SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Pursuant to section 13 or 15 (d) of the Securities Exchange Act
Americom USA, Inc.
(Exact Name as Specified in its Charter)
Delaware 0-023769 52-2068322
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
1303 Grand Avenue
Arroyo Grande, California, CA 93420
(Address of principal executive offices)
805/542-6700
Registrant's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the last 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No _____
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class: Outstanding at October 28, 1999:
Common Stock, $0.0001 par value 37,030,234
<PAGE>2
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1: Financial Statements:
Unaudited Consolidated Balance Sheets-
September 30, 1999 and June 30, 1999 3
Unaudited Consolidated Statements of Operations -
Three months ended September 30, 1999
and September 30, 1998 4
Unaudited Consolidated Statement of Changes
in Stockholders' Equity for the Three
Months ended September 30, 1999 5
Unaudited Consolidated Statements of Cash
Flows-Three months ended September 30, 1999
and September 30, 1998 6
Notes to Unaudited Consolidated Financial Statement 7-9
Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 1999 10
Pro Forma Condensed Consolidated Statement of
Operations for the Three Months ended September
30, 1999 11
Notes to ProForma Consolidated Financial Statements 12
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-16
PART II. OTHER INFORMATION
Item 5: Other Information 17
Item 6: Exhibits and Reports on Form 8-K 17
Signature 18
<PAGE>3
AmeriComUSA, Inc. and Subsidiaries
Interim Consolidated Balance Sheet
September 30, 1999 and June 30, 1999
(Unaudited)
ASSETS
<TABLE>
<S> <C> <C>
Sept. 30, 1999 June 30, 1999
-------------- ---------------
Current Assets:
Cash $ 34,485 5,497
Accounts Receivable 167,451 33,819
Advances Receivable 56,054 53,930
Other Current Assets 101,179 10,338
-------------- ---------------
Total Current Assets 359,169 103,584
Property and Equipment, Net 521,623 537,223
Other Assets:
Software, net 1,301,669 1,441,134
Advances pursuant to merger- cash and common stock 520,000 520,000
MyLine software cost, net 1,324,389 1,452,556
Goodwill, net 362,609 383,528
Deposits 20,534
-------------- ---------------
Total Other Assets 3,508,667 3,817,752
-------------- ---------------
TOTAL ASSETS $ 4,389,459 4,458,559
============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Liabilities:
Accounts Payable $ 1,040,360 1,371,503
Payroll Taxes Payable 468,398 150,917
Accrued Payables 621,213 233,620
Notes & Loans Payable - Short Term 235,404 974,096
Convertible Promissory Notes 361,004 150,000
-------------- ---------------
Total Current Liabilities 2,726,379 2,880,136
Notes & Loans Payable - Long Term 610,143 200,000
-------------- ---------------
TOTAL LIABILITIES 3,336,522 3,080,136
Refundable Common Stock:
Common Stock - Refundable (1,978,000 shares issued
and outstanding) (June 1999 1,889,000 shared issued ) 197 189
Common Stock Subscribed (June 1999 161,000 shares refundable) 16
Additional Paid-in Capital 2,815,270 2,947,859
Less due from investors for issued common stock (124,200)
Less subscriptions receivable (289,800)
-------------- ---------------
Total Refundable Common Stock 2,815,467 2,534,064
Stockholders' Deficiency:
Preferred Stock, $.0001 par value, 10,000,000 shares
authorized, none issued and outstanding -
Common Stock, $.0001 par value, 100,000,000 shares
authorized, 33,738,217 shares issued and outstanding
(32,519,284 for June 1999) 3,373 3,252
Additional Paid-in Capital 10,145,415 8,416,156
Accumulated Deficit (11,911,318) (9,575,049)
-------------- ---------------
Total Stockholders Deficiency (1,762,530) (1,155,641)
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 4,389,459 4,458,559
============== ===============
</TABLE>
<PAGE>4
AmeriComUSA, Inc. and Subsidiaries
Interim Consolidated Statement of Operations
For The Three Months Ended Sept. 30, 1999 and Sept. 30, 1998
(Unaudited)
ASSETS
<TABLE>
<S> <C> <C>
Sept. 30, 1999 Sept. 30, 1998
---------------- ----------------
Revenues $ 264,755 0
------------
Total Revenues 264,755 0
------------
Cost of Sales 222,291 0
------------
Total Cost of Sales 222,291 0
------------
Gross Profit 42,464 0
------------
Expenses:
Salaries & Wages 916,226 90,117
Payroll Taxes 84,366 6,298
Advertising & Public Relations 52,486
Amortization 288,551
Audit & Accounting 40,413
Building Rent 61,998 4,800
Consulting Expense 104,499 29,724
Depreciation 29,816 482
Insurance 55,840 6,029
Legal 328,595 16,081
Other general and administrative expenses 65,964 8,369
Outside Services 219,799 1,445
Telephone Expense 55,675 9,135
Travel Expense 51,995 5,206
------------ ------------
Total Expenses 2,356,223 177,686
------------ ------------
Operating Loss (2,313,759) (177,686)
------------ ------------
Other Income (Expense):
Interest Expense (21,119) (6,070)
Vendor Finance Charges (1,370) (661)
Net Other Expense (22,489) (6,731)
------------ -------------
Net Loss $ (2,336,248) (184,417)
============ =============
Net Loss Per Common Share - basic and diluted (0.07) N/A
============ =============
Weighted Average Shares - basic and diluted 32,931,618 N/A
============ =============
</TABLE>
<PAGE>5
AmeriComUSA, Inc. and Subisidaries
Interim Consolidated Statement of Changes in Stockholders' Equity
For the Three Months Ended Sept. 30, 1999 and for Year Ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
AmeriComUSA, Inc.
Common Stock Additional Total
Issued Paid-in Accumulated Stockholders
Shares Amount Capital Deficit Equity
------------ ------------ ---------- ------------- ------------
Balance, June 30, 1999 32,519,284 $ 3,252 $ 8,416,153 $ (9,575,049) $ (1,155,644)
Conversion of promissory notes into
common stock 131,371 13 262,729
Issuance of common stock for cash 523,996 55 786,773
Conversion of notes into
common stock 443,645 44 473,913 473,957
Issuance of common stock for services 119,921 10 205,845
Net Loss, three months ended 9/30/99 (2,336,248) (2,336,248)
=========== ========== =========== ============= =============
Balance, September 30, 1999 33,738,217 $ 3,374 $10,145,413 $(11,911,297) $ (1,762,510)
=========== ========== =========== ============= =============
</TABLE>
<PAGE>6
AmeriComUSA, Inc. and Subisidaries
Interim Consolidated Statement of Cash Flow
For the Three Months Ended Sept. 30, 1999 and Sept. 30, 1998
(Unaudited)
<TABLE>
<S> <C> <C>
Sept.30, 1999 Sept.30, 1998
------------- -------------
Cash flows from operating activities:
Net Loss $(2,336,248) $ (184,417)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 288,551
Depreciation 29,816
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (34,485) 28,415
Advances receivable (164,751) (1,700)
Other current assets (54,814)
Increase (decrease) in:
Accounts payable and accrued expenses 558,404 95,294
Payroll taxes payable 408,108 10,746
Net cash (used in) provided by operating activities (1,305,419) (51,662)
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (513,481)
------------- -------------
Net cash used in investing activities (513,481) -
------------- -------------
Cash flows from financing activities:
Sale of common stock 1,596,674
Increase (decrease) in notes payable 248,015 52,950
------------- -------------
Net cash provided by financing activities 1,844,689 52,950
------------- -------------
Net increase (decrease) in cash 25,789 1,288
Cash and cash equivalents at beginning of period 8,696 248
------------- -------------
Cash and cash equivalents at end of period $ 34,485 $ 1,536
============= =============
</TABLE>
<PAGE>7
AmeriComUSA, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and the
rules and regulations of the Securities and Exchange Commission for interim
financial information. Accordingly, they do not include all the information and
footnotes necessary for a comprehensive presentation of financial position and
results of operations.
It is management's opinion, however, that all adjustments (consisting of normal
recurring adjustments) have been made which are necessary for a fair financial
statements presentation. The results for the interim period are not necessarily
indicative of the results to be expected for the year.
For further information, refer to the consolidated financial statements and
footnotes included in the company's Form 10-KSB for the year ended June 30,
1999.
NOTE 2 - CONVERTIBLE NOTES PAYABLE
At June 30, 1999 there were two convertible promissory notes outstanding
aggregating $150,000. In July ,1999 both of the convertible promissory notes
were converted to common stock of the Company at a price of $2.00 per share. The
shares issued approximated 75,990, including 990 shares issued for accrued
interest.
NOTE 3 - CANCELLED MERGER
On July 1, 1999 the Company entered into a Merger Agreement and Plan of
Reorganization ("Merger") with a trading public shell. The merger was
subsequently terminated by mutual consent of the parties.
NOTE 4 - SUBSCRIPTION AGREEMENT
On July 29, 1999 the Company entered into a subscription agreement with a
foreign investor providing for the sale of 1,250,000 shares of the Company's
common stock for total proceeds of $2,500,000. The Agreement provided for the
sales price to be held in escrow, and conditioned release of the funds and
completion of the sale upon the Company' stock being listed for trading on the
NASD OTC Bulletin Board.
<PAGE>8
NOTE 5 - ACQUISITION OR DISPOSITION OF ASSETS
On September 27, 1999 AmeriComUSA, Inc. (`the Company') finalized a Merger and
Recapitalization Agreement and Plan of Reorganization with digiCities,
Incorporated (`the Agreement'). The Agreement was initially entered into on
August 2, 1999 but subsequently re-negotiated and amended. The Agreement was
concluded pursuant to the Memorandum of Understanding reached with digiCities on
July 2, 1999 and previously reported on Form 8K.
The Agreement provides for the Company to acquire all of digiCities' issued and
outstanding common stock in exchange for 3,500,014 shares of AmeriComUSA's Class
A common stock. In addition, AmeriComUSA will allocate options to purchase
1,500,000 shares of its Class A common stock to digiCities employees, pursuant
to AmeriComUSA's employee stock option plan. Following completion of the
acquisition, digiCities, Inc. will cease to exist as an independent entity.
Completion of the merger is contingent upon satisfaction of certain conditions
detailed in the Agreement, including the obtaining of a Fairness Order and
permit qualification for the merger from the California Department of
Corporations.
The Agreement also provides for the Company's authorized capital stock to be
increased to 120,000,000 shares of which 99,000,000 shares will be designated as
Class A Common Stock, $0.0001 par value, 1,000,000 will be designated as Class B
Common Stock, $0.0001 par value and 20,000,000 will be designated as Preferred
Stock, $0.0001 par value. The Class A Common Stock shall have all the rights,
preferences ad privileges granted to common stock under the General Delaware
Corporations Law while the Class B Common Stock and Preferred Stock shall have
such rights, preferences and privileges and shall be issued in such numbers as
the Company's Board of Directors may determine from time to time.
Simultaneously with the merger with digiCities, all the outstanding shares of
the Company's Common Stock will be converted and exchanged to shares of Class A
Common Stock, $0.0001 par value on a one-for-one basis.
NOTE 6 - REFUNDABLE COMMON STOCK
Pursuant to the common stock subscription agreements under the Private
Placement, the investor may, at their option, request a full refund if the
Company does not become quoted on the OTC Bulletin Board by a stipulated date of
January 31, 1999 for original subscription agreements and September 30, 1999 for
amended subscription agreements. Pursuant to the Securities and Exchange
Commission Codification of Financial Reporting Policies Section 211, the
refundable common stock is presented as a separate item between liabilities and
equity.
NOTE 7 - STOCKHOLDERS' EQUITY
(A) Conversion of Promissory Notes into Common Stock
In July three convertible promissory notes issued by the company during 1999
aggregating $260,000 were converted to common stock at a price of $2.00 per
share. The shares issued aggregated 131,371 including 1,371 shares issued for
accrued interest.
(B) Issuance of Common Stock for cash
During the three months ended September 30,1999 stock was sold and issued for
cash. The shares were issued aggregating $786,773. The total aggregated shares
issued were 523,996.
<PAGE>9
(C) Conversion of Notes into Common Stock
During the three months ended September 30,1999 two note payments and two notes
were converted into shares. The shares were issued aggregating $473,913. The
total aggregated shares issued were 443,645.
(D) Issuance of Common Stock for Services
During the three months ended September 30, 1999 stock was issued for services.
The shares were issued aggregating $205,845. The total aggregated shares issued
were 119,921.
<PAGE>10
AmeriComUSA, Inc. and Subsidiaries
Pro Forma
Interim Consolidated Balance Sheet
September 30, 1999
(Unaudited)
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash $ 43,353
Accounts Receivable 1,012,281
Advances Receivable 56,054
Other Current Assets 30,329
-------------
Total Current Assets 1,142,017
Property and Equipment, Net 637,393
Other Assets:
Deposits 457
Long Term Receivables 284,633
Software, net 1,301,669
Advances pursuant to merger - cash and common stock 520,000
MyLine software cost, net 1,324,389
Goodwill, net 7,238,750
-------------
Total Other Assets 10,669,898
-------------
TOTAL ASSETS $ 12,449,308
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable $ 1,098,239
Payroll Taxes Payable 471,752
Employee Garnishments 243
Accrued Payables 642,120
Franchise Tax Payable 800
Factor Payable 359,849
Notes & Loans Payable - Short Term 244,130
Convertible Promissory Notes 361,004
-------------
Total Current Liabilities 3,178,137
Notes & Loans Payable - Long Term 880,837
-------------
TOTAL LIABILITIES 4,058,974
Refundable Common Stock:
Common Stock - Refundable (1,978,000 shares issued
and outstanding) 197
Additional Paid-in Capital 2,815,270
Total Refundable Common Stock 2,815,467
Stockholders' Equity:
Preferred Stock, $.0001 par value, 10,000,000 shares
authorized, none issued and outstanding -
Common Stock, $.0001 par value, 100,000,000 shares
authorized, 37,238,231 shares issued and outstanding 3,723
Additional Paid-in Capital 17,407,843
Accumulated Deficit (11,836,699)
-------------
Total Stockholders' Equity 5,574,867
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,449,308
=============
</TABLE>
<PAGE>11
AmeriComUSA, Inc. and Subsidiaries
Pro Forma
Interim Consolidated Statement of Operations
For The Three Months Ended Sept. 30, 1999
(Unaudited)
<TABLE>
<S> <C>
Revenues $ 1,492,475
-------------
Total Revenues 1,492,475
-------------
Cost of Sales 302,363
-------------
Total Cost of Sales 302,363
-------------
Gross Profit 1,190,112
-------------
Expenses:
Salaries & Wages 1,091,801
Payroll Taxes 91,334
Advertising & Public Relations 62,285
Amortization 650,457
Audit & Accounting 56,512
Building Rent 72,641
Consulting Expense 109,421
Depreciation Expense 29,816
Insurance 57,040
Legal 332,283
Other general and administrative expenses 106,283
Outside Services 379,296
Telephone Expense 70,794
Travel Expense 57,943
-------------
Total Expenses 3,167,906
-------------
Operating Loss (1,977,794)
-------------
Other Income (Expense):
Interest Expense (21,119)
Vendor Finance Charges (1,370)
Net Other Expense (22,489)
-------------
Net Loss $ (2,000,283)
=============
Net Loss Per Common Share - basic and diluted (0.05)
=============
Weighted Average Shares - basic and diluted 36,431,632
=============
</TABLE>
<PAGE>12
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) The pro forma adjustments to the consolidated balance sheet give effect
to the merger as if it occurred on September 30, 1999. The purchase
price has been computed using a $2.00 per share fair market value of the
3,500,014 AmeriCom USA, Inc. common stock shares to be issued to the
digiCities, Inc. stockholders. The $2.00 value is based upon recent
issuances of AmeriCom USA, Inc. common stock for cash pursuant to
private placements.
The purchase price differential is computed as follows:
Purchase price $7,000,028
digiCities, Inc. stockholders' deficiency 238,019
----------
Purchase price differential $7,238,047
==========
Since the merger has not yet closed, the Company has allocated the
purchase price based on the assumption that the historical costs of the
recorded assets and liabilities to be acquired approximate the fair
market value of those assets and liabilities at the merger date.
Accordingly, the purchase price differential of $7,238,047 has been
allocated on a preliminary basis to goodwill pending the development of
additional fair market value data of the acquiree's customer base
intangible asset. The goodwill will be amortized over a period of five
years using the straight-line method.
(2) Amortization of acquired goodwill is based on the assumption that the
acquisition occurred on October 30, 1998, the inception date of
digiCities, Inc.
The pro forma effect of amortization of acquired goodwill over the next
five years is as follows:
2000 $1,447,609
2001 1,447,609
2002 1,447,609
2003 1,447,609
485,382
----------
$6,272,974
==========
<PAGE>13
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
This discussion, other than the historical financial information, may
consist of forward-looking statements that involve risks and uncertainties,
including quarterly fluctuations in results, the timely availability of new
products and internet services, the impact of competitive products and pricing,
and the other risks set forth from time to time in the Company's SEC reports,
including this report on Form 10-QSB for the quarter ended September 30, 1999
and the Company's Annual Report on Form 10-KSB for the fiscal year ended June
30, 1999. Actual results may vary significantly.
RESULTS OF OPERATIONS
In the three-month period ended September 30, 1999 the Company generated
revenue of $264,755 from business operations. Approximately 60% of this revenue
was generated by the Company's Kiosk Software, Inc. subsidiary and 40% by its
AdCast operations. A net loss of $2,336,248 was realized. During the comparable
three-month period of 1998, the Company had not yet commenced generating
revenues and its Kiosk Software subsidiary was not acquired until February 1999;
therefore, only a limited comparison with the prior period is possible. During
the quarter ended September 30, 1998, the Company realized no revenues and a net
loss of $184,417.
During the quarter ended September 30, 1999, the Company incurred
substantial administrative expenses and costs arising from the continuing
development of its Adcast advertising billboard service, and commenced
generating revenue from AdCast. Kiosk Software, Inc. also incurred continuing
operational and administrative expenses associated with its pre-existing
business.
Future prospects for the Company's financial condition and results of
operations will be dependent on the speed of adoption and success of the AdCast
advertising billboard service, which commenced in July 1999. It is anticipated
that AdCast will generate growing revenues during the remaining quarters of
fiscal 2000. Similarly, revenues from the Company's Kiosk related products are
expected to grow in the last three quarters of fiscal 2000.
Future expenses will increase to reflect the operational rollout of
Adcast while costs associated with technical enhancement of the service, sales
channel and branding development are expected to accelerate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations in future periods will be dependent upon the
availability of adequate operating funds for capital expenditures and to meet
income deficits associated with the continued operational roll-out of the Adcast
advertising service and to a lesser extent, the digiCities service. In order to
meet its need for sufficient operating funds, the Company has made the following
arrangements.
First, on July 29, 1999 the Company entered into a subscription agreement
with a foreign investor. The agreement provided for the sale of 1,250,000 shares
of the Company's common stock for a total price of $2,500,000. The agreement
provided for the sale proceeds to be held in escrow, and conditioned release of
the funds and completion of the sale upon the Company's stock being listed for
trading on the NASD OTC-Bulletin Board. Second, on October 29, 1999 the Company
entered into an agreement with Synapse Capital, LLC ("Synapse") for the purchase
by Synapse's Fund I of 500,000 shares of the Company's common stock at a price
of $2.00 per share. Synapse also received an option to purchase 50,000 shares of
common stock at $2.00 per share within the next ten years. In addition, the
Company has entered into negotiations for Synapse to advance an additional $1
<PAGE>14
million to the Company in the form of a convertible loan. This loan would also
include a warrant for the future purchase of 500,000 additional shares of the
Company's common stock.
The Company considers that existing commitments of equity and loan
financing together with commitments in principal to additional cash investments
will be adequate to meet the Company's operational funding requirements for the
next 12 months. The Company has identified and is negotiating with qualified
investors to obtain this financing. However, there can be no guarantee that
these sources of funding will be realized, nor that internally generated funds
will be developed quickly enough to meet the Company's needs when externally
generated funds are exhausted or become unavailable.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company's results in future periods will be substantially affected
by the outcome of the Company's proposed acquisition of digiCities, Inc., a
company involved in the production, hosting and mass marketing of commercial web
sites. Following execution of a memorandum of understanding with digiCities on
July 2, 1999, the Company entered into a formal Merger and Recapitalization
Agreement And Plan of Reorganization with digiCities on September 27, 1999. The
merger is conditioned upon shareholder approval, the holding of a Fairness
Hearing and obtaining a qualification permit from the California Department of
Corporations. Application for the permit and hearing has been submitted to the
California Department of Corporations. The acquisition, if completed, will
result in digiCities being merged into the Company and ceasing to exist as a
separate corporation.
If the Company is successful in obtaining a Fairness Order and permit
qualification from the California Department of Corporations, all outstanding
common stock of the Company would become free trading; pursuant to an exemption
from registration provided by the Securities Act 1933, as amended. The free
trading status of the Company's common stock is necessary for obtaining an
Over-The-Counter trading status on the National Association of Securities
Dealers' OTC-Bulletin Board system.
Pro forma, unaudited, interim consolidated financial statements showing
the condition of the Company and digiCities, Inc., as if the acquisition had
become effective as of the quarter ended September 30, 1999, are included with
this filing.
The Company's income will be heavily dependent upon increased sales of
advertising inventory on Adcast billboards and the successful delivery of that
advertising. The Company only sold and delivered paid advertising through its
Adcast billboard service starting in July 1999. There is no assurance that
increased sales of AdCast advertising sales will be realized or sustained, or
successfully completed. Sales of Adcast advertising are dependent upon both the
ability of the Company to sell and deliver Adcast services and the continued
development of the overall market for Internet advertising services and Internet
related commerce.
Similarly, if the acquisition of digiCities is consummated, the
Company's future operating results will be heavily dependent upon the ability of
the digiCities operation to sell and effectively deliver web site design and
hosting services. Although digiCities has to date successfully developed and
increased its sales within a short time period, there is no guarantee that such
sales will continue or accelerate.
SUBSEQUENT EVENTS
On October 28, 1999 the Company agreed to issue 400,000 shares of its
common stock to Americom, Ltd. (a Turks and Caicos corporation) in substitution
for its promissory note for $400,000. The Note was originally issued to
<PAGE>15
Americom, Ltd. as part of the consideration for the re-acquisition by the
Company of the My-Line technology, pursuant to an agreement dated March 11,
1999. As a consequence of the elimination of the $400,000 note liability, the
Company only remains liable for payment of $50,000 pursuant to the re-purchase
agreement. Payment of the remaining $50,000 has been rescheduled for payment by
January 26, 1999 by agreement between the parties.
IMPACT OF THE YEAR 2000 ISSUE
Overview. Currently installed computer systems and software products are
coded to accept or recognize only two digit entries in the date code field.
These systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
State of readiness. The Company has substantially completed its initial
assessment of the Year 2000 readiness of its information technology ("IT")
systems, including the hardware and software that enable it to provide and
deliver its solutions, and its non-IT systems. AmeriCom's assessment plan
consists of (i) quality assurance testing of its internally developed
proprietary software incorporated in its solutions ("Solutions Software"); (ii)
contacting third-party vendors and licensors of material hardware, software and
services that are both directly and indirectly related to the delivery of The
Company's solutions to its Web publisher and advertiser customers; (iii)
contacting vendors of material non-IT systems; (iv) assessment of repair or
replacement requirements; (v) repair or replacement; (vi) implementation; (vi)
implementation of contingency plans in the event of Year 2000 failures which
include backup systems for both on and off site locations, 24 hour watch using
various software and trained personnel, and ensuring proper emergency procedures
are in place for handling situations we have no control over such as loss of
utility services.
The Company is conducting quality assurance testing to ensure Year 2000
compliance of all new internally developed proprietary code incorporated into
its Solutions Software. The Company plans to perform a Year 2000 simulation on
its Solutions Software during the fourth quarter of 1999, following the
implementation of revisions to the Solutions Software planned for the third
quarter of 1999. Based on the results of its Year 2000 simulation test, the
Company intends to revise the code of its Solutions Software as necessary to
improve the Year 2000 compliance of its Solutions Software.
The Company has been informed by many of its vendors of material
hardware and software components of its IT systems that the products used by the
Company are currently Year 2000 compliant. The Company is in the process of
requiring vendors of the other material hardware and software components in its
IT systems to provide written assurances of their Year 2000 compliance. The
Company plans to complete this process during the second half of 1999. The
Company has completed an assessment of the materiality of its non-IT systems and
is in the process of seeking written assurances of Year 2000 compliance from
providers of its material non-IT systems. The Company is also dependent on the
continued functioning of basic services such as electrical utilities, telephony,
mail delivery and transportation in order to conduct its business. While The
Company is taking steps to ensure that the third parties on which it is reliant
are Year 2000 compliant, it cannot predict the probability of such compliance
nor the costs to the Company of non-compliance by those third parties or of
securing alternate services from Year 2000 compliant parties.
Pending completion of its planned Year 2000 simulation test of its
Solutions Software and its program of requesting Year 2000 assurances from
vendors and licensors of material IT and non-IT systems, The Company has not yet
completed its Year 2000 compliance repair or replacement analysis, or its
contingency plans. The Company plans to complete all Year 2000 planning and
analysis before the end of the fourth quarter.
<PAGE>16
Costs. The Company has not incurred any material expenditures in
connection with identifying or evaluating Year 2000 compliance issues. Most of
its expenses have related to, and are expected to include, the operating costs
associated with time spent by employees in the evaluation process and Year 2000
compliance matters generally. The Company does not now possess the information
necessary to estimate the potential costs of revisions to its Solutions Software
should such revisions be required or the replacement of third-party software,
hardware or services that are determined not to be Year 2000 compliant. Although
The Company does not anticipate that such expenses will be material, such
expenses, if higher than estimated, could have a material adverse effect on the
Company's business, results of operations and financial condition.
Risks. The Company believes that it has established an effective program
to resolve material Year 2000 issues in its sole control in a timely manner. As
aforementioned, however, the Company has not yet completed all phases of its
program and is dependent on third parties whose progress is not within its
control. The failure by such third parties to be Year 2000 compliant could
result in a systematic failure beyond the control of The Company from delivering
its services to its customers, decrease the use of the Internet or prevent users
from accessing the Web sites of its Web publisher customers, which could have
material adverse effect on the Company's business, results of operations and
financial condition. There can also be no assurance that The Company will not
discover Year 2000 compliance problems in our Solutions Software that will
require substantial revisions which could be costly and time-consuming to
remedy. If the Company does not complete any of its currently planned additional
remediation prior to the Year 2000, the Company could experience significant
difficulty in producing and delivering solutions and conducting its business in
the Year 2000 as it has in the past, which could result in lost revenues,
increased operating costs, loss of customers and other business interruptions,
any of which could have a material adverse effect on The Company's business,
results of operations and financial condition. Moreover, the failure to
adequately solve Year 2000 compliance issues could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly to defend. This potential liability and lost revenue can
not be reasonably estimated at this time.
Contingency Plan. As aforementioned The Company is engaged in an ongoing
Year 2000 assessment and has not yet developed any contingency plans. The
results of the Company's Year 2000 simulation testing and the responses received
from third party vendors and service providers will be taken into account in
determining the nature and extent of any contingency plans.
Forward-Looking Statements. The foregoing Year 2000 discussion and the
information contained herein is provided as a "Year 2000 Readiness Disclosure"
as defined in the Year 2000 Information and Readiness Disclosure Act of 1998
(Public Law 105-271, 112 Stat. 2386) enacted on October 19, 1998 and contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements, including without limitation,
anticipated costs and the dates by which The Company expects to complete certain
actions, are based on management's best current estimates, which were made using
assumptions about future events, including the continued availability of certain
resources, third party representations and other factors. However, there can be
no guarantee or assurance that these estimates will be achieved, and actual
results could differ materially. Specific factors that could cause such material
differences include, but are not limited to, the ability to identify and
remediate all relevant systems; results of Year 2000 testing; adequate
resolution of Year 2000 issues by governmental agencies, businesses and other
third parties who are outsourcing service providers, suppliers and vendors of
the Company; unanticipated system costs; and the adequacy of and ability to
implement contingency plans. The "forward-looking statements" made in the
foregoing Year 2000 discussion speak only to the date on which such statements
were made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement was made or to reflect the occurrence of unanticipated
events.
<PAGE>17
PART II - OTHER INFORMATION
Items 1 through 4.
Not applicable.
Item 5. Other Information
On October 15, 1999, Mr. Tom Hopfensperger (previously with the AdCast Division)
became the Company's President and Chief Operating Officer.
On November 3, 1999, Mr. Tom Seykora agreed to join the Company as its Chief
Financial Officer. Mr. Seykora will join the Company on November 16, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Form 8-K filed October 11, 1999 reported the signing of the definitive Merger
and Recapitalization Agreement and Plan of Reorganization between the Company
and digiCities, Incorporated.
Form 8-K/Amended filed October 18, 1999 incorporated audited financial
statements for digiCities, Inc. and pro forma, condensed, consolidated financial
statements for the Company and digiCities, Inc.
<PAGE>18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICOM USA, INC.
By: /s/ ROBERT CEZAR
--------------------------------
Chief Executive Officer
By: /s/ DAVID LOOMIS
--------------------------------
Chief Financial Officer
Dated: November 12, 1999
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-QSB
FOR THE PERIOD ENDED SEPTEMBER 30, 1999 FOR AMERICOM USA, INC. AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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