As filed with the Securities and Exchange Commission on January 14, 2002
Registration Statement No. 333-66360
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Post-Effective Amendment No. 1)
OWNERTEL, INC.
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(Name of Small Business Issuer in its Charter)
Georgia 4813 58-2634747
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(State or other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction) Classification code Number) Identification No.)
2870 Peachtree Road, #176
Atlanta Georgia 30305
(404) 237-8605
(Address and Telephone Number of Principal Executive Offices)
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(Address of Principal Place of Business or Intended Principal
Place of Business)
William G. Head III
President
2870 Peachtree Road, #176
Atlanta, Georgia 30305
(404) 237-8605
(Name, Address, and Telephone Number of Agent for Service)
Copies to:
Warren L. Traver, Esq.
Building 2
4545 Wieuca Road
Atlanta, Georgia 30342
(404) 236-0134
Approximate date of proposed sale to the public: From time to time
after this Registration Statement becomes effective.
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If any of the Securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Registration
Securities to be Registered Registered Unit (1) Price Fee (2)
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Common Stock, $.001 Par 5,000,000 $0.75 $3,750,000 $ 937.50
Value Per Share
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Total 5,000,000 $0.75 $3,750,000 $ 937.50
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act, as amended.
(2) The Registrant previously paid $1,875.00 in connection with this
registration statement.
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, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
SUMMARY OF AMENDMENTS TO PROSPECTUS
The purpose of this Post-Effective Amendment No. 1 is to update the
prospectus to reflect an extension of the period of the direct offering for an
additional 60 days.
[Remainder of page intentionally left blank]
INITIAL PUBLIC OFFERING
PROSPECTUS
OWNERTEL, INC.
COMMON STOCK
5,000,000 SHARES OF COMMON STOCK
$0.75 PER SHARE
This is an initial public offering of a total of 5,000,000 shares of
our common stock. Our common stock is not listed on any national securities
exchange or the Nasdaq Stock Market, and no public market currently exists for
it.
This prospectus relates to 2,000,000 shares of our common stock, to be
offered by OwnerTel on a "best efforts" basis at an initial public offering
price of $0.75. Our president will act as our sales agent in this direct
offering, but will not receive commissions for any shares he sells. There is no
minimum amount of shares that we must sell in our direct offering and no
arrangements have been made to place funds into escrow, trust or any similar
account. Based on the offering price and number of shares available for sale,
OwnerTel will raise anywhere from $0 to $1,500,000 (net of offering expenses) in
our direct offering. The direct offering will be held open for 60 days following
the effective date of this prospectus. This is an extension of the 30 day
period that the direct offering was originally held open.
This prospectus also relates to 2,000,000 shares of our common stock
being offered by the individuals who are named under the caption "Selling
"Shareholders." It is estimated that the Selling Shareholders will sell their
shares at a price between $0.75 and $2.75 per share. We will not receive any
proceeds from the sale of shares of common stock by the Selling Shareholders.
This prospectus also relates to an additional 1,000,000 shares of
common stock that we plan to distribute from time to time during the 24-month
period following the date of this prospectus to customers of OwnerTel. We will
not receive any proceeds from our offering of these promotional shares.
The Common Stock offered by this Prospectus involves a high degree of
risk. You should purchase shares only if you can afford a complete loss. SEE
"RISK FACTORS" BEGINNING ON PAGE 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
The date of this prospectus is January 14, 2002.
PROSPECTUS SUMMARY...............................................................................................1
The Company.............................................................................................1
THE OFFERING.....................................................................................................2
RISK FACTORS.....................................................................................................4
FORWARD-LOOKING STATEMENTS......................................................................................11
USE OF PROCEEDS.................................................................................................12
DIVIDEND POLICY.................................................................................................12
DILUTION........................................................................................................12
CAPITALIZATION..................................................................................................13
SELECTED FINANCIAL DATA.........................................................................................13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PLAN OF OPERATION...............................................................................................14
Plan of Operation......................................................................................14
Liquidity and Capital Resources........................................................................14
Inflation..............................................................................................14
BUSINESS........................................................................................................14
Background.............................................................................................14
Business Strategy......................................................................................15
Recent Developments....................................................................................15
Products and Services..................................................................................16
Competition............................................................................................17
Regulation.............................................................................................17
Employees..............................................................................................17
MANAGEMENT......................................................................................................18
Directors and Officers.................................................................................18
Directors' Compensation................................................................................18
Committees of the Board................................................................................18
Executive Officers of OwnerTel.........................................................................19
Compensation of Management.............................................................................19
Stock Option Plan......................................................................................19
PRINCIPAL SHAREHOLDERS..........................................................................................21
SELLING SHAREHOLDERS............................................................................................22
CERTAIN TRANSACTIONS............................................................................................23
Indemnification........................................................................................24
DESCRIPTION OF CAPITAL STOCK AND OTHER SECURITIES...............................................................24
Common Stock...........................................................................................24
Preferred Stock........................................................................................24
Transfer Agent and Registrar...........................................................................25
Certain Anti-Takeover Provisions.......................................................................25
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES.............................25
SHARES ELIGIBLE FOR FUTURE SALE.................................................................................26
PLAN OF DISTRIBUTION............................................................................................26
Direct Offering........................................................................................26
Selling Shareholders...................................................................................27
Promotional Stock Program..............................................................................29
FEDERAL INCOME TAX CONSEQUENCES OF STOCK PROMOTION PROGRAM......................................................30
LEGAL PROCEEDINGS...............................................................................................30
LEGAL MATTERS...................................................................................................30
EXPERTS.........................................................................................................30
ADDITIONAL INFORMATION..........................................................................................30
PROSPECTUS SUMMARY
This summary provides an overview of certain information contained
elsewhere in this prospectus and does not contain all of the information that
you should consider or that may be important to you. You should read the entire
prospectus carefully to fully understand the offering, including "Risk Factors"
and the financial statements.
THE COMPANY
OwnerTel was formed on July 2, 2001 as a Georgia corporation. We are a
development stage company that intends to initially market the resale of local
and long distance telephone and internet service, and ultimately become our own
reseller of these services. Resellers of telecommunications services purchase
these services in bulk at "wholesale" rates and resell the services to their
customers at higher "retail" rates. As a marketer of a reseller's services, we
will receive a commission payment or flat fee from the reseller for the services
we sell on its behalf.
In addition, we intend to implement a customer retention strategy that
we believe is unique to our industry - the ability of our customers to earn our
stock through their long distance usage, as opposed to other affinity programs
that offer free minutes or air miles. OwnerTel believes that its customers will
be less likely to switch carriers because they will be stockholders in their
long distance carrier. Through increased customer retention, OwnerTel believes
that its value will be much higher for its shareholders.
OwnerTel is currently in the startup phase of its existence and has
conducted no business other than organizational matters, including negotiating
with additional prospective executive officers and employees and entering into
various agreements with TransNet Connect, Inc., a Florida corporation, and
Plenitude, a Nevada corporation. See "Business--Recent Developments."
Because OwnerTel has not yet acquired the necessary regulatory
certifications to become a reseller, OwnerTel will initially operate as a
marketer of TransNet's, and possibly other reseller's, services. In September,
2001, OwnerTel entered into a Marketing Services Agreement with TransNet whereby
OwnerTel will market TransNet's services. OwnerTel has also entered into an
agreement to acquire TransNet's public service commission certifications and
corresponding customer accounts.
OwnerTel intends to use independent sales agents and relationships with
resellers to sell its services, and has entered into an agreement with TransNet
whereby TransNet will assign to OwnerTel its agreements with its independent
sales agents. OwnerTel has also entered into an agreement with Plenitude, whose
distributors will act as independent sales agents of OwnerTel.
Both of OwnerTel's executive officers and directors formerly worked at
TransNet, and are deemed to beneficially own OwnerTel and TransNet common stock.
Mr. Head, our Chairman and President, owns 7,538,500 shares of OwnerTel common
stock, which represent approximately 44.12% of the issued and outstanding common
stock of OwnerTel. Mr. Head also served as the President of TransNet until June,
2001 and owns 7,561,500 shares of the common stock of TransNet, which represent
approximately 49% of the issued and outstanding stock of TransNet. Ms. Crews,
our Secretary and Director, owns 7,548,500 shares of OwnerTel common stock,
which represent approximately 44.17% of the issued and outstanding common stock
of OwnerTel. Ms. Crews also served as Chief Financial Officer of TransNet until
June, 2001 and indirectly owns 7,561,500 shares of the common stock of TransNet
(which are directly owned by her husband), which represent approximately 49% of
the issued and outstanding stock of TransNet. In addition, OwnerTel owns 445,000
shares of the common stock of TransNet, which represent approximately 2% of the
issued and outstanding stock of TransNet. See "Certain Transactions."
We currently have our temporary offices at 2870 Peachtree Road, #176,
Atlanta, GA 30305. The Company's temporary phone number is (404) 237-8605.
THE OFFERING
Direct placement of Stock.......................... 2,000,000 on a "best efforts" basis
Initial Offering Price............................. $0.75 per share
Stock Offered By Selling Shareholders.............. The Selling Shareholders are registering for resale 2,000,000
shares of our common stock which they currently own.
Customer Promotional Common Stock Offering......... Up to 1,000,000 shares. We plan to distribute the shares from
time to time during the 24-month period following the date of
this prospectus, at no cost, to our customers.
Common Stock Outstanding Before Offering........... 17,088,000 shares
Common Stock Outstanding After Offering............ 20,088,000 shares if all of the promotional customer shares
are distributed, and we sell all of the stock in the direct
placement.
Use of Proceeds.................................... We intend to use the proceeds for general and administrative
expenses, development of the business, working capital and
other general corporate purposes.
We will not receive any proceeds from the sale of the shares
of common stock by the Selling Shareholders or from the
promotional common stock offering.
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THERE IS NO MINIMUM AMOUNT OF SHARES THAT WE MUST SELL IN OUR DIRECT
OFFERING, AND THEREFORE NO MINIMUM AMOUNT OF PROCEEDS WILL BE RAISED. NO
ARRANGEMENTS HAVE BEEN MADE TO PLACE FUNDS INTO ESCROW, TRUST OR ANY SIMILAR
ACCOUNT. UPON RECEIPT, OFFERING PROCEEDS WILL BE DEPOSITED INTO OWNERTEL'S
OPERATING ACCOUNT AND USED TO CONDUCT THE BUSINESS AFFAIRS OF OWNERTEL. BECAUSE
THERE IS NO MINIMUM AMOUNT THAT WILL BE RAISED IN OUR DIRECT OFFERING, INVESTORS
MAY END UP HOLDING SHARES IN A COMPANY THAT HAS NOT RAISED SUFFICIENT PROCEEDS
FROM THE OFFERING TO COMMENCE OPERATIONS, AND THAT HAS AN ILLIQUID SMALLER
MARKET FOR ITS SHARES. THE DIRECT OFFERING WILL BE HELD OPEN FOR 60 DAYS
FOLLOWING THE EFFECTIVE DATE OF THIS PROSPECTUS. THIS IS AN EXTENSION OF THE
30 DAY PERIOD THAT THE DIRECT OFFERING WAS ORIGINALLY HELD OPEN. EXCEPT AS
OTHERWISE SPECIFIED, ALL PER SHARE INFORMATION IN THIS PROSPECTUS IS BASED ON
THE NUMBER OF SHARES OUTSTANDING AS OF THE DATE OF THIS PROSPECTUS.
3
RISK FACTORS
An investment in our Common Stock is a risky investment. The following
are some of the potential risks of an investment in our Common Stock and you
should read them carefully before purchasing shares of our Common Stock.
GENERAL RISKS
WE ARE A NEW BUSINESS WITH NO OPERATING HISTORY WHICH MAKES IT MORE
LIKELY THAT OUR BUSINESS WILL FAIL AND SHAREHOLDERS WILL LOSE THEIR INVESTMENT
We are a new business with no operating history. Our business is
subject to the same risks that all new businesses face. In addition, our
business plan for customer recruitment and retention, which includes the ability
of our customers to earn shares of our common stock, is unproven and may prove
to be unsuccessful. Because as of the date of this prospectus we have no
business other than entering into various agreements with TransNet and
Plenitude, you do not have access to all of the information that is available to
the purchasers of securities of a company with a history of operations,
including but not limited to, historical financial statements. This information
may be important to you in assessing your proposed investment. Our profitability
will depend primarily upon our ability to earn commissions from the sale of
TransNet's services, and our ability to become a reseller. Because of the
substantial startup costs that must be incurred by a new company, we expect to
incur significant operating losses during our initial years of operations.
THE SUCCESS OF OUR COMPANY WILL BE DEPENDENT ON OUR ABILITY TO RETAIN
AND ATTRACT EXPERIENCED AND KNOWLEDGEABLE PERSONNEL
OwnerTel believes that its continued success will depend to a
significant extent upon the abilities and efforts of its current management.
OwnerTel does not have employment agreements and does not maintain key man life
insurance on either of its current management. The loss of the services of
either of our current management, particularly Mr. Head, our Chairman and
President, would hinder our ability to raise funds in this offering.
Additionally, because both members of our current management, Mr. Head
and Ms. Crews, have limited experience in our industry, OwnerTel intends to hire
additional management with significant experience in our industry. OwnerTel
believes that its success will depend, in part, upon our ability to find, hire,
and retain additional key management personnel with experience in our industry.
The inability to find, hire, and retain such personnel could affect our ability
to effectively compete, adjust and predict changes in our industry.
BECAUSE THE COMPANY IS IN THE DEVELOPMENT STAGE WE EXPECT TO EXPERIENCE
INITIAL RAPID GROWTH WHICH WILL BE DIFFICULT TO MANAGE
OwnerTel's strategy includes initially acting as a marketer for other
resellers, and ultimately becoming a reseller of local and long distance
telephone and internet services. Because OwnerTel is currently in the
development stage, OwnerTel expects to initially experience rapid growth, which
will place additional demands upon our current management and other resources
and will require additional working capital, information systems, and
management, operational, and other financial resources. The growth of OwnerTel
will depend on various factors, including, among others:
- the ability of management to implement our strategy,
- competition,
- the ability of OwnerTel to obtain its own public service
commission certifications, and
- the ability of OwnerTel's Integrated Communications Providers
to handle our growth in the amount of services we sell.
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Not all of the foregoing factors are within our control. OwnerTel's
ability to manage growth successfully will require OwnerTel to continually
enhance its operational, management, financial, and information systems and
controls. Because there is no minimum amount of proceeds that may be raised in
our direct offering, and because our current management has limited experience
in our industry, we may not be able to manage or fund expanding operations and,
if our management is unable to manage growth effectively or fund our growth, we
may miss profitable opportunities and/or inefficiently allocate our resources
which will effect our business, operating results, and financial condition.
RISKS RELATED TO OUR BUSINESS
WE CURRENTLY ARE DEPENDENT ON OUR RELATIONSHIP WITH TRANSNET TO PROVIDE
US WITH TELECOMMUNICATIONS SERVICES TO MARKET
In September, 2001 OwnerTel entered into an agreement with TransNet to
provide TransNet with marketing services. TransNet is a reseller of local and
long distance telephone and internet service. At this time, we do not have
agreements with any other resellers. Our marketing agreement with TransNet is
for a period of one year, and is automatically renewable for successive one-year
terms unless terminated by either of the parties. We cannot assure you that
TransNet will not terminate the agreement or that we will be able to enter into
agreements with any other resellers.
Currently, TransNet's only contract with a provider of local and long
distance telephone and internet service is with EPICUS, Inc. (a subsidiary of
Phoenix International Industries, Inc.). TransNet's agreement with EPICUS is for
a term of one year, and is automatically renewable for additional one year terms
unless either party cancels the Agreement by sending written notice of intent to
cancel, effective on the final day of the Agreement, at least thirty days prior
to the expiration of the current term. The current term expires on February 1,
2002. Accordingly, we are currently dependent on TransNet's relationship with
EPICUS to provide us with local and long distance telephone and internet
services to market. If EPICUS terminates its contract with TransNet, and
TransNet does not contract with another communications provider, we would be
required to seek another reseller, or become our own reseller. In such event,
the cost paid for such services may exceed that expected to be paid under the
TransNet contract, which could have a material adverse effect on our results of
operations.
WE MAY BECOME SUBJECT TO NUMEROUS REGULATORY RISKS AS A PARTICIPANT IN
THE TELECOMMUNICATIONS RESELLER INDUSTRY
Initially, OwnerTel will act as a marketer for TransNet's local and
long distance telephone and internet services. However, OwnerTel intends to
obtain the necessary public service commission certifications to become a
reseller of long distance telephone service, either pursuant to our Option and
Services Agreement with TransNet, or on our own. If and when we become a
reseller of such services, we will become subject to state and federal statutes
and rules regulating the telecommunications industry. These regulations vary
from state to state and consist of such items as:
- approval procedures for resale agreements;
- certification or licensing procedures and requirements;
- tariff requirements;
- reporting requirements; and
- requirements in connection with customer billing, suspension
and disconnection.
As a result of becoming subject to statutes and rules regulating the
telecommunications industry, we expect to have increased compliance and
regulatory expenses.
5
WE MAY NOT BE ABLE TO OBTAIN ALL OF THE PUBLIC SERVICE COMMISSION
CERTIFICATIONS AND CUSTOMER BASE THAT WE DESIRE FROM TRANSNET
In September, 2001 we entered into an Option Agreement to purchase the
public service commission certifications and long distance telephone customer
base of TransNet. The regulations concerning the transfer of public service
commission certifications vary from state to state and we may not be able to
acquire from TransNet all of the public service commission certifications that
we need to become a reseller of local and long distance telephone and internet
service in the states in which we wish to resell such services. If we are unable
to exercise our option to purchase public service commission certifications from
TransNet in any state in which we desire to become a reseller, we will need to
apply for such public service commission certifications on our own, or we will
be unable to have any of our own customers in those states. Any delay in
obtaining public service commission certifications in any states in which we
desire to become a reseller will delay our ability to acquire TransNet's
customer base in such states, recruit our own customers in such states, and
generate the increased revenue we expect to receive as a reseller for such
services as opposed to a marketer for resellers.
WE FACE SIGNIFICANT COMPETITION THAT MAY ADVERSELY AFFECT OUR ABILITY
TO ATTRACT AND RETAIN CUSTOMERS AND MAINTAIN OUR EXPECTED PRICING STRUCTURE
The United States telecommunications industry is highly competitive and
significantly influenced by the marketing and pricing decisions of the larger
industry participants. Whether OwnerTel markets TransNet's services, or becomes
its own reseller, we expect to compete for customers with a number of
well-established providers, as well as many other providers with less
significant market share. Many of our competitors:
- are significantly larger than us;
- have substantially greater financial, technical, and marketing
resources;
- offer a broader portfolio of services than we do;
- have long-standing relationships with many of our target
customers; and
- have greater name recognition and brand loyalty.
In this competitive environment our competitors may reduce rates or
offer incentives to our existing and potential customers. For example, several
domestic long distance carriers have introduced pricing strategies which provide
for fixed, low rates for domestic calls. We believe that to maintain our
competitive position we must be able to reduce our prices to meet reductions in
rates by others, and cannot predict to what extent we may need to reduce our
prices or whether we will be able to sustain future pricing levels if any of our
competitors introduce competing services or similar services at lower prices. As
a result, we cannot predict whether demand for any services we offer will exist
at prices that enable us to continue to attract and retain customers or achieve
profitability or positive cash flow.
THE COMPANY BELIEVES THAT ITS LONG-TERM SUCCESS WILL DEPEND ON ITS
ABILITY TO OFFER ADDITIONAL SERVICES
OwnerTel's strategy includes offering additional communications
services, which may include, among others:
- international wholesale and retail long distance service,
- paging,
- wireless cable,
- home security monitoring and communication, and
6
- cellular phone service.
The ability of OwnerTel to offer these additional services will be
limited by our ability to enter into agreements with providers or resellers of
such services. Because we are currently only a marketer for TransNet's services,
until we receive our own regulatory approval or establish relationships with
other resellers, we are currently limited by TransNet's ability or desire to
offer the foregoing. Additionally, the entry into new markets entails risks
associated with the state of development of the market, intense competition from
companies already operating in those markets, potential competition from
companies that may have greater financial resources and experience than
OwnerTel, and increased selling and marketing expenses. There can be no
assurance that we will be able to offer these services or that any services that
we are able to offer will receive market acceptance in a timely manner, or at
all, or that prices and demand in new markets will be at a level sufficient to
provide profitable operations.
A HIGH LEVEL OF CUSTOMER ATTRITION IS CHARACTERISTIC OF OUR INDUSTRY
OwnerTel believes that a high level of subscriber attrition is a
characteristic of the domestic residential long distance industry. Attrition is
attributable to a variety of factors, including the termination of customers for
non-payment and the initiatives of existing and new competitors as they engage
in, among other things, national advertising campaigns, telemarketing programs,
and the issuance of cash or other forms of incentives. Although we believe that
our customer retention strategy, which includes the ability of our customers to
earn common stock in OwnerTel, is unique to our industry, our strategy may prove
to be unsuccessful. Because our revenue is based on recurring fees received from
our customers, a high level of attrition could affect our results of operations
by increasing costs associated with the acquisition of new customers and
affecting our ability to achieve positive cash flow.
WE ARE DEPENDENT ON THIRD PARTIES FOR OUR OPERATIONS
We are dependent upon third parties to:
- provide local and long distance telephone and internet service
to our customers;
- perform customer service functions; and
- collect billing information.
We have entered into an agreement with TransNet to provide billing,
collection and customer service functions for us. TransNet will need to process
call detail records quickly and accurately to produce customer bills. If we are
unable to bill and collect receivables from our future customers because of
problems with TransNet's information systems, our cash flows could be
interrupted which could materially adversely affect our business, financial
condition and results of operations.
WE INTEND TO USE INDEPENDENT CONTRACTORS TO RECRUIT OUR CUSTOMERS WHO
ARE LESS LIKELY THAN TRADITIONAL EMPLOYEES TO REMAIN WITH OUR COMPANY
OwnerTel intends to use independent sales agents and its relationship
with other resellers to sell its services. In September, 2001 we entered into an
Assignment Agreement with TransNet whereby TransNet assigned its agreements with
sixty-one of its independent sales agents to OwnerTel. In addition, in
September, 2001, we also entered into an Independent Sales Representative
Agreement with Plenitude, a Nevada network marketing company, under which
Plenitude will offer our services to its distributors for them to resell.
OwnerTel believes that significant turnover among independent sales agents from
year to year is typical of direct selling. Activities of the independent sales
agents in obtaining new subscribers are particularly impacted by changes in the
level of independent sales agent motivation, which in turn can be positively or
negatively affected by general economic conditions, modifications in the
commission and training fees and in our marketing plan, and a number of
intangible factors. Our ability to attract independent sales agents could be
negatively affected by adverse publicity relating to OwnerTel or its services or
its operations. Because of the number of factors that impact the recruiting of
7
independent sales agents, we cannot predict when or to what extent such
increases or decreases in the level of our independent sales agent retention
will occur. In addition, the number of independent sales agents as a percentage
of the population may reach levels that become difficult to exceed due to the
finite number of persons inclined to pursue an independent direct selling
business opportunity.
BECAUSE OUR SALES FORCE IS MADE UP OF INDEPENDENT CONTRACTORS, WE HAVE
LESS CONTROL OVER THE ACTIONS OF OUR SALES FORCE
Because our independent sales agents will be classified as independent
contractors, and not as employees of OwnerTel, we will be unable to provide them
with the same level of direction and oversight as OwnerTel employees. While we
expect to implement policies and rules governing the conduct of our independent
sales agents and intend to periodically review the sales tactics of our
independent sales agents, it will be difficult to enforce such policies and
rules for our independent sales agents. Violations of these policies and rules
may reflect negatively on OwnerTel. Long distance carriers have been subject to
complaints before the FCC and state public utility commissions regarding the
unauthorized switching of subscribers' long distance carriers (also known in the
industry as "slamming").
RISKS RELATED TO THIS OFFERING
WE MAY NOT BE ABLE TO LIST OUR STOCK ON AN EXCHANGE, AND EVEN IF WE DO,
AN ACTIVE TRADING MARKET MAY NOT DEVELOP
Prior to the Offering, there has been no public market for the Common
Stock. Management intends to obtain a trading symbol on the OTC Bulletin Board
and eventually on the NASDAQ stock market. There can be no assurance that we
will be able to do so. If we are not able to obtain a listing on the OTC
Bulletin Board or on an exchange, we will not be able to develop a market for
our stock. In this event, it will be very difficult for purchases of our stock
to liquidate their investment.
Even if we are able to obtain a listing on the OTC Bulletin Board, an
active trading market may not develop subsequent to the Offering or, if
developed, may not be sustained. Typically, stocks traded on the OTC Bulletin
Board or the pink sheets have very limited liquidity, and therefore, it may be
very difficult for purchases of our Common Stock to liquidate their investments
at a favorable price or at all.
THE MARKET PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY
The market price of the Common Stock could be subject to significant
fluctuations in response to:
- the fact that our stock has never traded publicly and will
trade on the OTC Bulletin Board or pink sheets,
- variations in quarterly and yearly operating results,
- general trends in our industry, and
- changes in state or federal regulations affecting the Company
or our industry.
In addition, the stock market in recent years has experienced extreme
price and volume fluctuations that often have been unrelated or disproportionate
to the operating performance of affected companies. Broad market fluctuations
may adversely affect the market price of our Common Stock. Additionally, because
our common stock is expected to trade on either the OTC Bulletin Board or the
pink sheets, a combination of limited liquidity and significant price
fluctuations may prevent an investor from being able to liquidate their
investments at a favorable price or at all.
8
WE DO NOT HAVE AN UNDERWRITER FOR OUR OFFERING, WHICH MAY MAKE IT MORE
DIFFICULT TO SUCCESSFULLY COMPLETE THIS OFFERING
We are offering 2,000,000 shares of common stock on a direct placement
basis under the provisions of Rule 3a4-1 of the Exchange Act. We have never
engaged in the public sale of our securities, and have no experience in
conducting public securities offerings. Accordingly, there is no prior
experience from which investors may judge our ability to consummate this
offering. There can be no assurance that we will be successful in selling any
shares of Common Stock offered hereby, and as a result, we may not receive any
proceeds from our direct offering. See "Plan of Distribution."
BECAUSE THERE IS NO MINIMUM NUMBER OF SHARES THAT MUST BE SOLD IN OUR
DIRECT OFFERING WE MAY NOT RAISE SUFFICIENT PROCEEDS TO COMMENCE OPERATIONS
Under the terms of our direct offering, there is no minimum number of
shares that must be sold, or a minimum amount that will be raised, and OwnerTel
will not refund any funds to you. Upon receipt, offering proceeds will be
deposited into OwnerTel's operating account and used to conduct the business
affairs of OwnerTel. Because there is no minimum number of shares that must be
sold or a minimum amount that will be raised, and because we will not refund any
funds to you, it is possible that we may not raise enough funds to commence
operations. If we are unable to receive sufficient funds from our direct
offering, we will have to seek other sources of financing.
There is no assurance that additional sources of funding will be
available at a reasonable cost. In the event that we are unsuccessful in raising
sufficient funds in this or any other offerings to continue our operations, it
is likely that purchasers of our common stock will own shares in a company that
has an illiquid smaller market for its shares or will lose their investments.
WE HAVE ARBITRARILY DETERMINED THE INITIAL PUBLIC OFFERING PRICE OF THE
COMMON STOCK IN OUR DIRECT PLACEMENT OFFERING WITHOUT REGARD TO TRADITIONAL
VALUATION CRITERIA
The price of the 2,000,000 shares we are offering for sale under this
prospectus was arbitrarily determined in order for us to raise up to a total of
$1,500,000 in this offering. The offering price bears no relationship whatsoever
to our assets, earnings, book value or other criteria of value. Among the
factors considered were our limited operating history, the proceeds to be raised
by the offering, the amount of capital to be contributed by purchasers in this
offering in proportion to the amount of stock to be retained by our existing
Stockholders, and our relative cash requirements. The initial public offering
price may not be indicative of the market price for the common stock after the
offering, which price may decline below the initial public offering price.
AFTER THE OFFERING, THE CURRENT OFFICERS AND DIRECTORS WILL RETAIN A
STOCK OWNERSHIP AMOUNT SUFFICIENT TO CONTROL THE COMPANY
Prior to the offering, the current officers and directors of OwnerTel
owned approximately 88% of the outstanding Common Stock of OwnerTel. Following
the Offering, the current officers and directors of OwnerTel will own, in the
aggregate, approximately 70% of the outstanding Common Stock, assuming they sell
all of the stock registered for them as Selling Shareholders in the offering,
and all of the promotion shares and direct placement shares are sold.
Accordingly, after the offering, the current officers and directors of OwnerTel,
acting as a group, will have the ability to elect all of the directors of
OwnerTel and control OwnerTel's management, operations, and affairs.
OUR CURRENT OFFICERS AND DIRECTORS ARE SELLING SHAREHOLDERS IN THIS
OFFERING
William G. Head, III, our Chairman and President, and Elizabeth Crews,
a director and our Secretary, may elect to sell up to 452,000 and 457,000 shares
of our Common Stock, respectively, as Selling Shareholders under this
registration statement. Pursuant to a lock-up agreement, Mr. Head and Ms. Crews
agreed to refrain from selling, or offering to sell, any shares of our Common
Stock for the lesser of 30 days from the effective date of this registration
statement or until all of the stock in our direct offering is sold. Thereafter,
Mr. Head and Ms. Crews
9
may only sell up to 1/4 of the total shares registered on their behalf during
each subsequent 90-day period. For example, after this registration statement
has been effective for 30 days, Mr. Head may sell up to 113,000 shares, and Ms.
Crews may sell up to 114,250 shares during the subsequent 90 day period. Any
shares that Mr. Head and Ms. Crews do not sell during any 90-day period will not
carry over into the subsequent 90-day period. However, the lock-up agreement
does not prevent either Mr. Head or Ms. Crews from selling any shares that they
may own, which will begin to become available for resale under Rule 144 in July,
2002. Mr. Head and Ms. Crews have also agreed to extend their lock-up period for
any amount of time that the direct offering may be extended. As a result, Mr.
Head and Ms. Crews will never be in a position of selling their own shares at a
time when Mr. Head is engaged in his efforts to sell shares on behalf of
OwnerTel.
Resale of these shares could have an adverse effect on our stock's
market price and adversely affect the development of a public market.
APPROXIMATELY 75% OF OUR COMMON STOCK IS NOT REGISTERED IN THIS
OFFERING AND WHEN AVAILABLE FOR RESALE MAY ADVERSELY AFFECT THE MARKET PRICE OF
OUR COMMON STOCK
Sales of a substantial number of shares of Common Stock in the public
market following the Offering could adversely affect the market price of our
Common Stock. Upon completion of the Offering, OwnerTel will have outstanding
20,088,000 shares of Common Stock. Of these shares, the 5,000,000 shares offered
hereby will be freely tradeable without restriction or further registration
under the Securities Act, unless purchased by "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act ("Rule 144") described
below. The remaining 15,088,000 shares of our common stock will begin to become
freely tradable, in accordance with Rule 144, after one year from the date the
shares of Common Stock was acquired by our shareholders. Mr. Head and Ms. Crews
own 14,178,000 out of those 15,088,000 shares. The volume limitations under Rule
144 provide that a person (including all affiliates, such as directors, officers
or a person owing 10% or more of OwnerTel's stock) cannot, within any
three-month period, sell more than the greater of one percent of the then
outstanding shares, or the average weekly reported trading volume during the
four calendar weeks preceding each such sale. We cannot predict if future sales
of our Common Stock, or the availability of our Common stock for sale, will
materially and adversely affect the market price for our Common Stock or our
ability to raise capital by offering equity securities.
OUR CUSTOMER PROMOTION MAY MAKE IT MORE DIFFICULT FOR US TO RAISE
ADDITIONAL CAPITAL
The persons who receive shares of our common stock in our customer
promotion may sell these shares at any time at prices that may be less than the
price that we are selling shares during this offering or may propose to offer
shares in a subsequent offering. This may make it more difficult for us to
successfully consummate this or a subsequent offering.
PURCHASERS OF OUR COMMON STOCK WILL INCUR IMMEDIATE AND SUBSTANTIAL
DILUTION
Our existing shareholders acquired their shares of common stock at an
average cost substantially below the assumed initial public offering price set
forth on the cover page of this prospectus. In addition, we plan to distribute
up to 1,000,000 shares of common stock, at no cost, to our customers. Therefore,
the purchasers of common stock in the offering will experience immediate and
substantial dilution.
WE HAVE RESERVED A SUBSTANTIAL NUMBER OF SHARES FOR ISSUANCE UPON
EXERCISE OF OPTIONS AND WARRANTS THAT MAY CAUSE SUBSTANTIAL DILUTION
We currently have reserved 1,000,000 shares under our 2001 Stock Option
Plan (see "Management - Stock Option Plan") to issue to grantees and recipients
to purchase shares of our common stock. The exercise of options by a substantial
number of grantees and recipients within a relatively short period of time could
have the effect of depressing the market price of our common stock and could
impair our ability to raise capital through the sale of equity securities. In
addition, we have granted TransNet a one-year Warrant to purchase 500,000 shares
of the Company's Common Stock at $1.50 per share, the exercise of which
10
could also have the effect of depressing the market price of our Common
Stock and could impair our ability to raise capital through the sale of equity
securities.
WE WILL BE SUBJECT TO THE PENNY STOCK RULES WHICH MAY ADVERSELY AFFECT
TRADING IN OUR STOCK
Because our common stock is not listed on any securities exchange or
the Nasdaq Stock Market and may not have a trading price of at least $5.00 per
share, our common stock is subject to federal penny stock regulations. As a
result, the market liquidity for the shares being offered in this offering could
be adversely affected because these regulations require broker-dealers to make a
special suitability determination for the purchase and to have received the
purchaser's written consent to the transaction prior to the sale. This makes it
more difficult administratively for broker-dealers to buy and sell stock subject
to the penny stock regulations on behalf of their customers. As a result, it may
be more difficult for a broker-dealer to sell the shares purchased by an
investor in this offering.
OUR CUSTOMERS MAY HAVE TO PAY TAXES ON THE STOCK THEY RECEIVE
Our customers who receive shares of our Common Stock pursuant to our
Promotional Stock Program Offering may be required to include the fair market
value of the shares of common stock they receive less the amount they may be
deemed to have "paid" for such shares in their gross income for federal, state
and local income tax purposes and will be required to pay taxes on this income.
There is no assurance that they will be able to sell a sufficient amount of
shares to provide funds to pay these taxes when due.
WE MAY NOT RECEIVE FAVORABLE TAX TREATMENT FOR COMMON STOCK AWARDED TO
OUR CUSTOMERS THROUGH OUR PROMOTION PROGRAM
The tax treatment for OwnerTel for the Common Stock awarded to our
customers is not certain and may be subject to challenge by the Internal Revenue
Service. The question of corporate tax deductibility, equal to the amount of
ordinary income reported by the customer, is a controversial issue and may not
qualify as a tax deduction under Internal Revenue Code section 162. Alternative
methods of accounting for the tax consequences of this event are to treat the
value of the stock awarded through promotional contests as currently deductible,
an asset to be amortized as a startup cost, or never deductible.
FORWARD-LOOKING STATEMENTS
In this prospectus, we include some forward-looking statements that
involve substantial risks and uncertainties and other factors which may cause
our operational and financial activity and results to differ from those
expressed or implied by these forward-looking statements. In many cases, you can
identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate," "plan," "intend" and "continue,"
or similar words. You should read statements that contain these words carefully
because they discuss our future expectations, contain projections of our future
results of operations or of our financial condition, or state other
"forward-looking" information.
You should not place undue reliance on these forward-looking
statements. The sections captioned "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Plan of Operations," as well as any
cautionary language in this prospectus, provide examples of risks, uncertainties
and events that may cause our actual results to differ materially from the
expectations.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements.
11
USE OF PROCEEDS
There is no minimum number of shares that must be sold in our direct
offering. Accordingly, based on an initial offering price of $0.75 and 2,000,000
shares available for sale, we will receive anywhere from $0 to $1,500,000 in our
direct offering (before offering expenses) based on the number of shares we are
able to sell. Such proceeds will be used for general corporate purposes,
including working capital and the funding of our anticipated operations. We may
also use the proceeds in future acquisitions but do not have any acquisitions
planned.
As of the date of this prospectus, we have not allocated any specific
amount of the proceeds for any of the purposes described above. The amounts to
be expended for the purposes listed above will depend upon a number of factors,
including conditions in the telecommunications market. Pending our use of the
net proceeds of this offering, we intend to invest them in short-term,
investment grade, interest bearing securities.
OwnerTel will not receive any of the proceeds from the sale of common
stock by the Selling Shareholders. In addition, we will not receive any proceeds
from our promotional stock offering of 1,000,000 shares, which we plan to
distribute from time to time following the date of this prospectus, at no cost,
to our customers. See "Plan of Distribution."
DIVIDEND POLICY
OwnerTel initially expects that all Company earnings, if any, will be
retained to finance our growth and that no cash dividends will be paid for the
foreseeable future. Our board of directors will determine, in its sole
discretion, whether to declare any dividends on our common stock in the future
after taking into account various factors, including OwnerTel's financial
condition, operating results, current and anticipated cash needs and plans for
expansion.
DILUTION
Dilution represents the difference between the offering price and the
net tangible book value per share of our common stock immediately after
completion of this offering. Net tangible book value is the amount that results
from subtracting total liabilities and intangible assets from total assets,
divided by the number of shares of common stock outstanding.
Dilution arises mainly as a result of our arbitrary determination of
the offering price of the shares being offered. Dilution of the value of the
shares you purchase is also a result of the lower book value of the shares held
by our existing shareholders who paid nominal consideration for their shares,
and by the recipients of shares in our promotional stock program who will not
pay any consideration for their shares. Accordingly, to the extent you purchase
shares for a market price that exceeds net tangible book value per share, you
will suffer an immediate dilution.
The following table illustrates the pro forma per share dilution,
assuming the sale of all of the 2,000,000 shares offered by OwnerTel and the
distribution of all of the 1,000,000 shares offered in our customer promotional
program.
Offering price per share............................ $ 0.75
Net tangible book value before the offering......... $ 0.00
Increase per share attributed to new investors...... $ 0.07
-------
Pro forma net tangible book value per share after
the Offering.................................... $ 0.07
-------
Dilution in net tangible book value to new investors... $ 0.68
=======
12
The following table summarizes as of the date of this prospectus, the
difference (based on an assumed initial offering price of $0.75 per share and
assuming all of the 2,000,000 shares offered by OwnerTel are sold) between the
existing shareholders and the new shareholders with respect to the number of
shares of Common Stock purchased, the total consideration paid, and the average
price per share paid:
Average
Price
Shares Purchased Total Consideration Per
Number Percent Amount Percent Share
----------- ------- ------------ ------- -------
Existing Shareholders(1) 17,088,000 85% $ 2,996,823 50% $ 0.18
New Investors 2,000,000 10% $ 1,500,000 50% $ 0.75
Promotional Customer Stock 1,000,000 5% $ 0 0% $ 0
----------- ---- ------------ ----
Total(2) 20,088,000 100% $ 4,496,823 100%
=========== ==== ============ ====
(1) The total consideration paid by existing shareholders of $2,996,823 is
based on cash paid by the founders for their stock and the value of
services performed for OwnerTel by the founders and consultants that
received stock in lieu of cash.
(2) The foregoing does not include 1,000,000 shares reserved for issuance
under our Stock Option Plan, or 500,000 shares reserved for issuance
pursuant to the TransNet Warrant, the issuance of which may result in
further dilution to new investors.
CAPITALIZATION
The following table sets forth the capitalization of OwnerTel as of
September 30, 2001:
Historical
-------------
Capitalization:
Stockholders' equity:
Preferred stock, $.001 par value, $-0-
10,000,000 shares authorized, no
shares issued and outstanding
Common stock, $.001 par value,
100,000,000 shares authorized,
17,088,000 issued and outstanding 17,088
Additional paid-in capital 2,980,125
Stock subscription receivable (2,000)
Accumulated deficit (2,328,713)
-------------
Total stockholders' equity 666,500
-------------
Total capitalization $ 666,500
=============
SELECTED FINANCIAL DATA
We have not provided you with any selected financial data concerning
OwnerTel because there is no selected financial data available at this time that
would be material to you in evaluating an investment in our common stock.
Potential investors are directed to refer to the Financial Statements and Notes
thereto and
13
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this prospectus for financial data.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATION
PLAN OF OPERATION
We are currently in the startup phase of our existence. We presently do
not have sufficient cash on hand to support our planned activities for the next
year. We will transition from the startup phase of our existence to the
operational phase of our existence when we have accumulated sufficient capital
to do so. The sale of the shares in this initial offering is intended to
facilitate a quick startup phase. At that time, we expect that our executive
officers will receive salaries and other business operating expenses will be
incurred.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, OwnerTel has a working capital deficit of
$1,000. OwnerTel anticipates that it will continue to have a working capital
deficit throughout the startup phase of operations. OwnerTel receives revenues
from local and long distance and internet services provided to its own customers
and from commissions under a certain marketing agreement with TransNet Connect,
Inc. OwnerTel's operating expenses consist primarily of costs of local and long
distance and internet services, salaries and wages, commissions, payroll taxes,
telephone expense, office expense and other miscellaneous expenses. Salaries and
wages and the related payroll taxes for OwnerTel's two employees are estimated
to be approximately $150,000 per year. OwnerTel's two employees have agreed to
forego their salary until such time as OwnerTel has raised $250,000. Commissions
are paid to agents of OwnerTel only after the cash has been received for the
services sold by the agents. The other expenses of OwnerTel are estimated to be
less than $30,000 per year. OwnerTel believes that cash flow generated from
operations will be sufficient to pay all costs and expenses except salaries and
wages and related payroll taxes through December 31, 2002. For the foreseeable
future, most, if not all, of the operating expenses of OwnerTel are believed to
be variable expenses, which will increase or decrease in connection with our
volume of business. These expenses include, but are not limited to, local and
long distance telephone expense, office supplies and other miscellaneous
expenses. OwnerTel believes that its revenue less the cost of its revenue and
commissions payable will be sufficient to cover its variable expense. However,
there can be no assurance that our revenue less the cost of our revenue and
commissions payable will be sufficient to cover these variable expenses.
INFLATION
Management does not believe that inflation will have a material effect
on operating results. Although increases in long distance and telecommunication
services and other operating costs could adversely affect our operations, we
believe that we will be able to modify our operating procedures or increase
prices to offset increases in its operating costs.
BUSINESS
BACKGROUND
OwnerTel was formed on July 2, 2001 under the laws of the State of
Georgia. OwnerTel to date has conducted no business other than organizational
matters, including negotiations with additional prospective executive officers
and employees and entering into three agreements with TransNet. When this
offering is complete and before the start of operations, OwnerTel intends to
hire and train staff, purchase or lease and install equipment necessary to
transact business, establish correspondent banking relationships and make other
arrangements for necessary services.
14
BUSINESS STRATEGY
GENERAL STRATEGY
OwnerTel will initially be a marketer for resellers of local and long
distance telephone and internet service. In September, 2001, OwnerTel entered
into a marketing agreement with TransNet, to sell local and long distance
telephone and internet services on behalf of TransNet for commission based
compensation.
Ultimately, OwnerTel intends to become its own reseller of local and
long distance telephone and internet service. In order to become a reseller,
OwnerTel must acquire public service commission certifications in all states in
which we desire to become a reseller, and in order to advance this process, we
have entered into an Option and Services Agreement with TransNet. Under the
terms of the Option and Services Agreement, OwnerTel has a one-year option to
acquire TransNet's public service commission certifications and long distance
telephone customer base, in whole or in part, and TransNet has agreed to provide
OwnerTel with customer service and billing and collection services for any
customers OwnerTel acquires. In those states in which OwnerTel is unable to
acquire TransNet's public service commission certifications due to regulatory
constraints, OwnerTel intends to apply for the public service commission
certifications on its own.
OwnerTel's long-term strategy is to achieve continued growth and
profitability by focusing its marketing efforts on residential customers and
small- to mid-sized businesses, by reducing its overall cost of delivering local
and long distance telecommunications and internet services, by providing back
office support for other resellers, and by developing additional reseller and
provider relationships and products to expand OwnerTel's target market and
product mix while improving profit margin. OwnerTel also intends to develop a
network of independent sales agents, which OwnerTel believes is the most
cost-effective method to acquire customer accounts.
ACQUISITIONS
There are numerous small to mid-size, long-distance companies operating
throughout the United States. Although OwnerTel presently has no understanding,
arrangement or agreement to make any other acquisitions, in management's
opinion, OwnerTel believes that many existing resellers are willing to be
acquired due to the lack of sufficient revenue vis-a-vis their current operating
expenses. OwnerTel believes it has the ability to maximize the potential of
these acquisitions through increased operating efficiency without significant
increase in overhead by eliminating duplicate overhead and enhancing the use of
software and switch-less resellers of long distance.
RECENT DEVELOPMENTS
In September, 2001, OwnerTel entered into three agreements with
TransNet. These agreements include: (1) an Assignment and Assumption Agreement,
(2) a Marketing Services Agreement, and (3) an Option and Services Agreement.
TransNet Connect, Inc. is a Florida corporation formed in February, 1999, with
headquarters and central operations in Tampa, Florida. TransNet is licensed
nationwide as a long distance carrier and currently operates as a
non-facilities-based carrier that routes its customers' calls over a
transmission network consisting of dedicated long distance lines secured by
TransNet from a variety of other carriers. TransNet uses independent sales
agents, a wholly owned multi-level marketing subsidiary and its relationship
with other resellers to sell its services. Both of OwnerTel's executive officers
and directors formerly worked at TransNet, and are deemed to beneficially own
TransNet common stock.
In addition, OwnerTel owns 445,000 shares of TransNet. See "Certain
Transactions."
In addition, in September, 2001, OwnerTel entered into an Independent
Sales Representative Agreement with Plenitude, a Nevada network marketing
company that specializes in nutritional products.
ASSIGNMENT AND ASSUMPTION AGREEMENT
Under the terms of our Assignment and Assumption Agreement with
TransNet, TransNet has assigned to OwnerTel its agreements with sixty-one of its
existing independent sales agents in exchange for a one-year warrant to purchase
500,000 shares of OwnerTel common stock at $1.50 per share.
15
MARKETING SERVICES AGREEMENT
Under the terms of our Marketing Services Agreement with TransNet,
TransNet has engaged OwnerTel to market local and long distance telephone and
internet services on behalf of TransNet in exchange for commission payments of
up to 50% of the revenue received by TransNet for the services sold by OwnerTel
for a period of one year. The level of commission varies depending on the type
of services sold. The Agreement is automatically renewable for successive
one-year terms unless either party shall give the other party written notice of
non-renewal at least ninety days prior to the end of the term. During the term
of the Agreement, and contingent upon this Registration Statement becoming
effective, OwnerTel has agreed to include TransNet's current long distance
telephone customer base, and all new long distance telephone customers of
TransNet, in OwnerTel's Promotional Stock Program. OwnerTel has further agreed
to apply its Promotional Stock Program retroactively to TransNet's customers for
purposes of determining the number of shares they will receive under the
Promotional Stock Program.
OPTION AND SERVICES AGREEMENT
Under the terms of our Option and Services Agreement with TransNet,
TransNet has provided OwnerTel with a one-year option to purchase TransNet's
public service commission certifications and long distance telephone customer
base, in whole or in part. In addition, in exchange for a fee of $1.00 per
customer during each month that such customer has a usage related charge,
TransNet will provide OwnerTel with customer service and billing and collection
services for each long distance telephone customer that OwnerTel acquires from
TransNet pursuant to the option, or on its own, for a period of two years.
TransNet will continue to provide customer service and billing and collection
services for additional one-year terms unless either party provides written
notice to the other party otherwise at least ninety days prior to the expiration
of the current term.
INDEPENDENT SALES REPRESENTATIVE AGREEMENT
Under the terms of our Independent Sales Representative Agreement with
Plenitude, Plenitude has agreed to offer OwnerTel's telecommunications services
to its approximately 20,000 distributors, in exchange for either a commission or
per account fee based on the type of service sold. The agreement is for an
initial term of one year and will renew automatically for additional one year
terms unless either party cancels the agreement at least thirty days prior to
the expiration of the current term. It is anticipated that Plenitude's
distributors will in turn offer our telecommunications services to their
customers, and that Plenitude will pay its distributors a reduced commission
rate for any sales that they make.
PRODUCTS AND SERVICES
OwnerTel will initially provide marketing services to TransNet, which
has an agreement with EPICUS, Inc. (a subsidiary of Phoenix International
Industries, Inc.) to resell local and long distance telephone and internet
service. EPICUS is a Competitive Local Exchange Carrier telecommunications
company that provides local, long distance and internet telecommunication
services via advantageous resale agreements with major carriers. TransNet's
agreement with EPICUS is for a term of one year, and is automatically renewable
for additional one-year terms unless either party cancels the agreement by
sending written notice of its intent to cancel, effective on the final day of
the Agreement at least thirty days prior to the expiration of the current term.
The current term expires on February 1, 2002. Accordingly, if TransNet does not
continue its agreement with EPICUS after the current term expires, and TransNet
does not enter into another resale agreement, OwnerTel's Marketing Agreement
with TransNet may be of little value.
During the term of its Marketing Agreement with TransNet, OwnerTel
intends to pursue becoming a reseller of long distance telephone service. In
order to do this, OwnerTel has entered into an Option and Services Agreement
with TransNet whereby OwnerTel has the option to acquire TransNet's public
service commission certifications and long distance telephone customer base, in
whole or in part. During this one-year option period, OwnerTel intends to
evaluate which public service commission certifications and long distance
telephone customers make the most sense to acquire from TransNet based on
financial considerations and regulatory constraints. In those states where
OwnerTel believes that reselling long distance telephone services would be
profitable, but OwnerTel is unable to acquire public service commission
certifications from TransNet due to regulatory constraints, OwnerTel
16
intends to apply for its own public service commission certifications. Under
these circumstances, OwnerTel expects to acquire only the long distance
telephone customers from TransNet.
OwnerTel may also continue to be a marketer of local telephone and
internet service and will seek an agreement with another reseller, to market
such services on or before the expiration of our contract with TransNet.
In the future, OwnerTel also intends to offer additional communications
products and services, which may include, among others, international wholesale
and retail long distance service, paging, wireless cable, home security
monitoring and communication and cellular phone service.
COMPETITION
The United States telecommunications industry is highly competitive,
rapidly evolving, and significantly influenced by the marketing and pricing
decisions of the larger industry participants. Whether OwnerTel remains as a
marketer for reseller's services, or becomes its own reseller, we expect to
compete for customers with a number of well-established providers, as well as
many other providers with less significant market share.
Our competitors may reduce rates or offer incentives to our existing
and potential customers. For example, several domestic long distance carriers
have introduced pricing strategies which provide for fixed, low rates for
domestic calls. Because we believe that to maintain our competitive position we
must be able to reduce our prices to meet reductions in rates by others, our
business could be adversely affected by such reductions. Some carriers are
expanding their capacity and network facilities. We may see more downward price
pressure if industry expansion results in capacity which exceeds overall demand.
We cannot predict to what extent we may need to reduce our prices to remain
competitive or whether we will be able to sustain future pricing levels as our
competitors introduce competing services or similar services at lower prices.
REGULATION
Initially, OwnerTel will act as a marketer for TransNet's local and
long distance telephone and internet services. However, OwnerTel intends to
obtain the necessary public service commission certifications to become a
reseller of local and long distance telephone and internet services, either
pursuant to the Option and Services Agreement that we have entered into with
TransNet, or on our own. If and when OwnerTel becomes a reseller of such
services, we will be subject to state and federal statutes and rules regulating
the telecommunications industry. These regulations vary from state to state and
consist of such items as:
- approval procedures for resale agreements;
- certification or licensing procedures and requirements;
- tariff requirements;
- reporting requirements; and
- requirements in connection with customer billing, suspension
and disconnection.
EMPLOYEES
As of the date of this prospectus, we have two full time employees. Our
future success will depend, in part, on our ability to continue to attract,
retain and motivate highly qualified personnel. We also employ sixty-one
independent sales agents, whom we have acquired from TransNet, and have entered
into an Independent Sales Representative Agreement with Plenitude. We intend to
continue to recruit additional independent sales agents to sell our services.
Our independent sales agents are compensated based on the amount of services
they sell by a commission payment or flat fee depending on the types of services
they sell. Compensation is paid to OwnerTel's independent sales agents only
after cash has been received for the services sold by the agents.
17
We have also retained the following consultants on a short term basis
to assist us with various aspects of our business:
MATTER CONSULTANT TERM COMPENSATION
------ ---------- ---- ------------
Public relations Robert Strom 12 months 20,000 shares
Investor relations de Jong and Associates, Inc. 12 months 260,000 shares
Investor relations Next Step Capital, LLC 12 months 100,000 shares
Financial reporting Edward C. Williams Monthly 150,000 shares
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of OwnerTel as of the date hereof, are as
follows:
NAME AGE POSITIONS WITH OWNERTEL
---- --- -----------------------
William G. Head III 42 Chairman and President
Elizabeth Crews 49 Director and Secretary
There are no family relationships among any of our directors, officers
or key personnel. Each director serves until the next annual meeting of
stockholders and his or her successor is duly elected and qualified. Our
officers will be elected annually by the Board of Directors.
DIRECTORS' COMPENSATION
Our directors do not currently and have never received any compensation
for serving as a director to date. However, we expect to adopt a plan of
reasonable compensation to our directors when and if we become operational and
begin to generate revenue, which may include grants of options under our stock
option plan.
COMMITTEES OF THE BOARD
The Board of Directors will establish various working committees of its
members. Committees will meet routinely and will report directly to the entire
Board of Directors. The Committees of the Board will include:
Audit Committee
Responsible for:
- insuring the Board receives objective information regarding
policies, procedures and controls of OwnerTel including
auditing, accounting, internal accounting controls, financial
reporting;
- recommending the appointment of an independent auditor on an
annual basis;
- reviewing independent auditor's report and management's
response; and
- establishing independent review and audits.
18
Compensation Committee
Responsible for:
- establishing appropriate levels of compensation;
- analyzing compensation levels on an annual basis;
- recommending overall compensation increases and changes in
benefits to the Board for approval;
- establishing policies with regard to compensation and
benefits; and
- recommending all compensation increases, benefit changes and
bonuses for senior officers to the Board for approval.
EXECUTIVE OFFICERS OF OWNERTEL
The only persons hired to become executive officers of OwnerTel are
William G. Head III who will be the President, and Elizabeth Crews who will be
the Secretary.
WILLIAM G. HEAD III, PRESIDENT
Mr. Head has been the President and Chairman of OwnerTel since July 2,
2001 (inception). From February 2001 until June, 2001, Mr. Head served as
President of TransNet Connect, Inc. From November 1997 through 2000, Mr. Head
served as the Chief Executive Officer and founder of Zebramart.com, a publicly
traded online shopping club for luxury goods. From August 1996 until October
1997, Mr. Head served as the Vice President of Product Development, and was a
founder of Links Direct, a multi-level marketing organization specializing in
golf related products, where he oversaw the sourcing and development of a
100-page upscale catalog of apparel, products, and equipment. From 1992 through
1996, Mr. Head was the Chief Executive Officer of Collegiate Companies when he
created and implemented successful marketing campaigns for Domino's Pizza,
Fantastic Sam's and R.J. Reynold's Camel brand. Prior to this, he also founded
Oops, a retail chain specializing in off-priced goods, which grew to six stores.
Mr. Head attended the University of North Carolina at Chapel Hill from
1977-1982.
ELIZABETH CREWS, SECRETARY
Ms. Crews has been a director and Secretary of OwnerTel since July 2,
2001 (inception). From December 2000, until June, 2001, Ms. Crews served as
Chief Financial Officer of TransNet Connect, Inc. Prior to such time, Ms. Crews
was an operations officer with Medical Management International from December
1997 until December 2000 and a Senior Sales Director with Mary Kay Cosmetics
from 1989 until 1997. Ms. Crews attended Manatee Community College.
COMPENSATION OF MANAGEMENT
OwnerTel does not have employment agreements with any of its employees.
OwnerTel may enter into employment agreements with members of executive
management when and if we become operational and begin to generate revenue, and
may also grant members of the executive management options under our stock
option plan.
STOCK OPTION PLAN
GENERAL
On or before the prospectus date, we intend to adopt the OwnerTel, Inc.
Stock Option Plan. We intend for the Stock Option Plan to serve to encourage our
employees, consultants, and directors through their individual efforts, to
improve our overall performance and to promote profitability by providing them
with an opportunity to participate in the increased value they help create.
Options granted under the Stock Option Plan may be in the form of "incentive
stock options" as defined under section 422 of the Internal Revenue Code of
1986, as amended, or
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options that are not incentive stock options. They will be administered by the
compensation committee of the board of directors.
We will reserve 1,000,000 shares of our common stock for issuance under
the Stock Option Plan. In general, all options granted under the plan will lapse
ten years from the date of grant (five years in the case of a 10% stockholder of
our company, our parent or one of our subsidiaries). In general, the exercise
price of an option will be determined by the compensation committee of the board
of directors at the time the option is granted and will not be less than 100% of
the fair market value of a share of our common stock on the date the option is
granted. The compensation committee may provide in the option agreement that an
option may be exercised in whole immediately or is exercisable in increments
through a vesting schedule.
ADMINISTRATION
The Stock Option Plan will be administered by OwnerTel's Compensation
Committee, which is comprised of at least two non-employee directors appointed
by OwnerTel's Board of Directors. The Compensation Committee will have the
authority to select the employees, consultants and directors to whom awards may
be granted, to determine the terms of each award, to interpret the provisions of
the Stock Option Plan and to make all other determinations that it may deem
necessary or advisable for the administration of the Stock Option Plan.
The Stock Option Plan provides for the grant of "incentive stock
options," as defined under Section 422(A) of the Internal Revenue Code of 1986,
as amended. The exercise price of incentive stock options must at least equal
the fair market value of the Common Stock subject to the option (determined as
provided in the Plan) on the date the option is granted.
An incentive stock option granted under the Stock Option Plan to an
employee owning more than 10% of the total combined voting power of all classes
of capital stock of OwnerTel or its parent or any of its subsidiaries is subject
to the further restriction that such option must have an exercise price of at
least 110% of the fair market value of the shares of Common Stock, issuable upon
exercise of the option (determined as of the date the option is granted) and may
not have an exercise term of more than five years. Incentive stock options are
also subject to the further restriction that the aggregate fair market value
(determined as of the date of grant) of Common Stock as to which any such
incentive stock option first becomes exercisable in any calendar year, is
limited to $100,000. To the extent options covering more than $100,000 worth of
Common Stock first become exercisable in any one calendar year, the excess will
be non-statutory options. For purposes of determining which, if any, options
have been granted in excess of the $100,000 limit, options will be considered to
become exercisable in the order granted.
Awards may be granted subject to a vesting requirement and in any event
will become fully vested upon a merger or change of control of OwnerTel. To
receive an award under the Stock Option Plan, an award agreement must be
executed which specifies the type of award to be granted, the number of shares
of Common Stock to which the award relates, the terms and conditions of the
award and the date granted. In the case of an award of options, the award
agreement will also specify the price at which the shares of Common Stock
subject to the option may be purchased, and the date(s) on which the option
becomes exercisable.
The full exercise price for all shares of Common Stock purchased upon
the exercise of options granted under the Stock Option Plan must be paid by
cash, personal check, personal note, award surrender or Common Stock owned at
the time of exercise. Options granted under the Stock Option Plan may remain
outstanding and exercisable for 10 years from the date of grant or until the
expiration of 90 days (or such lesser period as the Committee may determine)
from the date on which the person to whom they were granted ceases to be
employed by OwnerTel.
INCOME TAX
Incentive stock options granted under the Stock Option Plan have
certain advantageous tax attributes to the recipient under the income tax laws.
No taxable income is recognized by the option holder for income tax purposes at
the time of the grant or exercise of an incentive stock option, although neither
is there any income tax deduction available to OwnerTel as a result of such a
grant or exercise. Any gain or loss recognized by an option holder on the
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later disposition of shares of Common Stock acquired pursuant to the exercise of
an incentive stock option generally will be treated as capital gain or loss if
such disposition does not occur prior to one year after the date of exercise of
the option.
Non-qualified options granted under the Stock Option Plan do not
qualify for special tax treatment under Internal Revenue Code, section 422 and
so do not defer the recognition of income beyond the date upon which the option
is exercised. Since the options are granted at fair market value, no income is
recognized at the time of the grant and there are no tax consequences to the
optionee. When the option is exercised however the recipient of the option is
taxed on the difference between the exercise price and the fair market value of
the stock upon exercise. This amount is taxed as ordinary income and the company
is entitled to a deduction. Upon the sale of the stock by the optionee, the
difference between the amount realized on the sale and the fair market value of
the stock on the date of exercise and is taxed as a capital gain if held for the
requisite time period.
AMENDMENT AND TERMINATION
The Stock Option Plan expires 10 years after its adoption, unless
sooner terminated by the Board of Directors. The Board of Directors has
authority to amend the Stock Option Plan in such manner as it deems advisable,
subject to certain restrictions set forth in the Stock Option Plan. The Stock
Option Plan provides for appropriate adjustment, as determined by the
Compensation Committee, in the number and kind of shares subject to unexercised
options, in the event of any change in the outstanding shares of Common Stock by
reason of a stock split, stock dividend, combination or reclassification of
shares, recapitalization, merger or similar event.
PRINCIPAL SHAREHOLDERS
The following table provides information with respect to the
anticipated beneficial ownership of OwnerTel's common stock by (1) each of our
shareholders whom we believe will be a beneficial owner of more than 5% of our
outstanding common stock, (2) each of our officers and directors and (3) all of
our directors and officers as a group. We base the share amounts shown for each
person's beneficial ownership of OwnerTel as of the date of this prospectus,
unless we indicate some other basis for the share amounts. We have not adjusted
the share amounts and percentages shown for each person in the table to give
effect to shares of OwnerTel common stock that are not outstanding but may be
acquired by the person upon the exercise of all options exercisable for OwnerTel
common stock before the effective date of this prospectus.
NAME AND ADDRESS OF BENEFICIAL OWNERS NUMBER OF SHARES OF PERCENTAGE OF CLASS (1)
COMMON STOCK
William G. Head III 7,538,500 (2) 44.12%
Suite 176
2870 Peachtree Road
Atlanta, GA 30305
Elizabeth Crews 7,548,500 (2) 44.17%
1301 S. Howard Avenue
#15C
Tampa, FL 33606
(1) Does not include the 2,000,000 shares being registered for the direct
offering or 1,000,000 shares being registered for the customer promotion.
(2) Subsequent to July 2, 2001, Mr. Head and Ms. Crews each transferred 3,000
shares of their Common Stock of OwnerTel to Global Castings, Inc. in
exchange for services rendered to OwnerTel by Global Castings, Inc.
21
SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
Selling Shareholders. The number of shares of common stock that may actually be
sold by the Selling Shareholders will be determined by the Selling Shareholders,
and may depend upon a number of factors, including, among other things, the
market price of our common stock. We have estimated the selling price of the
shares to be sold by the Selling Shareholders to be in a range of $0.75 to $2.75
per share, although the Selling Shareholders may sell at any price. If we are
successful in developing a market, the Selling Shareholders will determine the
market price for the stock. Until a market develops, if any sales are
consummated at a price outside of the above range, OwnerTel will report such
sales to the Securities and Exchange Commission by filing a prospectus
supplement if the price is within 20% of the range or a post-effective
amendment, if more than 20%. Once a market develops, OwnerTel will file a
post-effective amendment to revise the estimated offering price to reflect the
current market prices.
The table below summarizes information concerning the beneficial
ownership of common stock of the Selling Shareholders as of the date of this
prospectus. We base the share amounts shown for each person's beneficial
ownership of OwnerTel as of the date of this prospectus, unless we indicate some
other basis for the share amounts. All information concerning beneficial
ownership has been furnished by the Selling Shareholders. None of the Selling
Shareholders has held any position or office, or had any marital relationship
with our officers or directors in the past three years except as noted below.
SHARES OF SHARES OF SHARES OF
COMMON STOCK COMMON COMMON STOCK
OWNED BEFORE STOCK OWNED AFTER
NAME OFFERING PERCENTAGE(1) OFFERED(2) OFFERING PERCENTAGE(2)
William G. Head III 7,538,500 44.12% 452,000 7,086,500 35.28%
Elizabeth Crews 7,548,500 44.17% 457,000 7,091,500 35.30%
Edward C. Williams (3) 176,000 * 176,000 -0- *
Global Castings, Inc. (4) 26,000 * 26,000 -0- *
Next Step Capital, LLC (5) 100,000 * 100,000 -0- *
Josephine R. Richards 100,000 * 10,000 90,000 *
Lou Thomas III 250,000 1.46% 25,000 225,000 1.12%
Melvin McCallister 120,000 * 40,000 80,000 *
Len Hazen(6) 200,000 1.17% 200,000 -0- *
Jack Turner 30,000 * 30,000 -0- *
Eugene Turner 200,000 1.17% 20,000 180,000 *
Dave Parr 250,000 1.46% 25,000 225,000 1.12%
Brent Gillett 50,000 * 10,000 40,000 *
Joseph N. Shaffer LLC (7) 115,000 * 115,000 -0- *
Robert Strom 20,000 * 20,000 -0- *
de Jong & Associates, Inc (8) 260,000 1.52% 260,000 -0- *
Shady Dale Investments, LLC (9) 50,000 * 50,000 -0- *
Blake Kelley 40,000 * 5,000 35,000 *
Judy Ackerman 20,000 * 5,000 15,000 *
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* Less than 1%.
(1) Does not include the 2,000,000 shares being registered for the direct
offering or 1,000,000 shares being registered for the customer promotion.
(2) Assumes all registered shares are sold.
(3) Includes 26,000 shares beneficially owned by Global Castings.
(4) Global Castings, Inc. is controlled by Edward C. Williams.
(5) Next Step Capital, LLC is controlled by Ian Wyatt.
(6) Mr. Hazen has entered into a lock-up agreement with OwnerTel relating to
100,000 of these shares. Mr. Hazen may only sell 25,000, out of the
100,000 shares subject to the lock-up agreement, per quarter during the
twelve months following the effective date of this prospectus.
(7) Joseph N. Shaffer, LLC is controlled by the estate of Joseph N. Shaffer.
The executor of the estate is Samuel L. Tuck.
(8) de Jong & Associates, Inc. is controlled by Ron de Jong.
(9) Shady Dale Investments, LLC is controlled by Ted A. Williams. William G.
Head III and Elizabeth Crews are founders of OwnerTel and have served as
officers and directors of OwnerTel since its inception.
CERTAIN TRANSACTIONS
In connection with the organization of OwnerTel, our founding
shareholders paid $1,000.00 each and contributed services valued at $2,323.00 in
exchange for 15,093,000 shares of our common stock on July 2, 2001, in a
transaction deemed to be exempt under Section 4(2) of the Securities Act.
Subsequent to July 2, 2001, OwnerTel also issued an aggregate amount of
1,550,000 shares of common stock to employees and consultants for services, in a
transaction deemed to be exempt under Section 4(2) of the Securities Act. In
addition, OwnerTel exchanged 445,000 shares of its common stock with certain
shareholders of TransNet in exchange for their shares of TransNet common stock,
in a transaction deemed to be exempt under Section 4(2) of the Securities Act.
These shares represent approximately 2% of the issued and outstanding common
stock of TransNet.
OwnerTel also has entered into three agreements with TransNet. Mr.
Head, our President, owns approximately 49% of the issued and outstanding common
stock of TransNet and served as the President of TransNet prior to forming
OwnerTel. In addition, Ms. Crews, our Secretary, indirectly owns approximately
49% of the issued and outstanding common stock of TransNet (which shares are
directly owned by her husband, who is an officer and director of TransNet). Mrs.
Crews served as the Chief Financial Officer for TransNet prior to founding
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OwnerTel. Our agreements with TransNet may be on terms that may be more
favorable than those which could be obtained from an unaffiliated third party.
Subsequent to July 2, 2001, Mr. Head and Ms. Crews each transferred
3,000 shares of their Common Stock of OwnerTel to Global Castings, Inc. in
exchange for services rendered to OwnerTel by Global Castings, Inc.
OwnerTel presently has no office facilities but for the time being will
use as its business address the office of Mr. Head on a rent free basis, until
such time as our business operations may require more extensive facilities and
we have the financial ability to rent commercial office space. There is
presently no formal agreement for the use of such facilities, and no assurance
that such facilities will be available to us on such a basis for any specific
length of time.
INDEMNIFICATION
The Articles of Incorporation and Bylaws of OwnerTel provide for the
indemnification of OwnerTel's directors and officers and any person serving as a
director or officer of another corporation at the request of OwnerTel, including
reasonable legal fees, incurred by such directors and officers while acting for
or on behalf of OwnerTel as a director, officer, employee or agent, subject to
certain limitations. See "Disclosure of Commission Position on Indemnification
for Securities Act Liabilities" OwnerTel expects to purchase directors' and
officers' liability insurance for its directors and officers.
DESCRIPTION OF CAPITAL STOCK
The following description of our Capital Stock and certain provisions
of our Articles of Incorporation and Bylaws is a summary and is qualified by the
provisions of the Articles of Incorporation and Bylaws, which have been filed as
exhibits to our registration Statement on Form SB-2.
The authorized capital stock of OwnerTel presently consists of
100,000,000 shares of Common Stock, par value $.001 per share (the "Common
Stock"), and 10,000,000 shares of preferred stock, par value $.001 per share
(the "Preferred Stock"). As of the date of this Prospectus, we have 17,088,000
shares of our Common Stock outstanding and no shares of our Preferred Stock
outstanding.
COMMON STOCK
Our common stock is entitled to one vote per share on all matters on
which shareholders are entitled to vote. Our common stock does not have
cumulative voting rights or other preemptive or subscription rights. Holders of
shares of our common stock are entitled to any dividends as may be declared by
the board of directors out of legally available funds. Upon liquidation,
dissolution or winding up of OwnerTel, after required payments to creditors, the
assets of OwnerTel will be divided pro rata on a per share basis among the
holders of the common stock.
PREFERRED STOCK
Our board of directors has the authority, without further action by the
shareholders, to issue up to 10,000,000 shares of preferred stock in one or more
series, and to fix the rights, designations, preferences, privileges,
qualifications, and restrictions of the preferred stock, including dividend
rights, conversion rights, voting rights, rights and terms of redemption,
liquidation preferences and sinking fund terms, any or all of which may be
greater than the rights of our common stock. The issuance of preferred stock
could adversely affect the voting power of holders of our common stock and the
likelihood that such holders will receive dividend payments upon liquidation.
Such issuance could have the effect of decreasing the market price of our common
stock. The issuance of preferred stock may have the effect of delaying,
deterring or preventing a change in control of OwnerTel without any further
action by the shareholders, and thus may be viewed as having an anti-takeover
effect.
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TRANSFER AGENT AND REGISTRAR
We intend to use Old Monmouth Stock Transfer Company, 77 Memorial
Parkway, Atlantic Highlands, New Jersey 07716 as our transfer agent and
registrar for the common stock upon completion of the offering.
CERTAIN ANTI-TAKEOVER PROVISIONS
OwnerTel's Board of Directors may authorize the issuance of additional
shares of Common Stock or Preferred Stock without further action by our
shareholders, unless such action is required in a particular case by applicable
laws or regulation. The authority to issue additional Common Stock or Preferred
Stock provides OwnerTel with the flexibility necessary to meet its future needs
without the delay resulting from seeking shareholder approval. The unissued
Common Stock or Preferred Stock may be issued from time to time for any
corporate purposes, including without limitation, stock splits, stock dividends,
employee benefit and compensation plans, acquisitions and public and private
sales for cash as a means of raising capital. Such shares could be used to
dilute the stock ownership of persons seeking to obtain control of OwnerTel.
In addition, the sale of a substantial number of shares of Common Stock
or Preferred Stock to persons who have an understanding with OwnerTel concerning
the voting of such shares, or the distribution or dividend of Common Stock or
Preferred Stock (or right to receive such shares) to OwnerTel's shareholders,
may have the effect of discouraging or otherwise increasing the cost of
unsolicited attempts to acquire control of OwnerTel. Further, because our Board
has the power to determine the voting, conversion or other rights of the
Preferred Stock, the issuance of a series of Preferred Stock to persons friendly
to management could effectively discourage or preclude consummation of a change
in control transaction or have the effect of maintaining the position of
OwnerTel's incumbent management. OwnerTel does not currently have any plans or
commitments to use its authority to effect any such issuance, but reserves the
right to take any action that the Board of Directors deems to be in the best
interests of OwnerTel and its shareholders.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Articles of Incorporation of OwnerTel eliminate, subject to certain
limited exceptions, the personal liability of a director to OwnerTel or its
shareholders for monetary damage for any breach of duty as a director. There is
no elimination of liability for (i) a breach of duty involving appropriation of
a business opportunity of OwnerTel; (ii) an act or omission which involves
intentional misconduct or a knowing violation of law; (iii) any transaction from
which the director derives an improper personal benefit; or (iv) as to any
payments of a dividend or any other type of distribution that is illegal under
Section 14-2-832 of the Georgia Business Corporation Code (the "GBCC"). In
addition, if at any time the GBCC is amended to authorize further elimination or
limitation of the personal liability of a director, then the liability of each
director shall be eliminated or limited to the fullest extent permitted by such
provisions, as so amended, without further action by the shareholders, unless
the provisions of the
25
GBCC require such action. The provision does not limit the right of OwnerTel or
its shareholders to seek injunctive or other equitable relief not involving
payments in the nature of monetary damages.
OwnerTel's bylaws contain certain provisions which provide
indemnification to directors that is broader than the protection expressly
mandated in Sections 14-2-852 and 14-2-857 of the GBCC. To the extent that a
director or officer of OwnerTel has been successful, on the merits or otherwise,
in the defense of any action or proceeding brought by reason of the fact that he
or she was a director or officer of OwnerTel, Sections 14-2-852 and 14-2-857 of
the GBCC would require OwnerTel to indemnify such person against expenses
(including attorney's fees) actually and reasonably incurred in connection
therewith. The GBCC expressly allows OwnerTel to provide for greater
indemnification rights to its officers and directors, subject to shareholder
approval.
The indemnification provisions in OwnerTel bylaws require OwnerTel to
indemnify and hold harmless any director who was or is a party or is threatened
to be made a party, to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (including
any action or suit by or in the right of OwnerTel) because he or she is or was a
director of OwnerTel, against expenses (including, but not limited to,
attorney's fees and disbursements, court costs and expert witness fees), and
against judgments, fines, penalties, and amounts paid in settlement incurred by
him or her in connection with the action, suit or proceeding. Indemnification
would be disallowed under any circumstances where indemnification may not be
authorized by action of the board of directors, the shareholders or otherwise.
The board of directors of OwnerTel also has the authority to extend to officers,
employees and agents the same indemnification rights held by directors, subject
to all the accompanying conditions and obligations. Indemnified persons would
also be entitled to have OwnerTel advance expenses prior to the final
disposition of the proceeding. If it is ultimately determined that they are not
entitled to indemnification, however, such amounts would be repaid.
Insofar as indemnification for liability arising under the Securities
Act may be permitted to officers and directors of OwnerTel pursuant to the
foregoing provisions, OwnerTel has been told that in the opinion of the
Commission, such indemnification is against public policy and is, therefore,
unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, OwnerTel expects to have 20,088,000
shares of its Common Stock outstanding. The 5,000,000 shares of OwnerTel's
Common Stock purchased in this offering have been registered with the Securities
and Exchange Commission (the "Commission") under the Securities Act, and may
generally be resold without registration under the Securities Act unless they
were acquired by directors, executive officers, or other affiliates of OwnerTel
(collectively, "Affiliates"). Affiliates of OwnerTel may generally only resell
shares of the Common Stock publicly without registration under the Securities
Act pursuant to the Commission's Rule 144.
In general, under Rule 144 as currently in effect, an affiliate (as
defined in Rule 144) of OwnerTel may sell shares of Common Stock within any
three-month period in an amount limited to the greater of 1% of the outstanding
shares of our Common Stock (200,880 shares immediately after the completion of
this offering) or the average weekly trading volume in our Common Stock during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain manner-of-sale provisions, notice requirements and the
availability of current public information about OwnerTel.
PLAN OF DISTRIBUTION
DIRECT OFFERING
OwnerTel hereby offers up to 2,000,000 shares of its Common Stock on an
"as sold, best efforts" basis at a price of $0.75 per share. All funds obtained
during this offering will be available to OwnerTel immediately upon receipt.
We intend to sell the shares in his offering through our President, Mr.
Head, who will not receive commissions from the sale of any such shares. He will
not register as Broker-Dealers pursuant to Section 15 of the
26
Securities Exchange Act of 1934, in reliance upon Rule 3a4-1, which sets forth
those conditions under which a person associated with an issuer may participate
in the offering of the issuer's securities and not be deemed to be a
broker-dealer.
- Such person is not subject to a statutory disqualification, as
that term is defined in Section 3(a)(39) of the Exchange Act,
at the time of his participation; and
- Such person is not compensated in connection with his
participation by the payment of commissions or other
remuneration based either directly or indirectly on
transactions in securities; and
- Such person is not, at the time of his participation, an
associated person of a broker-dealer; and
- Such person meets the conditions of Paragraph (a)(4)(ii) of
Rule 3a4-1 of the Exchange Act, in that he (A) primarily
performs, or is intended primarily to perform at the end of
the offering, substantial duties for or on behalf of the
Issuer otherwise than in connection with transactions in
securities; and (B) is not and has not been a broker, dealer,
or associated person of a broker or dealer, within the
preceding twelve months; and (C) does not participate in
selling and offering of securities for any issuer more than
once every twelve months other than in reliance on Paragraph
(a)(4)(i) or (a)(4)(iii).
We will file a post-effective amendment to the registration statement
of which this prospectus forms a part that will disclose the names of any
underwriters, dealers or agents, the purchase price of the securities and the
proceeds to us from the sale, any underwriting discounts and other items
constituting compensation to underwriters, dealers or agents.
We intend to sell shares of common stock only in the states in which
the direct placement offering is qualified, and purchases of shares may be made
only in those states. Subscription agreements for the shares must be executed,
and the shares must be delivered only in such states. Resale or transfer of the
shares may be restricted under state law.
The direct placement offering will commence on the date of this
prospectus and continue for a period of 60 days unless the offering is completed
or otherwise terminated by us. This is an extension of the 30 day period that
the direct offering was originally held open.
If you decide to subscribe for any shares in the self-underwritten
offering, you will be required to execute a subscription agreement and tender
it, together with a check or certified funds, to us or to a participating dealer
for acceptance or rejection by us.
We reserve the right to accept or reject subscriptions in whole or in
part, for any reason or for no reason. All monies from rejected subscriptions
will be returned immediately by us to the subscriber, without interest or
deductions. Subscriptions for shares will be accepted or rejected within 48
hours after we receive them.
Additionally, OwnerTel may enter into arrangements with registered
broker-dealers to help sell these shares in which case OwnerTel will be required
to pay commissions or other compensation to these agents. OwnerTel currently has
no understandings or arrangements with anybody to act as selling agent.
SELLING SHAREHOLDERS
The Selling Shareholders (or, subject to applicable law, their
pledgees, donees, distributees, transferees or other successors in interest) may
sell shares from time to time in public transactions, on or off the OTC Bulletin
Board or private transactions, at prevailing market prices or at privately
negotiated prices, including but not limited to the following types of
transactions:
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
27
- a block trade in which the broker-dealer so engaged will
attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the
transaction;
- purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this
prospectus;
- face-to-face transactions between sellers and purchasers
without a broker-dealer;
- short sales;
- a combination of any such methods of sale; and
- any other method permitted pursuant to applicable law.
From time to time, the Selling Shareholders may engage in short sales,
short sales against the box, puts and calls and other transactions in our
securities or derivatives of such securities, and may sell and deliver the
shares in connection therewith or in settlement of securities loans. From time
to time, the Selling Shareholders may pledge their shares pursuant to the margin
provisions of its customer agreements with its brokers. Upon a default by the
Selling Shareholders, the broker may offer and sell the pledged shares from time
to time.
In effecting sales, brokers or dealers engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate in the
resales. The Selling Shareholders may enter into hedging transactions with
brokerdealers, and in connection with those transactions, brokerdealers may
engage in short sales of the shares. The Selling Shareholders also may enter
into option or other transactions with brokerdealers which require the delivery
to the brokerdealer of the shares, which the brokerdealer may resell pursuant to
this prospectus. The Selling Shareholders also may pledge the shares to a broker
or dealer and upon a default, the broker or dealer may affect sales of the
pledged shares pursuant to this prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Shareholders in amounts to be
negotiated in connection with the sale. The Selling Shareholders and any
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting
compensation.
To the extent required, the following information will be set forth in
a supplement to this prospectus:
- whether underwriters who may be selected by the Selling
Shareholders, or any other broker-dealer, are acting as
principal or agent for the Selling Shareholders;
- the compensation to be received by underwriters who may be
selected by the Selling Shareholders, or any broker-dealer,
acting as principal or agent for the Selling Shareholders; and
- the compensation to be received by other broker-dealers, in
the event the compensation of such other broker-dealers is in
excess of usual and customary commissions.
Any dealer or broker participating in any distribution of the shares
may be required to deliver a copy of this prospectus, including a prospectus
supplement, if any, to any person who purchases any of the shares from or
through such dealer or broker.
We have advised the Selling Shareholders that during such time as they
may be engaged in a distribution of the shares they are required to comply with
Regulation M promulgated under the Securities Exchange Act of 1934. With certain
exceptions, Regulation M precludes any selling securityholder, any affiliated
purchasers and any brokerdealer 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 which 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
28
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the common stock.
There is no assurance that the Selling Shareholders or their
transferees will sell any or all of the shares offered by them in this
prospectus.
PROMOTIONAL STOCK PROGRAM
Mr. Head, and any future executive officers of OwnerTel designated by
Mr. Head, will be responsible for distributing up to 1,000,000 shares of our
common stock to our customers through our promotional stock program. We plan to
issue the promotional shares from time to time during the twenty-four month
period following the date of this prospectus. Generally, each of our customers,
after remaining a customer for three months, will receive one share of common
stock in OwnerTel for each $25.00 they spend on long distance telephone calls.
However, under the terms of our Marketing Services Agreement with TransNet,
OwnerTel has agreed to include TransNet's current long distance telephone
customer base, and all new long distance telephone customers of TransNet, in
OwnerTel's Promotional Stock Program during the term of the agreement, and has
further agreed to apply its Promotional Stock Program retroactively to
TransNet's customers for purposes of determining the number of shares they will
receive under the Promotional Stock Program.
OwnerTel is currently working on its process concerning the delivery of
the final prospectus to our customers. This process may include the delivery of
the final prospectus through the offer of a hyperlink to a web site we intend to
develop, which will allow the customer to download the prospectus if he or she
wishes or the delivery of a paper copy of the final prospectus upon such request
by any customer. We intend to notify our customers by e-mail or letter when we
post a final prospectus on our website. We will also notify our customers when
we post any amendments or supplements to the final prospectus. OwnerTel may hire
consultants to assist in this process.
We may elect to suspend our promotional stock program at any time,
which suspension will be announced at the beginning of the month in which it is
to be effective. We may also terminate the promotion prior to the distribution
of all of the shares.
We may also change the terms of the promotion or our Plan of
Distribution from time to time following the date of this prospectus, in which
case we will file a post-effective amendment to the registration statement of
which this prospectus forms a part that describes such changes.
We will issue the shares either through book entries by our stock
transfer agent or by mailing stock certificates evidencing ownership of the
shares to our customers through our stock transfer agent. If a customer requests
to have a certificate immediately issued and mailed, the customer will be
required to pay any transfer agent fees and delivery charges. Once per year,
OwnerTel will mail certificates to all of its customers who request to have
certificates issued, at no charge to the customer. Where book entries are used,
we will mail the recipient a written statement stating;
(i) the Company's name;
(ii) that we are organized under the laws of Georgia;
(iii) the name of the person to whom the shares are issued;
(iv) the number and class of shares issued;
(v) a description of the designations, relative rights,
preferences and limitations applicable to each class
of our capital stock and each series of each class of
stock;
29
(vi) the authority of our Board of Directors to determine
variations for future sales of classes of stock; and
(vii) any restrictions on transfer of the shares issued.
Our "affiliates," as such term is defined in the Securities Act of
1933, will not be eligible to participate in our promotional stock program.
Additionally, we do not have any plans or arrangements with anyone regarding the
development of a trading market for our common stock.
FEDERAL INCOME TAX CONSEQUENCES OF STOCK PROMOTION PROGRAM
The following is a general statement of the material U.S. federal
income tax considerations applicable to persons who receive shares of our common
stock in our customer promotional stock program. The conclusions are based on
current provisions of the law and administrative interpretations and rulings,
all of which may be changed with possible retroactive effect. This discussion
does not encompass all of the aspects of federal, state, local or foreign
taxation that may be relevant to customers in light of their personal
circumstances. Prospective customers are urged to consult their tax advisors
regarding the particular tax consequences that may apply to them as a result of
receiving shares.
The value of the shares that a customer receives pursuant to the
promotional stock program less the amount that the customer is deemed to have
"paid" for the Shares will be includable as ordinary income in such persons
gross income. In addition, depending on the value of the shares, we may be
required to send the customer and the Internal Revenue Service an information
return setting forth the value of such shares.
LEGAL PROCEEDINGS
OwnerTel is not a party to, nor is it aware of, any pending legal
proceeding. Management believes there is no litigation threatened in which
OwnerTel faces potential loss or exposure or which will materially affect
shareholders' equity or OwnerTel's business or financial condition upon
completion of this offering.
LEGAL MATTERS
The legality of the shares of Common Stock being offered hereby will be
passed upon for OwnerTel by Warren L. Traver, Esq. of Atlanta, Georgia, who is
acting as counsel for OwnerTel.
EXPERTS
The financial statements of OwnerTel included in this Prospectus have
been audited by Rodefer Moss & Co., PLLC, independent public accountants, as
indicated in their report (included herein) on OwnerTel. These financial
statements have been included in this prospectus and in the Registration
Statement in reliance upon the authority of the accounting firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We intend to give to our shareholders annual reports containing
financial statements audited and reported upon by our independent public
accounting firm and we intend to make available quarterly reports for the first
three quarters of each year containing unaudited interim financial information.
OwnerTel has filed a Registration Statement with the Commission in
accordance with provisions of the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. For further information pertaining to the shares of Common Stock
offered hereby and to OwnerTel, reference is made to the Registration Statement,
including the Exhibits filed as a part thereof, copies of which can be inspected
at and copied at the prescribed rates at the Public Reference Section of the
Commission Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Commission's regional offices: Northeast Regional
30
Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and Midwest
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
606612511. In addition, OwnerTel is required to file electronic versions of
these documents with the Commission through the Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a
World Wide Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. We will provide, without charge and upon
request, a copy of the information that is incorporated by reference in the
Prospectus. The statements contained in this Prospectus as to the contents of
any contract or other document filed as an exhibit to the Registration Statement
summarize the provisions of such contract or other document which are deemed
material.
31
INDEX TO FINANCIAL STATEMENTS
Unaudited Balance Sheet, September 30, 2001.....................................................................F-1
Unaudited Statement of Operations from Inception (July 2, 2001) to September 30, 2001...........................F-2
Unaudited Statement of Changes in Stockholders' Equity from Inception
(July 2, 2001) to September 30, 2001.........................................................................F-3
Unaudited Statement of Cash Flows from Inception (July 2, 2001) to September 30, 2001...........................F-4
Notes to Unaudited Financial Statements.........................................................................F-5
Independent Auditor's Report....................................................................................F-8
Balance Sheet at Inception, July 2, 2001........................................................................F-9
Statement of Operations for the Day of Inception, July 2, 2001.................................................F-10
Statement of Changes in Stockholders' Equity for the Day of Inception, July 2, 2001............................F-11
Statement of Cash Flows for the Day of Inception, July 2, 2001.................................................F-12
Notes to Financial Statements..................................................................................F-13
32
OWNERTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
Unaudited Balance Sheet
September 30, 2001
Assets
Investment in non-marketable securities $ 667,500
===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities $ 1,000
-----------
1,000
Stockholders' equity (deficit)
Preferred stock, $.001 par value, 10,000,000
shares authorized, no shares issued and
outstanding --
Common stock, $.001 par value, 100,000,000
shares authorized, 17,088,000 issued and
outstanding 17,088
Additional paid-in capital 2,980,125
Stock subscription receivable (2,000)
Deficit accumulated in the developmental stage (2,328,713)
-----------
Total stockholders' equity (deficit) 666,500
-----------
Commitments and contingencies
$ 667,500
===========
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS.
F-1
OWNERTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
Unaudited Statement of Operations
For the Period From Inception (July 2, 2001)
to September 30, 2001
Revenues $ --
Expenses
Cost of revenues --
General and administrative 2,328,713
------------
Net loss and comprehensive loss $ (2,328,713)
============
Basic and diluted earnings per share
$ (0.14)
============
Weighted average shares outstanding 17,088,000
============
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS.
F-2
OWNERTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
Unaudited Statement of Changes in Stockholders' Equity
For the Period From Inception (July 2, 2001)
to September 30, 2001
COMMON STOCK ADDITIONAL STOCK
----------------------- PAID-IN ACCUMULATED SUBSCRIPTION
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE TOTAL
---------- ------- ----------- ----------- ------------ -----------
Balances, beginning -- $ -- $ -- $ -- $ -- $ --
Issuance of stock in formation
of company, July 2, 2001 15,093,000 15,093 (13,093) -- (2,000) --
Services contributed in
formation of company -- -- 2,323 -- -- 2,323
Services contributed by
stockholder -- -- 390 -- -- 390
Issuance of stock in exchange
for services 1,550,000 1,550 2,323,450 -- -- 2,325,000
Issuance of stock in connection
with acquisition 445,000 445 667,050 -- -- 667,500
Net loss and comprehensive loss -- -- -- (2,328,713) -- (2,328,713)
---------- ------- ----------- ----------- ------- -----------
Balance, ending 17,088,000 $17,088 $ 2,980,125 $(2,328,713) $(2,000) $ 666,500
========== ======= =========== =========== ======= ===========
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS.
F-3
OWNERTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
Unaudited Statement of Cash Flows
For the Period From Inception (July 2, 2001)
to September 30, 2001
Net Loss $(2,328,713)
Stock issued in exchange for services 2,325,000
Services contributed in formation of Company 2,323
Services contributed by stockholder 390
Adjustments to reconcile net loss to
net cash provided by operating activities
Increase in accrued expenses 1,000
-----------
Net cash provided by operating activities --
Cash, beginning --
-----------
Cash, ending $ --
===========
In transactions not affecting cash, stock was issued in exchange for a stock
subscription receivable in the amount of $2,000. In addition, stock was issued
for 445,000 shares of TransNet Connect, Inc. valued at $667,700 ($1.50 per
share). No income taxes or interest were paid during the period.
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS.
F-4
OWNERTEL, INC.
(A DEVELOPMENT STAGE COMPANY
Notes to Unaudited Financial Statements
September 30, 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) NATURE OF OPERATIONS
OwnerTel, Inc. (the "Company") was formed for the purpose of marketing
wholesale long distance and local telecommunication services. Because
of its lack of operating history, the Company is considered to be in
the development stage and the accompanying financial statements
represent those of a development stage company.
(B) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents.
Balances of cash and cash equivalents in financial institutions may at
times exceed the government insured limits.
(C) CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable.
The Company's customers are geographically dispersed. No customer
accounts for 10% or more of the Company's sales.
The Company conducts a screening of potential customers before
extending credit and generally does not require collateral for its
trade receivables.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Leasehold improvements are
amortized straight line over the shorter of their estimated useful life
or the lease term. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets.
(E) INTANGIBLE ASSETS
Intangible assets consist principally of licenses to conduct business
in accordance with applicable federal and state regulations governing
telecommunications service. These assets are being amortized using the
straight-line method over five years.
(F) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized as income in the period that includes the enactment date.
F-5
OWNERTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Unaudited Financial Statements
September 30, 2001
(G) ADVERTISING COSTS
Advertising costs are expensed as incurred.
(H) REVENUE RECOGNITION
Revenues and the related cost of revenues are recognized as the
services are performed for customers of the Company. In addition, under
a certain marketing agreement with TransNet Connect, Inc. ("TransNet"),
the Company will receive a commission payment of up to 50% of the
revenue received by TransNet for the services sold by the Company.
(I) INCOME PER SHARE
Statement of Financial Accounting Standards Board ("SFAS") No. 128,
"Earnings Per Share" requires companies with complex capital structures
that have publicly held common stock or common stock equivalents to
present both basic and diluted earnings per share ("EPS") on the face
of the income statement. Basic EPS is calculated as income available to
common stockholders divided by the weighted average number of common
shares outstanding during the period. Diluted EPS is calculated using
the "if converted" method for convertible securities and the treasury
stock method for options and warrants as previously prescribed by
Accounting Principles Board Opinion No. 15, "Earnings Per Share."
(J) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(K) STOCK BASED COMPENSATION
The Company measures its equity transactions with non-employees using
the fair value based method of accounting prescribed by SFAS No. 123,
"Accounting for Stock-Based Compensation." Under the provisions of SFAS
123, the Company recognizes as a cost or expense, the fair value of
stock awards and options to non-employees at the date of grant.
The Company continues to use the intrinsic value approach as prescribed
by APB Opinion No. 25 ("APB 25") in measuring equity transactions with
employees. Under APB 25, compensation cost for equity transactions with
employees is recognized only to the extent the fair value of the equity
instrument at the date of grant exceeds the exercise price the employee
is required to pay.
(L) COMPREHENSIVE INCOME (LOSS)
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income".
SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income (loss) and its components in a full set of
financial statements. SFAS 130 requires only additional disclosures in
the financial statements, it does not affect the Company's financial
position or results of operations. The Company does not have any
components affecting comprehensive income (loss).
F-6
OWNERTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Unaudited Financial Statements
September 30, 2001
(2) ACQUISITION
In July 2001, the Company exchanged 445,000 shares of its common stock valued at
$667,500 ($1.50 per share) for 445,000 shares of common stock in TransNet
Connect, Inc. After the acquisition, the Company owns approximately 3% of the
outstanding common stock of TransNet Connect, Inc. The Company shares common
ownership with TransNet Connect, Inc.
(3) STOCKHOLDERS' EQUITY
COMMON STOCK
The Company was incorporated on July 2, 2001. In connection with the
incorporation, the Company issued 15,093,000 shares of its common stock to the
founders of the Company in exchange for $2,000 and services valued at $2,323.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities are stated at cost, which approximates fair value because of the
short term maturity of those items. The estimated fair value of the Company's
notes payable approximate their carrying value due to their recent origination
and because interest rates and terms approximate market conditions.
(5) COMMITMENTS AND CONTINGENCIES
The Company currently uses office space provided by its president. In connection
with this agreement, the Company incurs a monthly charge of $130.00.
(6) WARRANTS
The Company entered into an option agreement (the "Option") whereby the Company
has the right to purchase certain licenses for long-distance telecommunication
service. The Option expires in one year. Under the terms of the Option, the
Company issued a warrant to purchase 500,000 shares of its common stock at $1.50
per share. In addition, the Company agreed to pay a continuing fee of $1.00 per
new customer per month for each state where a license will be acquired. The
Company also pays a continuing fee of $1.00 per month for all existing customers
transferred to the Company in connection with the acquisition of any license.
In addition, the Company entered into a marketing agreement whereby the Company
markets local and long distance telephone and internet service on behalf of
TransNet. The Company receives commission payments of up to 50% of the revenue
received by TransNet for the services sold by the Company for a period of one
year. The level of commission varies depending on the type of services sold.
F-7
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
OwnerTel, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheet of OwnerTel, Inc. (a
Development Stage Company) as of July 2, 2001 (inception), and the related
statements of operations, changes in stockholders' equity, and cash flows for
the day of inception (July 2, 2001). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of OwnerTel, Inc. as of
July 2, 2001, and the results of its operations and its cash flows for the
period then ended in conformity with accounting principles generally accepted in
the United States.
RODEFER MOSS & COMPANY, PLLC
Knoxville, Tennessee
July 25, 2001
F-8
OWNERTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
Balance Sheet
July 2, 2001
Assets $ --
========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities $ 1,000
--------
1,000
Stockholders' equity (Deficit)
Preferred stock, $.001 par value, 10,000,000
shares authorized, no shares issued and
outstanding --
Common stock, $.001 par value, 100,000,000
shares authorized, 15,093,000 issued and
outstanding 15,093
Additional paid-in capital (10,770)
Stock subscription receivable (2,000)
Deficit accumulated in the developmental stage $ (3,323)
--------
Total stockholders' equity (deficit) $ (1,000)
--------
Commitments and contingencies
$ --
========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-9
OWNERTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
Statement of Operations
For the Day of Inception (July 2, 2001)
PERIOD ENDED
JULY, 2001 AND
ACCUMULATED
SINCE INCEPTION
---------------
Revenues $ --
Expenses
Cost of revenues --
General and administrative 3,323
-------------
Net loss and comprehensive loss $ (3,323)
=============
Basic and diluted earnings per share $ --
=============
Weighted average shares outstanding 15,093,000
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-10
OWNERTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
Statement of Changes in Stockholders' Equity
For the Day of Inception (July 2, 2000)
COMMON STOCK ADDITIONAL STOCK
------------------------- PAID-IN ACCUMULATED SUBSCRIPTION
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE TOTAL
---------- ------- ----------- ----------- ------------ -------
Balances, beginning -- $ -- $ -- $ -- $ -- $ --
Issuance of stock in formation
of company, July 2, 2001 15,093,000 15,093 (13,093) -- (2,000) --
Services contributed in
formation of company -- -- 2,323 -- -- 2,323
Net loss and comprehensive loss -- -- -- (3,323) -- (3,323)
---------- ------- -------- ------- ------- -------
Balance, ending 15,093,000 $15,093 $(10,770) $(3,323) $(2,000) $(1,000)
========== ======= ======== ======= ======= =======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-11
OWNERTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
Statement of Cash Flows
For the Day of Inception (July 2, 2001)
Net Loss $ (3,323)
Services contributed in formation of Company 2,323
Adjustments to reconcile net loss to
net cash provided by operating activities
Increase in accrued expenses 1,000
--------
Net cash provided by operating activities --
Cash, beginning --
--------
Cash, ending $ --
========
In transactions not affecting cash, stock was issued in exchange for a stock
subscription receivable in the amount of $2,000. No income taxes or interest
were paid during the period.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-12
OWNERTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
Inception (July 2, 2001)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) NATURE OF OPERATIONS
OwnerTel, Inc. (the "Company") was formed for the purpose of
marketing wholesale long distance and local telecommunication services.
Because of its lack of operating history, the Company is considered to
be in the development stage and the accompanying financial statements
represent those of a development stage company.
(B) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with
maturities of three months or less at the time of purchase to be cash
equivalents. Balances of cash and cash equivalents in financial
institutions may at times exceed the government insured limits.
(C) CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable.
The Company's customers are geographically dispersed. No customer
accounts for 10% or more of the Company's sales.
The Company conducts a screening of potential customers before
extending credit and generally does not require collateral for its
trade receivables.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Leasehold
improvements are amortized straight line over the shorter of their
estimated useful life or the lease term. Depreciation is calculated
using the straight-line method over the estimated useful lives of the
assets.
(E) INTANGIBLE ASSETS
Intangible assets consist principally of licenses to conduct
business in accordance with applicable federal and state regulations
governing telecommunications service. These assets are being amortized
using the straight-line method over five years.
(F) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized as income in the period that includes the
enactment date.
F-13
OWNERTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
Inception (July 2, 2001)
(G) ADVERTISING COSTS
Advertising costs are expensed as incurred.
(H) REVENUE RECOGNITION
Revenues and the related cost of revenues are recognized as
the services are performed for customers of the Company. In addition,
under a certain marketing agreement with TransNet Connect, Inc.
("TransNet"), the Company will receive a commission payment of up to
50% of the revenue received by TransNet for the services sold by the
Company.
(I) INCOME PER SHARE
Statement of Financial Accounting Standards Board ("SFAS") No.
128, "Earnings Per Share" requires companies with complex capital
structures that have publicly held common stock or common stock
equivalents to present both basic and diluted earnings per share
("EPS") on the face of the income statement. Basic EPS is calculated as
income available to common stockholders divided by the weighted average
number of common shares outstanding during the period. Diluted EPS is
calculated using the "if converted" method for convertible securities
and the treasury stock method for options and warrants as previously
prescribed by Accounting Principles Board Opinion No. 15, "Earnings Per
Share."
(J) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(K) STOCK BASED COMPENSATION
The Company measures its equity transactions with
non-employees using the fair value based method of accounting
prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation."
Under the provisions of SFAS 123, the Company recognizes as a cost or
expense, the fair value of stock awards and options to non-employees at
the date of grant.
The Company continues to use the intrinsic value approach as
prescribed by APB Opinion No. 25 ("APB 25") in measuring equity
transactions with employees. Under APB 25, compensation cost for equity
transactions with employees is recognized only to the extent the fair
value of the equity instrument at the date of grant exceeds the
exercise price the employee is required to pay.
(L) COMPREHENSIVE INCOME (LOSS)
The Company has adopted SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income (loss) and its components in a
full set of financial statements. SFAS 130 requires only additional
disclosures in the financial statements, it does not affect the
Company's financial position or results of operations. The Company does
not have any components affecting comprehensive income (loss).
F-14
OWNERTEL, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
Inception (July 2, 2001)
(2) STOCKHOLDERS' EQUITY
COMMON STOCK
The Company was incorporated on July 2, 2001. In connection
with the incorporation, the Company issued 15,093,000 shares of its
common stock to the founders of the Company in exchange for $2,000 and
services valued at $2,323.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities are stated at cost, which approximates
fair value because of the short term maturity of those items. The
estimated fair value of the Company's notes payable approximate their
carrying value due to their recent origination and because interest
rates and terms approximate market conditions.
(4) COMMITMENTS AND CONTINGENCIES
The Company currently uses office space provided by its
president. In connection with this agreement, the Company will incur a
monthly charge of $130.00.
(5) SUBSEQUENT EVENTS
The Company expects to enter into an option agreement (the
"Option") whereby the Company will have the right to purchase certain
licenses for long-distance telecommunication service. The Option is to
expire in one year. Under the terms of the Option, the Company is to
issue a warrant to purchase 500,000 shares of its common stock at $1.50
per share. In addition, the Company is to agree to pay a continuing fee
of $1.00 per new customer per month for each state where a license will
be acquired. The Company is to also pay a continuing fee of $1.00 per
month for all existing customers transferred to the Company in
connection with the acquisition of any license.
In addition, the Company expects to enter into a marketing
agreement whereby the Company will market local and long distance
telephone and internet service on behalf of TransNet. The Company will
receive commission payments of up to 50% of the revenue received by
TransNet for the services sold by the Company for a period of one year.
The level of commission will vary depending on the type of services
sold.
At dates subsequent to July 2, 2001, the Company issued
1,550,000 shares of its common stock in exchange for services rendered
to the Company by various consultants. In connection with the issuance
of these shares, the Company recorded expenses totaling $2,325,000, or
$1.50 per share, which is based on the price of the Company's common
stock in its initial public offering.
F-15
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24: INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Articles of Incorporation of OwnerTel eliminate, subject to certain
limited exceptions, the personal liability of a director to OwnerTel or its
shareholders for monetary damage for any breach of duty as a director. There is
no elimination of liability for (i) a breach of duty involving appropriation of
a business opportunity of OwnerTel; (ii) an act or omission which involves
intentional misconduct or a knowing violation of law; (iii) any transaction from
which the director derives an improper personal benefit; or (iv) as to any
payments of a dividend or any other type of distribution that is illegal under
Section 14-2-832 of the Georgia Business Corporation Code (the "GBCC"). In
addition, if at any time the GBCC is amended to authorize further elimination or
limitation of the personal liability of a director, then the liability of each
director shall be eliminated or limited to the fullest extent permitted by such
provisions, as so amended, without further action by the shareholders, unless
the provisions of the GBCC require such action. The provision does not limit the
right of OwnerTel or its shareholders to seek injunctive or other equitable
relief not involving payments in the nature of monetary damages.
OwnerTel's bylaws contain certain provisions which provide
indemnification to directors that is broader than the protection expressly
mandated in Sections 14-2-852 and 14-2-857 of the GBCC. To the extent that a
director or officer of OwnerTel has been successful, on the merits or otherwise,
in the defense of any action or proceeding brought by reason of the fact that he
or she was a director or officer of OwnerTel, Sections 14-2-852 and 14-2-857 of
the GBCC would require OwnerTel to indemnify such person against expenses
(including attorney's fees) actually and reasonably incurred in connection
therewith. The GBCC expressly allows OwnerTel to provide for greater
indemnification rights to its officers and directors, subject to shareholder
approval.
The indemnification provisions in OwnerTel bylaws require OwnerTel to
indemnify and hold harmless any director who was or is a party or is threatened
to be made a party, to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (including
any action or suit by or in the right of OwnerTel) because he or she is or was a
director of OwnerTel, against expenses (including, but not limited to,
attorney's fees and disbursements, court costs and expert witness fees), and
against judgments, fines, penalties, and amounts paid in settlement incurred by
him or her in connection with the action, suit or proceeding. Indemnification
would be disallowed under any circumstances where indemnification may not be
authorized by action of the board of directors, the shareholders or otherwise.
The board of directors of OwnerTel also has the authority to extend to officers,
employees and agents the same indemnification rights held by directors, subject
to all the accompanying conditions and obligations. Indemnified persons would
also be entitled to have OwnerTel advance expenses prior to the final
disposition of the proceeding. If it is ultimately determined that they are not
entitled to indemnification, however, such amounts would be repaid. Insofar as
indemnification for liability arising under the Securities Act may be permitted
to officers and directors of OwnerTel pursuant to the foregoing provisions,
OwnerTel has been told that in the opinion of the Commission, such
indemnification is against public policy and is, therefore, unenforceable.
ITEM 25: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered, other than the Placement Agent's discounts and commissions, if any.
All of the amounts shown are estimated except for the registration fees of the
SEC.
SEC Registration Fees.............................. $ 1,878.75
Blue Sky Registration Fees and Expenses............ $ 2,500.00
----------
Legal Fees and Expenses............................ $50,000.00
----------
Accounting Fees.................................... $15,000.00
Printing and Engraving Expenses.................... $ 5,000.00
Total.............................................. $74,378.75
==========
TO BE COMPLETED BY AMENDMENT.
ITEM 26: RECENT SALES OF UNREGISTERED SECURITIES
In July, 2001, OwnerTel issued an aggregate of 15,093,000 shares of
common stock for nominal consideration to the founding shareholders of the
Company. The shares were issued in reliance on an exemption from registration
under Section 4(2) of the Securities Act of 1933.
In July, 2001, OwnerTel issued an aggregate of 1,550,000 shares to
various individuals for services. The shares were issued in reliance on an
exemption from registration under Section 4(2) of the Securities Act of 1933.
In July, 2001, OwnerTel exchanged an aggregate of 445,000 shares with
certain shareholders of TransNet. The shares were issued in reliance on an
exemption from registration under Section 4(2) of the Securities Act of 1933.
ITEM 27: EXHIBITS
The following exhibits are filed as part of this Registration
Statement:
Exhibit
Number Description of Exhibit
------- -----------------------
3.1 Articles of Incorporation of the Company**
3.2 By-Laws of the Company**
4.1 Form of Specimen Common Stock Certificate
4.4 Stock Option Plan**
5.1 Opinion of Warren L. Traver, Esq.**
10.1 Assignment and Assumption Agreement***
10.2 Marketing Services Agreement***
10.3 Option and Services Agreement**
10.4 Independent Sales Representative Agreement***
2
10.5 Common Stock Purchase Warrant**
23.1 Consent of Warren L. Traver, Esq. (included in Exhibit 5.1 hereto)**
23.2 Consent of Rodefer Moss & Co., PLLC
** FILED PREVIOUSLY.
*** CERTAIN INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST UNDER RULE 406
OF THE COMMISSION.
ITEM 28: 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:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) 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; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
2. That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act) may be permitted to directors, officers, or controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer, or controlling person of the Registrant in the defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
[Remainder of page intentionally left blank]
3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, 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 Atlanta, State of Georgia, on January 14, 2002.
OWNERTEL, INC.
(Registrant)
By /s/ William G. Head III
------------------------------
William G. Head III
Chairman and President
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 dates stated.
Date: January 14, 2002
/s/ William G. Head III
----------------------------------------
William G. Head III
Chairman and President
/s/ Elizabeth Crews
----------------------------------------
Elizabeth Crews
Director and Chief Accounting Officer