Download APPLICATION FOR OPERATING AUTHORITY

STATE OF MARYLAND
APPLICATION FOR OPERATING AUTHORITY
Attachment E
FINANCIAL INFORMATION
The Company
Gateway Communications Services, Inc. (hereinafter, the “Company” or “we,” “us” or
“our”) was incorporated in Delaware in December 2005. On January 9, 2006, the Company
issued a private placement offering to raise funds for the company. The details of the
offering are below.
The Offering
Gateway Communications Services, Inc, a telephone company in organization, is
offering between 1,000,000 and 4,000,000 shares of common stock. We will not complete
this offering unless at least 1,000,000 shares of common stock are sold. The minimum
subscription for each investor is 10,000 shares.
Common stock offered . . . . . . . . . . . . .
Minimum total subscriptions . . . . . . . . .
Minimum subscription per investor . . . .
Offering price . . . . . . . . . . . . . . . . . . . . .
Use of proceeds . . . . . . . . . . . . . . . . . . . .
4,000,000 shares
1,000,000 shares
10,000 shares
$0.75 per share
To pay up to an estimated $500,000 of
organizational and pre-operations expenses
and to provide working capital to support
customer marketing and operations.
Unless and until we receive and accept subscriptions for 1,000,000 shares of common stock,
and receive regulatory approvals, all subscription proceeds will be held in an interest-bearing
escrow account for the benefit of the investors. We expect to complete the sale of the
common stock on or about March 31, 2006. We may elect to complete the sale earlier if we
receive subscriptions for at least 1,000,000 shares.
The following are pro forma financials at $750,000 and $3,000,000 investments.
E-1
SELECTED FINANCIAL DATA
Gateway Communications Services, Inc.
($750,000 Minimum Investment)
Pro Forma Balance Sheet
December 31,
2005
Assets
Current Assets
Cash and Cash Equivalents
Accounts Receivable
Allowance for Uncollectible Receivables
Net Receivables
Deferred Tax Asset
Total Current Assets
Fixed Assets
Computer Software
Network & Office Equipment
Furniture, Fixtures and Leaseholds
Leasehold Improvements
Total Gross Fixed Assets
Accumulated Depreciation
Total Net Fixed Assets
Other Assets
Total Assets
Liabilities and Stockholder's Equity
Current Liabilities
Accounts Payable
Accrued Taxes
2006
2007
2008
2009
2010
$482,750
$253,303
$252,425
$519,740
$1,653,313
$2,780,193
333,151
1,319,279
2,841,404
4,726,655
6,839,361
(283,171)
(1,121,358)
(2,415,131)
(4,017,553)
(5,813,307)
-------------------------------------------------------------------------------------------------------------------------------------------------------49,980
197,921
426,273
709,102
1,026,055
227,688
372,661
195,808
-------------------------------------------------------------------------------------------------------------------------------------------------------482,750
530,971
823,006
1,141,820
2,362,415
3,806,248
15,000
15,000
15,000
15,000
15,000
15,000
150,000
650,000
650,000
650,000
25,000
25,000
25,000
25,000
25,000
25,000
10,000
10,000
10,000
10,000
10,000
10,000
-------------------------------------------------------------------------------------------------------------------------------------------------------50,000
50,000
200,000
700,000
700,000
700,000
(10,000)
(35,000)
(125,000)
(265,000)
(405,000)
-------------------------------------------------------------------------------------------------------------------------------------------------------50,000
40,000
165,000
575,000
435,000
295,000
50,000
50,000
50,000
50,000
50,000
50,000
-------------------------------------------------------------------------------------------------------------------------------------------------------$582,750
$620,971
$1,038,006
$1,766,820
$2,847,415
$4,151,248
=======================================================================================
Total Current Liabilities
$379,753
$1,014,247
$1,477,781
$1,793,530
$1,993,332
188,454
516,994
-------------------------------------------------------------------------------------------------------------------------------------------------------379,753
1,014,247
1,477,781
1,981,984
2,510,326
Total Liabilities
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------379,753
1,014,247
1,477,781
1,981,984
2,510,326
Stockholder's Equity
Capital
Additional paid-in capital
Retained Earnings (Accumulated Deficit)
Total Stockholder's Equity
Total Liabilities and Stockholder's Equity
$
73,750
73,750
73,750
73,750
73,750
73,750
740,000
740,000
740,000
740,000
740,000
740,000
(231,000)
(572,532)
(789,991)
(524,711)
51,681
827,172
-------------------------------------------------------------------------------------------------------------------------------------------------------$582,750
$241,218
$23,759
$289,039
$865,431
$1,640,922
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------$582,750
$620,971
$1,038,006
$1,766,820
$2,847,415
$4,151,248
=======================================================================================
See accompanying Summary of Significant Pro Forma Assumptions.
E-2
Gateway Communications Services, Inc.
($750,000 Minimum Investment)
Pro Forma Income Statement
For the Year Ending December 31,
2005
Revenue
Recurring Revenue
Non Recurring Revenue
Total Revenue
Cost of Services Sold
Gross Margin
Operating Expenses
Billing and Collections
Credit Verification
Bad Debt Expense
Marketing
Sales
Employee Costs
Facilities
Professional Fees
G&A
Total Operating Expenses
EBITDA
Other Income and Expenses
Depreciation Expense
Total Other Expenses
Taxes
Net Income (Loss)
2006
2007
2008
2009
2010
$
$3,935,036
$11,647,707
$17,978,679
$22,267,760
$24,954,355
62,778
185,824
286,826
355,253
398,114
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------$
$3,997,814
$11,833,531
$18,265,506
$22,623,013
$25,352,469
2,398,689
7,100,119
10,959,303
13,573,808
15,211,482
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------$
$1,599,126
$4,733,412
$7,306,202
$9,049,205
$10,140,988
212,751
629,744
972,034
1,203,927
1,349,180
6,340
18,767
28,967
35,877
40,206
283,171
838,187
1,293,773
1,602,422
1,795,753
35,000
159,913
473,341
730,620
904,921
1,014,099
56,000
239,869
710,012
1,095,930
1,357,381
1,521,148
25,000
1,080,000
1,946,700
2,005,101
2,065,254
2,127,212
20,000
56,000
98,000
98,000
98,000
98,000
55,000
21,898
64,817
100,048
123,916
138,866
40,000
98,404
291,276
449,596
556,853
624,037
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------$231,000
$2,158,346
$5,070,844
$6,774,069
$7,948,551
$8,708,502
(231,000)
(559,220)
(337,432)
532,133
1,100,654
1,432,485
10,000
25,000
90,000
140,000
140,000
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------10,000
25,000
90,000
140,000
140,000
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------(227,688)
(144,973)
176,853
384,262
516,994
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------($231,000)
($341,532)
($217,459)
$265,280
$576,392
$775,491
=============== =============== =============== =============== =============== ==========
See accompanying Summary of Significant Pro Forma Assumptions.
E-3
Gateway Communications Services, Inc.
($750,000 Minimum Investment)
Pro Forma Statement of Cash Flows
For the Year Ending December 31,
2005
Operating Activities
Net Income (Loss)
Non-Cash Expense
(Increase) Decrease in Accounts Receivable
(Decrease) Increase in Payables
Net Cash From (Used In) Operating Activities
Investing Activities
(Increase) Decrease in Other Assets
Purchase of Fixed Assets
Net Cash From (Used In) Investing Activities
Financing Activities
Stockholder Capital Contributions
Net Cash From (Used In) Financing Activities
Net cash increase (decrease) in period
Cash at beginning of period
Cash at end of period
$
2006
$
2007
$
2010
(341,532)
65,483
(333,151)
379,753
-----------------(229,447)
(217,459)
718,215
(986,128)
634,494
-----------------149,123
265,280
1,560,626
(1,522,125)
463,534
-----------------767,315
576,392
2,126,683
(1,885,251)
315,749
-----------------1,133,573
775,491
2,452,747
(2,112,706)
199,802
-----------------1,126,880
(50,000)
(50,000)
-----------------(100,000)
------------------
(150,000)
-----------------(150,000)
(500,000)
-----------------(500,000)
------------------
------------------
813,750
-----------------813,750
-----------------482,750
-----------------$
482,750
==========
----------------------------------(229,447)
482,750
-----------------$
253,303
==========
----------------------------------(877)
253,303
-----------------$
252,425
==========
----------------------------------267,315
252,425
-----------------$
519,740
==========
----------------------------------1,133,573
519,740
-----------------$ 1,653,313
==========
----------------------------------1,126,880
1,653,313
-----------------$ 2,780,193
==========
E-4
$
2009
(231,000)
-----------------(231,000)
See accompanying Summary of Significant Pro Forma Assumptions.
$
2008
$
Gateway Communications Services, Inc.
Summary of Significant Pro Forma Assumptions
Years Ending December 31, 2005 through 2010
This financial pro forma represents, the best of management’s knowledge and belief,
The Company’s expected financial position, results of operations and cash flows for the pro
forma period. Accordingly, the pro forma reflects the judgment of the expected conditions
and its expected course of action. The assumptions disclosed herein are those that
management believes are significant to the forecast. There will usually be differences
between pro forma and actual results because events and circumstances frequently do not
occur as expected and those differences may be material.
Revenue. Based on a market study of demand for the Company’s services, sales are
forecasted to occur at 55 lines per day in both 2006 and 2007, 40 lines per day in 2008, 30
lines per day in 2009, and 20 lines per day in 2010. The Average Revenue per Line (ARPL)
is anticipated to be $47.05 for the years 2006 through 2010. Average churn is anticipated to
be 4% for 2006 through 2010. Non recurring revenue, which primarily represents repair,
installation, move, add change and restoral charges, is estimated at 1.6% of recurring
revenue.
Cost of Services Sold. Cost of services sold is estimated at 60% of revenue.
Employee Costs. The Company estimates having 20 employees in 2006, and 35
employees in 2007 through 2010. Average monthly salary per employee is estimated to be
$4,500 in 2006. Employee costs are anticipated to increase 3% each year, beginning in 2007
through 2010.
Bad Debt Expense. Bad debt expense is estimated at 7% of total revenue.
Billing and Collections. Billing and collections expense is estimated at 5.3% of total
revenue.
Fixed Assets. Forecasted additions to fixed assets, $50,000 in 2005 comprises
principally of furniture and equipment, software and leasehold improvements. In 2007,
$150,000 comprises the purchase of unified messaging and voice mail equipment. In 2008,
$500,000 comprises the purchase of a switch to become a facilities-based provider.
Depreciation Expense. Fixed assets are estimated to depreciate over five years.
Income Taxes. The provision for income taxes is computed using a 40% tax rate.
E-5
SELECTED FINANCIAL DATA
Gateway Communications Services, Inc.
($3,000,000 Maximum Investment)
Pro Forma Balance Sheet
December 31,
2005
Assets
Current Assets
Cash and Cash Equivalents
Accounts Receivable
Allowance for Uncollectible Receivables
Net Receivables
Deferred Tax Asset
Total Current Assets
Fixed Assets
Computer Software
Network & Office Equipment
Furniture, Fixtures and Leaseholds
Leasehold Improvements
Total Gross Fixed Assets
Accumulated Depreciation
Total Net Fixed Assets
Other Assets
Total Assets
Liabilities and Stockholder's Equity
Current Liabilities
Accounts Payable
Accrued Taxes
2006
2007
2008
2009
2010
$2,563,750
$3,169,637
$4,873,652
$6,399,504
$8,306,398
$10,149,640
1,035,820
2,696,510
4,866,216
7,373,143
10,082,659
(880,425)
(2,291,974)
(4,136,176)
(6,267,010)
(8,570,038)
-------------------------------------------------------------------------------------------------------------------------------------------------------155,396
404,536
730,039
1,106,134
1,512,620
123,799
-------------------------------------------------------------------------------------------------------------------------------------------------------2,563,750
3,448,831
5,278,188
7,129,543
9,412,532
11,662,260
15,000
15,000
15,000
15,000
15,000
15,000
150,000
650,000
650,000
650,000
25,000
25,000
25,000
25,000
25,000
25,000
10,000
10,000
10,000
10,000
10,000
10,000
-------------------------------------------------------------------------------------------------------------------------------------------------------50,000
50,000
200,000
700,000
700,000
700,000
(10,000)
(35,000)
(125,000)
(265,000)
(405,000)
-------------------------------------------------------------------------------------------------------------------------------------------------------50,000
40,000
165,000
575,000
435,000
295,000
50,000
50,000
50,000
50,000
50,000
50,000
-------------------------------------------------------------------------------------------------------------------------------------------------------$2,663,750
$3,538,831
$5,493,188
$7,754,543
$9,897,532
$12,007,260
=======================================================================================
Total Current Liabilities
$1,060,778
$1,524,031
$1,967,174
$2,263,347
$2,444,357
522,163
936,150
1,113,186
1,216,762
-------------------------------------------------------------------------------------------------------------------------------------------------------1,060,778
2,046,194
2,903,324
3,376,534
3,661,119
Total Liabilities
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------1,060,778
2,046,194
2,903,324
3,376,534
3,661,119
Stockholder's Equity
Capital
Additional paid-in capital
Retained Earnings (Accumulated Deficit)
Total Stockholder's Equity
Total Liabilities and Stockholder's Equity
$
103,750
103,750
103,750
103,750
103,750
103,750
2,960,000
2,960,000
2,960,000
2,960,000
2,960,000
2,960,000
(400,000)
(585,698)
383,244
1,787,469
3,457,248
5,282,391
-------------------------------------------------------------------------------------------------------------------------------------------------------$2,663,750
$2,478,052
$3,446,994
$4,851,219
$6,520,998
$8,346,141
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------$2,663,750
$3,538,831
$5,493,188
$7,754,543
$9,897,532
$12,007,260
=======================================================================================
See accompanying Summary of Significant Pro Forma Assumptions.
E-6
Gateway Communications Services, Inc.
($3,000,000 Maximum Investment)
Pro Forma Income Statement
For the Year Ending December 31,
2005
Revenue
Recurring Revenue
Non Recurring Revenue
Total Revenue
Cost of Services Sold
Gross Margin
Operating Expenses
Billing and Collections
Credit Verification
Bad Debt Expense
Marketing
Sales
Customer Acquisition Costs
Employee Costs
Facilities
Professional Fees
G&A
Total Operating Expenses
EBITDA
Other Income and Expenses
Depreciation Expense
Total Other Expenses
Taxes
Net Income (Loss)
2006
2007
2008
2009
2010
$
12,234,656
19,615,342
25,627,609
29,610,733
32,003,609
195,188
312,937
408,855
472,400
510,576
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------$
$12,429,844
$19,928,279
$26,036,464
$30,083,133
$32,514,185
7,457,906
11,956,968
15,621,878
18,049,880
19,508,511
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------$
$4,971,938
$7,971,312
$10,414,586
$12,033,253
$13,005,674
661,478
1,060,522
1,385,580
1,600,932
1,730,305
19,712
31,604
41,291
47,708
51,564
880,425
1,411,550
1,844,202
2,130,833
2,303,029
35,000
159,913
473,341
730,620
904,921
1,014,099
225,000
239,869
710,012
1,095,930
1,357,381
1,521,148
1,800,000
25,000
1,080,000
1,946,700
2,005,101
2,065,254
2,127,212
20,000
56,000
98,000
98,000
98,000
98,000
55,000
68,084
109,156
142,613
164,778
178,094
40,000
305,954
490,524
640,874
740,480
800,319
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------$400,000
$5,271,434
$6,331,408
$7,984,211
$9,110,287
$9,823,769
(400,000)
(299,496)
1,639,903
2,430,374
2,922,966
3,181,905
10,000
25,000
90,000
140,000
140,000
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------10,000
25,000
90,000
140,000
140,000
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------(123,799)
645,961
936,150
1,113,186
1,216,762
-------------------------- -------------------------- -------------------------- -------------------------- -------------------------- -----------------($400,000)
($185,698)
$968,942
$1,404,225
$1,669,779
$1,825,143
=============== =============== =============== =============== =============== ==========
See accompanying Summary of Significant Pro Forma Assumptions.
E-7
Gateway Communications Services, Inc.
($3,000,000 Maximum Investment)
Pro Forma Statement of Cash Flows
For the Year Ending December 31,
2005
Operating Activities
Net Income (Loss)
Non-Cash Expense
(Increase) Decrease in Accounts Receivable
(Decrease) Increase in Payables
Net Cash From (Used In) Operating Activities
Investing Activities
(Increase) Decrease in Other Assets
Purchase of Fixed Assets
Net Cash From (Used In) Investing Activities
Financing Activities
Stockholder Capital Contributions
Net Cash From (Used In) Financing Activities
Net cash increase (decrease) in period
Cash at beginning of period
Cash at end of period
$
2006
$
2007
2008
2009
(400,000)
-----------------(400,000)
(185,698)
766,627
(1,035,820)
1,060,778
-----------------605,887
968,942
2,082,510
(1,660,690)
463,253
-----------------1,854,015
$ 1,404,225
2,870,353
(2,169,705)
443,143
-----------------2,025,852
$ 1,669,779
3,384,019
(2,506,928)
296,173
-----------------1,906,894
1,825,143
3,659,791
(2,709,515)
181,009
-------------------1,843,242
(50,000)
(50,000)
-----------------(100,000)
------------------
(150,000)
-----------------(150,000)
(500,000)
-----------------(500,000)
------------------
--------------------
3,063,750
-----------------3,063,750
-----------------2,563,750
-----------------$ 2,563,750
==========
----------------------------------605,887
2,563,750
-----------------$ 3,169,637
==========
----------------------------------1,704,015
3,169,637
-----------------$ 4,873,652
==========
----------------------------------1,525,852
4,873,652
-----------------$ 6,399,504
==========
----------------------------------1,906,894
6,399,504
-----------------$ 8,306,398
==========
--------------------------------------1,843,242
8,306,398
-------------------$ 10,149,640
============
See accompanying Summary of Significant Pro Forma Assumptions.
E-8
$
2010
$
Gateway Communications Services, Inc.
Summary of Significant Pro Forma Assumptions
Years Ending December 31, 2005 through 2010
This financial pro forma represents, the best of management’s knowledge and belief,
The Company’s expected financial position, results of operations and cash flows for the pro
forma period. Accordingly, the pro forma reflects the judgment of the expected conditions
and its expected course of action. The assumptions disclosed herein are those that
management believes are significant to the forecast. There will usually be differences
between pro forma and actual results because events and circumstances frequently do not
occur as expected and those differences may be material.
Revenue. Based on a market study of demand for the Company’s services, sales are
forecasted to occur at 55 lines per day in both 2006 and 2007, 40 lines per day in 2008, 30
lines per day in 2009, and 20 lines per day in 2010. The Average Revenue per Line (ARPL)
is anticipated to be $47.05 for the years 2006 through 2010. Average churn is anticipated to
be 4% for 2006 through 2010. Non recurring revenue, which primarily represents repair,
installation, move, add change and restoral charges, is estimated at 1.6% of recurring
revenue.
Cost of Services Sold. Cost of services sold is estimated at 60% of revenue.
Customer Acquisition Costs. The Company estimates that it will purchase 15,000
lines from various telecommunications providers at an average rate of $120 per line.
Employee Costs. The Company estimates having 20 employees in 2006, and 35
employees in 2007 through 2010. Average monthly salary per employee is estimated to be
$4,500 in 2006. Employee costs are anticipated to increase 3% each year, beginning in 2007
through 2010.
Bad Debt Expense. Bad debt expense is estimated at 7% of total revenue.
Billing and Collections. Billing and collections expense is estimated at 5.3% of total
revenue.
Fixed Assets. Forecasted additions to fixed assets, $50,000 in 2005 comprises
principally of furniture and equipment, software and leasehold improvements. In 2007,
$150,000 comprises the purchase of unified messaging and voice mail equipment. In 2008,
$500,000 comprises the purchase of a switch to become a facilities-based provider.
Depreciation Expense. Fixed assets are estimated to depreciate over five years.
Income Taxes. The provision for income taxes is computed using a 40% tax rate.
E-9