As filed with the Securities and Exchange Commission on October 27, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________________________
FORM SB-2
Registration Statement
Under the Securities Act of 1933
____________________________________
PREPAID TELECOM CORPORATION
(Exact name of Registrant as specified in its charter)
NEVADA 4812 88-0438201
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
PATRICK W. STEPHENSON
5903 RICHMOND AVE. 5903 RICHMOND AVE.
HOUSTON, TEXAS 77057 HOUSTON, TEXAS 77057
(713)781-3663 (713)781-3663
(Address, and telephone number (Name, address and telephone
number of principal executive offices) of agent for service)
Copies to:
THOMAS C. PRITCHARD
BREWER & PRITCHARD, P.C.
THREE RIVERWAY, SUITE 1800
HOUSTON, TEXAS 77056
PHONE (713) 209-2950
FACSIMILE (713) 209-2921
_____________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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 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,
please check the following box. [_]
<TABLE>
<CAPTION>
_______________________
CALCULATION OF REGISTRATION FEE
====================================================================================================
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE BEING OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock underlying unit . . 200,000 $ 0.50(2) $ 100,000 $ 27
Common stock underlying warrants 800,000 $ 0.50 $ 400,000 $ 106
====================================================================================================
TOTAL. . . . . . . . . . . . . . 1,000,000 $ 0.50 $ 500,000 $ 133
====================================================================================================
<FN>
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457.
(2) Price of entire unit, which consists of one share of common stock and four warrants.
_________________________
</TABLE>
The registrant amends this registration statement on the 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 ("Securities Act") of or until the registration statement
shall become effective on such date as the SEC, acting pursuant to said Section
8(a), may determine.
<PAGE>
Subject to Completion, Dated October 27, 2000
Preliminary Prospectus
The information in this prospectus is not complete and may be changed. We
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.
_________________________
PREPAID TELECOM CORPORATION
200,000 UNITS
This is our initial public offering, consisting of 200,000 units at a price
of $0.50 per unit. Each unit consists of one share of our common stock and four
redeemable warrants, each to purchase one share of our common stock at an
exercise price of $0.50 per share, expiring between 90 and 360 days from the
close of this offering. We are registering the 200,000 shares underlying the
units and the 800,000 shares underlying the warrants included in the units. We
are not registering the resale of the units or the warrants. The common stock
and the warrants included in the units are separately transferable at any time
after the date of this prospectus.
We are offering the units on a best efforts, all or none basis, which means
that we must sell all of the units to close the offering. The units will be
offered and sold through placement agents that are NASD member broker-dealers
and through our officers and directors. We have reserved the right to pay a
cash sales commission up to 13% of each unit sold, provided that no commissions
or expense allowances will be paid to our officers and directors. Your funds
will be held in a non-interest bearing escrow account pending completion of the
offering. The offering will close 60 days from the date of this prospectus,
unless extended for an additional 60 days by the board of directors. If we are
not able to sell all of the units, we will return your funds to you without
interest. In order to participate in this offering, you will be required to
purchase at least 10,000 units.
Our common stock is not currently traded on any exchange, Nasdaq or on the
OTC Electronic Bulletin Board. The table below does not include estimated
offering expenses of $15,000.
Offering Price Sales Commissions Total
--------------- ----------------- ---------
Per Unit. . . . . . . . . . $ 0.50 .065 $ .435
All 200,000 Units. . . . . $ 100,000 13,000 $87,000
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS. WE URGE YOU TO READ THE RISK FACTORS
SECTION BEGINNING ON PAGE 4 ALONG WITH THE REST OF THIS PROSPECTUS BEFORE YOU
MAKE YOUR INVESTMENT DECISION.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________________
The date of this prospectus is _______________, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Determination of Offering Price. . . . . . . . . . . . . . . . . . . . 11
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Management's Discussion and Analysis
of Financial Condition and Plan of Operations. . . . . . . . . . . . . 15
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 24
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 26
Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . 27
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . 28
Nevada Anti-takeover Statute and Charter Provisions. . . . . . . . . . 31
Shares Available for Future Sale . . . . . . . . . . . . . . . . . . . 34
Plan of Distribution and Selling Stockholders. . . . . . . . . . . . . 35
Disclosure of Commission Position on
Indemnification for Securities Act Liabilities . . . . . . . . . . . . 36
Market for Common Equity and Related Stockholder Matters . . . . . . . 36
Interest of Named Experts and Counsel. . . . . . . . . . . . . . . . . 37
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Where You Can Find More Information. . . . . . . . . . . . . . . . . . 37
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. To understand this offering fully, you should read the entire
prospectus carefully, including the risk factors beginning on page 4 and the
financial statements.
We are offering up to 200,000 units in this offering. Each unit consists of:
- one share of our common stock;
- one Class A redeemable warrant to purchase one share of our common
stock at an exercise price of $0.50 per share, expiring 90 days from
the completion of this offering;
- one Class B redeemable warrant to purchase one share of our common
stock at an exercise price of $0.50 per share, expiring 180 days from
the completion of this offering;
- one Class C redeemable warrant to purchase one share of our common
stock at an exercise price of $0.50 per share, expiring 270 days from
the completion of this offering; and
- one Class D redeemable warrant to purchase one share of our common
stock at an exercise price of $0.50 per share, expiring 360 days from
the completion of this offering.
- The Class A warrant, Class B warrant, Class C warrant, and the Class D
warrant are collectively referred to as the warrants, and are
identical in all respects other than their expiration dates.
PREPAID TELECOM CORPORATION
We are a provider of prepaid cellular phones and products. We intend to
market and distribute our products through various retailers throughout the
United States. In October 2000, we began offering our products on a market
trial basis through a Blockbuster Video (TM) franchisee with over twenty stores
located in the South Texas region. Upon the completion of our market trial in
South Texas and if we get the approval of the Association of Blockbuster
Franchisee's approval, we intend to begin distributing our prepaid cellular
phones and accessories to over 500 Blockbuster Video (TM) franchise locations
across the United States. In the future, we intend to expand our distribution
network to enter other retailers, such as electronics stores, shopping malls,
and discount department stores.
1
<PAGE>
Our cellular phones are digital, ready-to-use out of the box, and have a
pre-set phone number that is activated at the retail store's checkout register.
Each phone will have a pre-set number of minutes and customers may buy
additional minutes through the purchase of air-time cards, also available at the
retail store. Our service will differ from other cellular phone services
because our customers can purchase our phone with no contracts, no credit
checks, and we believe we will be able to avoid costly overhead through
distribution agreements with various national retail stores.
Our principal executive office is located at 5903 Richmond, Houston, Texas
77057, and our telephone number is (713) 781-3663. All references to we, our,
or us, refer to Prepaid Telecom Corporation, a Nevada corporation and our
subsidiary, Prepaid Telecom Corporation, a Texas corporation.
THE OFFERING
Units offered . . . . . . . . . We are offering 200,000 units at $0.50 per unit.
Each unit consists of one share of common stock
and four redeemable warrants each to purchase
one share of common stock at an exercise price
of $0.50 per share. The common stock and the
warrants included in the units are separately
transferable at any time after the date of this
prospectus.
Common stock outstanding
prior to the offering. . . . . 4,000,000 shares.
Common stock outstanding
after offering if no warrants
are exercised. . . . . . . . . 4,200,000 shares.
Common stock outstanding
after offering if all warrants
are exercised. . . . . . . . . 5,000,000 shares.
Securities being registered. . 200,000 shares of common stock underlying the
unit, and 800,000 shares of common stock
underlying the warrants included in the units.We
are not registering the resale of the units and
warrants.
Use of proceeds. . . . . . . . Marketing, working capital, and general
corporate purposes.
2
<PAGE>
Our common stock is not traded on an exchange, the Nasdaq Small Cap Market
or on the OTC Bulletin Board. We can provide no assurance that there will be a
market in the future for our common stock.
SUMMARY FINANCIAL DATA
From Inception to
STATEMENT OF OPERATIONS DATA: September 30, 2000
Revenues . . . . . . . . . . . . $ 0
General Administrative Expenses. $ 137,958
Net Operating Income Loss. . . . $ 137,958
BALANCE SHEET DATA: As of September 30, 2000
Total Assets . . . . . . . . . . $ 45,417
Accrued Payables . . . . . . . . $ 32,000
Stockholders' Equity (Deficit) . $ 13,417
3
<PAGE>
RISK FACTORS
Any investment in our securities involves a high degree of risk. You
should carefully consider the following information about these risks, together
with the other information contained in this prospectus, before you decide to
buy our securities. If any of the following risks actually occur, our business
would likely suffer. In these circumstances, the market price of our common
stock could decline, and you may lose all or part of the money you paid to buy
our securities.
YOU WILL HAVE TO MAKE YOUR INVESTMENT DECISION ON THIS LIMITED OPERATING
HISTORY, WHICH MAY NOT BE REPRESENTATIVE OF OUR FUTURE OPERATIONS.
We have limited operating history for you to analyze or to aid you in
making an informed judgement concerning the merits of an investment in our
securities. We can provide no assurance that we will be able to successfully
generate revenues, operate profitably, or make any distributions to the holders
of our securities. We have no business history for you to analyze or to aid
you in making an informed judgement as to the merits of an investment in our
securities. Any investment in our securities should be considered a high risk
investment because you will be placing funds at risk in an unseasoned start-up
company with unforeseen costs, expenses, competition and other problems to which
start-up ventures are often subject.
WE HAVE HAD LOSSES SINCE INCEPTION, WE EXPECT TO CONTINUE TO HAVE LOSSES AND WE
MAY NEVER BECOME PROFITABLE.
Since inception, we have experienced operating losses for each quarterly
and annual period. For the period ended August 31, 2000, we had:
- no revenues;
- administrative expenses of $137,958; and
- net losses of $137,958.
We anticipate increased expenses as we continue to expand and improve our
infrastructure, expand our sales and marketing efforts, and pursue additional
industry relationships. As an early-stage company, we do not have the operating
experience to estimate what the extent of these expenditures will be at this
time, but they will increase as we expand. As a result, we expect to incur
operating losses for our fiscal year ending December 31, 2000 and beyond. We
cannot assure you that we will ever achieve profitability or, if we ever achieve
profitability, that it will be sustainable.
4
<PAGE>
WE WILL NEED ADDITIONAL CAPITAL FINANCING IN THE FUTURE.
To execute our business strategy, we will require more capital than we
currently have or have commitments to receive. As of August 31, 2000, we had
cash reserves of $42,317. We believe we have sufficient current working capital
to fund operations through December 1, 2000. After December 1, 2000 and until
the close of this offering, we will be dependent on revenue from operations and
funding from external sources. We can provide no assurance that revenue from
operations will be sufficient to fund operating expenses during that period. In
addition, we can provide no assurance that additional capital will be available
from other sources. If we are unable to generate significant revenue from
operations or obtain capital from external sources after December 1, 2000, we
may have to curtail our operations.
We intend to use the $72,000 in net proceeds to purchase cellular phone
inventory, for marketing and promotion and to hire additional employees. We
believe that proceeds from this offering and revenue from operations will be
sufficient to fund operations and capital requirements until July 2001. If all
of the warrants included in the units are exercised, we believe we will have
sufficient capital to fund growth and operating expenses through fiscal 2001.
However, we may require additional external funds at an earlier date, if the
warrants included in the units are not exercised or revenue from operations are
insufficient to meet operating expenses. Our failure to obtain additional
capital or to generate significant revenue from operations may result in our
ceasing to conduct business, curtailing operations, or bringing cash flows into
balance by some other method.
OUR FINANCIAL STATEMENTS HAVE LIMITED SIGNIFICANCE AND SHOULD NOT BE USED TO
BASE AN EVALUATION OF OUR PROSPECTS.
As a start-up company having recently been incorporated in October 1999,
our audited financial statements represent a substantially short period of time.
Thus, our financial statements will have limited significance in rendering an
evaluation of our company.
OUR BUSINESS AND MARKETING STRATEGY IS CONTINGENT ON RETAILERS WHO WILL
DISTRIBUTE AND/OR MARKET OUR PRODUCTS TO CONSUMERS.
5
<PAGE>
Our current business and marketing strategy is based on our being able to
market and distribute and market our products through various retailers
throughout the United States. Once we complete our market trial in South Texas,
we intend to initially offer our products through Blockbuster Video (TM)
franchisees around the United States, with the approval of the Association of
Blockbuster Franchisees. As our business grows or in the event that we cannot
distribute our products through Blockbuster Video (TM) franchisees, we intend to
enter into distribution agreements with other national retail or discount stores
which can distribute our products. To the extent we are unable to enter into
distribution agreements with Blockbuster Video (TM) franchises or with other
national retail stores, our operations will be materially adversely effected and
we will have to revise our business plan or otherwise curtail or cease
operations.
WE DEPEND ON SIMPLE COMMUNICATIONS TO SUPPLY OUR CELLULAR TELEPHONES AND PROVIDE
OUR CUSTOMERS WITH CELLULAR SERVICE.
We have a verbal agreement with Simple Communications, LLC which provides
that Simple Communications will supply us with refurbished cellular telephones
and cellular service though the Sprint PCS wireless network. We intend to
reduce this verbal agreement to writing in the near future. In the event that
Simple Communications experiences higher demand or low inventory levels, we may
be required to delay or reduce product shipments which may adversely effect our
customer relationships. In the event that Simple Communications' or Sprint
PCS' networks experience equipment failures and service interruptions, or
otherwise fail to maintain continuous access to transmission facilities and long
distance networks, our business would be materially adversely affected. If
access to facilities and networks lasted for any significant amount of time, we
may be required to significantly curtail or cease our operations.
WE OPERATE OUR BUSINESS IN A HIGHLY COMPETITIVE INDUSTRY. MANY OF OUR
COMPETITORS ARE MORE ESTABLISHED AND HAVE SIGNIFICANTLY GREATER RESOURCES.
The prepaid phone card segment of the telecommunications services industry
is intensely competitive, rapidly evolving and subject to constant technological
change. Our prepaid phone cards compete with any medium by which a consumer
places a telephone call, including but not limited to:
- credit calling cards,
- collect calling services,
- cellular phones,
- Internet telephones,
- hotel telephones,
- public pay telephones and
- other long distance services.
Many of these products and services are marketed by well-established, successful
companies that possess greater financial, marketing, distribution, personnel and
other resources than us. Using these resources, these companies can implement
extensive advertising and promotional campaigns, both generally and in response
to specific marketing efforts by competitors, to enter into new markets rapidly
and to introduce new products and services. Competitors with greater financial
resources also may be able to provide more attractive incentive packages to
retailers to encourage them to carry products that compete with our products, or
present cost or convenience features which consumers may find attractive. We
cannot assure you that we will be able to compete effectively in our markets.
6
<PAGE>
WE MUST RESPOND TO THE RAPID CHANGES IN TECHNOLOGY, SERVICES AND STANDARDS WHICH
CHARACTERIZE OUR INDUSTRY.
The telecommunication services industry is subject to rapid technological
change, frequent new product and service introductions and evolving industry
standards. We believe that our future success will depend largely on our
ability to anticipate or adapt to those changes and to offer, on a timely basis,
services and products that meet these evolving standards. We expect our
competitors to develop and introduce new products and services, and enhancements
to existing products and services. New telecommunications technology, including
personal communication services and voice communication over the Internet, may
reduce demand for long distance services, including prepaid phone cards. We
cannot assure you that we will respond successfully to these or other
technological changes, evolving industry standards or to new products and
services offered by our current and future competitors.
THE LOSS OF OUR CHIEF EXECUTIVE OFFICER OR OUR OTHER KEY PERSONNEL COULD
ADVERSELY AFFECT OUR BUSINESS.
Our success is dependent upon the continued service and skills of our key
management. If we lose the services of any of these key personnel, it could
have a negative impact on our business because of their unique skills, years of
industry experience, and the difficulty of promptly finding qualified
replacement personnel. Particularly, the services of Patrick W. Stephenson, our
founder and chief executive officer, would be difficult to replace. We do not
intend to maintain key-man life insurance policies covering any of our
employees.
ANY RETURN ON YOUR INVESTMENT WILL DEPEND ON YOUR ABILITY TO SELL OUR COMMON
STOCK AT A PROFIT AND WILL LIKELY NOT BE FROM DIVIDENDS.
Some investors favor companies that pay dividends. We have never declared
or paid any dividends. In addition, we do not anticipate that we will declare
dividends in the near future. Instead, we will retain any earnings for use in
our business. As a result, your return on an investment in our stock will
likely depend on your ability to sell our stock at a profit, and since there is
currently no market for our stock and there can be no assurance that a market
will develop, you may never be able to realize a return on your investment.
7
<PAGE>
EVEN AFTER THE OFFERING, MANAGEMENT WILL MAINTAIN THE MAJORITY OF VOTES.
Prior to this offering, 69% of the outstanding shares of our common stock
are beneficially owned by our officers and directors, Patrick W. Stephenson,
Frank Neukomm, Robert L. Wharton, and James Hausman. Our officers and directors
will beneficially own, in the aggregate, no less than approximately 66% of the
outstanding shares of common stock after this offering, and no less than
approximately 55% of the outstanding shares of common stock if all of the
warrants included in the units are exercised. Accordingly, these people, acting
together, will possess the majority of the stockholder votes, and will be in a
position to control our affairs. If you purchase shares in this offering, you
will be a minority stockholder and, although entitled to vote on matters
submitted for a vote of the stockholders, you will not be able to control the
outcome of any vote.
SINCE AT THE PRESENT TIME THERE IS NO MARKET FOR OUR COMMON STOCK, YOU MAY NOT
BE ABLE TO SELL YOUR COMMON STOCK.
Prior to this offering, there has been no public market for our securities.
Even if all the units offered are sold, there can be no assurance that our
common stock will be approved for listing. Although we anticipate that upon
completion of this offering, our common stock will be eligible for inclusion on
the OTC Bulletin Board, we cannot be certain that the common stock will be
listed on the OTC Bulletin Board on a timely basis, if at all. It is not
anticipated that we will be listed on an exchange, the Nasdaq Small Cap Market
or on the Nasdaq National Market. Consequently, we cannot be certain that a
regular trading market for our common stock will develop after this offering is
completed. If a trading market does in fact develop for our common stock, we
cannot be certain that it will be sustained. If for any reason our common
stock is not listed on the OTC Bulletin Board, or a public trading market does
not develop, you may have difficulty in selling your securities should you
desire to do so.
IF WE BECOME SUBJECT TO SEC REGULATIONS RELATING TO LOW-PRICED STOCKS, THE
MARKET FOR OUR COMMON STOCK COULD BE ADVERSELY EFFECTED.
The SEC has adopted regulations concerning low-priced or penny stocks. The
regulations generally define penny stock to be any equity security that has a
market price less than $5.00 per share or an exercise price less than $5.00 per
share. The additional burdens imposed upon broker-dealers by these penny stock
requirements may discourage broker-dealers from effecting transactions in our
common stock, which could severely limit the market liquidity of our common
stock and your ability as purchasers to sell our common stock in the secondary
market. In addition, it is unlikely that any bank or financial institution will
accept penny stock as collateral, which could have an adverse effect in
developing or sustaining any market for our common stock.
8
<PAGE>
YOU MAY SUFFER A POTENTIAL LOSS OF APPRECIATION IN OUR COMMON STOCK IF WE REDEEM
OUR WARRANTS BEFORE YOU CAN EXERCISE THEM FOR SHARES OF OUR COMMON STOCK.
We may redeem the warrants, at any time, upon 15 days written notice, at a
price of $.01 per warrant, provided that the closing bid quotation of our common
stock for 10 out of 20 trading days prior to the date the warrants are called
for redemption is: (1) $.75 per share for each warrant. The warrants will be
exercisable until the close of business on the date fixed for redemption. Since
we presently intend to call the warrants at the earliest possible date, you
should assume that we would call the warrants for redemption if the criteria
were met. This right will, if exercised, force you to either exercise your
warrants at a possibly unfavorable time or to lose the benefits that may accrue
to them as a result of the increase, if any, in the market price of our common
stock.
WE HAVE A REQUIREMENT TO KEEP OUR PROSPECTUS AND STATE BLUE SKY REGISTRATION
CURRENT, AND OUR FAILURE TO DO SO MAY LIMIT YOUR ABILITY TO TRADE OUR
SECURITIES.
We will be able to issue shares of our common stock upon the exercise of
the warrants only if (1) there is a current prospectus relating to the
securities offered under an effective registration statement filed with the SEC,
and (2) the common stock is then qualified for sale or exempt therefrom under
applicable state securities laws of the jurisdictions in which the various
holders of warrants reside. Although we intend to maintain a current
registration statement, there can be no assurance, however, that we will be
successful in maintaining a current registration statement. After a
registration statement becomes effective, it may require updating by the filing
of a post-effective amendment. A post-effective amendment is required when
facts or events have occurred which represent a material change in the
information contained in the registration statement.
We intend to qualify the sale of common stock in a limited number of
states, although certain exemptions under certain state securities laws may
permit the common stock to be transferred to purchasers in states other than
those in which the common stock was initially qualified.
Qualification for the exercise of the warrants in the states is essential
for the establishment of a trading market in the securities. We can make no
assurances that we will be able to qualify our securities in any state. We will
be prevented, however, from issuing common stock upon exercise of the warrants
in those states where exemptions are unavailable and we have failed to qualify
the common stock issuable upon exercise of the warrants. We may decide not to
seek, or may not be able to obtain qualification of the issuance of common
stock in all of the states in which the ultimate purchasers of the warrants
reside. In that event, the warrants of those purchasers will expire and have no
value if the warrants cannot be exercised or sold.
9
<PAGE>
THE DETERMINATION OF THE PRICES OF THE UNITS AND WARRANTS WERE ARBITRARILY
DETERMINED BY OUR BOARD OF DIRECTORS.
The price for the units and exercise price for the warrants was determined
by our board of directors and is not based on an independent valuation of our
assets or other recognized criteria of investment value, such as book value,
cash flow, earnings, or financial condition. The prices, therefore, do not
indicate that the common stock has a value or can be resold. We cannot assure
you that if a trading market develops in our common stock, that it will trade at
prices in excess of the exercise price of the warrants at any time.
FUTURE SALES OF OUR STOCK COULD CAUSE OUR STOCK PRICE TO FALL.
As of October 15, 2000, we had issued 4,000,000 shares of common stock.
Subject to Rule 144, approximately 32% or 1,260,000 shares of common stock will
be freely tradeable by April 2001 and substantially all the currently issued and
outstanding common stock will be freely tradeable by July 2001. As the
restrictions on resale end and these shares are sold into the market, the price
of our common stock could drop significantly if the holders of these restricted
shares sell them or are perceived by the market as intending to sell them.
A NOTE REGARDING THE USE OF FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled Prospectus Summary, Risk
Factors, Management's Discussion and Analysis of Financial Condition and Results
of Operations and Business, contains forward-looking statements. These
statements relate to future events or our future financial performance and
involve known and unknown risks, uncertainties and other factors that may cause
our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by the forward-
looking statements. These risks and other factors include those listed under the
Risk Factors section and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as may, will, should, expects, plans, anticipates, believes, estimates,
predicts, potential, or the negative of these terms or other comparable
terminology. These statements are only predictions. Actual events or results
may differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined under the Risk Factors
section.
10
<PAGE>
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
forward-looking statements. We are under no duty to update any of the forward-
looking statements after the date of this prospectus to conform our prior
statements to actual results.
USE OF PROCEEDS
We will receive net proceeds of $72,000 from the sale of 200,000 units,
after deducting sales commissions and estimated offering expenses of $15,000.
We intend to utilize the $72,000 of net proceeds for marketing, to purchase
inventory, including handsets, vehicle chargers, cases, batteries, other
accessories and for general corporate purposes. With current working capital
requirements of approximately $10,000 per month, we believe that the net
proceeds from the sale of units will last through June 30, 2001. However, a
decrease in expected revenues resulting from adverse economic conditions or
otherwise, unforeseen costs, insufficient market penetration and any new
product introductions could shorten the period during which the current working
capital may be expected to satisfy our capital requirements.
Assuming exercise of all warrants, we will receive gross proceeds of
$400,000. We will use the proceeds for working capital and will have broad
discretion in the application of those proceeds. We believe the net proceeds
from the exercise of the warrants will be sufficient to fund working capital
requirements through fiscal 2001. As there are no commitments from the holders
of the warrants to exercise the securities, there can be no assurance that any
of the warrants will be exercised. We will receive no proceeds from the resale
of shares underlying the warrants.
DIVIDEND POLICY
We have not declared or paid cash dividends on our common stock to date.
Our current policy is to retain earnings, if any, to provide funds for operating
and expansion of our business. This policy will be reviewed by our board of
directors from time to time in light of, among other things, our earnings and
financial position.
DETERMINATION OF OFFERING PRICE
There is no market for trading our securities. The price of shares of the
units and the exercise price of the warrants has been arbitrarily determined and
does not bear any relationship to any valuation of the assets, book value, or
prospective earnings of the company.
11
<PAGE>
DILUTION
The following table shows on a pro forma basis determined as of August 31,
2000, the difference between existing stockholders and new investors purchasing
units in this offering.
As of August 31, 2000, the net tangible book value of our common stock was
$13,417 or $0.00 per share. The net tangible book value per share represents
the amount of total tangible assets less total liabilities of the our company.
The following tables summarize the total consideration paid and the average
price per share paid by the existing shareholders and by the new investors
purchasing units in this offering, without taking into account any changes in
net tangible book value after August 31, 2000, other than to give effect to (1)
the issuance of 200,000 shares of common stock issued on the sale of the units
in this offering, as shown in Table 1, and to give effect to (2) the additional
issuance of 800,000 shares of common stock issued upon the exercise of all
warrants, as shown in Table 2. Both tables take into account sales commissions
and offering expenses of approximately $28,000.
TABLE 1 - ASSUMING NO WARRANTS ARE EXERCISED
Assuming no warrants are exercised, the pro forma book value of our common
stock will be $98,417 or $0.02 per share after the offering. This represents an
immediate increase in net tangible book value per share of $0.02 to our existing
stockholders and immediate dilution in net tangible book value of $.48 per share
to you. The following table illustrates the dilution:
Offering price per share of common stock. . . . . . . . . . $0.50
Net tangible book value per share of outstanding
common stock prior to offering . . . . . . . . . . . . . . . $0.00
Increase attributable to new investors . . . . . . . . . . . $0.02
-----
Net tangible book value per share of common stock
after offering. . . . . . . . . . . . . . . . . . . . . . . $0.02
-----
Per share dilution to new investors . . . . . . . . . . . . $0.48
=====
12
<PAGE>
TABLE 2 - ASSUMING ALL WARRANTS ARE EXERCISED
Assuming allwarrants are exercised, the pro forma book value of our common
stock will be $485,417 or $0.10 per share after the offering. This represents
an immediate increase in net tangible book value per share of $0.10 or $0.10 per
share to our existing stockholders and immediate dilution in net tangible book
value of $.40 per share to you. The following table illustrates the dilution:
Offering price per share of common stock. . . . . . . . . . $0.50
Net tangible book value per share of outstanding
common stock prior to offering . . . . . . . . . . . . . . . $0.00
Increase attributable to new investors . . . . . . . . . . . $0.10
-----
Net tangible book value per share of common stock
after offering. . . . . . . . . . . . . . . . . . . . . . . $0.10
-----
Per share dilution to new investors . . . . . . . . . . . . $0.40
=====
The following tables sets forth the total number of shares of common stock
purchased from Prepaid Telecom, the total consideration recorded and the average
price per share for (1) the existing holders of our common stock and (2) the
investors purchasing shares of common stock through the purchase of units in
this offering. Table 1 assumes none of the warrants are exercised and Table 2
assumes all of the warrants are exercised. The total consideration paid in both
tables is prior to the payment of sales commissions and offering expenses.
<TABLE>
<CAPTION>
TABLE 1 - ASSUMING NO WARRANTS ARE EXERCISED
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE PER SHARE
--------------- ------------------- -----------------------
NUMBER PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Existing shareholders 4,000,000 95.2% 148,375 59.8% $0.04
New shareholders. . . 200,000 4.8% $100,000 40.2% $0.50
------- ---- -------- ----- -----
Total . . . . . . 4,200,000 100% $248,375 100% $0.06
========= ==== ======== ===== =====
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
TABLE 2 - ASSUMING ALL WARRANTS ARE EXERCISED
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE PER SHARE
---------------- ------------------- -----------------------
NUMBER PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Existing shareholders 4,000,000 80% $148,375 22.8% $0.04
New shareholders. . . 100,000 20% $500,000 77.2% $0.50
------- ---- -------- ----- -----
Total . . . . . . 5,000,000 100% $648,375 100% $0.13
========= ==== ======== ===== =====
</TABLE>
CAPITALIZATION
The following table sets forth our capitalization as of August 31, 2000 and
as adjusted on a pro forma basis to give effect to the issuance and sale of the
units. This table should be reviewed in conjunction with our August 31, 2000
audited financial statements and the notes thereto which are part of this
prospectus:
PRO FORMA
ACTUAL AS ADJUSTED
---------- -------------
Long-term Debt . . . . . . . . . . . . . . $ 0 $ 0
Stockholder's Equity:
Common Stock, $0.001 par value per
share; 24,000,000 shares authorized;
4,000,000 shares issued and outstanding;
4,200,000 shares, issued and outstanding,
respectively, as adjusted. . . . . . . . . 4,000 4,200
Preferred Stock, $.001 par value per
share; 1,000,000 shares authorized;
none issued and outstanding. . . . . . . . -- --
Additional Paid-In Capital . . . . . . . . 147,375 219,175
(Accumulated Deficit). . . . . . . . . . . (137,958) (137,958)
Total Stockholders' Equity (Deficit) . . . $ 13,417 $ 85,417
---------- -------------
Total Capitalization . . . . . . . . . . . $ 13,417 $ 85,417
========== =============
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements.
GENERAL
We are a development stage company with a limited operating history. We
were incorporated in October 1999 and have conducted limited business operations
as we have had limited cash and assets. To date, we have concentrated on
raising the necessary capital in order to develop our business strategy. As of
August 31, 2000, we had not generated any revenues. Our fiscal year is December
31. The financial information contained in this prospectus is for the period
from July 2, 1999 (inception of Prepaid Telecom-Texas) to August 31, 2000.
We have a limited operating history on which to base an evaluation of our
business and prospects. Our prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in new and rapidly evolving
markets such as wireless communications industry. We will encounter various
risks in implementing and executing our business strategy. We can provide no
assurance that we will be successful in addressing those risks, and the failure
to do so could have a material adverse effect on our business.
From inception through August 31, 2000, we have utilized funds obtained
through private placements totaling approximately $148,750. Accordingly, we
have not recorded any revenues and have incurred net losses from operations
totaling approximately ($137,958) from inception through August 31, 2000.
We were organized as a Nevada corporation in October 1999. In July 2000,
we completed a "B" reorganization with Prepaid Telecom Corporation, a Texas
corporation, which was formed in July 1999 to market and distribute prepaid
phones and services on a national basis. In the "B" reorganization, we acquired
all of the issued and outstanding common stock of Prepaid Telecom-Texas from
three shareholders in exchange for 2,625,000 shares, or approximately 65.6% of
our issued and outstanding post-merger shares of common stock.
15
<PAGE>
PLAN OF OPERATIONS FOR FISCAL 2001
We are a development stage company with no revenues since inception. Our
operating expenses are approximately $10,000 per month, which includes marketing
expenses, administrative expenses, and general working capital purposes. Our
future level of operations will be dependent on future cash availability. We
have three employees, two of which are full-time, who are drawing minimal
salaries. We have limited fixed overhead obligations to date.
As of August 31, 2000, we had cash in the amount of $48,317 and
administrative expenses which were approximately $97,412, which includes general
and administrative expenses and professional fees. Since inception, we have
sold 1,375,000 shares of common stock for aggregate gross proceeds of $148,750.
We are currently using the funds from these private placements to purchase the
inventory and air time necessary to complete our market trial in South Texas
which began in October 2000.
On the closing of this offering we intend to use the $72,000 in net
proceeds to further our business plan by purchasing additional equipment and
accessories and hiring additional marketing personnel necessary so that we may
quickly develop and expand our business into other geographic regions.
We have not generated any revenues. Our operating expenses were reduced
because of our lack of funds. We believe we will begin generating significant
revenues by November 2000, depending on the results of our market trial in South
Texas.
LIQUIDITY AND CAPITAL RESOURCES
As of August 31, 2000, we had working capital of $13,417 and had negative
cash flows from operations of approximately $103,333 since inception. We
anticipate incurring losses from operations during the current fiscal year.
We estimate that our current cash reserves and any revenue from operations
will provide sufficient liquidity until the completion of our South Texas market
trial in December 2000. After December 1, 2000 and through the closing of this
offering, we intend to rely on revenue from operations or funds from external
sources. However, this period may be shortened if we generate less revenue than
anticipated or we experience increased competition and higher costs associated
with inventories and cellular service. We can provide no assurance that revenue
from operations will be sufficient to provide adequate working capital to fund
our current operating expenses or that external funding will be available to us.
16
<PAGE>
In fiscal 2001, we anticipate having positive cash flow from operations.
However, at the present time we cannot estimate when, or if, our operations will
generate positive cash flows from operations.
On the close of this offering, we intend to use the $72,000 in net proceeds
to purchase additional inventories, for marketing expenses in connection with
expanding our business nationally, to hire additional employees to institute our
business plan, and for general working capital purposes. We believe the net
proceeds from this offering, assuming no warrants are exercised, will be
sufficient to fund operations through June 2001. After June 2001, we anticipate
being dependent upon revenue from operations or funds from external sources. If
all of the warrants issued in this offering are exercised, we will be able to
fund working capital expenditures through fiscal 2001. However, if revenue is
less than anticipated or the warrants are not exercised, we may be required to
seek financing through additional best efforts equity offerings, joint ventures
or other collaborative relationships, borrowings, and other sources.
In the event that revenues are less than expected and we are unable to
raise additional financing, we may need to curtail operations or sell assets.
We do not have any significant credit facilities available with financial
institutions or other third parties and until we can generate positive cash flow
from operations, we will be dependent upon external sources of best-efforts
financing. We can provide no assurance that we will be successful in any
future financing effort to obtain the necessary working capital to support our
operations. Therefore, on a short-term basis, or during calendar year 2001, we
may require additional funding. Since we are not able to estimate when we will
be able to generate positive cash flows from operations, this funding will need
to be external funding. On a long-term basis, or after calendar year 2001, we
may also require additional external financing.
17
<PAGE>
BUSINESS
GENERAL
We are a provider of prepaid cellular phones and products. We intend to
market and distribute our products through various retailers throughout the
United States. In October 2000, we began offering our products on a market
trial basis through a Blockbuster Video (TM) franchisee with over twenty stores
located in the South Texas region. Upon the completion of our market trial in
South Texas and with the approval of the Association of Blockbuster
Franchisees's approval, we intend to being distributing our prepaid cellular
phones and accessories to over 500 Blockbuster Video (TM) franchise locations
across the United States. In the future we intend to expand our distribution
network to enter other retailers, such as electronics stores, shopping malls,
and discount department stores.
Our cellular phones are digital, ready-to-use out of the box, and have a
pre-set phone number that is activated at the retail store's checkout register.
Each phone will have a pre-set number of minutes and customers may buy
additional minutes through the purchase of air-time cards, also available at the
retail store. Our service will differ from other cellular phone services
because our customers can purchase our phone with no contracts, no credit
checks, and we will be able to avoid costly overhead through distribution
agreements with various national retail stores.
INDUSTRY BACKGROUND
Wireless communications systems use a variety of radio frequencies to
transmit voice and data. Broadly defined, the wireless communications industry
includes one-way radio applications, such as paging or beeper services, and
two-way radio applications, such as wireless personal communications services,
cellular telephone services and enhanced specialized mobile radio service.
Since the introduction of commercial cellular service in 1983, the wireless
communications industry has experienced dramatic growth. The number of wireless
subscribers for cellular, wireless personal communications services and enhanced
specialized mobile radio service has increased by greater than one hundred
times.
We believe this growth is expected to be driven largely by a substantial
projected increase in the number of wireless personal communications services
users.
18
<PAGE>
We believe that the total wireless industry penetration, defined as the
number of wireless subscribers nationwide divided by total United States
population, will approach nearly half the U.S. population.
We believe that a significant portion of the predicted growth in the
consumer market for wireless telecommunications will result from:
- anticipated declines in costs of service;
- increased versatility; and
- increased awareness of the productivity, convenience and privacy
benefits associated with the services offered by wireless personal
communications services providers.
We also believe that the rapid growth in the use of notebook computers and
personal digital assistants, combined with emerging software applications for
delivery of electronic mail, fax and database searching, will contribute to the
growing demand for wireless services.
BUSINESS STRATEGY
During the past five years, banks and retail stores have made a strong push
to expand consumer credit and lower credit requirements. As a result, we
believe the institutions and retail outlets extended credit to people who have
overspent their income, and find it difficult to make even minimal monthly
payments. This is a principal reason why we have determined to offer products
and services on a pre-paid basis. With such a large number of prospects for
prepaid cellular services-a number that we believe would increase substantially
in the event of any economic downturn-the potential untapped market for prepaid
services among persons and firms without adequate credit could be substantial.
Many cellular service providers require potential customers to place a deposit
with the provider as a condition of sale of service, yet many of these potential
customers cannot make the deposit.
To be successful in this market, we believe having a marketing distribution
channel capable of high volume is essential. We believe that expanding our
market to Blockbuster Video (TM) franchises around the United States and other
retail outfits will meet just that need.
19
<PAGE>
We believe that we have certain competitive advantages to traditional
cellular service providers. We will not charge a monthly access fee for our
prepaid service, unlike many of our competitors. We intend to offer a plan
that provides customers with both equipment and specified amount of time on a
prepaid basis, giving the customer the benefit of buying only what they want to
spend on airtime while (1) eliminating our credit risk, (2) substantially
reducing our receivable reserves, together with labor, software and overhead
items required to monitor receivables and (3) making the float attributable to
the prepayments available to increase opportunities for internally-financed
growth.
DIGITAL SERVICE
We intend to resell digital service. These are carriers in the United
States which can provide a nationwide digital footprint or signal coverage area.
Digital service provides the capability to utilize a myriad of emerging new
technologies including rapid and low cost, easy access to the Internet. In
addition to e-mail text messaging, instant stock quotes and global positioning
features, the new digital service will introduce animated handset display
advertising. A separate revenue stream resulting from advertising revenues may
eventually defer the total cost of the handset to the subscriber. The low entry
fee of free handsets brought about by display advertising alone could expand the
use of prepaid airtime users exponentially. We intend that other prepaid
services such as paging and long distance will be routinely integrated into our
services.
SEASONALITY
Our business is subject to seasonality because the wireless industry is
heavily dependent on fourth quarter results. Among other things, the industry
relies on significantly higher customer additions and handset sales in the
fourth quarter as compared to the other three calendar quarters. A number of
factors contribute to this trend, including the increasing use of retail
distribution, which is dependent upon the year-end holiday shopping season, the
timing of new product and service announcements and introductions, competitive
pricing pressures and aggressive marketing and promotions.
MARKETING STRATEGY
We are currently conducting a market trial in South Texas through over
twenty Blockbuster Video (TM) franchise stores. Upon the completion of our
market trial, we intend to initially offer our prepaid phones, service and
accessories to the Association of Blockbuster Franchisees, or ABF for
distribution throughout the United States in over 500 Blockbuster Video (TM)
franchise stores. We currently do not have an agreement with the ABF. As we
grow or in the event that we do not distribute our products through Blockbuster
Video (TM) franchise stores, we intend to distribute our prepaid phones, service
and accessories through other national retail and discount stores.
20
<PAGE>
COMPETITION
The market for cellular services to consumers is highly competitive and
subject to rapid change. A number of companies currently offer the services we
offer. In addition, many wireless carriers are providing or can provide,
in-house, the services that we offer. Trends in the wireless telephone
industry, including greater consolidation and technological or other
developments that make it simpler or more cost-effective for wireless carriers
to provide services themselves, could affect demand for our services and could
make it more difficult for us to offer a cost-effective alternative to a
wireless carrier's in-house capabilities.
In addition, we anticipate continued growth in the prepaid cellular
services industry, and consequently, the entrance of new competitors in the
future. Our principal competitors in the prepaid cellular service market, are
Brite Voice Systems, Inc., National Telemanagement Corporation, and Verizon
Wireless, Inc. We believe that the principal competitive factors in prepaid
cellular services industry include the ability to identify and respond to
customer needs, quality and breadth of service offerings, price and technical
expertise.
Our ability to compete also depends in part on a number of competitive
factors outside our control, including the ability to hire and retain employees,
the development by others of products and services that are competitive with the
our products and services, the price at which others offer comparable products
and services and the extent of our competitors' responsiveness to customer
needs. There can be no assurance that we will be able to continue to compete
successfully with our existing competitors or with new competitors.
GOVERNMENT REGULATION
The Federal Communications Commission, under the terms of the
Communications Act of 1934, as amended, including the Telecommunications Act of
1996, regulates interstate communications and use of radio spectrum, including
entry, exit, rates and terms of operation. We presently neither operate any
facilities utilizing radio spectrum nor have any facilities-based services
involving interstate communications. Consequently, we are not required to and do
not hold any licenses or other authorizations issued by the FCC. However, our
cellular service suppliers, the wireless carriers, are regulated at both the
federal and state levels. Regulation may decrease the growth of the wireless
telephone industry, affect the development of the cellular service market, limit
the number of potential customers for our services or impede our ability to
offer competitive services to the wireless market or otherwise have a material
adverse effect on our business and results of operations. At the same time, the
Telecommunications Act of 1996, a deregulatory measure, may cause changes in the
industry, including entrance of new competitors and industry consolidation,
which could in turn affect our cost of doing business or otherwise have a
material effect on the our business.
21
<PAGE>
EMPLOYEES
As of August 31, 2000, we employed three persons, one on a part-time basis,
including management, sales, and office employees. No employees are covered by
a collective bargaining agreement. Management considers relations with its
employees to be satisfactory.
LEGAL PROCEEDINGS
There are currently no legal proceedings pending to which we are a party or
to which any of our properties are subject.
FACILITIES
Our headquarters are located in Houston, Texas at a leased facility that is
approximately 1,000 square feet. In July 1999, Cellular 99, a sole
proprietorship operated by Mr. Stephenson, assigned his rights to Prepaid
Telecom under a lease agreement. The lease expires in April 2001. We believe
our lease rates to be competitive in the market. At the present time, we
consider this space to be adequate to meet our needs.
22
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are:
NAME AGE POSITION
---- --- --------
Patrick W. Stephenson 58 President, Chief Executive
Officer, and Director
Frank R. Neukomm 51 Vice President-Business
Development and Director
Robert L. Wharton 51 Vice President-Treasurer and
Director
James E. Hausman 43 Chief Financial Officer, Vice
President-Finance and Director
Patrick W. Stephenson has served as the director, chief executive officer,
president and director of the company since its inception. Since January 1997,
Mr. Stephenson has been the president of Prepaid Wireless Services, a cellular
consulting firm based in Houston, Texas which specializes in the nationwide
prepaid segment of the cellular industry. From June 1994 to December 1996, Mr.
Stephenson held the position as general manager and consultant to CellStar
Corporation's South American operations in Bogota, Colombia. In 1983, Mr.
Stephenson founded Unitel Corporation, which had cellular operations in Texas
and Mexico City, which he sold to MxINV in 1993. Mr. Stephenson has worked in
the telecommunications industry since 1970. Mr. Stephenson currently operates
Cellular 99, a sole proprietorship which began operations in June 1998 and which
provides consulting services to telecommunications businesses in Houston, Texas.
Mr. Stephenson was educated at the University of Houston, College of Technology
and is a graduate of the Course Study, Harvard School for Business
Professionals.
Frank R. Neukomm has served as a director and vice president since
inception. Since 1995, Mr. Neukomm has served as the president and chief
executive officer of FirstChoice Communications, Inc., a consulting and
investment banking company specializing in the telecommunications industry based
in Houston, Texas. Mr. Neukomm has worked in the telecommunications industry
for over twenty years with companies such as Southwestern Bell (now SBC
Communications), Celltech, and Pat Thompson Company.
23
<PAGE>
Robert L. Wharton has served as a director, vice president and secretary
since inception. Since September 1998, Mr. Wharton has served as the controller
of The Abbey Group, Inc., an equipment rental business located in Houston,
Texas. From April 1998 to September 1998, Mr. Wharton was a sales
representative for First Tennessee Bank. From September 1993 to April 1998, Mr.
Wharton was the sales manager for Personalized Business Service, a bookkeeping
and tax preparation service based in Houston, Texas. Since August 1999, Mr.
Wharton has provided consulting services to Cellular 99.
James E. Hausman has served as a director and as our chief financial
officer and vice president of finance since March 2000. From 1988 to January
2000, Mr. Hausman served as the vice president of finance and administration of
Houston Cellular Telephone Company, a Houston, Texas cellular phone service
provider with revenues of approximately $300 million. Mr. Hausman received his
bachelor of science in accounting from the University of Kentucky. Mr. Hausman
is a licensed certified public accountant.
All directors will hold office until our next annual meeting. All our
executive officers are chosen by the board of directors and serve at the board's
discretion. There are no family relationships among the officers and directors.
Directors are not paid compensation for attending meetings, other than
reimbursements for expenses incurred in attendance. At this time, we do not
have an audit, compensation, or nominating committee.
EXECUTIVE COMPENSATION
The following table contains compensation data for our chief executive
officer from inception until the date of this prospectus. No other executive
officer has received in excess of $100,000 in compensation during the last three
fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL LONG TERM COMPENSATION
------ ----------------------
COMPENSATION
------------
Name and Principal Position Fiscal Year Salary($) Restricted Stock Award($)
--------------------------- ----------- --------- -------------------------
<S> <C> <C> <C>
Patrick W. Stephenson 2000 50,000 -
President, Chief Executive Officer, and
Director 1999 27,625 2,494
</TABLE>
24
<PAGE>
EMPLOYEE AGREEMENTS
In July 1999, we entered into an employment agreement with Mr. Stephenson
ending July 2002, which provides for a monthly base salary of $6,250. The
employment agreement provides for a bonus and raises to be awarded at the
discretion of the board of directors.
The agreement may be terminated by either party. If Mr. Stephenson
terminates the employment agreement for Good Reason or if we terminate the
agreement without cause, Mr. Stephenson is entitled to his base salary for a
period of 60 days from the date of termination. If Mr. Stephenson terminates
the agreement without Good Reason or if the agreement is terminated with cause
or Mr. Stephenson's death or disability, Mr. Stephenson is entitled to his
accrued salary and any earned but unpaid bonus. Good Reason means any material
failure to pay compensation or benefits under the agreement.
In July 1999, we entered into an employment agreement with Mr. Neukomm to
serve as Vice President-Business Development ending July 2002, which provides
for a monthly base salary of $5,000. The employment agreement provides for a
bonus to be awarded at the discretion of the board of directors. The agreement
may be terminated by either party and on the same terms and conditions as in Mr.
Stephenson's employment agreement.
In July 1999, we entered into an employment agreement with Robert Wharton
to serve as our Vice President-Treasurer ending July 2002, which provides for a
monthly base salary of $1,000. The consulting agreement may be terminated by
either party on the same terms and conditions as in Mr. Stephenson's employment
agreement.
In March 2000, we entered into a consulting agreement with James Hausman to
serve as our Chief Financial Officer and Vice President-Finance ending March
2003, which provides for a monthly base salary of $5,000. The consulting
agreement may be terminated by either party on the same terms and conditions as
in Mr. Stephenson's employment agreement.
Messrs. Neukomm and Wharton began to perform services on behalf of Prepaid
Telecom in July 2000. Both have agreed to waive all salaries owed to them prior
to August 31, 2000, except for accrued salaries totaling $17,000. No salary had
accrued for Mr. Hausman as of August 31, 2000. We are currently operating on a
limited budget and will continue to accrue their salaries until we begin to
generate revenue.
25
<PAGE>
STOCK OPTIONS AND WARRANTS
In August 2000, the board of directors approved and our stockholders
adopted the 2000 Stock Option Plan. Pursuant to the plan, options to purchase
2,000,000 shares of common stock may be granted to employees, officers,
directors, and consultants of the company. Options granted under the plan
generally expire five to ten years after the date of grant. Currently, no
options to purchase shares have been issued, and 2,000,000 shares were available
for future grants under the plan.
LIMITATION OF DIRECTORS' LIABILITY
Our articles of incorporation and bylaws eliminates, subject to certain
exceptions, the personal liability of directors of the company or its
stockholders for monetary damages for breaches of fiduciary duty. The articles
of incorporation and bylaws do not permit eliminating or limiting the personal
liability of a director for (a) any breach of the director's duty of loyalty to
us or to our stockholders, (b) acts or omissions not in good faith that
constitutes a breach of duty of the director or which involve intentional
misconduct or a knowing violation of law, (c) any transaction from which the
director derives an improper personal benefit, whether or not the benefit
resulted from an action taken within the scope of the director's office, or (d)
an act or omission for which the liability of a director is expressly provided
by an applicable statute. This provision of the articles of incorporation and
bylaws will limit the remedies available to the stockholder who is dissatisfied
with a decision of the board of directors protected by this provision. In this
type of situation, the stockholder's only remedy may be to bring a suit to
prevent the action of the board. This remedy may not be effective in many
situations, because stockholders are often unaware of a transaction or an event
prior to board action in respect of the transaction or event. In these cases,
the stockholders could be injured by a board's decision and have no effective
remedy.
PRINCIPAL STOCKHOLDERS
The table below sets forth, as of August 31, 2000, the beneficial ownership
of common stock of:
- our directors;
- our named executive officers;
- the holders of five percent or more of our common stock; and
- our officers and directors as a group.
26
<PAGE>
NUMBER OF SHARES OF
NAME OF COMMON STOCK PERCENTAGE OF OWNERSHIP
BENEFICIAL OWNERS BENEFICIALLY OWNED -----------------------
----------------- ------------------ Assuming no Assuming all
Prior to Warrants Warrants
Offering Exercised Exercised
Patrick W. Stephenson 2,543,750 64.1% 61.0% 51.2%
Frank R. Neukomm 175,625 4.4% 4.2% 3.5%
Robert L. Wharton - - - -
James E. Hausman 20,000 less than 1% less than 1% less than 1%
All officers and directors
as a group, (4) persons. . 2,739,975 69.0% 65.7% 55.1%
The address of each person listed on the table is 5903 Richmond Avenue,
Houston, Texas 77057, except for Mr. Neukomm, whose business address is 6601
Kirby Drive, Suite 600, Houston, Texas 77005.
The 175,625 shares beneficially owned by Mr. Neukomm, include 20,000 shares
held by the Neukomm Children's Trust of which he is the trustee, and 20,000
shares held by his wife.
The shares of common stock beneficially owned by Mr. Stephenson include
50,000 shares held by his wife.
We have determined beneficial ownership in accordance with the rules of the
SEC. We have assumed unless otherwise indicated below that the persons and
entities named in the table have sole voting and investment power with respect
to all shares beneficially owned, subject to community property laws where
applicable.
RELATED PARTY TRANSACTIONS
In July 1999, Prepaid Telecom-Texas issued to Patrick Stephenson, 2,493,750
shares of common stock for services rendered, Frank Neukomm, 65,625 shares of
common stock for services rendered, and J.T. Williams, 65,625 shares of common
stock for services rendered.
27
<PAGE>
In July 2000, we entered into a reorganization agreement with Prepaid
Telecom-Texas, where we purchased all 2,625,000 shares issued and outstanding
shares of Prepaid Telecom-Texas common stock. In exchange we issued to the
three shareholders of Prepaid Telecom-Texas, Messrs. Stephenson, Neukomm, and
Williams, an aggregate of 2,625,000 shares of Prepaid Telecom-Nevada common
stock.
DESCRIPTION OF CAPITAL STOCK
UNITS
We are offering 200,000 units, each consisting of one share of common stock
and four redeemable warrants to purchase common stock. The common stock and
warrants comprising a unit will be detachable and separately transferable.
COMMON STOCK
We are authorized to issue up to 24,000,000 shares of common stock, par
value $.001. As of August 31, 2000, there were 4,000,000 shares of common stock
issued and outstanding, no shares have been reserved for issuance upon the
exercise of warrants. We have reserved for issuance up to 2,000,000 shares of
common stock underlying our 2000 Stock Option Plan.
The holders of shares of common stock are entitled to one vote per share on
each matter submitted to a vote of stockholders. In the event of liquidation,
holders of common stock are entitled to share ratably in the distribution of
assets remaining after payment of liabilities, if any. Holders of common stock
have no cumulative voting rights, and, accordingly, the holders of a majority of
the outstanding shares have the ability to elect all of the directors. Holders
of common stock have no preemptive or other rights to subscribe for shares.
Holders of common stock are entitled to dividends as may be declared by the
board of directors out of funds legally available therefor. The outstanding
common stock is, and the common stock to be outstanding upon completion of this
offering will be, validly issued, fully paid and non-assessable.
CLASS A WARRANTS
Included in each unit is one (1) Class A warrant. At the close of the
offering, there will be 200,000 Class A warrants outstanding.
General. The following is a brief summary of the material provisions of
the Class A warrants included in the units. This summary does not purport to be
complete and is qualified in all respects by reference to the actual terms and
provisions of the warrant agreement. A copy of the agreement is filed as an
exhibit to the registration statement of which this prospectus is a part.
28
<PAGE>
Rights to Purchase Shares of Common Stock. Each Class A warrant will
entitle the registered holder to purchase one share of common stock at an
exercise price of $0.50 per share for a period of ninety (90) day from the close
of this offering. The exercise price of the Class A warrants bears no relation
to any objective criteria of value, and should in no event be regarded as an
indication of any future market price of the securities offered.
Method of Exercise. Each holder of a Class A warrant may exercise the Class
A warrant by surrendering the certificate evidencing the warrant, with the form
of election to purchase on the reverse side of the certificate properly
completed and executed, together with payment of the exercise price to Prepaid
Telecom at it principal office in Houston, Texas. The exercise price will be
payable in United States dollars or by certified or official bank check or other
check acceptable to Prepaid Telecom payable in United States dollars to the
order of Prepaid Telecom Corporation. No adjustment as to any dividends with
respect to the shares of common stock will be made upon an exercise of warrants.
If less than all of the Class A warrants evidenced by a warrant certificate are
exercised, a new certificate will be issued for the remaining number of
warrants. Certificates evidencing the Class A warrants may be exchanged for new
certificates of different denominations by presenting the warrant certificates
at Prepaid Telecom's principal office.
Anti-Dilution Adjustments. The exercise price and the number of shares of
common stock purchasable upon exercise of any Class A warrants are subject to
adjustment upon the occurrence of events, including a stock dividend, a stock
split or reverse stock split, reclassifications, reorganizations, consolidations
and mergers. No adjustment in the exercise price will be required to be made
with respect to the warrants, unless the adjustment would result in a $0.05
change in the exercise price of the warrant.
Redemption Provisions. We have the option to redeem the outstanding Class A
warrants in whole at any time or in part from time to time, on not less than 30
days' written notice to the registered holder of the warrant at a price equal to
$0.01 per warrant so long as the closing price for the common stock exceeds $.75
per share for 10 days over a 20 trading days prior to the day on which we give
notice of redemption. You will have the right to exercise the Class A warrants
under the terms described above until the redemption date. On the redemption
date, if you are the registered holder of unexercised Class A warrants, you are
entitled to payment of the redemption price upon surrender of the redeemed
warrants. If we redeem fewer than all of the outstanding warrants, we will
designate those Class A warrants to be redeemed pro rata or by lot.
29
<PAGE>
Other Rights. In the event of an adjustment in the number of shares of
common stock issuable upon exercise of the Class A warrants, we will not be
required to issue fractional shares of common stock upon exercise of the
warrants. In lieu of fractional shares of common stock, there will be paid to
the holder of the warrant at the time of exercise an amount in cash equal to the
same fraction of the current market value of a share of common stock.
Class A warrant holders do not have any voting or any other rights of
stockholders of the Company and are not entitled to dividends.
A Class A warrant will not be exercisable by a warrant holder if (1) the
shares of common stock issuable upon exercise of the warrant have not been
registered under the securities or blue sky laws of the state of residence of
the holder or (2) a current prospectus meeting the requirement of the laws of
the state cannot be lawfully delivered by us or on our behalf. Under the terms
of the Class A warrant agreement, we have agreed to use reasonable efforts to
register the shares in which holders of warrants are known to reside and to
maintain a current prospectus.
Modification of Warrant Agreement. The Class A warrant agreement contains
provisions permitting us without the consent of any warrant holder (1) to
supplement or amend the warrant agreement in order to cure any ambiguity, (2) to
correct or supplement any provision contained in the agreement which may be
defective or inconsistent with any other provision, or (3) to make any other
provisions in regard to matters or questions arising thereunder which we deem
necessary or desirable and which does not adversely affect the interests of the
warrant holders.
CLASS B WARRANTS
Included in each unit is one (1) Class B warrant. At the close of the
offering, there will be 200,000 Class B warrants outstanding. The exercise
price, terms and conditions of the Class B warrants and Class B warrant
agreements are identical to those of the Class A warrants, except that the Class
B warrants shall expire 180 days from the close of this offering.
CLASS C WARRANTS
Included in each unit is one (1) Class C warrant. At the close of the
offering, there will be 200,000 Class C warrants outstanding. The exercise
price, terms and conditions of the Class C warrants and Class B warrant
agreements are identical to those of the Class A warrants, except that the Class
C warrants shall expire 270 days from the close of this offering.
30
<PAGE>
CLASS D WARRANTS
Included in each unit is one (1) Class D warrant. At the close of the
offering, there will be 200,000 Class D warrants outstanding. The exercise
price, terms and conditions of the Class D warrants and Class B warrant
agreements are identical to those of the Class A warrants, except that the Class
D warrants shall expire 360 days from the close of this offering.
PREFERRED STOCK
We are authorized to issue of up to 1,000,000 shares of preferred stock. We
have no present plans for the issuance of preferred stock. The issuance of
preferred stock could adversely affect the rights of the holders of common stock
and, therefore, reduce the value of the common stock. In addition, the issuance
of preferred stock, while providing desirable flexibility in connection with
possible acquisitions, financings, and other corporate purposes, could have the
effect of making it more difficult or discouraging a third party from acquiring
a controlling interest in us. In many cases, shareholders receive a premium for
their shares in a change of control, and these provisions will make it somewhat
less likely that a change in control will occur or that shareholders will
receive a premium for their shares if a change of control does occur.
NEVADA ANTI-TAKEOVER LAWS AND CHARTER PROVISIONS
Nevada anti-takeover laws.
Nevada law contains a section governing the acquisition of controlling
interests. This law provides generally that any person or entity that acquires
20% or more of the outstanding voting shares of a publicly-held Nevada
corporation may be denied voting rights with respect to the acquired shares,
unless a majority of the disinterested stockholders of the corporation elect to
restore the voting rights.
The law provides that a person or entity acquires control shares whenever
it acquires shares that would bring its voting power within any of the following
three ranges: (1) 20 to 33 1/3%, (2) 33 1/3 to 50%, or (3) more than 50%. A
control share acquisition is generally defined as the direct or indirect
acquisition of either ownership or voting power associated with issued and
outstanding control shares. The stockholders or board of directors of a
corporation may elect to exempt the stock of the corporation from the provisions
of the control share acquisition statute through adoption of a provision to that
effect in the articles of incorporation or bylaws of the corporation. Our
articles of incorporation and bylaws do not exempt our common stock from the
control share acquisition statute.
31
<PAGE>
The control share acquisition statute is applicable only to shares of
"issuing corporations" as defined by the statute. An issuing corporation is a
Nevada corporation, which:
- has 200 or more stockholders, with at least 100 stockholders being
both stockholders of record and residents of Nevada; and
- does business in Nevada directly or through an affiliated corporation.
At this time, we do not have 100 stockholders of record who are residents of
Nevada. Therefore, the provisions of the control share acquisition statute do
not apply to acquisitions of our shares and will not until these requirements
have been met. If this law applies to us in the future, the provisions of the
control share acquisition statute may discourage companies or persons interested
in acquiring a significant interest in or control of Prepaid Telecom, regardless
of whether the acquisition may be in the interest of our stockholders.
The law contains a section governing combinations with interested
stockholders, which may also have an effect of delaying or making it more
difficult to effect a change in control of Prepaid Telecom. This statute
prevents an interested stockholder and the company from entering into a
combination, unless the conditions described below are met. The statute defines
combination to include any merger, consolidation, or other similar transaction
with an interested stockholder having;
- an aggregate market value equal to 5% or more of the aggregate market
value of the assets of the corporation;
- an aggregate market value equal to 5% or more of the aggregate market
value of all outstanding shares of the corporation; or
- representing 10% or more of the earning power or net income
of the corporation.
An interested stockholder means the beneficial owner of 10% or more of our
voting shares. A corporation affected by the statute may not engage in a
combination within three years after the interested stockholder acquires its
shares unless the combination or purchase is approved by the board of directors
before the interested stockholder acquired the shares.
If approval is not obtained, then after the expiration of the three-year
period, the business combination may be consummated with the approval of the
board of directors or a majority of the voting power held by disinterested
stockholders, or if the consideration to be paid by the interested stockholder
is at least equal to the highest of:
32
<PAGE>
- the highest price per share paid by the interested stockholder within
the three years immediately preceding the date of the announcement of
the combination or in the transaction in which he became an interested
stockholder, whichever is higher;
- the market value per common share on the date of announcement of the
combination or the date the interested stockholder acquired the
shares, whichever is higher; or
- if higher for the holders of preferred stock, the highest liquidation
value of the preferred stock.
Articles of incorporation. Our articles of incorporation provides:
- For the authorization of the board of directors to issue, without
further action by the stockholders, up to 1,000,000 shares of
preferred stock in one or more series and to fix the rights,
preferences, privileges, and restrictions on the preferred stock; and
- That special meetings of stockholders may be called only by our
chairman of the board, our president, or a majority of the members of
our board of directors.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of our board of directors and in the policies
formulated by our board of directors and to discourage transactions that may
involve an actual or threatened change of control. These provisions are designed
to reduce our vulnerability to an unsolicited proposal for a takeover. However,
these provisions could discourage potential acquisition proposals and could
delay or prevent a change in control. These provisions may also have the effect
of preventing changes in our management.
TRANSFER AGENT
InterWest Transfer Company serves as the transfer agent for the shares of
common stock.
33
<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
There is currently no market for our common stock. If a market for our
common stock develops, future sales of substantial amounts of common stock in
the public market could adversely affect market prices prevailing from time to
time. As described below, as of the date of this prospectus, only a limited
number of shares will be available for sale. Nevertheless, sales of substantial
amounts of our common stock in the public market in the future could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.
- After this offering, assuming all of the warrants included in the
units are exercised, we will have 5,000,000 shares of common stock
issued and outstanding.
- Of these shares, the 200,000 shares that are underlying the units will
be freely tradeable without restriction or further registration under
the Securities Act, unless the shares are held by our affiliates.
Affiliates are people that control or are controlled by Prepaid
Telecom. This includes our officers, directors, and large
shareholders.
- Of these shares, 800,000 shares underlying the warrants included in
the units that are being registered in this registration statement
will be freely tradeable when issued upon the exercise of these
warrants.
- The 4,000,000 remaining shares outstanding are eligible for public
sale under Rule 144, commencing 90 days after the effective date of
this registration statement, once these shares have been held for one
year. By May 2001, approximately 32% or 1,260,000 shares of our
restricted shares will have been held for one year and by August 2001,
substantially all of our restricted shares will be have been held for
one year.
SHARES OWNED FOR AT LEAST ONE YEAR MAY BE SOLD UNDER RULE 144.
In general, under Rule 144, a person who has beneficially owned restricted
shares for at least one year, including a person who may be deemed our
affiliate, would be entitled to sell, within any three-month period, a number of
shares that does not exceed one percent of the number of shares of our common
stock then outstanding. Rule 144 is available for sales beginning 90 days after
the effective date of this prospectus. Sales under Rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information. We are unable to estimate accurately the number of
restricted shares that will be sold under Rule 144 because this will depend in
part on the market price of our common stock, the personal circumstances of the
seller, and other factors.
34
<PAGE>
SHARES OWNED FOR AT LEAST TWO YEARS MAY BE SOLD UNDER RULE 144(K) BY
NON-AFFILIATES.
Under Rule 144(k), a person who is not deemed to have been an affiliate of
Prepaid Telecom at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, would
be entitled to sell shares without complying with the manner of sale, public
information, volume limitation, or notice requirements discussed above.
Therefore, unless otherwise restricted, 144(k) shares may be sold immediately
following completion of the two year
holding period without limitation.
PLAN OF DISTRIBUTION
THE PUBLIC OFFERING
We are offering 200,000 units at an offering price of $.50 per unit on a
best efforts, all-or-none basis with respect to the entire 200,000 units. The
units will be offered and sold through placement agents that are NASD member
broker-dealers and through our officers and directors. We have reserved the
right to pay a cash sales commission, expenses included, up to 13% of each unit
sold, provided that no commissions or expense allowances will be paid to our
officers and directors. The offering will begin on the date of this prospectus
is deemed effective and will close upon the earlier of (1) the sale of 200,000
Units, (2) 60 days after the effective of this prospectus or (3) if agreed upon
by our board of directors, 120 days after the effective date of this prospectus
In connection with the efforts of our officers and directors, they will
rely on the safe harbor provisions of Rule 3a4-1 of the Exchange Act. Generally
speaking, Rule 3a4-1 provides an exemption from the broker/dealer registration
requirements of the Exchange Act for persons associated with an issuer. No
person or group has made any commitment to purchase any or all of the units.
Nonetheless, our officers and directors will use their best efforts to find
purchasers for the units. We cannot state at this point if all the units will
be sold.
We have established a minimum offering amount of 10,000 units from the sale
of units and will place the proceeds from the sale of the units in a
non-interest-bearing escrow account. Upon the sale of 200,000 units, the
subscriptions for units in this offering that are accepted by us will be
credited immediately to Prepaid Telecom and those funds may be spent by us at
our discretion, without any waiting period or other contingency.
35
<PAGE>
A subscription agreement to purchase the units accompanies this prospectus,
commencing on page A-1. After this registration statement has been declared
effective, we will provide a subscription agreement and a copy of the final
prospectus relating to this offering to each prospective investor. Subject to
availability and our right to reject subscriptions, in whole or in part, for any
reason, units may then be subscribed for by completing and returning the
subscription agreement, together with payment for all units subscribed for, to
Prepaid Telecom by cashier's check, money order, or wire transfer.
We reserve the right to reject any subscription in full or in part, and to
terminate the offering at any time. The units may only be offered, sold or
traded in those states where this offering has been registered. However, we are
not obligated to sell units to any parties and we may refuse to do so.
Purchasers of units, either in this offering or in any subsequent trading market
which may develop, must be residents of states in which the securities are
registered or exempt from registration.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the SEC, indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against liabilities arising
under the Securities Act (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by the director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
the indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of the issue.
36
<PAGE>
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Currently, there is no public trading market for our securities and we can
provide no assurance that any market will develop. If a market develops for our
securities, it will likely be limited, sporadic and highly volatile.
INTEREST OF NAMED EXPERTS AND COUNSEL
Principals of Brewer & Pritchard, P.C. own 50,000 shares of common stock.
EXPERTS
Our financial statements appearing in this Form SB-2 registration statement
have been audited by Malone & Bailey, P.L.L.C., independent auditors, as set
forth in their report and are included in reliance upon the report given upon
the authority of the firm as experts in accounting and auditing.
LEGAL MATTERS
Brewer & Pritchard, P.C., Houston, Texas will give an opinion with respect
to the issuance of the securities offered in this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC in
connection with this offering. In addition, after we complete this offering, we
will be required to file annual, quarterly, and current reports with the SEC.
We intend to furnish our common stockholders with annual reports containing,
among other information, audited financial statements certified by an
independent public accounting firm.
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement and all of its
exhibits. Whenever a reference is made in this prospectus to any material
document of ours, you should refer to the exhibits that are a part of the
registration statement for a copy of the document.
37
<PAGE>
You may read and copy our registration statement and all of its exhibits at
the SEC public reference room located at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the SEC public
reference room in Washington, D.C. by calling the SEC at 1-800-SEC-0330. The
registration statement is also available from the SEC's web site at
http://www.sec.gov. The SEC's web site contains reports, proxy and information
statements, and other information about issuers that file electronically.
38
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
Prepaid Telecom Corporation
(A Development Stage Company)
Houston, Texas
We have audited the accompanying consolidated balance sheets of Prepaid Telecom
Corporation as of August 31, 2000 and December 31, 1999, and the related
statements of expenses, stockholders' equity, and cash flows for the eight
months ended August 31, 2000 and the period from July 2, 1999 (Inception)
through December 31, 1999. 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 financial statements. An audit 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 Prepaid Telecom Corporation as
of August 31, 2000 and December 31, 1999, and the results of its operations and
its cash flows for the eight months ended August 31, 2000, and for the period
from July 2, 1999 (Inception) through December 31, 1999, in conformity with
generally accepted accounting principles.
MALONE & BAILEY, PLLC
Houston, Texas
September 11, 2000
F-1
<PAGE>
PREPAID TELECOM CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
August 31, 2000 and December 31, 1999
2000 1999
--------- ----------
ASSETS
Cash $ 45,417 $ 11,734
Advance to officer and majority shareholder 6,100
--------- ----------
TOTAL ASSETS $ 45,417 $ 17,834
========= ===========
LIABILITIES
Accrued salaries $ 17,000 $ 0
Accrued legal fees 15,000
----------
Total Liabilities 32,000
----------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par, 1,000,000 shares
authorized, no shares issued or outstanding
Common stock, $.001 par, 24,000,000 shares
authorized, 4,000,000 and 3,378,695 shares 4,000 3,379
issued and outstanding, respectively
Paid in capital 147,375 55,001
Deficit accumulated during the
development stage (137,958) ( 40,546)
--------- ----------
Total Stockholders' Equity 13,417 17,834
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 45,417 17,834
========= ==========
See accompanying summary of accounting policies
and notes to financial statements.
F-2
<PAGE>
PREPAID TELECOM CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF EXPENSES
Eight Months Ended August 31, 2000, and the
Periods from July 2, 1999 (Inception)
Through August 31, 2000 and December 31, 1999
8 Months
Ended - Inception through -
August 31, Dec. 31, Aug. 31,
2000 1999 2000
----------- ----------- -----------
Administrative expenses $ 97,412 $ 40,546 $ 137,958
----------- ----------- -----------
Net (loss) $ ( 97,412) $ ( 40,546) $ (137,958)
=========== =========== ===========
Net (loss) per common share $ (.026) $ (.014)
Weighted average common shares
outstanding 3,689,348 2,876,232
See accompanying summary of accounting policies
and notes to financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
PREPAID TELECOM CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Period from July 2, 1999 (Inception)
Through August 31, 2000
Deficit
Accumulated
During the
Common Stock Paid in Development
Shares $ Capital Stage Totals
----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Shares issued to
founders for
services 2,625,000 $ 2,625 $ 2,625
Shares issued
for cash 753,695 754 $ 55,001 55,755
Net (deficit) $ ( 40,546) (40,546)
----------- ---------- ------------ ------------ ---------
Balances,
December 31, 1999 3,378,695 3,379 55,001 ( 40,546) 17,834
Shares issued
for cash 621,305 621 92,374 92,995
Net (deficit) ( 97,412) (97,412)
----------- ---------- ------------ ------------ ---------
Balances,
August 31, 2000 4,000,000 $ 4,000 $ 147,375 $ (137,958) $ 13,417
============ ========== ============ ============ =========
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
PREPAID TELECOM CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Eight Months Ended August 31, 2000, and the
Periods from July 2, 1999 (Inception)
Through August 31, 2000 and December 31, 1999
8 Months
Ended - Inception through -
August 31, Dec. 31, Aug. 31,
2000 1999 2000
------------ ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (deficit) accumulated during
the development stage $ (97,412) $ (40,546) $(137,958)
Adjustments to reconcile net (deficit)
to cash used by operating activities:
Stock issued for services 2,625 2,625
Increase in accrued salaries 17,000 17,000
Increase in accrued legal fees 15,000 15,000
Increase in officer advance 6,100 (6,100)
------------ ----------- ----------
NET CASH USED BY OPERATING ACTIVITIES (59,312) (44,021) (103,333)
------------ ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of stock 92,995 55,755 148,750
------------ ----------- ----------
NET INCREASE IN CASH 33,683 11,734 45,417
BALANCES - Beginning of period 11,734
------------ ----------- ----------
- End of period $ 45,417 $ 11,734 $ 45,417
============ =========== ==========
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
F-5
<PAGE>
PREPAID TELECOM CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Prepaid Telecom Corporation was incorporated in Texas on July 2, 1999. The
three founding shareholders received 2,625,000 shares of stock, recorded for
services rendered at par value ($.001). A second corporation with the same name
was incorporated in Nevada by the same group of founding shareholders on October
1, 1999, and no shares were immediately issued. On July 28, 2000, the Nevada
corporation exchanged 2,625,000 of its shares for 2,625,000 shares (or 100%) of
the outstanding shares of the Texas corporation. Today, the Texas corporation
is a wholly-owned subsidiary of the Nevada corporation of the same name.
The Company was formed to market prepaid cellular phones. As of September 11,
2000, the Company had no sales and is still classified as a Development Stage
Company.
Cash and Cash Equivalents. Cash and cash equivalents includes all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents, for purposes of the statements of cash flows.
Estimates. In preparing financial statements, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities in the
balance sheet and revenue and expenses in the income statement. Actual results
could differ from those estimates.
NOTE 2 - COMMON STOCK
The Company raised $148,750 from the sale of 1,375,000 shares of common stock
since inception. No offering costs were incurred.
NOTE 3 - OPERATING LEASE
A Company founding shareholder negotiated an office lease for a 2-year period
beginning July 6, 1999 for $750 per month, or $18,000 in total. The Company
pays these rent amounts on behalf of the shareholder, beginning September 1,
1999. Rent expense recorded was $3,000 for 1999 and $6,000 in 2000 to date.
NOTE 4 - EMPLOYMENT AGREEMENTS
The Company has employment agreements with its three officers, each of which was
signed July 6, 1999 for a 3-year period, totaling $147,000 per year. Because of
delays in the start-up timetable, two of these officers have not drawn any
salary to date. As of August 31, 2000, the Company has accrued $17,000 in
accrued wages due these two officers for services rendered to date. Additional
accrued amounts are for unbilled legal work performed to date on a planned
public stock offering.
The Company signed a 3-year consulting contract with another person on March 1,
2000 for $60,000 per year for 3 years. No amounts have been paid or accrued to
date because no services have yet been rendered.
NOTE 5 - STOCK OPTION PLAN
The Company adopted a stock option plan on September 1, 2000. No options have
been awarded to date.
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<PAGE>
200,000 Units
Prepaid Telecom Corporation
Prospectus
Units
_________, 2000
You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, units only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of the units.
Until ___________, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nevada law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The articles of
incorporation of Prepaid Telecom Corporation limit the liability of directors to
the company or its stockholders to the fullest extent permitted by Nevada law.
Specifically, directors will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the company or its
stockholders, (ii) for acts or omissions not in good faith that constitute a
breach of duty of the director to the company or an act or omission which
involves intentional misconduct or a knowing violation of law, (iii) for an act
or omission for which the liability of a director is expressly provided by an
applicable statute, or (iv) for any transaction from which the director received
an improper personal benefit, whether the benefit resulted from an action taken
within the scope of the director's office.
The inclusion of this provision in the articles of incorporation may have
the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though that
action, if successful, might otherwise have benefitted the company and its
stockholders.
Prepaid Telecom Corporation's articles of incorporation provide for the
indemnification of its executive officers and directors, and the advancement to
them of expenses in connection with any proceedings and claims, to the fullest
extent permitted by Nevada law. The articles of incorporation include related
provisions meant to facilitate the indemnities' receipt of benefits. These
provisions cover, among other things: (i) specification of the method of
determining entitlement to indemnification and the selection of independent
counsel that will in some cases make the determination, (ii) specification of
certain time periods by which certain payments or determinations must be made
and actions must be taken, and (iii) the establishment of certain presumptions
in favor of an indemnitee. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or persons
controlling the company pursuant to the foregoing provisions, the company has
been informed that, in the opinion of the SEC, indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
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<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses shall be paid by the Registrant.
SEC Registration Fee $ 133
Printing and Engraving Expenses *
Legal Fees and Expenses *
Accounting Fees and Expenses *
Miscellaneous *
--------
TOTAL $ *
========
* To be added by amendment
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following information sets forth certain information for all securities
the company sold since inception, without registration under the Securities Act.
There were no underwriters in any of these transactions, nor were any sales
commissions paid thereon.
From October 1999 through December 1999, we sold 975,000 shares of our
common stock at a purchase price of $0.05 per share to 13 accredited investors.
From January 2000 through April 2000, we sold 400,000 shares of our common stock
at a purchase price of $0.25 per share to 19 accredited investors. In July
2000, we issued 2,625,000 shares of our common stock in connection with our
purchase of Prepaid Telecom-Texas. We believe these transactions were exempt
from registration pursuant to Rule 506 of Regulation D of the Securities Act.
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<PAGE>
ITEM 27. EXHIBITS
INDEX TO EXHIBITS
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------
2.1(1) Reorganization Agreement
3.1(1) Articles of Incorporation
3.2(1) By-Laws
4.1(1) Form of Specimen of common stock
4.2(2) Subscription Agreement
4.3(1) Form of Warrant Agreement and Warrant Certificate
5.1(2) Legal Opinion
10.1(1) 2000 Stock Option Plan
10.2(1) Employment Agreement with Patrick W. Stephenson
10.3(1) Employment Agreement with Frank Neukomm
10.4(1) Employment Agreement with Robert L. Wharton
21.1(1) List of Subsidiaries
23.1(1) Consent of Malone & Bailey, PLLC
23.2(3) Consent of Brewer & Pritchard, P.C.
27.1(1) Financial Data Schedule
___________________
(1) Filed herewith.
(2) To be filed by amendment.
(3) Contained in Exhibit 5.1.
ITEM 28. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3) of the
Securities Act;
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<PAGE>
ii. Reflect in the prospectus any facts or events arising after the
effective date of which, individually or together, represent a
fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) of this
chapter) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
iii. Include any additional or changed material on the plan of
distribution.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) i. That, for the purpose of determining liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared
effective.
ii. For determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering
thereof.
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<PAGE>
(b) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, 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 registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on the 27th day of October, 2000.
PREPAID TELECOM CORPORATION
By: //s// PATRICK W. STEPHENSON
-------------------------------
PATRICK W. STEPHENSON, President
_________________________
This registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
//s// PATRICK W. STEPHENSON Director, President, and October 27, 2000
----------------------------- Chief Executive Officer
PATRICK W. STEPHENSON
//s// FRANK R. NEUKOMM Director and Vice President October 27, 2000
----------------------------- of Business Development
FRANK R. NEUKOMM
//s// ROBERT L. WHARTON Director, Vice President- October 27, 2000
----------------------------- Treasurer, and Secretary
ROBERT L. WHARTON
//s// JAMES E. HAUSMAN Director, Vice President of October 27, 2000
----------------------------- Finance and Chief Accounting
JAMES E. HAUSMAN Officer
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<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------
2.1(1) Reorganization Agreement
3.1(1) Articles of Incorporation
3.2(1) By-Laws
4.1(1) Form of Specimen of common stock
4.2(2) Subscription Agreement
4.3(1) Form of Warrant Agreement and Warrant Certificate
5.1(2) Legal Opinion
10.1(1) 2000 Stock Option Plan
10.2(1) Employment Agreement with Patrick W. Stephenson
10.3(1) Employment Agreement with Frank Neukomm
10.4(1) Employment Agreement with Robert L. Wharton
21.1(1) List of Subsidiaries
23.1(1) Consent of Malone & Bailey, PLLC
23.2(3) Consent of Brewer & Pritchard, P.C.
27.1(1) Financial Data Schedule
___________________
(1) Filed herewith.
(2) To be filed by amendment.
(3) Contained in Exhibit 5.1.
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