SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB - 2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
GATEWAY ACCESS SOLUTIONS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 4899 88-0496902
- --------------------------------------------------------------------------------
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number identification No.)
930 Tahoe Blvd., #802-505
Incline Village, NV 89451
(800)-434-5626
------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Nevada Corporate Headquarters, Inc.
101 Convention Center Drive, Suite 700
Las Vegas NV 89109
(800) 508-1729
------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
With copies to:
The O'Neal Law Firm, P.C.
Attention: William D. O'Neal, Esq.
668 North 44th Street
Suite #233
Phoenix, Arizona 85008
Ph: (602) 267-3855
Fax: (602) 267-7400
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this registration
statement.
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, check
the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [ ]
1
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [X]
CALCULATION OF REGISTRATION FEE
<table>
- ----------------------- --------------------- ------------------------- ------------------------- --------------------
Title of each Proposed Proposed
Class of Maximum Maximum Amount of
Securities to Amount to be Offering Price Aggregate Registration
be registered Registered per unit (1) Offering price Fee
- ----------------------- --------------------- ------------------------- ------------------------- --------------------
Common Stock 3,352,883 $0.25 838,220.75 $126.70
- ----------------------- --------------------- ------------------------- ------------------------- --------------------
</table>
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said section 8(a), may determine.
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
2
PROSPECTUS
3,352,883 shares of common stock
GATEWAY ACCESS SOLUTIONS, INC.
3,352,883 shares of common stock of Gateway Access Solutions, Inc. ($ 0.25 per
share)
This is an offering of 3,352,883 shares of common stock by the selling
shareholders. The shares are being registered to permit public secondary trading
of the shares that are being offered by the selling shareholders named in this
prospectus. We will not receive any of the proceeds from the sale of the shares.
There is currently no public market for our shares and the selling shareholders
may, but are not obligated to, offer all or part of their shares for resale from
time to time through public or private transactions, at either prevailing market
prices or at privately negotiated prices.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS," WHICH BEGINS
ON PAGE 5.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THESE SECURITIES, PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS, OR
MADE ANY RECOMMENDATION THAT YOU BUY OR NOT BUY THE SHARES. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENCE.
This prospectus is not an offer to sell or our solicitation of your offer to buy
these securities in any jurisdiction where such would not be legal.
The date of this prospectus is February 26, 2004.
We intend to furnish our stockholders with annual reports containing audited
financial statements.
This prospectus contains certain "forward-looking statements" which involve
substantial risks and uncertainties. When used in this prospectus the
forward-looking statements are often identified by the use of such terms and
phrases as "anticipates," "believes," "intends," "estimates," "plans,"
"expects," "seeks," "scheduled," "foreseeable future" and similar expressions.
Although we believe the understandings and assumptions on which the
forward-looking statements in this prospectus are based are reasonable, our
actual results, performances and achievements could differ materially from the
results in, or implied by, these forward-looking statements, including those
discussed under the caption "Risk Factors."
3
TABLE OF CONTENTS
PART I - Summary Information and Risk Factors................................. 5
Prospectus Summary............................................................ 5
The Offering.................................................................. 5
Summary of Financial Information ............................................ 5
Risk Factors.................................................................. 5
Forward-Looking Statements................................................... 11
Use of Proceeds.............................................................. 11
Determination of Offering Price.............................................. 11
Dilution..................................................................... 11
Selling Security Holders..................................................... 11
Plan of Distribution......................................................... 16
Legal Proceedings............................................................ 17
Directors, Executive Officers, Promoters and Control Persons................. 17
Security Ownership of Certain Beneficial Owners and Management............... 18
Description of Securities.................................................... 19
Interests of Named Experts and Counsel....................................... 22
Description of Business...................................................... 22
Management's Discussion and Analysis or Plan of Operation.................... 29
Description of Property...................................................... 32
Certain Relationships and Related Transactions............................... 33
Market for Common Equity and Related Shareholder Matters..................... 32
Dividend Policy.............................................................. 34
Executive Compensation....................................................... 34
Shares Eligible for Future Sale.............................................. 35
Legal Matters................................................................ 35
Experts.......................................................................35
Transfer Agent............................................................... 35
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures ................................................................. 35
PART II - Financial Statements............................................... 36
PART III - Information Not Required in Prospectus............................ 48
Recent Sales of Unregistered Securities...................................... 48
Exhibits..................................................................... 50
Undertakings................................................................. 50
Signatures................................................................... 52
4
PART I
SUMMARY INFORMATION AND RISK FACTORS.
PROSPECTUS SUMMARY
Unless the context indicates otherwise, all references in this prospectus to
"we," or the "Company," refer to Gateway Access Solutions, Inc., a corporation
formed under the laws of the State of Nevada on May 24, 2001.
Gateway Access Solutions, Inc., a Nevada corporation, is a development stage
company engaged in providing broadband services to the rural marketplace.
Our executive offices are located at 930 Tahoe Blvd., #802-505, Incline Village,
Nevada 89451. Our telephone number is (800) 434-5626.
THE OFFERING
Price per share offered $0.25*
Common stock offered by selling shareholders 3,352,883 shares
Common stock outstanding prior to this offering 11,721,420 shares
Preferred stock outstanding prior to this offering 5,300,000 shares
Common stock to be outstanding after this offering 11,721,420 shares
Preferred stock outstanding after this offering 5,300,000 shares
* Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
SUMMARY OF FINANCIAL INFORMATION
The following summary financial information for the periods stated summarizes
certain information from our financial statements included elsewhere in this
prospectus. You should read this information in conjunction with Management's
Plan of Operations and the financial statements and the related notes thereto
included elsewhere in this prospectus.
Income Statement For the period from January 1, 2003
to December 31, 2003
----------------------------------- -----------------------------------
Revenues $ 3,179.00
Net Income (Loss) $(649,850.00)
Net Income (Loss) per Share $ (0.06)
Balance Sheet As of December 31, 2003
----------------------------------- ----------------------------------
Total Assets $ 277,308.00
Total Liabilities $ 202,979.00
Shareholders' Equity (Deficit) $ 74,329.00
RISK FACTORS
The Company is a development stage company with a limited operating history.
The Company was incorporated on May 24, 2001. The Company is a development stage
business with a limited operating history. Companies in an early stage of
development frequently encounter many risks, expenses and difficulties. The
risks faced by the Company include, but are not limited to, the need to continue
to raise debt and/or equity capital, a new and evolving business model and the
management of growth. To address these risks, the Company must, among other
things, continue to develop the strength and quality of its operations, maximize
5
RISK FACTORS - continued
the value delivered to customers, respond to competitive developments and
continue to attract, retain and motivate qualified employees and managers. If
the Company is not successful, its business, results of operations and financial
condition will be materially and adversely affected.
The Company anticipates sustaining continued operating losses for the
foreseeable future.
The Company cannot be sure that it will be successful in implementing the
Company's business model or that its business model will not require further
changes as its business and target markets mature. In addition, the Company
intends to continue to invest heavily in infrastructure development, technology
and marketing. The Company may need to raise substantial amounts of debt and/or
additional equity capital to fund these operations. As a result, the Company
expects to incur operating losses for the foreseeable future and may need to
raise capital to fund these losses. The Company may not be able to achieve or
sustain profitability.
The Company will need to raise additional capital.
To implement our long-term business strategy, the Company will need additional
capital for capital expenditures, operating expenses, system development costs
and acquisition costs, including debt that may be assumed in future
acquisitions. The Company plans to finance these activities by debt or equity
financings, secured or unsecured credit facilities, vendor financing, sales of
assets, joint ventures or other arrangements. The Company cannot assure you that
we will be able to obtain the financing we will need to fund the implementation
of our long-term business strategy on satisfactory terms and conditions, if at
all. If the Company incurs additional debt, we may have to dedicate a
substantial portion of our cash flow from operations to the payment of principal
and interest, which may cause us to be more vulnerable to competitive pressures
and economic downturns. The Company's failure to obtain additional financing in
a timely manner and on acceptable terms would adversely affect our ability to
continue as a going concern and may require us to delay, reduce or eliminate the
launch of new high-speed Internet access systems or sell some or a substantial
portion of our assets.
The high-speed Internet access industry is subject to rapid technological
changes.
The high-speed Internet access industry is subject to rapid technological
change, frequent new service introductions and evolving industry standards. We
believe that our future success will depend largely on our ability to anticipate
or adapt to these changes and to offer, on a timely basis, services that meet
evolving standards. We cannot predict the extent to which competitors using
existing or currently undeployed methods of delivery of Internet access services
will compete with our services. We cannot assure you that:
- - existing, proposed or undeveloped technologies will not render our broadband
wireless systems less profitable or less viable,
- - we will have the resources to acquire new technologies or to introduce new
services that could compete with future technologies, or
- - we will be successful in responding to technological changes in a timely and
cost effective manner.
6
RISK FACTORS - continued
The Company's business is subject to continuous change.
The market for the services the Company intends to provide is characterized by
rapid changes in the competitive landscape, changing consumer requirements and
preferences, new service and product introductions and evolving industry
standards that could render the Company's services obsolete. The Company's
success will depend, in large part, on its ability to improve such services,
develop new services that address the increasingly sophisticated and varied
needs of the Company's customers, and respond to technological advances,
emerging industry standards and practices, and competitive service offerings.
The Company may not be successful in responding quickly, cost-effectively and
sufficiently to these developments. If the Company is unable, for technical,
financial or other reasons, to adapt in a timely manner in response to changing
market conditions or requirements, its business, results of operations and
financial condition would be materially adversely affected.
Failure to properly manage growth could adversely affect the Company's business.
The Company intends to grow its business both internally and by acquisition. Any
such growth will increase the demands on the Company's management, operating
systems and internal controls. The Company's existing management resources and
operational, financial, human and management information systems and controls
may be inadequate to support existing or expanded operations. The Company may be
unable to manage growth successfully. If the Company grows but is unable to
successfully manage such growth, its business will suffer and its capacity for
future growth will be significantly impaired. Because of these factors, the
Company may be unable to predict with any degree of accuracy its future ability
to grow or rate of growth.
Failure to attract, train and retain skilled managers and other personnel could
increase costs or limit growth.
The Company believes that its future success will depend in large part upon its
ability to attract, train and retain additional highly skilled executive-level
management and creative, technical, financial and marketing personnel.
Competition for such personnel is intense, and no assurance can be given that
the Company will be successful in attracting, training and retaining such
personnel. The Company's need for executive-level management will increase if it
grows. If the Company fails to attract, train and retain key personnel, its
business, operating results and financial condition will be materially and
adversely affected.
The Company is dependent on its management team.
The Company's success depends largely on the skills of its current management.
The Company does not have employment agreements with its executive officers, key
management or other employees and, therefore, they could terminate their
employment at any time without penalty. The Company does not maintain key person
life insurance policies on any of its employees. The loss of one or more of its
key employees could seriously harm its business. The Company may not be able to
recruit personnel to replace these individuals in a timely manner, or at all, on
acceptable terms. In addition, since the Company has a limited operating
history, all of its officers are relatively new to the Company and their ability
to effectively work together as a team is unproven. The Company's success
depends on their ability to work together effectively. If the management team
fails to work together effectively, the Company's business will be harmed.
7
RISK FACTORS - continued
The Company operates in a highly competitive market.
The broadband industry is highly competitive, with many of the Company's
competitors having greater name recognition and resources than the Company. The
Company will compete with numerous service providers, including: ISPs, incumbent
and competitive local exchange carriers, inter-exchange carriers, cable modem
service providers, and fixed-wireless and satellite data service providers. Many
of the Company's competitors are well established and have larger and
better-developed networks and systems, longer-standing relationships with
customers and suppliers, greater name recognition and significantly greater
financial, technical and marketing resources. Many of these companies can
subsidize competing services with revenues from other services and have ready
access to capital markets.
As a result, these competitors may be able to respond more quickly and
effectively than the Company to new or changing opportunities, technologies or
customer requirements. Existing or future competitors may develop or offer
products that provide price, service, number or type of providers or other
advantages over those the Company intends to offer. If the Company fails to
compete successfully against current or future competitors with respect to these
or other factors, its business, financial condition, and results of operations
may be materially and adversely affected.
Government regulation and legal uncertainties could adversely affect the
Company's business.
The Company's continued ability to acquire and maintain MMDS spectrum licenses,
which are vital to our operations, is subject to extensive regulation. These
regulations directly affect the breadth of services the Company is able to
offer, as well as the rates, terms and conditions of those services. The Company
is also affected indirectly by the effect of other governmental regulations on
companies that offer competing services. Regulations and their application are
subject to continual change as a result of new legislation, regulations adopted
from time to time by regulatory authorities and judicial interpretation of these
laws and regulations. The Company is not able to predict the extent to which any
such change in the regulatory environment could affect our business. Aside from
the use of spectrum, the FCC has held that the terms and conditions of providing
Internet and Internet access services are not subject to FCC regulation.
Nevertheless, the FCC has held that the provision of Internet access is an
interstate service subject to FCC jurisdiction. There can be no certainty that
the providing of Internet access services will continue to be free from FCC
regulation.
Failure to maintain spectrum rights could affect our business.
We depend upon licenses granted to us by the FCC and leases with other FCC
license holders for access to spectrum capacity necessary to operate our
business. These licenses are subject to renewal as determined by the FCC. FCC
licenses also specify construction deadlines by which channel transmissions must
begin, which, if not met, would permit the FCC to revoke the license. We cannot
assure you that:
- - the FCC will renew our licenses as their initial terms expire,
- - our spectrum lessors will continue to hold valid licenses for their spectrum,
- - we will be able to renew our spectrum leases on terms acceptable to us, or
- - the FCC will grant requests for extensions of construction deadlines.
8
RISK FACTORS - continued
The failure to maintain FCC licenses and spectrum leases will reduce the
spectrum available for our use. If we fail to maintain sufficient FCC licenses
or spectrum leases in markets where we operate or in which we intend to launch
two-way Internet access service, then the resulting reduction in spectrum
capacity could have a material adverse effect on our ability to:
- - serve our existing Internet access customer base,
- - serve increasing customer demand for high-speed Internet access service, and
- - add services such as voice over IP or wireless telecommunications services.
We cannot assure you that we will be able to obtain replacement spectrum or
other acceptable alternatives in a market if we lose an FCC license or spectrum
lease in that market.
The Company's Basic Trading Area authorizations are subject to forfeiture.
We acquired authorization for one Basic Trading Area ("BTA") in December 2002.
As of December 31, 2003, $44,090 in principal amount of this debt remained
payable quarterly through August 2006. Each BTA is subject to an individual
installment note. If we fail to make one or more scheduled installment payments
on a BTA note after any applicable grace period, that BTA authorization may be
forfeited to the FCC.
To retain a BTA authorization, under previously effective FCC rules, we were
required provide a required level of service in the BTA by August 2003. FCC has
now suspended BTA build-out requirements while a proposed rulemaking is pending,
and has proposed to replace those requirements with a uniform "substantial
service" requirement at renewal of the BTA authorizations in 2006. If the FCC
does not adopt this or a similar proposal, then a BTA authorization for the
portion of the BTA that is not capable of being served may be subject to
forfeiture. Constructing MDS and MMDS channels capable of providing service to
the required population in unconstructed BTAs could require substantial capital
expenditures.
The Company's network is subject to viruses, break-ins and other security
breaches.
Despite the implementation of network security measures, the core of any
Internet network infrastructure is vulnerable to computer viruses, break-ins and
similar disruptive problems. The Company may experience future interruptions in
service as a result of the actions of Internet users, current and former
employees or others. Unauthorized use could also potentially jeopardize the
security of their computer systems and the computer systems of their customers.
Although the Company intends to implement security measures to prevent this, the
possibility exists that the measures they implement will be circumvented in the
future. In addition, eliminating such viruses and remedying such security
problems may cause interruptions, delays or cessation of service to their
Internet customers. If their security measures fail, the Company may lose
customers or be sued, resulting in additional expenses.
Shareholders could experience substantial dilution.
The Company intends to issue additional shares of its equity securities to raise
additional cash for working capital. If the Company issues additional shares of
its capital stock, shareholders will experience dilution in their respective
percentage ownership in the Company.
9
RISK FACTORS - continued
There can be no assurance that the Company's common stock will ever be publicly
traded or appreciate significantly in value.
The Company, in conjunction with certain broker-dealers, intends to apply to the
National Association of Securities Dealers to have its stock publicly traded on
the Nasdaq Over-the-Counter Electronic Bulletin Board. No assurance can be given
that such regulatory approval will ever be received. If the Company's common
stock becomes publicly traded, no assurance can be given that the Company's
common stock will ever be traded on an established national securities exchange
or that the Company's business strategy will be well received by the investment
community.
The Company has no present intention to pay dividends.
The Company has never paid dividends or made other cash distributions on the
common stock, and does not expect to declare or pay any dividends in the
foreseeable future. The Company intends to retain future earnings, if any, for
working capital and to finance current operations and expansion of its business.
A large portion of the Company's common stock is controlled by a small number of
shareholders.
A large portion of our common stock is held by a small number of stockholders.
As a result, these stockholders are able to influence the outcome of stockholder
votes on various matters, including the election of directors and extraordinary
corporate transactions including business combinations. In addition, the
occurrence of sales of a large number of shares of our common stock, or the
perception that these sales could occur, may affect our stock price and could
impair our ability to obtain capital through an offering of equity securities.
Furthermore, the current ratios of ownership of our common stock reduces the
public float and liquidity of our common stock which can in turn affect the
market price of our common stock.
The Company's auditor has raised doubt about our ability to continue as a going
concern.
As set forth in Note 1 to the consolidated financial statements, the
consolidated financial statements contained in this report have been prepared on
a "going concern" basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. In conjunction
with their 2003 year end audit, our independent accountants have issued an audit
opinion with respect to our 2003 consolidated financial statements which
includes an explanatory paragraph describing conditions that raise substantial
doubt about our ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
The Company may be subject to "Penny Stock" regulations.
The SEC has adopted rules that regulate broker-dealer practices in connection
with transactions in "penny stocks." Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the NASDAQ system, provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system). Penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
those rules, to deliver a standardized risk disclosure document prepared by the
SEC, which specifies information about penny stocks and the nature and
10
RISK FACTORS - continued
significance of risks of the penny stock market. A broker-dealer must also
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer, and our sales person in the transaction, and
monthly account statements indicating the market value of each penny stock held
in the customer's account. In addition, the penny stock rules require that,
prior to a transaction in a penny stock not otherwise exempt from those rules,
the broker-dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the trading activity in the secondary market for stock that becomes
subject to those penny stock rules. If any of our securities become subject to
the penny stock rules, holders of those securities may have difficulty in
selling those securities.
FORWARD-LOOKING STATEMENTS
You should be aware that any forward-looking statements in this prospectus
involve risks and uncertainties as they are based on certain stated assumptions
which may apply only as of the date of this prospectus. We use words such as
"anticipates," "believes," "plans," "expects," "future," "intends" and similar
expressions to identify these forward-looking statements and the actual results
of our operations could differ materially from those anticipated in these
forward-looking statements.
USE OF PROCEEDS
We will not receive the proceeds from the sale of any of the 3,352,883 shares
offered by the selling shareholders. We will, however, pay the costs of
registering those shares.
DETERMINATION OF OFFERING PRICE
We arbitrarily determined the price of the shares in this offering solely for
the purpose of calculating the registration fee pursuant to Rule 457 and it is
not an indication of the actual value of the Company. Therefore, the offering
price bears no relationship to our book value, assets or earnings, or to any
other recognized measure of value and it should not be regarded as an indicator
of any future market price of the securities.
DILUTION
Since this offering is being made solely by the selling stockholders and none of
the proceeds will be paid to our Company, our net tangible book value will be
unaffected by this offering.
SELLING SECURITY HOLDERS
The following table sets forth the names of the selling shareholders and for
each selling shareholder the number of shares of common stock beneficially owned
as of February 26, 2004, and the number of shares being registered. All
information with respect to share ownership has been furnished by the selling
shareholders. The shares being offered are being registered to permit public
secondary trading of the shares and each selling shareholder may offer all or
part of the shares owned for resale from time to time. A selling shareholder is
under no obligation, however, to sell any shares immediately pursuant to this
prospectus, nor is a selling shareholder obligated to sell all or any portion of
the shares at any time. Therefore, no estimate can be given as to the number of
shares of common stock that will be sold pursuant to this prospectus or the
11
SELLING SECURITY HOLDERS - continued
number of shares that will be owned by the selling shareholders upon termination
of the offering made hereby.
SELLING SHAREHOLDERS SHARES OF COMMON SHARES OF COMMON STOCK
STOCK OWNED TO BE REGISTERED
Democles J. Angelopoules 5,470 5,470
Raymond L. Armstrong and Caroline
Armstrong, JT TEN 169,351 40,000
Calvin H. Barton 84,600 40,000
Lincoln Trust Company-FBO Calvin Barton 100,000 40,000
Lawrence W. Barrett 35,000 35,000
Gerald C. Beals 100,000 40,000
Alexander Bekiaris 68,333 40,000
Marios Bekiaris 105,000 40,000
Chris Bekiaris and Georgia Bekiaris, JT TEN 101,667 40,000
Ronald Brauman 245,060 40,000
Russel L. Burnett 2,735 2,735
Thomas L. Barrett 35,000 35,000
Brian H. Coburn 30,440 30,440
William L. Coxe 52,440 40,000
Richard Dickau 21,137 21,137
Barbara J. Erickson 2,735 2,735
Michael T. Easterlin 8,204 8,204
Paul F. Erickson 2,735 2,735
Steven Friedman and Theresa Friedman, JT
TEN 8,750 8,750
Betty Guillory 40,373 40,000
Frances Grenier 44,000 40,000
Michael E. Grenier 125,940 40,000
Jeffrey Hardell and Marcia Hardell, JT TEN 2,735 2,735
Susan Hanke and James Hanke, JT TEN 30,000 30,000
12
SELLING SECURITY HOLDERS - continued
Susan M. Hanke 25,000 25,000
Daniel P. Kitchel 40,411 40,000
Lorraine M. Kuligoski and Edward
Kuligoski, JT TEN 33,871 33,871
Donald Douglas Law and Joan Emmens Law TR
UA 02-28-1986 Revocable Trust 70,000 40,000
Edward Lynch 50,100 40,000
Ernest H. Lacore 8,204 8,204
Glen Lamb 2,735 2,735
Jason Lewis 200,000 40,000
John Legnos and Nellie Legnos, JT TEN 35,000 35,000
John P. Legnos, Sr. 150,000 40,000
Joseph L. LaPere 250,000 40,000
Matthew R. Leyko 2,735 2,735
Steven A. Lillmars and Jean M. Lillmars,
JT TEN 350,000 40,000
Billy G. Mullins and Reba J. Mullins, JT
TEN 836,765 40,000
Bruce Miller 26,607 26,607
Gary McManus 5,870 5,870
Georgia Marr and Emanuel Marr, JT TEN 10,940 10,940
James J. Murtaugh, II 35,000 35,000
James Murtaugh and Diane Murtaugh, JT TEN 200,762 40,000
Jerome M. Murtaugh Sr. 59,000 40,000
Jerome Murtaugh and Antonia Murtaugh, JT
TEN 97,881 40,000
Jerome Murtaugh, Jr. 5,000 5,000
John Maloney 25,000 25,000
Karen A. Miller 25,000 25,000
Karen A. Miller and Douglas L. Miller,
JT TEN 35,000 35,000
Keith Miller 49,998 40,000
13
SELLING SECURITY HOLDERS - continued
Lewis C. Maruzo 310,440 40,000
Marianne Maloney 25,000 25,000
Megatel LLC 60,000 40,000
Rocco D. Marciano 16,220 16,220
Thomas R. Moretti 8,750 8,750
Andrew C. Nester 550,000 40,000
Charles Norris 11,845 11,845
W. Stephen Nagle and Kathie M. Nagle, JT
TEN 14,000 14,000
B.G. Pappas and Karen Pappas, JT TEN 10,940 10,940
William Pappas and Peggy Pappas, JT TEN 21,881 21,881
Frances M. Pappas 42,500 40,000
Peter J. Pappas 1,375,029 40,000
Carrie J. Puckett 35,000 35,000
David L. Paul, Jr. 34,440 34,440
S. Mark Poler and Anne S. Poler 100,002 40,000
S. Mark Poler and Anne S. Poler FBO Andrew 16,666 16,666
Carl Poler
S. Mark Poler and Anne S. Poler FBO 16,666 16,666
Gregory Thomas Poler
S. Mark Poler and Anne S. Poler FBO
Jonathan Daniel Poler 16,666 16,666
Heidi Petros and Tony Petros, JT TEN 10,940 10,940
Joseph E. Parker 298,941 40,000
Paul N. Pantelis 35,000 35,000
Pharos Management, Inc. 625,000 40,000
Robert Perras, Jr. 5,470 5,470
Steven Pack 8,750 8,750
James M. Quarto 132,160 40,000
Alan M. Rothenberg 17,500 17,500
Arthur F. Richer and Sylvia I. Richer, JT 33,333 33,333
TEN
14
SELLING SECURITY HOLDERS - continued
Doreen Rosen 5,470 5,470
Scott N. Roberts 27,351 27,351
Wilfred J. Riley 35,000 35,000
Carol J. Sears and Thomas P. Sears, JT TEN 35,000 35,000
Dorothy Senich 13,000 13,000
Haynes W. Sheppard, Jr. 105,000 40,000
Haynes W. Sheppard, Jr. and Frances K.
Sheppard, JT TEN 66,667 40,000
Robert J. Samokar 150,000 40,000
Robert Scullin 25,000 25,000
Swan S. Stull 116,667 40,000
Todd Smith 75,000 40,000
Wilhelm Kurt Schwab 37,000 37,000
Dean J. Trantalis 2,735 2,735
Elaine J. Trantalis 1,104,294 40,000
Jeffrey Trantalis 31,887 31,887
Joseph J. Tavormina 75,000 40,000
Lester F. Tobias and Linda L. Tobias, JT
TEN 20,000 20,000
Louis Taranto 400,000 40,000
Carla Vitucci 40,000 40,000
Ronald Woyasz 95,940 40,000
Timothy Wawrzynowicz 280,000 40,000
Juan York 75,000 40,000
Michael P. Yoquelet 25,000 25,000
Paul Yoquelet and Victoria Yoquelet, JT TEN 539,216 40,000
Joseph A. Zavaletta MD 5,470 5,470
Venture Capital 450,000 450,000
Total 11,721,420 3,352,883
15
PLAN OF DISTRIBUTION
The 3,352,883 shares being offered by the selling shareholders may be sold or
distributed from time-to-time by the selling shareholders or their transferees
directly to one or more purchasers or through brokers, dealers, or underwriters
who may act solely as agents or may acquire shares as principals. Such sales or
distributions may be made at prevailing market prices, at prices related to such
prevailing market prices, or at variable prices negotiated between the sellers
and purchasers that may vary. The distribution of the shares may be effected in
one or more of the following methods:
--ordinary brokerage transactions, including long or short sales,
--transactions involving cross or block trades, or otherwise on the OTC
Bulletin Board,
--purchases by brokers, dealers, or underwriters as principals and
subsequent resales by the purchasers for their own accounts pursuant
to this prospectus,
--sales "at the market" to, or through, market makers or into an existing
market for the shares,
--sales not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents,
--transactions involving options, swaps, or other derivatives, whether
exchange-listed or otherwise, or
--transactions involving any combination of the foregoing or any other
legally available means.
In addition, a selling shareholder may enter into hedging transactions with one
or more broker-dealers who may engage in short sales of shares in the course of
hedging the positions they assume with the selling shareholder. A selling
shareholder may also enter into option or other transactions with one or more
broker-dealers requiring the delivery of the shares by such broker-dealers with
the possibility that such shares may be resold thereafter pursuant to this
prospectus.
A broker, dealer, underwriter, or agent participating in the distribution of the
shares may receive compensation in the form of discounts, concessions, or
commissions from the selling shareholders and/or purchasers of the shares for
whom such person may act as an agent, to whom such person may sell as principal,
or both; and such compensation as to a particular person may be in excess of
customary commissions. The selling shareholders and any broker-dealers acting in
connection with the sale of the shares being registered may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act of 1933
(the "Securities Act"), and any profit realized by them on the resale of shares
as principals may be deemed underwriting compensation under the Securities Act.
We know of no existing arrangements between any of the selling shareholders and
any other shareholder, broker, dealer, underwriter, or agent relating to the
sale or distribution of the shares, nor can we presently estimate the amount, if
any, of such compensation.
Although we will receive no proceeds from the sale of shares pursuant to this
prospectus, we have agreed to bear the costs and expenses of the registration of
the shares, including legal and accounting fees, and such costs and expenses are
estimated to be approximately $30,000.
16
PLAN OF DISTRIBUTION - continued
We have informed the selling shareholders that while they are engaged in a
distribution of the shares included in this prospectus they will be required to
comply with certain anti-manipulative rules contained in Regulation M under the
Exchange Act. With certain exceptions, Regulation M prohibits any selling
shareholder, any affiliated purchaser, and any broker-dealer or other person who
participates in such distribution from bidding for or purchasing, or attempting
to induce any person to bid for or purchase any security that is the subject of
the distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security.
LEGAL PROCEEDINGS
No legal proceedings have been or are currently being undertaken for or against
the Company, nor are we aware of any contemplated proceedings.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers currently serving the Company are as
follows:
Name Age Positions Held and Tenure
- -------------------------------------------------------------------------------
Andrew C. Nester 67 President/Secretary/Director
Joseph Tavormina 48 Chief Technology Officer
Peter J. Pappas 76 Treasurer/Director
S. Mark Poler 51 Director
Andrew C. Nester, President/Secretary/Director, Age 67, has 40 years of
experience in business management consulting, general management, senior
marketing, sales, and engineering positions with various high technology and
Internet related companies. Over the last six years, Mr. Nester has focused on
providing a full compliment of consulting services and products to owners and
operators of MMDS, ITFS, LPTV, LMDS and 2.4 gigahertz frequencies in support of
their efforts to utilize these properties to provide high speed data services.
He was responsible for the installation and operation of one of the first
commercial fixed wireless Internet access service provider operations in Las
Vegas, Nevada. As a consultant Mr. Nester has been involved with eleven
additional sites across the country. He received his B.S.E.E. degree in 1962
from Pacific States University.
Joseph Tavormina, Chief Technology Officer, Age 48, has over 20 years
engineering and general management experience in the wireless telecommunications
industry. He has founded several companies in conjunction with the launch of
development projects and is well versed in the financing of technology projects
and companies. He has a BS and MBA in Engineering from MIT with a concentration
in Systems Analysis and Control, Computer Hardware and Software, and Mechanical
and Electronic Design with a minor in Economics and Entrepreneurial Studies. In
addition Mr. Tavormina has completed Post-graduate studies in Electromagnetics,
Microwave Engineering, and Antenna Design at the Georgia Institute Of
Technology.
Peter J. Pappas, Treasurer/Director, Age 76, was self-employed as a certified
public accountant in the State of Connecticut for 30 years, where he provided
extensive accounting, financial, management and consultant services both
nationally and internationally. He has been involved in telecommunications for
15 years. Mr. Pappas received a Degree in Accounting from the Sawyer School of
Business.
17
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS - continued
S. Mark Poler, Director, Age 51, has been an anesthesiologist for 25 years. Dr.
Poler has been on the medical school faculties at UCSF and Washington University
in St. Louis, Barnes Hospital. For the last 13 years, he has been practicing at
Geisinger Medical Center in Danville, PA. He has been an active member of
standards organizations, participating in the development of several standards
for anesthesia workstations (ASTM), and Medical Informatics, including
definition of data dictionaries for anesthetic records and the IEEE Medical
Information Bus (IEEE-1073). Dr. Poler's avocations include computer
applications including Windows, Linux and MacIntosh platforms, expertise in
embedded systems for hardware data acquisition and display, large database
management, data mining, and statistics. Undergraduate studies in Chemistry and
Molecular Biology at Revelle College, University of California at San Diego
preceeded transfer to the University of California at San Francisco where BS and
MD degrees were granted. After medical school Dr. Poler completed his residency
and fellowship training at the University of California, San Francisco.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2003, certain information
with respect to the beneficial ownership of our common stock by (i) each
director and officer of the Company, (ii) each person known to the Company to be
the beneficial owner of five percent (5%) or more of the outstanding shares of
common stock, with such person's address, and (iii) all of the directors and
officers as a group. Unless otherwise indicated, the person or entity listed in
the table is the beneficial owner of the shares and has sole voting and
investment power with respect to the shares indicated.
- ---------------------------- ---------------------------- ---------------------
Name of Beneficial Owner or Percent of
Name of Officer or Director Shares Beneficially Owned Common Stock (1)
- ---------------------------- ---------------------------- ---------------------
Andrew C. Nester 2,175,000 (2) 12.78%
President/Secretary/Director
930 Tahoe Blvd., #802
Incline Village, NV 89451
- ---------------------------- ---------------------------- ---------------------
Joseph Tavormina 75,000 0.44%
Chief Technology Officer
5250 S. Virginia Street
Suite 340
Reno, NV 89502
- ---------------------------- ---------------------------- ---------------------
Peter J. Pappas 1,450,350 (3) 8.52%
Treasurer/Director
4 Butternut Drive
Norwich, CT 06360
- ---------------------------- ---------------------------- ---------------------
S. Mark Poler 4,250,000 (4) 24.97%
Director
8 Millwood Drive
Danville, PA 17821
- ---------------------------- ---------------------------- ---------------------
18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - continued
- ---------------------------- ---------------------------- ---------------------
Elaine J. Trantalis 1,138,916 (5) 6.69%
11 Taylor Drive
Norwich, CT 06360
- ---------------------------- ---------------------------- ---------------------
W. Fred Hess 1,200,000 (6) 7.05%
10 Millwood Drive
Danville, PA 17821
- ---------------------------- ---------------------------- ---------------------
Total Directors/Officers/ 10,289,266 60.45%
Five Percent Owners
- ---------------------------- ---------------------------- ---------------------
Notes:
(1) Calculation assumes conversion of 5,300,000 shares of outstanding Series A
Preferred Stock into common stock, but does not include exercise of
outstanding options or issuance of additional options under the Company's
Equity Incentive Plan.
(2) Includes shares held by Pharos Management, Inc., a corporation controlled
by Mr. Nester. Includes incentive stock options for 1,000,000 shares held
by Mr. Nester.
(3) Includes shares held by Frances Pappas (42,500 shares), B.G. Pappas and
Karen Pappas (10,940 shares) and William Pappas and Peggy Pappas (21,881
shares). Mr. Pappas disclaims any beneficial interest in the shares held by
B.G. Pappas and Karen Pappas, and William Pappas and Peggy Pappas.
(4) Includes 4,100,000 shares of Series A Preferred Stock. Includes shares held
for the benefit of Andrew Carl Poler (216,666 shares), Gregory Thomas Poler
(216,666 shares), and Jonathan Daniel Poler (216,666 shares).
(5) Includes shares held by Dean J. Trantalis (2,735 shares) and Jeffrey
Trantalis (31,887 shares).
(6) All 1,200,000 shares are Series A Preferred Stock.
DESCRIPTION OF SECURITIES
The following description is a summary of the material terms of our capital
stock. This summary is subject to and qualified in its entirety by our Articles
of Incorporation, as amended, and Bylaws, and by the applicable provisions of
Nevada law.
The authorized capital stock of the company consists of 50,000,000 shares of
common stock having a par value of $.001 per share, and 10,000,000 shares of
preferred stock having a par value of $.001 per share.
Common Stock.Each outstanding share of common stock entitles the holder thereof
to one vote per share on all matters. The Articles of Incorporation do not
permit cumulative voting for the election of directors which means that the
holders of more than 50% of such outstanding shares voting for the election of
directors can elect all of the directors to be elected, if they so choose; in
such event, the holders of the remaining shares will not be able to elect any of
19
DESCRIPTION OF SECURITIES - continued
our directors. Shareholders do not have preemptive rights to purchase shares in
any future issuance of our common stock.
The holders of shares of common stock are entitled to dividends out of funds
legally available when and as declared by the Board of Directors. The Board of
Directors has never declared a dividend and does not anticipate declaring a
dividend in the foreseeable future. In the event of liquidation, dissolution or
winding up of the affairs of the company, holders are entitled to receive,
ratably, the net assets available to shareholders after payment of all
creditors.
All of the issued and outstanding shares of common stock are duly authorized,
validly issued, fully paid, and non-assessable. To the extent that additional
shares of our common stock are issued, the relative interests of existing
shareholders will be diluted.
Preferred Stock. The preferred stock may be issued from time to time in one or
more series. The Board of Directors has the authority to fix the designation,
rights, preferences, privileges and restrictions and number of shares of any
such series by resolution. The Board of Directors also has the authority to
amend the resolution establishing such series to increase or decrease the number
of shares of that series, but not below the number of shares of such series then
outstanding.
Series A Preferred Stock. The Series A Preferred Stock consists of 5,300,000
shares, all of which are issued and outstanding. The Series A Preferred Stock
has the following rights and preferences (Note: the following is a summary. For
a full description of the rights and preferences of the Series A Preferred
Stock, please refer to the Amended and Restated Certificate of Determination for
the Series A Preferred Stock filed as Exhibit 3.3. to this Registration
Statement.)
Dividends. The holders of the Series A Preferred Stock are entitled to
receive when, as and if declared by the Board of Directors, non-cumulative
dividends at the rate of $.005 per annum per share. No dividends or other
distributions shall be paid with respect to the common stock until dividends in
the amount of $.005 per share on the Series A Preferred Stock shall have been
paid or declared and set apart during that fiscal year. Dividends on the Series
A Preferred Stock shall not be cumulative.
Liquidation. (a) In the event of any liquidation, dissolution or winding up
of the Company, in which the aggregate consideration to be paid to the
shareholders is less than or equal to a price per share of common stock
(assuming conversion of the Series A Preferred Stock) of Five Cents ($0.05), the
holders of the Series A Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of to the holders of the common stock, the
amount of Five Cents ($0.05) per share, plus all declared but unpaid dividends.
If upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Series A Preferred Stock shall be insufficient to
permit the payment of the full preferential amount, then the entire assets and
funds of the Company shall be distributed ratably among the holders of the
Series A Preferred Stock. After payment to the holders of the Series A Preferred
Stock of the preferential amounts, the entire remaining assets and funds of the
Company, if any, shall be distributed among the holders of the common stock.
(b) In the event of any liquidation, dissolution or winding up of the
Company, in which the aggregate consideration to be paid to the its shareholders
is greater than a price per share of common stock (assuming conversion of the
20
DESCRIPTION OF SECURITIES - continued
Series A Preferred Stock) of Five Cents ($0.05), the entire remaining assets and
funds of the Company, if any, shall be distributed pro rata among the holders of
Series A Preferred Stock and common stock.
Voting Rights. Each holder of shares of the Series A Preferred Stock shall
be entitled to the number of votes equal to the number of shares of common stock
into which such shares of Series A Preferred Stock could be converted and shall
have voting rights and powers equal to the voting rights and powers of the
common stock (except as otherwise expressly provided herein or as required by
law, voting together with the common stock as a single class).
Conversion. (a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder, at any time, into such number
of shares of common stock as is determined by dividing Five Cents ($0.05) by the
Conversion Price applicable to such share in effect on the date the conversion
takes effect. The "Conversion Price" shall initially be Five Cents ($0.05) per
share of common stock. Therefore, each share of Series A Preferred Stock is
currently convertible into one share of common stock. The Conversion Price can
be subject to certain adjustments as described below.
(b) Automatic Conversion. Each share of Series A Preferred Stock shall
automatically be converted into shares of common stock at the then-effective
Conversion Price Conversion Price, upon the earlier of (i) the date specified by
vote or written consent or agreement of holders of more than 50% of the shares
of the Series A Preferred Stock then outstanding, voting as a separate class, or
(ii) immediately upon the closing of the sale of the Company's common stock in a
firm commitment, underwritten public offering registered under the Securities
Act, the aggregate net proceeds to the Company and/or any selling stockholders
of which exceeds $5,000,000.
(c) Adjustment of Conversion Price. In the event this Company shall issue
additional shares of common stock for a consideration per share less than the
Conversion Price in effect (currently Five Cents ($0.05) per share, then
and in
such event, the Conversion Price shall be reduced, concurrently with such issue,
to a price determined by multiplying the Conversion Price by a fraction:
A + B
- -----
A + C
Where A = the number of shares of common stock outstanding immediately prior to
such issue;
B = the number of shares of common stock which the aggregate consideration
received by the Company for the additional shares of common stock so issued
would purchase at the Conversion Price in effect immediately prior to such
issuance;
C = the number of additional shares of common stock so issued.
Protective Provisions. So long as any shares of Series A Preferred Stock
remain outstanding, the Company shall not, without the vote or written consent
by the holders of more than fifty percent (50%) of the then outstanding shares
of the Series A Preferred Stock, voting together as a single class:
(a) authorize or issue, or obligate itself to issue, any equity security,
with powers, designations, preferences or relative, participating, optional or
other special rights prior to or on a parity with the Series A Preferred Stock;
21
DESCRIPTION OF SECURITIES - continued
(b) increase or decrease the authorized number of shares of Series A
Preferred Stock;
(c) sell, convey, or otherwise dispose of all or substantially all of its
property or business or merge into or consolidate with any other corporation or
entity or effect any transaction or series of related transactions in which more
than 50% of the voting power of the Company is disposed;
(d) liquidate, dissolve, recapitalize or reorganize;
(e) amend the Company's Articles of Incorporation or Bylaws;
(f) purchase, redeem or otherwise acquire any common stock of the Company,
or pay or declare any dividend on (other than a pro rata dividend payable solely
in common stock) or make any other distribution in respect of any common stock
of the Company, other than the repurchase of shares of common stock that are
subject to stock repurchase.
These protective provisions shall terminate upon the earlier of: (i) the date
specified by vote or written consent or agreement of holders of more than 50% of
the shares of the Series A Preferred Stock then outstanding, voting as a
separate class, or (ii) immediately upon the closing of the sale of the
Company's common stock in a firm commitment, underwritten public offering
registered under the Securities Act, the aggregate net proceeds to the Company
and/or any selling stockholders of which exceeds $5,000,000.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No "Expert" or "Counsel" as defined by Item 509 of Regulation S-B promulgated
pursuant to the Securities Act of 1933, whose services were used in the
preparation of this Form SB-2 was hired on a contingent basis or will receive a
direct or indirect interest in the Company.
DESCRIPTION OF BUSINESS
Corporate Information
We were incorporated under the laws of the State of Nevada on May 24, 2001. Our
executive offices are located at 930 Tahoe Boulevard, Incline Village, Nevada
89451, and our telephone number is (800) 434-5626.
Overview
We provide tailored broadband data, voice, video and Internet access solutions
using a combination of licensed radio spectrum, unlicensed radio spectrum and
fiber optic cable in medium and small markets throughout the United States. We
deploy licensed Multipoint Distribution Service (MDS), Multichannel Multipoint
Distribution Service (MMDS), and Instructional Television Fixed Service (ITFS)
spectrum (2500-2690 MHz band) in fixed based point to multi-point configurations
for connectivity over the "last mile" to our customer premises, licensed
millimeter and microwave spectrum (6, 11 and 18 GHz) in point to point
configurations to link our base stations to our backbone architecture, and fiber
optic cable to connect our wireless network to major Internet access points. We
occasionally deploy unlicensed spectrum to provide connectivity throughout a
customer's premises (Wi-Fi) and to provide last mile access in select markets.
We hold the basic trading area ("BTA") authorization for MDS, MMDS and ITFS
spectrum in Sunbury, PA, own the license for the "F" group of four MMDS channels
in Lynchburg, VA, and lease the "E" group of four MMDS channels in
22
DESCRIPTION OF BUSINESS - continued
Wilkes-Barre/Scranton, PA, covering an estimated 400,000 total households. In
July, 2003, we signed a 5-year contract to provide broadband data, voice, video
and Internet access solutions to Geisinger Health System, one of the country's
largest rural health care providers, with two hospitals, 590 physicians, 8,530
employees (including physicians), and 49 primary care sites, serving 38
contiguous counties in Pennsylvania. In September, 2003, we began to offer
services in our Pennsylvania markets and currently have 65 customers. We intend
to expand into five additional markets in 2004, and will expand into additional
markets depending on the availability of funding.
Business Strategy
Our long-term business strategy is to provide fixed, portable and, ultimately,
mobile broadband data, voice, video and Internet access solutions using a
combination of licensed radio spectrum, unlicensed radio spectrum and fiber
optic cable in medium and small markets throughout the United States. In our
target markets, business customers who wish to take advantage of the
productivity gains and competitive advantages of broadband Internet solutions
find that there are few options for broadband services. ISDN, cable and DSL
solutions may be simply unavailable due to physical range limitations or the
lack of infrastructure investment in these markets by the larger companies who
control the copper wire and cable systems. T1 lines may be prohibitively
expensive as offered by the regional telephone companies. Our wireless
technologies require no backhoes or trenches to implement and may be the only
economically attractive solution in the medium and small markets which we have
identified for our services. By using FCC licensed radio spectrum, we have an
unusual opportunity to acquire licensed regional monopolies to deliver broadband
Internet solutions in these medium and small markets for a fraction of the
investment required by copper wire and cable systems.
Our initial target customers in each market will be larger institutions such as
hospitals, medical offices, colleges and universities, government agencies, and
small to medium-sized businesses with multiple locations. Once our
wireless/fiber network is in place and operating for these larger customers, we
will offer service to small office/home office (SOHO) customers, telecommuters
and purely residential customers. In every case, our focus will be not just
providing Internet connectivity, but additional broadband services tailored to
customer needs. Our services will include traditional services offered by
Internet service providers (ISPs), such as email, web design and hosting, and
co-location, as well as tailored point-to-point enterprise and institutional
connectivity solutions, tailored bulk bandwidth solutions, and virtual private
networks to connect multiple office locations. In the future, we expect to offer
data communication back-haul services for large institutions, Voice over IP
solutions for Internet telephony, custom video applications (streaming video
broadcasts, video conferencing), and a variety of specialized application
software solutions for specific industry niches (medical, legal, accounting).
We customize the build-out of our network based on the topology of a specific
area and the needs of key customers within that area. As a result of our choice
of technology, approach and expertise, we have the ability to cost effectively
provide wireless service in a wide variety of environments. We use equipment
that can often overcome non-line of sight situations, increasing our flexibility
to reach potential customers. We typically set up micro-cells utilizing base
stations that can cover a radius of 3 to 8 miles using MMDS spectrum in a point
to multi-point configuration. We can easily increase our capacity in a
particular cell by partitioning the cell into 60, 90 or 120-degree sectors and
reusing frequency assets on a sector-wise rather than a cell-wise basis. We then
link these base stations to our network using licensed millimeter and microwave
23
DESCRIPTION OF BUSINESS - continued
spectrum (6, 11 and 18 GHz) in a point to point configuration. To link all of
our markets together and link them to the Internet, we will use fiber links
where available, or build additional point to point wireless links. This network
architecture gives us two significant advantages. First, since we have wireless
links over the last mile, we can reach additional customers over increased
distances without significant additional capital costs. Adding a new customer
within an existing cell requires only adding customer premise wireless equipment
at the customer's location. Second, we bypass the regional bell operating
companies entirely, and pay no recurring service or access fees to any third
party in order to reach our customers. We can connect our customers to the
Internet entirely over our own proprietary wireless network.
During the first half of this year, we will seek to raise $3 million -- $5
million in new capital. We expect to use this capital to acquire frequency
licenses in additional markets, continue building our wireless network in
existing markets, market our broadband Internet solutions to potential
customers, and for operating expenses. We also may seek additional capital if we
consummate any significant acquisitions or strategic alliances, or determine
that market conditions are appropriate for such financing. There can be no
assurance that financing will be available on acceptable terms or in a timely
manner, if at all. See "Liquidity and Capital Requirements; Dependence on
Additional Capital" in the section Risk Factors in this report.
At December 31, 2003, we had approximately $59,724 of unrestricted cash and cash
equivalents. As set forth in Note 1 to the consolidated financial statements,
the consolidated financial statements contained in this report have been
prepared on a "going concern" basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. In
conjunction with their 2003 year end audit, our independent accountants have
issued an audit opinion with respect to our 2003 consolidated financial
statements which includes an explanatory paragraph describing conditions that
raise substantial doubt about our ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Strategic Relationships
We have three important relationships with third parties that provide material
benefits to our strategic position. The loss of any one of these relationships
could have a material adverse impact on our business prospects.
Geisinger Health System (www.geisinger.org)
In July, 2003, we signed a contract to provide broadband data, voice, video and
Internet access solutions to Geisinger Health System, one of the country's
largest rural health care providers, with two hospitals, 590 physicians, 8,530
employees (including physicians), and 49 primary care sites, serving 38
contiguous counties in Pennsylvania. Pursuant to this contract, we are
authorized to connect all of Geisinger hospitals, clinics and many of its
physicians and employees (at their homes) with a wireless network featuring
point to point connections using millimeter and microwave spectrum or fiber,
linking different cities where their facilities are located, and point to
multipoint connections using MMDS spectrum to link individual sites within
closely spaced locales. We will also provide a virtual private network for the
use of all of Geisinger's employees. We have begun to install the wireless
network and have completed approximately 10% of the total network build-out.
When fully constructed, we expect to receive revenues of approximately $30,000
per month from this single customer (See Exhibit 3.5).
24
DESCRIPTION OF BUSINESS - continued
Digital Freedom (www.dfnow.com)
In September 2003, we signed a strategic alliance agreement with Digital
Freedom, an Internet service provider located in Scranton, Pennsylvania. Digital
Freedom has over 5,500 dial-up and 217 DSL Internet access customers in eastern
Pennsylvania. Digital Freedom has seven salespeople in the area, and an active
marketing campaign to sign up new customers. Pursuant to the strategic alliance
agreement, Digital Freedom will provide dial-up Internet access to Gateway's
customers in Scranton, Pennsylvania, and will resell Gateway's advanced wireless
services to its own customers in Wilkes-Barre and Stroudsburg, Pennsylvania. The
companies will share revenues from these customers as provided in the agreement.
We expect that this alliance will allow us to more quickly penetrate these
markets than we could with our own resources. Digital Freedom and Gateway may
extend this relationship to other markets by mutual consent (See Exhibit 3.6).
PointRed Technologies, Inc. (www.pointredtech.com)
We have chosen PointRed Technologies, Inc., of San Jose, California, as our
preferred provider of point to multipoint MMDS equipment. We believe that
PointRed currently provides the best cost/performance ratio of all equipment
manufacturers available today. PointRed currently offers a MMDS base station
based on their microcell model which can serve 60 simultaneous users for
approximately $10,000 installed. This equipment can operate in non-line of sight
configurations, increasing our flexibility to reach potential customers.
PointRed has concentrated its marketing and sales efforts in international
markets, and has 3,000 units installed in seven markets world-wide.
In January 2004, we signed an exclusive distribution and resale agreement with
PointRed which makes us the exclusive reseller of PointRed equipment in the
United States. We believe that this may result in an important second source of
revenue over time, as we can leverage our own installation and operation
experience by consulting and selling PointRed equipment to other operators (See
Exhibit 3.7).
Government Regulation
MDS, MMDS and ITFS services are subject to regulation by the FCC under the
Communications Act of 1934, as amended ("Communications Act"). The
Communications Act authorizes the FCC, among other things, to:
- - issue, revoke, modify and renew station licenses,
- - approve the assignment and/or transfer of control of such licenses,
- - approve the location and technical parameters of MDS, MMDS and ITFS
transmission facilities (headends and base stations),
- - regulate the type, configuration and operation of equipment used by MDS, MMDS
and ITFS systems,
- - impose certain equal employment opportunity and other periodic reporting
requirements on MDS, MMDS and ITFS operators, and
- - review and approve/disapprove certain terms of ITFS spectrum lease agreements.
25
DESCRIPTION OF BUSINESS - continued
In March 2003, the FCC adopted a Notice of Proposed Rulemaking (NPRM) and
Memorandum Opinion and Order (FCC 03-56) to replace the existing regulations for
the MDS, MMDS and ITFS bands with new rules, including a new nationwide bandplan
and geographic service areas that would accommodate deployment of advanced
wireless services, including fixed, portable and mobile services. The public
comment period has ended and the FCC is in the process of preparing the proposed
final rules. The FCC is expected to release the proposed final rules on or
before June 2004 (although there can be no guarantees that the FCC will be able
to finish its work on that schedule).
The proposals in the NPRM are based in large part on a proposal made by a
coalition of MMDS and ITFS operators to the FCC in October 2002. The NPRM
proposes that the FCC adopt an entirely new set of rules, and a new bandplan and
geographic service areas for the MDS, MMDS and ITFS bands which will make the
provision of advanced wireless services much easier for operators like the
Company. Among other things, the FCC proposes to
- - modify the MMDS/ITFS rules to allow deployment of cellular systems that can
operate on fixed, portable and mobile bases,
- - establish a new, nationwide bandplan for the MDS, MMDS and ITFS bands that
separates frequencies for high-power operations from two-way cellular operations
and eliminates the need for consent from adjacent channel licensees in most
instances,
- - replace the existing system of multiple, interleaved 6-MHz channels in
MMDS/ITFS with substantially contiguous spectrum blocks in a lower (66 MHz),
middle (42 MHz) and upper (66 MHz) portion of the 2.5 GHz band,
- - replace the site-by-site licensing system for MMDS/ITFS cellular systems with
rules modeled on more flexible wireless regulations, allowing licensees to
construct and operate facilities within defined geographic service areas,
- - establish a market-by-market mechanism for transitioning from the old bandplan
to the new one, and
- - eliminate certain outdated regulations and conform the MMDS/ITFS rules to
current FCC standards for geographically-licensed flexible use services.
In the same document (FCC 03-56), the FCC suspended several sets of current
rules relating to the existing MMDS and ITFS licenses. In particular, the FCC
suspended:
- - the build out requirements for BTA owners (which was originally to expire
August 2003); and
- - the build-out requirements for individual MMDS and ITFS stations (12 months
from the date of grant of the authorization for MMDS stations and 18 months from
the date of grant of the authorization for ITFS stations).
Furthermore, the FCC stopped accepting applications for new MDS or ITFS
licenses.
We believe that the rules proposed by the FCC in the NPRM, if adopted
substantially as proposed, will create a unique opportunity to use this spectrum
to provide advanced wireless services, will increase the flexibility of the
Company to use this spectrum efficiently, and will reduce the cost and
complexity of initiating advanced wireless services.
26
DESCRIPTION OF BUSINESS - continued
Regulation of Internet Service Providers. Congress has passed a number of laws
that concern the Internet, including the Digital Millennium Copyright Act, the
Children's Online Privacy Protection Act, the Children's Online Protection Act
and the Protection of Children from Sexual Predators Act of 1998. A number of
states and foreign countries have enacted or proposed similar legislation.
Generally, these laws provide liability limitations for Internet service
providers that do not knowingly engage in unlawful activity. We do not
anticipate that compliance with these laws will have an adverse impact on us.
However, we may be required to implement operating guidelines to comply with the
laws and could be subject to liability if we fail to implement appropriate
guidelines or otherwise violate any of these new laws.
Regulation of Telecommunications Services. If we begin providing wireless
telecommunications services or voice over IP services, we may be subject to a
variety of FCC and state regulation of our interstate and intrastate
telecommunications services, respectively. Although the FCC currently does not
consider voice over IP services to be telecommunications services, and thus does
not regulate them as such, this position could change. Moreover, the regulatory
status of voice over IP is unsettled at the state level, and a number of states
have indicated that they will assert or attempt to assert regulatory
jurisdiction over at least some voice over IP services. If we begin providing
voice over IP, we may be subject to regulation in some states but not in others.
Other Regulations. As a lessee of antenna structure space, we indirectly
(through contractual commitments) may be subject to Federal Aviation
Administration regulation and FCC registration for the construction, maintenance
and lighting of transmission towers and by certain local zoning regulations
affecting construction of towers and other facilities. Federal environmental
regulations, state and local environmental land use regulations and zoning
regulations also may apply.
Competition
High-Speed Internet Competition
The Internet access market is highly competitive. We face competition from many
Internet access and service providers with significantly greater financial
resources, well-established brand names and large, existing customer bases. Our
competition in this industry includes:
Traditional Internet Service Providers ("ISPs"). ISPs provide Internet access to
residential and business customers. These companies can:
- - provide Internet access over incumbent local exchange carriers' ("ILECs")
telecommunications networks at high speeds,
- - offer digital subscriber line ("DSL")-based access using their own DSL
services, or DSL services offered by ILECs and others, and
- - have significant and sometimes nationwide marketing presences and combine
these with strategic or commercial alliances with DSL-based incumbent and
competitive carriers. Significant ISPs include AOL Time Warner, Inc. ("AOL"),
Microsoft Corporation and EarthLink, Inc.
Incumbent Local Exchange Carriers. ILECs, such as SBC Communications, Inc.,
Verizon Communications, Inc. and Qwest Communications International, Inc.
("Qwest") have existing metropolitan area networks and circuit-switched local
access networks. Incumbent carriers have deployed commercial DSL services in
27
DESCRIPTION OF BUSINESS - continued
certain areas and are combining their DSL service with their own Internet access
services. The incumbent carriers generally have an established brand name in
their service areas and possess sufficient capital to deploy DSL services
rapidly.
Interexchange Carriers (IXC). Many of the interexchange carriers, such as AT&T
Corporation, WorldCom and Sprint, have the capability to support high-speed,
end-to-end networking services. These carriers have deployed large scale
networks, have large numbers of existing business and residential customers and
enjoy strong name recognition. These companies increasingly are bundling their
services to include high-speed local access combined with metropolitan and wide
area networks, and a full range of Internet services and applications. Other
carriers, such as Qwest and Level 3 Communications, Inc., are managing
high-capacity, nationwide Internet protocol, or "IP," networks and partnering
with ISPs to offer a range of services to businesses and consumers.
Cable Modem Service Providers. Cable modem service providers, like the Time
Warner Cable division of AOL, Comcast Corporation, Cox Communications, Inc.,
Service Electric Cablevision, CATV Service, Inc. and Adelphia Communications
Corporation, among others, currently offer consumers and businesses high-speed
Internet access over hybrid fiber coaxial cable networks. Where deployed, these
networks provide local access services similar to our services, and in some
cases at higher speeds (though often unidirectionally).
Satellite and Other Fixed Wireless Providers. We will face competition from
satellite-based systems. Hughes Network Systems, a unit of Hughes Electronics
Corporation (through its DirecWay brand), currently offers two-way broadband
satellite service. In addition, many local and regional ISPs use unlicensed
spectrum to offer terrestrial fixed wireless high-speed Internet access.
Competitive Local Exchange Carriers. We expect competitive local exchange
carriers ("CLECs") to offer DSL-based data services. Traditional CLECs,
including Allegiance Telecom, Inc., McLeodUSA Incorporated, D&E Communications
and Birch Telecom, have extensive fiber-based networks in numerous metropolitan
areas and are capable of providing voice and high-speed data services to
businesses.
3G Wireless. We also expect more competition from 3G wireless providers, as
commercial mobile radio service providers begin to deploy 3G services in their
spectrum bands. The successful deployment of 3G wireless services could
significantly expand the availability of broadband services, especially to
consumers that currently are unserved by wireline connections.
Many of these competitors are offering, or may soon offer, and services that
will directly compete with some or all of our service offerings. We may not be
able to compete effectively, especially against established industry competitors
with significantly greater financial resources. We believe the principal
competitive factors that we face include:
- transmission speed,
- reliability of service,
- ability to bundle services,
- price performance,
- customer support,
28
DESCRIPTION OF BUSINESS - continued
- brand recognition,
- operating experience, and
- capital availability.
For a further discussion of competition in this industry, see "Business -- Risk
Factors -- The Internet access market is highly competitive. Because many
competitors in our markets are well-established and have resources significantly
greater than those available to us, we may not be able to establish a
significant number of Internet access customers in our markets. On the other
hand, our moderate deployment costs may permit us to deploy and compete
successfully in markets that do not provide adequate return on investment for
other, typically larger, competitors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
The following discussion is intended to provide an analysis of the Company's
financial condition and Plan of Operation and should be read in conjunction with
the Company's financial statements and the notes thereto set forth herein. The
matters discussed in this section that are not historical or current facts deal
with potential future circumstances and developments. The Company's actual
results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below.
Plan of Operation
During the next twelve months, the Company's primary focus will be on providing
needed services to Geisinger Health System, one of the country's largest rural
health care providers, with two hospitals, 590 physicians, 8,530 employees
(including physicians), and 49 primary care sites, serving 38 contiguous
counties in Pennsylvania. In addition to this large client, the Company is
currently operating in Sunbury, Pennsylvania and surrounding communities, and
the Wilkes-Barre/Scranton, Pennsylvania area. We intend to expand into five
additional markets in 2004, and will expand into additional markets depending on
the availability of funding.
Our long-term business strategy is to provide fixed, portable and, ultimately,
mobile broadband data, voice, video and Internet access solutions using a
combination of licensed radio spectrum, unlicensed radio spectrum and fiber
optic cable in medium and small markets throughout the United States. In our
target markets, business customers who wish to take advantage of the
productivity gains and competitive advantages of broadband Internet solutions
find that there are few options for broadband services. ISDN, cable and DSL
solutions may be simply unavailable due to physical range limitations or the
lack of infrastructure investment in these markets by the larger companies who
control the copper wire and cable systems. T1 lines may be prohibitively
expensive as offered by the regional telephone companies. Our wireless
technologies require no backhoes or trenches to implement and may be the only
economically attractive solution in the medium and small markets which we have
identified for our services. By using FCC licensed radio spectrum, we have an
unusual opportunity to acquire licensed regional monopolies to deliver broadband
Internet solutions in these medium and small markets for a fraction of the
investment required by copper wire and cable systems.
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION - continued
Our initial target customers in each market will be larger institutions such as
hospitals, medical offices, colleges and universities, government agencies, and
small to medium-sized businesses with multiple locations. Once our
wireless/fiber network is in place and operating for these larger customers, we
will offer service to small office/home office (SOHO) customers, telecommuters
and purely residential customers. In every case, our focus will be not just
providing Internet connectivity, but additional broadband services tailored to
customer needs. Our services will include traditional services offered by
Internet service providers (ISPs), such as email, web design and hosting, and
co-location, as well as tailored point-to-point enterprise and institutional
connectivity solutions, tailored bulk bandwidth solutions, and virtual private
networks to connect multiple office locations. In the future, we expect to offer
data communication back-haul services for large institutions, Voice over IP
solutions for Internet telephony, custom video applications (streaming video
broadcasts, video conferencing), and a variety of specialized application
software solutions for specific industry niches (medical, legal, accounting).
We customize the build-out of our network based on the topology of a specific
area and the needs of key customers within that area. As a result of our choice
of technology, approach and expertise, we have the ability to cost effectively
provide wireless service in a wide variety of environments. We use equipment
that can often overcome non-line of sight situations, increasing our flexibility
to reach potential customers. We typically set up micro-cells utilizing base
stations that can cover a radius of 3 to 8 miles using MMDS spectrum in a point
to multi-point configuration. We can easily increase our capacity in a
particular cell by partitioning the cell into 60, 90 or 120-degree sectors and
reusing frequency assets on a sector-wise rather than a cell-wise basis. We then
link these base stations to our network using licensed millimeter and microwave
spectrum (6, 11 and 18 GHz) in a point-to-point configuration. To link all of
our markets together and link them to the Internet, we will use fiber links
where available, or build additional point to point wireless links. This network
architecture gives us two significant advantages. First, since we have wireless
links over the last mile, we can reach additional customers over increased
distances without significant additional capital costs. Adding a new customer
within an existing cell requires only adding customer premise wireless equipment
at the customer's location. Second, we bypass the regional bell operating
companies entirely, and pay no recurring service or access fees to any third
party in order to reach our customers. We can connect our customers to the
Internet entirely over our own proprietary wireless network.
To meet our cash requirements for the next twelve months, we will need to raise
additional capital to continue operations. During the first half of this year,
we will seek to raise $3 to $5 million in new capital through the sale of debt
and/or equity securities. We expect to use this capital to acquire frequency
licenses in additional markets, continue building our wireless network in
existing markets, market our broadband Internet solutions to potential
customers, and for operating expenses. We also may seek additional capital if we
consummate any significant acquisitions or strategic alliances, or determine
that market conditions are appropriate for such financing.
As funding becomes available, we expect to hire engineers, sales persons, and
administrative staff as necessary to support our operations, engage in research,
development and engineering activities related to the build-out of our wireless
network, and purchase equipment necessary for such build-out.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION - continued
There can be no assurance that financing will be available on acceptable terms
or in a timely manner, if at all. See "Risk Factors" in this report.
Results of Operation for Year Ended December 31, 2003 and December 31, 2002
The Company generated revenue of $3,179 for the year ended December 31, 2003
compared to revenue of $28,032 for the year ended December 31, 2002. The Company
was founded in May 2001 and took over operations of a wireless Internet service
from Sunbury Broadband LLC. The collapse of the telecommunications stock market
bubble and the terrorist attack of September 11, 2001, reduced opportunities for
the Company to raise additional capital. In March 2002, the Company ceased
active operations and by July 2002, the Company had terminated all employees.
The revenues for the year ended December 31, 2002, reflect the termination of
active operations for last nine months of the year.
In November 2002, the Company was contacted by Geisinger Health System who
expressed interest in the Company's wireless service. In December 2002, the
Company completed the purchase of the assets of Sunbury Broadband, L.L.C.,
Shoreline Wireless, L.L.C. and Lynchburg MDS, L.L.C. for 4,000,000 shares of
common stock, and raised additional funds from the sale of 1,200,000 shares of
Series A Preferred Stock. In January 2003, the Company began the process of
qualifying a new wireless equipment vendor (ultimately, PointRed Technologies
was selected for its price/performance ratio), and developing a new design for a
wireless Internet access system using such equipment. In March 2003, the Company
completed a new network design, and installed two trial sites in May 2003. The
Company signed its agreement with Geisinger Health System in July 2003. Testing
and deployment of beta sites continued through September 2003. An inventory
shortage at the Company's equipment vendor as its manufacturing was transferred
overseas delayed the roll-out of additional sites. In September 2003, the
Company began sales and marketing efforts and started to offer commercial
services. The revenues for the year ended December 31, 2003, reflect the
commencement of active operations only in the last three months of the year. The
Company is now acquiring new customers at a steady rate, and expects revenues
for 2004 to be significantly higher.
Net losses for the year ending December 31, 2003, of $649,850 compared to net
losses of $177,537 for the year ended December 31, 2002. The increased loss
reflects the engineering, development, and marketing costs of resuming active
operations in 2003.
The Company had total assets of $277,308 at December 31, 2003, compared to total
assets of $120,484 at December 31, 2002, reflecting an increase in cash,
inventory and equipment acquired to support the Company's resumption of
commercial wireless operations.
The Company had total current liabilities of $202,979 at December 31, 2003
compared to total current liabilities of $180,033 at December 31, 2002,
reflecting the net effect of a reduction of accounts payable and payments made
to the FCC for the Company's licensed frequency, and the Company's receipt of
short term loans from shareholders to fund operations.
At December 31, 2003, the Company had $59,724 in working capital, compared to
$11,019 in working capital at the year ended December 31, 2002, reflecting the
additional financing obtained from loans and private placements of 3,548,453
shares of common and 4,600,000 shares of Series A Preferred Stock in 2003. The
Company expects to continue to incur losses at least through fiscal year 2004,
and there can be no assurance that the Company will achieve or maintain
profitability, generate revenue or sustain future growth.
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION - continued
General and Administrative Expenses
General and administrative expenses were $98,293 for the year ended December 31,
2003, compared to $28,170 for the year ended December 31, 2002. The increase is
attributable to the cessation of operations in 2002, and the re-commencement of
active operations in 2003. We expect such expenses to increase as the Company's
operations grow.
Engineering and Professional Expenses
Engineering and consulting expenses were $412,085 for the year ended December
31, 2003, compared to $59,879 for the year ended December 31, 2002. The increase
is attributable to the cessation of operations in 2002, and the expenses
incurred in connection with the planning, designing and engineering required to
develop the Company's wireless network in 2003.
Professional and legal expenses were $ 81,339 for the year ended December 31,
2003, compared to $6,317 for the year ended December 31, 2002. The increase is
attributable to the cessation of operations in 2002, and the expenses incurred
in connection with the reorganization and financing of the Company in 2003.
Liquidity and Capital Resources
At December 31, 2003, the Company's total assets of $277,308 exceeded current
liabilities of $202,979. At December 31, 2002, the Company's total assets of
$120,484 were exceeded by current liabilities of $180,033. At December 31, 2003,
we had working capital of $59,724, compared to December 31, 2002, where we had
working capital of $11,019. We sold 3,548,453 shares of common stock for an
aggregate of $521,768 and 4,600,000 shares of Series A Preferred Stock for an
aggregate in $230,000 in 2003. We also issued 44,000 shares of common stock in
payment for services received valued at $6,600. To meet our cash requirements
for the next twelve months, we will need to raise additional capital to continue
operations. During the first half of this year, we will seek to raise $3 to $5
million in new capital through the sale of debt and/or equity securities. There
can be no assurance that financing will be available to the Company in an amount
and on terms acceptable to us.
Off Balance Sheet Arrangements
The Company has no off balance sheet arrangements
Going Concern Considerations
There can be no assurance that our plans can be realized. No adjustment has been
made in the accompanying financial statements to the amounts and classification
of assets and liabilities that could result should be unable to continue as a
going concern. Accordingly, our independent auditors included an explanatory
paragraph in their report on the accompanying financial statements regarding
concerns about our ability to continue as a going concern. Our financial
statements contain additional note disclosures describing the circumstances that
lead to this disclosure by our independent auditors (See "Risk Factors").
DESCRIPTION OF PROPERTY
The Company does not own any property, real or otherwise. To date, we have
conducted our administrative affairs from the President's office, at no cost to
the Company. Office space will be rented when the Company has sufficient funds
available. The cost has not yet been determined; however, the Company expects to
pay market rates.
32
DESCRIPTION OF PROPERTY - continued
We do not have any investments or interests in any real estate. The Company does
not invest in real estate mortgages, nor does it invest in securities of, or
interests in, persons primarily engaged in real estate activities.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 25, 2001, the Company issued a total of 2,240,000 shares of its common
stock to nine founding shareholders for cash at a price of $0.001 per share, for
a total value to the Company of $2,240.00.
On July 16, 2001, the Company issued 1,000,000 shares of its common stock to
Shoreline Wireless, L.L.C. ("Shoreline") in connection with the Company's
acquisition of all of Shoreline's agreements, assets and ownership in BTA 437 in
the Sunbury, PA Market Statistical Area, for a total value to the Company of
$10,000.00.
On July 16, 2001, the Company issued 500,000 shares of its common stock to
Lynchburg MDS, L.L.C. ("Lynchburg") in connection with the Company's acquisition
of all of Lynchburg's agreements, assets and ownership in the Lynchburg Market
Statistical Area, and the market known as Lynchburg, VA, for a total value to
the Company of $5,000.00.
Mr. Pappas, a director of the Company, was a founder and manager of Shoreline,
and an investor in both Shoreline and Lynchburg. On December 31, 2002, Shoreline
and Lynchburg distributed their shares in the Company to their members. Mr.
Pappas received a total of 803,029 shares of the Company's common stock from
these distributions.
On October 17, 2003, the Company issued a total of 4,100,000 shares of its
Series A Preferred Stock to S. Mark Poler at a price of $0.05 per share, for a
total value to the Company of $201,000.00. This issuance includes shares held
for the benefit of Andrew Carl Poler (216,666 shares), Gregory Thomas Poler
(216,666 shares), and Jonathan Daniel Poler (216,666 shares).
With regard to any future related party transaction, we plan to fully disclose
any and all related party transactions, including, but not limited to, the
following:
- - disclose such transactions in prospectuses where required;
- - disclose in any and all filings with the Securities and Exchange Commission,
where required;
- - obtain disinterested directors consent; and
- - obtain shareholder consent where required.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Principal Market or Markets
We are a development stage company that is still in the beginning stages of
implementing our business plan. Our common stock is not listed on any exchange
and there is no public trading market for the common stock, and there has been
no market.
Approximate Number of Common Stock Holders
As of February 26, 2004, we had 11,721,420 shares of common stock outstanding,
held by 102 shareholders and 5,300,000 shares of Series A Preferred Stock
outstanding, held by five shareholders.
33
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - continued
Equity Compensation Plan Information
The following table provide a information regarding all equity compensation
plans as of December 31, 2003, that provide for the award of securities or grant
of options, warrants or rights to purchase securities of the company to
employees or any other person in accordance with our Equity Incentive Plan
attached as Exhibit 3.4. We do not have any equity compensation plans that have
not been approved by our stockholders.
<table>
<caption>
- --------------------------- -------------------------- --------------------------- --------------------------
PLAN CATEGORY (A) (B) (C)
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EXERCISE EQUITY COMPENSATION
BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING PLANS (EXCLUDING
OF OUTSTANDING OPTIONS, OPTIONS WARRANTS AND SECURITIES REFLECTED IN
WARRANTS AND RIGHTS RIGHTS COLUMN (A))
- --------------------------- -------------------------- --------------------------- --------------------------
Equity Compensation Plans 2,000,000 $0.01 2,000,000
Approved by Security
Holders
- --------------------------- -------------------------- --------------------------- --------------------------
Equity Compensation Plans
Not Approved by Security
Holders 0 - 0
- --------------------------- -------------------------- --------------------------- --------------------------
Total 2,000,000 $0.01 2,000,000
- --------------------------- -------------------------- --------------------------- --------------------------
</table>
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock and anticipate
that future earnings, if any, will be retained for development of our business.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the compensation
paid by the Company for services rendered in all capacities to the Company from
January 1, 2003 through the fiscal year ended December 31, 2003, of all officers
and directors of the Company.
<table>
<caption>
- ------------------------------------- ---------------- ---------------- -------------------- ----------------
Name and Principal Underlying Salary Bonus Other Options
Positions at 12/31/03 Compensation
- ------------------------------------- ---------------- ---------------- -------------------- ----------------
- ------------------------------------- ---------------- ---------------- -------------------- ----------------
Andrew C. Nester $0 $0 $48,650 0
President/Secretary/Director
- ------------------------------------- ---------------- ---------------- -------------------- ----------------
34
EXECUTIVE COMPENSATION - continued
- ------------------------------------- ---------------- ---------------- -------------------- ----------------
Jason Lewis $0 $0 $42,800 0
Vice President of
Technical Operations
- ------------------------------------- ---------------- ---------------- -------------------- ----------------
Joseph Tavormina $0 $0 $0 0
Chief Technology Officer
- ------------------------------------- ---------------- ---------------- -------------------- ----------------
Peter J. Papas $0 $0 $0 0
Treasurer/Director
- ------------------------------------- ---------------- ---------------- -------------------- ----------------
S. Mark Poler $0 $0 $0 0
Director
- ------------------------------------- ---------------- ---------------- -------------------- ----------------
</table>
SHARES ELIGIBLE FOR FUTURE SALE.
Upon completion of the offering, we will have 11,721,420 shares of common stock
and 5,300,000 of Series A Preferred Stock outstanding. A current shareholder who
is an "affiliate" of the company, defined in Rule 144 as a person who directly,
or indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, the Company, will be required to comply with
the resale limitations of Rule 144.
Purchasers of shares in the offering, other than affiliates, may resell their
shares immediately. Sales by affiliates will be subject to the volume and other
limitations of Rule 144, including certain restrictions regarding the manner of
sale, notice requirements, and the availability of current public information
about the Company. The volume limitations generally permit an affiliate to sell,
within any three month period, a number of shares that does not exceed the
greater of one percent of the outstanding shares of common stock or the average
weekly trading volume during the four calendar weeks preceding his sale. A
person who ceases to be an affiliate at least three months before the sale of
restricted securities beneficially owned for at least two years may sell the
restricted securities under Rule 144 without regard to any of the Rule 144
limitations.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the Company by
The O'Neal Law Firm, P.C., 668 North 44th Street, Suite 233, Phoenix, Arizona
85008.
EXPERTS
The financial statements of the Company as of December 31, 2003, included in
this prospectus have been audited by Shelley Int'l, C.P.A., independent
certified public accountants, as stated in the opinion, which has been rendered
upon the authority of said firm as experts in accounting and auditing.
TRANSFER AGENT
Our transfer agent is First American Transfer Company, 706 East Bell Road, #202,
Phoenix, Arizona 85022.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There have been no changes in and/or disagreements with Shelley, Int'l, C.P.A.
on accounting and financial disclosure matters.
35
PART II
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS TABLE OF CONTENTS Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT ........................... 37
BALANCE SHEET ............................................................... 38
STATEMENTS OF OPERATIONS .................................................... 39
STATEMENT OF STOCKHOLDERS' EQUITY ........................................... 40
STATEMENTS OF CASH FLOWS ............................................... 41 - 42
NOTES TO FINANCIAL STATEMENTS .......................................... 43 - 47
36
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
-------------------------------------------------
To the Board of Directors and Audit Committee
Gateway Access Solutions, Inc.
I have audited the accompanying balance sheets of Gateway Access Solutions,
Inc., as of December 31, 2003, 2002 and 2001 and the related statements of
operations, stockholders' equity, and cash flows for the years ended December
31, 2003, December 31, 2002 and the period from May 24, 2001 (inception) to
December 31, 2001. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that I 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 also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audit provides a reasonable basis for
my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Gateway Access Solutions, Inc., as
of December 31, 2003, 2002 and 2001 and the related statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 2003,
December 31, 2002 and the period from May 24, 2001 (inception) to December 31,
2001 are in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. The Company is three years old and has
a substantial deficit in retained earnings from accumulated losses during each
of those years. This raises substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from this uncertainty.
Shelley International, CPA
February 9, 2003
Mesa, Arizona
37
Gateway Access Solutions, Inc.
BALANCE SHEET
-------------
<table>
<caption>
ASSETS
------
December 31, December 31, December 31,
2003 2002 2001
-------------- -------------- --------------
CURRENT ASSETS
Cash $ 59,724 $ 11,019 $ 37,814
Inventory, at Cost 12,150 55,514
Accounts Receivable, Net 13,983
Prepaid Expenses 18,098
-------------- -------------- --------------
Total Current Assets 71,874 11,019 125,409
-------------- -------------- --------------
EQUIPMENT, NET 99,937 3,968 3,998
LICENCES - FREQUENCY 105,497 105,497 40,000
-------------- -------------- --------------
TOTAL ASSETS $ 277,308 $ 120,484 $ 169,407
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Current Liabilities
Accounts Payable $ 48,705 $ 56,868 $ 80,619
Notes Payable 154,274 60,665 148,500
Customer Deposits 62,500
-------------- -------------- --------------
TOTAL LIABILITIES 202,979 180,033 229,119
-------------- -------------- --------------
STOCKHOLDERS' EQUITY
Preferred Stock authorized is
10,000,000 shares at $0.001 par value.
Issued and outstanding on December 31,
2003 is 5,300,000 shares. 5,300
Common Stock, authorized is
50,000,000 shares at $0.001 par value.
Issued and outstanding on December 31,
2003 is 11,246,420 shares, December
31, 2002 is 7,702,367 shares and
December 31, 2001 is 6,998,367 shares. 11,246 7,703 6,999
Paid in Capital 1,199,624 424,739 247,743
Accumulated (Loss) (1,141,841) (491,991) (314,454)
-------------- -------------- --------------
Total Stockholders' Equity 74,329 (59,549) (59,712)
-------------- -------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 277,308 $ 120,484 $ 169,407
============== ============== ==============
</table>
The accompanying notes are an integral part of these statements
38
Gateway Access Solutions, Inc.
STATEMENTS OF OPERATIONS
------------------------
Year Year May 24, 2001
Ended Ended (Inception)
December 31, December 31 to December 31,
2003 2002 2001
-------------- -------------- --------------
INCOME
Sales $ 3,179 $ 28,032 $ 25,039
Less Cost of Goods Sold (46,781) (62,929) (51,032)
-------------- -------------- --------------
Gross (Loss) (43,602) (34,897) (25,993)
-------------- -------------- --------------
EXPENSES
Advertising 1,274 1,566 905
Bad Debt 27,469
General and Administrative 98,293 28,170 88,821
Depreciation 5,612 1,626 1,000
Rent 7,645 1,600 2,400
Salaries 16,013 28,691
Professional and Legal 493,424 66,196 166,644
-------------- -------------- --------------
Total Expense 606,248 142,640 288,461
-------------- -------------- --------------
Net (Loss) before Income Taxes (649,850) (177,537) (314,454)
Provision for Income Taxes - - -
-------------- -------------- --------------
NET (LOSS) $ (649,850) $ (177,537) $ (314,454)
============== ============== ==============
BASIC
Net (Loss) per Common Share $ (0.07) $ (0.03) $ (0.05)
-------------- -------------- --------------
Weighted Average Number of
Common Shares Outstanding 8,807,626 6,998,367 6,296,919
============== ============== ==============
DILUTED
Net (Loss) per Common Share $ (0.06) $ (0.02) $ (0.04)
-------------- -------------- --------------
Weighted Average Number of
Common Shares Outstanding 11,199,955 8,998,367 8,296,919
============== ============== ==============
The accompanying notes are an integral part of these statements
39
Gateway Access Solutions, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
<table>
<caption>
Preferred Stock Common Stock
Price ------------------------- ----------------------- Paid in Accumulated Total
Per Share Shares Amount Shares Amount Capital (Loss) Equity
------------ ------------ ------------ ------------ ---------- ----------- ------------ ----------
Common Stock issued to Cash $ 0.001 $ - 2,240,000 $ 2,240 $ - $ - $ 2,240
Common Stock issued for Assets 0.010 4,000,000 4,000 36,000 40,000
Common Stock issued for services 0.100 75,000 75 7,425 7,500
Common Stock issued for Cash 0.300 683,367 684 203,326 204,010
Vested value of Common Stock -
Options issued for services 992 992
-
Net (Loss) (314,454) (314,454)
------------ ------------ ------------ ------------ ---------- ----------- ------------ ----------
Balance December 31, 2001 - - 6,998,367 6,999 247,743 (314,454) (59,712)
Common Stock Issued to retire
Notes of $160,000 and
$16,000 Interest Payable 0.250 704,000 704 175,296 176,000
Common Stock Surrendered for
reissue 0.250 (4,000,000) -
Common Stock reissued 0.250 4,000,000 -
Vested value of Common Stock -
Options issued for services 1,700 1,700
-
Net (Loss) (177,537) (177,537)
------------ ------------ ------------ ------------ ---------- ----------- ------------ ----------
Balance, December 31, 2002 - - 7,702,367 7,703 424,739 (491,991) (59,549)
Common Stock issued for Cash 0.150 3,443,453 3,443 513,075 516,518
Preferred Stock issued for Cash 0.050 5,300,000 5,300 259,700 265,000
Common Stock issued for Cash -
by Exercise of Option 0.050 105,000 105 5,145 5,250
Common Stock issued for Services 0.150 44,000 44 6,556 6,600
Common Stock Repurchased 0.150 (48,400) (49) (12,051) (12,100)
Vested value of Common Stock -
Options issued for services 2,460 2,460
Net (Loss) (649,850) (649,850)
------------ ------------ ------------ ---------- ----------- ------------ ----------
Balance December 31, 2003 5,300,000 $ 5,300 11,246,420 $ 11,246 $1,199,624 $ (1,141,841) $ 74,329
============ ============ ============ ========== =========== ============ ==========
</table>
The accompanying notes are an integral part of these statements
40
Gateway Access Solutions, Inc.
STATEMENTS OF CASH FLOWS
------------------------
<table>
<caption>
Year Year May 24, 2001
Ended Ended (Inception)
December 31, December 31, to December 31,
2003 2002 2001
------------ ------------ ---------------
Operating Activities
Net (Loss) $ (649,850) $ (177,537) $ (314,454)
Significant Non-Cash Transactions
Issued 2,000,000 common share
options as incentive on June 1, 2001. 1,700 1,700 992
Issued 64,000 common shares
for $16,000 accumulated interest
on December 31,2002. 16,000
Issued 44,000 common shares for
services valued at $6,600 on
November 12, 2003. 6,600
Issued 400,000 common share options
options as incentive on January 6, 2003. 760
Changes in assets and liabilities
Inventory (12,150) 55,514 (55,514)
Accounts Receivable 13,983 (13,983)
Prepaid Expense 17,382 (17,382)
Accounts Payable (8,163) (23,035) 79,903
Customer Deposits (2,500) 62,500
Depreciation Expense 5,612 1,626 1,000
------------ ------------ ---------------
Net Cash (Used) by Operations (657,991) (31,867) (319,438)
------------ ------------ ---------------
Investing Activities
Purchase of Equipment (101,581) (1,596) (4,998)
------------ ------------ ---------------
Net Cash (Used) in Investing Activities (101,581) (1,596) (4,998)
------------ ------------ ---------------
Financing Activities
Principle Received on Notes 93,609 6,668 148,500
Proceeds from sale of Preferred Stock 5,300
Proceeds from sale of Common Stock 3,499 2,999
Paid in Capital 705,869 210,751
------------ ------------ ---------------
Cash Provided by Financing Activities 808,277 6,668 362,250
------------ ------------ ---------------
41
STATEMENTS OF CASH FLOWS - continued
Net Increase/(Decrease) in Cash 48,705 (26,795) 37,814
Cash, Beginning of Period 11,019 37,814 -
------------ ------------ ---------------
Cash, End of Period $ 59,724 $ 11,019 $ 37,814
============ ============ ===============
</table>
Significant Non-Cash Trasactions
For year ended December 31, 2001 Common Stock issued included
4,000,000 shares for purchase of assets valued at $40,000 and 2,000,000
common stock options.
For year ended December 31, 2002 Common Stock issued included 704,000
shares issued for retirement of $160,000 notes payable and $16,000
accumulated interest.
For year ended December 31, 2003 Common Stock issued included 44,000
shares issued for services valued at $6,600 and 400,000 common stock
options.
Supplemental Information:
The amount of interest for 2001, 2002 and 2003 was $13,500, $2,500 and
$11,632 respectively.
The accompanying notes are an integral part of these statements
42
Gateway Access Solutions, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
Note 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
The Company
- -----------
Gateway Access Solutions, Inc., the Company, is a Nevada corporation formed on
May 24, 2001. The Company provides wireless communication systems including
high-speed broadband Internet access to business and private individuals in
Northeastern Pennsylvania.
Use of Estimates and Assumptions
- --------------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP) requires management to
make estimates and assumptions that affect the reported amounts and the
disclosure of contingent amounts in the Company's financial statements and the
accompanying notes. Actual results could differ from those estimates.
Earnings per Share
- ------------------
The basic (loss) per share is calculated by dividing the Company's net income
available to common shareholders by the weighted average number of common shares
during the year.
The Company has potentially dilutive securities outstanding in the form of
options at the end of the statement periods. Therefore, the basic and diluted
(loss) per share are presented on the face of the statement of operations.
The Company has no outstanding warrants for stock.
Stock Based Compensation
- ------------------------
The Company accounts for its stock based compensation based upon provisions in
SFAS No. 123, Accounting for Stock-Based Compensation. In this statement stock
based compensation is divided into two general categories, based upon who the
stock receiver is, namely: employees/directors and non-employees/directors. The
employees/directors category is further divided based upon the particular stock
issuance plan, namely compensatory and non-compensatory. The employee/directors
non-compensatory securities are recorded at the sales price when the stock is
sold. The compensatory stock is calculated and recorded at the securities' fair
value at the time the stock is given. SFAS 123 also provides that stock
compensation paid to non-employees be recorded with a value which is based upon
the fair value of the services rendered or the value of the stock given,
whichever is more reliable. The common stock paid to non-employees was valued at
the value of the services rendered.
43
Income Taxes
- ------------
The provision for income taxes is the total of the current taxes payable and the
net of the change in the deferred income taxes. Provision is made for the
deferred income taxes where differences exist between the period in which
transactions affect current taxable income and the period in which they enter
into the determination of net income in the financial statements.
Advertising
- -----------
Advertising expense included the cost of sales brochures, print advertising in
trade publications and maintenance of an Internet site. Advertising is expensed
when incurred. Advertising expense for the period ending December 31, 2003, 2002
and 2001 were $1,274, $1,566 and $905 respectively.
Marketing Strategy
- ------------------
We market directly to the end users through various forms of advertising.
Revenue Recognition
- -------------------
We sell monthly service to businesses and the public and recognize revenue as
monthly service is provided.
Warranties
- ----------
The Company offers a Service Level Agreement that guarantees a minimal amount of
time that Internet connectivity will be down. Should those minimums be exceeded
customers are not charged for non-service hours. Historical costs have not been
tracked because they have been considered insignificant.
Installed hardware is backed by the manufacture for a period of one year.
Going Concern
- -------------
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. The Company is only three years old
and has a substantial deficit in retained earnings from losses for the previous
years. This raises substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from this uncertainty.
Inventory Costs
- ---------------
The costs incurred for uninstalled hardware are capitalized as inventory and
charged to costs of sales when revenues from the sales are recognized. The
inventory balance of $55,514 at December 31, 2001 was expensed as obsolete
during 2002. Detail for the inventory at 12/31/03, 12/31/02 and 12/31/01 is
shown below
44
Inventory Costs - continued
12/31/03 12/31/02 12/31/01
-------- -------- --------
Inventory at Cost $ 12,150 $ 0.00 $ 55,514
======== ======== ========
Equipment
Equipment is depreciated using the straight-line method over its estimated
useful lives, which range from three to five years.
12/31/03 12/31/02 12/31/01
-------- -------- --------
Equipment $108,174 $ 6,594 $ 4,998
Less: Accumulated Depreciation 8,238 2,626 1,000
-------- -------- --------
Net Equipment $ 99,937 $ 3,968 $ 3,998
======== ======== ========
NOTE 2. STOCKHOLDERS' EQUITY
At inception the Company had 25,000,000 shares of common stock authorized. Then
on December 11, 2002 the Company amended its capital stock authorization to
50,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. The
shareholders have all of the rights afforded Nevada shareholders.
Par value is $0.001 per common or preferred share.
There are no outstanding warrants to acquire any additional shares of common
stock.
The Company has issued incentive and non-qualified stock options for the
acquisition of additional shares of common stock. The value of the issued
options is calculated using the Minimum Value Method and the following
variables:
The issued value of $3,600 for 1,000,000 share options at $0.0036 each is
calculated using a fair market value of $0.01, an exercise price of $0.011,
a date of issuance of June 1, 2001, a term of 10 years, and a vesting
period of 48 months.
The issued value of $3,200 for an additional 1,000,000 share options at
$0.0032 each is calculated using a fair market value of $0.01, an exercise
price of $0.01, a date of issuance of June 1, 2001, a term of 10 years, and
a vesting period of 48 months.
The issued value of $1,520 for an additional 400,000 share options at
$0.0038 each is calculated using a fair market value of $0.05, an exercise
price of $0.05, a date of issuance of January 7, 2003, a term of 2 years,
and a vesting period of 24 months.
The Company was initially capitalized on June 29, 2001 with the issue of
2,240,000 common shares. Afterward, 4,000,000 common shares were issued for the
purchase of assets valued at $40,000; 119,000 common shares were issued for
services valued at $14,100; 704,000 common shares were issued to retire $176,000
of debt and accumulated interest; 4,231,820 common shares were sold for $725,778
and 48,400 shares were repurchased by the Company for $12,100. Also, 5,300,000
preferred shares were sold for $265,000 as shown in the statement of
stockholders' equity.
45
NOTE 3. NOTES PAYABLE:
Notes payable consist of the following:
12/31/03 12/31/02 12/31/01
-------- -------- --------
Demand Note
9.5% Interest, Payable Quarterly $ 44,090 $ 60,665
Demand Note
10% Interest, Payable Yearly 101,000
Demand Note
8% Interest, Payable Monthly 9,184
Demand Notes
10% Interest, Payable Yearly $148,500
-------- -------- --------
Total Notes Payable $154,274 $ 60,665 $148,500
======== ======== ========
NOTE 4. OPERATING LEASES
The Company has operating leases on two facilities, one on a three-year lease
with a monthly payment of $3,274 and the other for $425 per month on a
month-to-month basis. Assuming the Company remains in these facilities the
projected expenses for five years follows:
Year 1 Year 2 Year 3 Year 4 Year 5
------- ------- ------- ------- -------
Lease Amount $43,200 $43,200 $43,200 $43,200 $43,200
NOTE 5. INCOME TAXES
The Company provides for income taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. SFAS No. 109 requires the use of
an asset and liability approach in accounting for income taxes. Deferred tax
assets and liabilities are recorded based on the differences between the
financial statement and tax bases of assets and liabilities and the tax rates in
effect currently.
SFAS No. 109 requires the reduction of deferred tax assets by a valuation
allowance if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized. In the
Company's opinion, it is uncertain whether they will generate sufficient taxable
income in the future to fully utilize the net deferred tax asset. Accordingly, a
valuation allowance equal to the deferred tax asset has been recorded. The total
deferred tax asset is $251,205, as of 12/31/03, which is calculated by
multiplying a 22% estimated tax rate by the cumulative NOL of $1,141,841. The
total valuation allowance is a comparable $251,205.
12/31/03 12/31/02 12/31/01
-------- -------- --------
Deferred Tax Asset $142,967 $ 39,058 $ 69,180
Valuation Allowance (142,967) (39,058) (69,180)
Current Taxes Payable 0.00 0.00 0.00
-------- -------- --------
Income Tax Expense $ 0.00 $ 0.00 $ 0.00
======== ======== ========
46
NOTE 5. INCOME TAXES - continued
Below is a chart showing the estimated corporate federal net operating loss
(NOL) and the year in which it will expire.
Year Amount Expiration
---------- -----------
2001 $ 314,454 2021
2002 177,537 2022
2003 649,850 2023
----------
Total NOL $1,141,841
==========
Note 6. THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Below is a listing of the most recent accounting standards SFAS 145-150 and
their effect on the Company.
SFAS 146 Accounting for Costs Associated with Exit or Disposal Activities
This statement requires companies to recognize costs associated with exit or
disposal activities, other than SFAS 143 costs, when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of these
costs are lease termination costs, employee severance costs associated with
restructuring, discontinued operation, plant closing, or other exit or disposal
activity. This statement is effective after December 15, 2002.
SFAS 147 Acquisitions of Certain Financial Institutions - an amendment of FASB
Statement No. 72 and 144 and FASB Interpretation No. 9.
This statement makes the acquisition of financial institutions come under the
statements 141 and 142 instead of statement 72, 144 and FASB Interpretation No.
9. This statement is applicable for acquisition on or after October 1, 2002.
SFAS 148 Accounting for Stock-Based Compensation - Transition and Disclosure
Amends FASB 123 to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee compensation.
SFAS 149 Amendment of Statement 133 on Derivative Instruments and Hedging
Activities
This Statement amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities under FASB Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities.
SFAS 150 Financial Instruments with Characteristics of both Liabilities and
Equity
This statement requires that such instruments be classified as liabilities in
the balance sheet. SFAS 150 is effective for financial instruments entered into
or modified after May 31, 2003.
The adoption of these new Statements is not expected to have a material effect
on the Company's current financial position, results or operations, or cash
flows.
47
PART III
INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Officers.
The Company's Articles of Incorporation provide that it must indemnify its
directors and officers to the fullest extent permitted under Nevada law against
all liabilities incurred by reason of the fact that the person is or was a
director or officer or a fiduciary of the Company. The effect of these
provisions is potentially to indemnify the Company's directors and officers from
all costs and expenses of liability incurred by them in connection with any
action, suit or proceeding in which they are involved by reason of their
affiliation with the Company. Pursuant to Nevada law, a corporation may
indemnify a director, provided that such indemnity shall not apply on account
of:
(a) acts or omissions of the director finally adjudged to be intentional
misconduct or a knowing violation of law;
(b) unlawful distributions; or
(c) any transaction with respect to which it was finally adjudged that
such director personally received a benefit in money, property, or
services to which the director was not legally entitled.
The Bylaws of the Company, filed as Exhibit 3.2, provide that we will indemnify
our officers and directors for costs and expenses incurred in connection with
the defense of actions, suits, or proceedings against them on account of their
being or having been directors or officers of the Company, absent a finding of
negligence or misconduct in office.
The Company's Bylaws also permit us to maintain insurance on behalf of our
officers, directors, employees and agents against any liability asserted against
and incurred by that person whether or not we have the power to indemnify such
person against liability for any of those acts.
Other Expenses of Issuance and Distribution.
Expenses incurred or (expected) relating to this Registration Statement and
distribution are as follows: The amounts set forth are estimates except for the
SEC registration fee:
Amount
-------------
SEC registration fee $ 126.70
Printing and engraving expenses $ 300.00
Registration Statement fees and expenses $ 20,000.00
Accountants' fees and expenses $ 25,000.00
Transfer agent's and registrar's fees $ 750.00
and expenses
Miscellaneous $ 0.00
---------------
Total $ 46,176 .70
The Registrant will bear all of the expenses shown above.
RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information regarding the issuance and sales of the Company's
securities without registration for the past three (3) years from the date of
this Registration Statement. No such sales involved the use of an underwriter,
no advertising or public solicitation were involved, the securities bear a
48
RECENT SALES OF UNREGISTERED SECURITIES - continued
restrictive legend and no commissions were paid in connection with the sale of
any securities.
On May 25, 2001, the Company issued a total of 2,240,000 shares of its common
stock to nine founding shareholders for cash at a price of $0.001 per share, for
a total value to the Company of $2,240.00.
On July 16, 2001, the Company issued a total of 75,000 shares of its common
stock to a consultant for services rendered to the Company for a total value to
the Company of $7,500.00.
On July 16, 2001, the Company issued 2,500,000 shares of its common stock to
Sunbury Broadband, L.L.C. ("Sunbury") in connection with the Company's
acquisition of all of Sunbury's agreements, assets and ownership in the markets
known as Wilkes-Barre/Scranton, Sunbury and State College, PA, for a total value
to the Company of $25,000.00.
On July 16, 2001, the Company issued 1,000,000 shares of its common stock to
Shoreline Wireless, L.L.C. ("Shoreline") in connection with the Company's
acquisition of all of Shoreline's agreements, assets and ownership in BTA 437 in
the Sunbury, PA Market Statistical Area, for a total value to the Company of
$10,000.00.
On July 16, 2001, the Company issued 500,000 shares of its common stock to
Lynchburg MDS, L.L.C. ("Lynchburg") in connection with the Company's acquisition
of all of Lynchburg's agreements, assets and ownership in the Lynchburg Market
Statistical Area, and the market known as Lynchburg, VA, for a total value to
the Company of $5,000.00.
From July 26, 2001 to October 3, 2001, the Company issued a total of 683,367
shares of its common stock to ten investors at a price of $0.30 per share, for a
total value to the Company of $205,010.10.
On December 31, 2002, the Company issued 655,600 shares of its common stock to
eleven note holders in satisfaction of the debts evidenced thereby at a price of
$0.25 per share, for a total value to the Company of $163,900.00.
From July 26, 2001 to October 3, 2001, the Company issued a total of 683,367
shares of its common stock to ten investors at a price of $0.30 per share, for a
total value to the Company of $204,010.10.
On December 31, 2002, the Company issued 655,600 shares of its common stock to
eleven note holders in satisfaction of the debts evidenced thereby at a price of
$0.25 per share, for a total value to the Company of $163,900.00.
From February 25, 2003, to January 31, 2004, the Company issued a total of
3,573,453 shares of its common stock to 43 investors at a price of $0.15 per
share, for a total value to the Company of $520,268.00.
On October 17, 2003, and on February 23, 2004, the Company issued a total of
5,300,000 of its Series A Preferred Stock to five investors at a price of $0.05
per share, for a total value to the Company of $265,000.00.
On November 12, 2003, the Company issued a total of 44,000 shares of its common
stock to a consultant for services rendered to the Company at a value of $0.15
per share for a total value to the Company of $6,600.00.
49
RECENT SALES OF UNREGISTERED SECURITIES - continued
On January 31, 2004, the Company issued a total of 450,000 shares of its common
stock to a consultant for services rendered to the Company at a value of $0.15
per share for a total value to the Company of $67,500.00.
The foregoing shares were issued in private transactions or private placements
intending to meet the requirements of one or more exemptions from registration.
In addition to any noted exemption below, we relied upon Regulation D and
Section 4(2) of the Securities Act of 1933, as amended ("Act"). The investors
were not solicited through any form of general solicitation or advertising, the
transactions being non-public offerings, and the sales were conducted in private
transactions where the investor identified an investment intent as to the
transaction without a view to an immediate resale of the securities; the shares
were "restricted securities" in that they were both legended with reference to
Rule 144 as such and the investors identified they were sophisticated as to the
investment decision and in most cases we reasonably believed the investors were
"accredited investors" as such term is defined under Regulation D based upon
statements and information supplied to us in writing and verbally in connection
with the transactions. We never utilized an underwriter for an offering of our
securities and no sales commissions were paid to any third party in connection
with the above-referenced sales. Other than the securities mentioned above, we
have not issued or sold any securities.
EXHIBITS
The following exhibits are filed as part of this Registration Statement:
Exhibit
Number Description
- ---------- ---------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation
3.2 Bylaws
3.3 Amended and Restated Certificate of Determination for Series A
Preferred Stock
3.4 2001 Equity Incentive Plan
3.5 Geisinger Agreement
3.6 Digital Freedom Agreement
3.7 PointRed Technologies Agreement
5.1 Legal Opinion an Consent of Counsel
23.1 Consent of Independent Auditors
UNDERTAKINGS
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:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
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 is
50
UNDERTAKINGS - continued
being registered) any deviation from the high or low end of the
estimated maximum range may be reflected in the form of prospectus
filed with the commission pursuant to Rule 424(b) 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
(c) To include any additional or changed material information on the plan
of distribution.
2) For determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered and the
offering of the securities at that time to be the initial bona fide offering.
3) File a post-effective amendment to remove from registration any of the
securities being registered, which remain unsold at the end of the offering.
4) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company, Inc. pursuant to provisions of the State of Nevada or otherwise, the
Company has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in that
Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by a director, officer or
controlling person of us 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, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Securities Act and we will be
governed by the final adjudication of such issue.
51
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, Arizona, United States of America.
Gateway Access Solutions, Inc.
By: /s/ Andrew C. Nester Date: February 26, 2004
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Andrew Nester, President and Secretary
By: /s/ Peter J. Pappas Date: February 26, 2004
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Peter J. Pappas, Treasurer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date stated.
By: /s/ Andrew C. Nester Date: February 26, 2004
-----------------------
Andrew Nester, Director
By: /s/ Peter J. Pappas Date: February 26, 2004
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Peter J. Pappas, Director
By: /s/ S. Mark Poler Date: February 26, 2004
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S. Mark Poler, Director
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