13,
1999, between HyperLight Network Corporation and Telecom
Wireless
16.1** Letter dated January 28, 2000, from Gerstle, Rosen &
Associates, P.A. regarding change in certifying accountants
21.1** List of Subsidiaries of Telecom Wireless
23.1 Consent of Kruse, Landa & Maycock, L.L.C. (included in Exhibit
5.1)
23.2 Consent of Ehrhardt Keefe Steiner & Hottman PC, Englewood,
Colorado
<PAGE>
23.3 Consent of Ehrhardt Keefe Steiner & Hottman PC, Englewood,
Colorado
23.4 Consent of Gerstle, Rosen & Associates, P.A., Boca Raton,
Florida
23.5 Consent of Girardin Baldwin & Associates LLP, Naples, Florida
27.1 Financial Data Schedule
- ---------------------------------
* To be filed by amendment.
** Previously filed.
</TABLE>
<PAGE>
KRUSE, LANDA & MAYCOCK, L.L.C.
EIGHTH FLOOR, BANK ONE TOWER
50 WEST BROADWAY (300 SOUTH)
SALT LAKE CITY, UTAH 84101-2034
<TABLE>
<S> <C> <C>
JAMES R. KRUSE TELEPHONE: (801) 531-7090
ELLEN MAYCOCK TELECOPY: (801) 531-7091
DAVID R. KING MAILING ADDRESS (801) 359-3954
LYNFON l. RICKS Post Office Box 45561
JODY L. WILLIAMS Salt Lake City, Utah 84145-0561 www.klmlaw.com
STEVEN G. LOOSLE
RICHARD C. TAGGART
DAVID C. WRIGHT
PAMELA S. NIGHSWONGER
PAIGE BIGELOW
</TABLE>
February 17, 2000
Board of Directors
Telecom Wireless Corporation
5299 DTC Boulevard, Suite 1120w
Englewood, CO 80111
Re: Telecom Wireless Corporation
Registration Statement on Form SB-2
Gentlemen:
We have been engaged by Telecom Wireless Corporation (the "Company")
to render our opinion respecting the legality of certain securities to be
offered and sold pursuant to the registration statement on Form SB-2 filed by
the Company with the Securities and Exchange Commission (the "Registration
Statement"). Capitalized terms used but not defined herein have the same
meanings as set forth in the Registration Statement.
In connection with this engagement, we have examined the following:
1. Articles of incorporation of the Company, as amended as
of the date hereof as included in the exhibits to the Registration
Statement;
2. Bylaws of the Company, as amended as of the date hereof
as included in the exhibits to the Registration Statement;
3. The Registration Statement, including the financial
statements of the Company included therein; and
4. Minutes of the Company's board of directors and
stockholders or written consents of the Company's board of directors or
stockholders in lieu thereof.
We have examined such other corporate records and documents and have
made such other examination as we deemed relevant. In rendering this opinion,
we have assumed (i) the genuineness of all signatures on all documents not
executed in our presence, (ii) the authenticity of all documents submitted to
us as originals, (iii) the conformity to authentic original documents of all
documents submitted to us as certified or conformed copies, and (iv) the
corporate minute books, stockholder records, and similar information furnished
to us, and on which we have relied, are true, correct, and complete. None of
the factual matters or assumptions on which our opinion is based are, to our
knowledge, false in any respect as they relate to the opinion below.
Based upon the above examination, we are of the opinion that the
Common Stock to be sold pursuant to the Registration Statement will be, when
sold in accordance with the terms set forth in the
<PAGE>
KRUSE, LANDA & MAYCOCK, L.L.C.
January 17, 2000
Page Two
- ------------------------------
Registration Statement, legally issued, fully paid, and nonassessable under the
Utah Revised Business Corporation Act.
This firm consents to being named in the Prospectus included in the
Registration Statement as having rendered the foregoing opinion and as having
represented the Company in connection with the Registration Statement.
This opinion is limited by and subject to the following:
(a) With respect to questions of fact material to the opinions
expressed above, particularly respecting the receipt by the Company of the
consideration to be received by it for the issuance of shares, we have relied,
without independent investigation, on the representations of officers or the
Company and the information contained in the financial statements included in
the Registration Statement.
(b) This opinion shall not constitute a representation, express or
implied, that we have made any independent investigation as to the accuracy or
completeness of any information included in the Registration Statement other
than that set forth under the caption "Legality of Securities," and we assume
in rendering the opinions set forth above that such information does not
contain any untrue statement of a material fact or omit a fact necessary to
make the statements made, in light of the circumstances under which they were
made, not misleading.
(c) The foregoing opinions are as of the date hereof, and we
expressly disclaim any undertaking or obligation to advise you of any changes
which may occur or be brought to our attention subsequent to such date.
This opinion is rendered to you for use solely in connection with the
Registration Statement and the consummation of the transactions contemplated
therein. This opinion may not be relied on by any other person or used for any
other purpose, without the express written consent of the undersigned.
Sincerely yours,
/s/ KRUSE. LANDA & MAYCOCK, LLC
KRUSE, LANDA & MAYCOCK, L.L.C.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Telecom Wireless
Corporation on Form SB-2, as amended, of our report dated October 26, 1999 on
the consolidated financial statements of Telecom Wireless Corporation and
Subsidiaries, appearing in the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
Denver, Colorado
February 18, 2000
<PAGE>
EXH. 23.4
GERSTLE, ROSEN & ASSOCIATES, P.A.
[LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of our report of Telecom
Wireless Corporation and Subsidiary dated September 22, 1998 appearing in the
Prospectus, which is part of such Registration Statement, and to the reference
to us under the heading "Experts" in such Prospectus.
/s/ Gerstle, Rosen and Associates, P.A.
Gerstle, Rosen & Associates, P.A.
Boca Raton, Florida
February 18, 2000
<PAGE>
EXH. 23.5
GIRARDIN BALDWIN & ASSOCIATES LLP
[LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this amended Registration Statement of Telecom Wireless
Corporation of our report of America's Web Station, Inc. dated July 30, 1999
appearing in the Prospectus, which is part of such Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
/s/ Girardin Baldwin & Associates LLP
GIRARDIN BALDWIN & ASSOCIATES LLP
Certified Public Accountants
Naples, Florida
February 18, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999
<PERIOD-END> JUN-30-1999 DEC-31-1999
<CASH> 620,666 10,056
<SECURITIES> 0 0
<RECEIVABLES> 402,225 245,966
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,022,891 256,022
<PP&E> 741,264 1,023,323
<DEPRECIATION> 151,467 305,531
<TOTAL-ASSETS> 2,127,775 6,823,154
<CURRENT-LIABILITIES> 758,709 3,756,018
<BONDS> 0 0
0 0
0 0
<COMMON> 998 1,642,418
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 2,127,775 3,756,018
<SALES> 0 0
<TOTAL-REVENUES> 522,654 371,695
<CGS> 0 0
<TOTAL-COSTS> 3,967,174 12,100,135
<OTHER-EXPENSES> 0 (163,057)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 92,341 2,691,635
<INCOME-PRETAX> 3,444,520 (11,565,383)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 3,444,520 (11,565,383)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,444,520 (11,565,383)
<EPS-BASIC> (.92) (.72)
<EPS-DILUTED> (.92) (.72)
</TABLE>
