UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
PACIFIC TELCOM, INC.
(Name of Small Business Issuer in its charter)
Illinois 36-4328683
(State of Incorporation) (I.R.S., Employer Identification No.)
4270 S. Decatur Blvd., Suite A-9
Las Vegas, Nevada 89103
(Address of principal executive offices) (Zip Code)
(415) 365-4500
(Issuer's telephone number)
Securities to be registered under Section 12(g) of the Act:
25,000,000 Common Shares
(Title of Class)
<PAGE>
PACIFIC TELCOM INC.
FORM 10-SB
TABLE OF CONTENTS
Item 1 Description of Business. . . . . . . . . . . . . . . . . . 2
Item 2 Management's Discussion and Analysis. . . . . . . . . . . 7
Item 3 Description of Property. . . . . . . . . . . . . . . . . . 8
Item 4 Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . 9
Item 5 Directors, Executive Officers, Promotors and
Control Persons . . . . . . . . . . . . . . . . . . . . . 11
Item 6 Executive Compensation. . . . . . . . . . . . . . . . . . . 16
Item 7 Certain Relationships and Related Transactions . . . . . 16
Item 8 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 17
Item 9 Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . 17
Item 10 Recent Sales of Unregistered Securities. . . . . . . . . 18
Item 11 Description of Securities. . . . . . . . . . . . . . . . . 18
Item 12 Indemnification of Directors and Officers. . . . . . . . 19
Item 13 Financial Statements . . . . . . . . . . . . . . . . . . . 19
Item 14 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . 19
Item 15 Financial Statements and Exhibits . . . . . . . . . . . . 19
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS.
(A) BUSINESS DEVELOPMENT
Pacific Telcom, Inc. [the "Company"] is a Re-Seller of
Telecommunications Products and Services, called "Genie" or "Universal
Office", owned or licensed by EasyTel, a Nevada Corporation
("EasyTel").
The Company was incorporated in Illinois on May 2, 1991 as Drayton
Hall & Co. but was not active from its incorporation through 1997. On
May 13, 1998, the Company changed its name to Pacific Telcom, Inc.
(B) BUSINESS OF ISSUER.
1. The Company's principal product and service is a personal
communication system for business, professional and individual
users which integrates into a single telephone number voice mail,
fax, pager, cellular and other telephone services as well as an
e-mail notification service.
2. The Company's product and service create a low cost virtual
office for its subscribers. Some of the commonly used functions
the Company provides to its subscribers include:
i. Direction of voice and fax traffic to the appropriate
phone/fax (Mobile, LAN or wireless) while maintaining a
single phone number for customers and other contacts (follow
me service);
ii. Call traffic distribution among sales, service and
administrative staff regardless of location to maximize
service to customers and trade partners;
iii. Faxes on demand;
iv. Prescreening and queuing of customers until the appropriate
sales person is identified or placed into voice mail;
v. Instruction on how to send or receive a fax or automatically
leave a message with the system's virtual assistant;
vi. Sending voice and fax mail electronically to a computing
device to be received via e-mail;
vii. Conferencing of caller with any number of individuals; viii.
Fax and message broadcasting from any location;
ix. Acceptance and processing of sales orders; and
x. An on-line real-time credit card processing by Cardservice
International for orders and payments.
2
<PAGE>
3. The Company's system operates on a software program and hardware
platform licensed by Universal Office Corporation, a wholly owned
subsidiary of InfoUSA, to EasyTel, who sub-licenses them to the
Company. The Company owns its switching equipment.
4. The Company buys it's communication time from WorldCom. The
Company's switching equipment is co-located with the switching
centers of MCI WorldCom. This arrangement is on a non-exclusive
rental basis. The Company can, even while co-located with MCI,
contract with other telephone service providers for required
services such as long distance. The Company's switching equipment
is covered under MCI's security and disaster plans and includes
their on-site service and maintenance. With equipment located in
the same facility as MCI, the Company incurs no cost for the
installation of T-1 telephone lines and pays a monthly service
cost per line at a very competitive rate. MCI has agreed to let
the Company co-locate in any city in which MCI has a co-location
site available. If no site is available, in the past MCI has
agreed to build one or to pay any costs in excess of the amount
the Company paid MCI under its co-location agreement. The Company
uses other third party providers where MCI does not have a
presence. MCI's agreement with EasyTel specifically provides for
the connection of the re-sellers switches to telephone lines of
other telephone service providers.
5. The Company's present market is the continental United States and
Canada. It offers service in Northern and Southern California
through its switches in Encino, Los Angeles, San Francisco, San
Diego and through other switches located in Chicago, Seattle,
Portland, Sacramento, Toronto, Minneapolis-St. Paul, Denver and
Dallas. Nationwide toll free service is also offered.
6. The Company plans to provide service in the following markets by
the end of 2001:
North America
--------------
Boise, Idaho Miami, Florida
Phoenix, Arizona Atlanta, Georgia
New York City, New York Houston, Texas
Orlando, Florida Reno, Nevada
Las Vegas, Nevada Montreal, Quebec
3
<PAGE>
Vancouver, British Columbia Calgary, Alberta
Edmonton, Alberta Boston, Massachusetts
Charlotte, North Carolina Grand Rapids, Michigan
Philadelphia, Pennsylvania Washington, D. C.
Spokane, Washington Honolulu, Hawaii
San Antonio, Texas Indianapolis, Indiana
Other Countries
----------------
Australia New Zealand
Japan France
Germany England
Argentina South Africa
Mexico Switzerland
Sweden Denmark
7. The Company distributes its products and services by using
Independent marketing entities, individuals, and retail vendors
of such products as cell phones, pagers, computers and other
Internet appliances. The Company's largest outlet is comprised of
six groups of independent distribution networks within the
Quixtar Network Marketing Company, which have about 300,000
independent Quixtar/Amway distributors (the "Alliance"). Quixtar
is a global marketing and distribution network of more than
3,000,000 individuals distributing Quixtar/ Amway products.
Senior members of the Alliance are responsible for a significant
portion of the Company's current subscribers and many of its
recent investors.
8. No new products or services have been publicly announced.
9. Competition in the Company's products and services is intense.
Voice Mail is the service closest to that offered by EasyTel and
is available throughout the United States from firms ranging in
size from Lucent Technologies, AT&T, MCI and Ameritech to small
firms that operate out of a single office. The Company's
competitive position in the industry is negligible. The Company
has eliminated the development costs of a fully developed and
proven product and competes through its licensing arrangement
with EasyTel by minimizing long distance line and other costs
through the volume purchases of EasyTel and by aggressive
marketing. The Company operates through an integrated network of
switches located in each of the markets it services which gives
it a competitive cost advantage because many of it's competitors
offer their service through a centralized location which requires
their customers to access the system by the use of toll-free
numbers or by "back-hauling" traffic to a centralized location.
4
<PAGE>
10. The raw materials of the Company consist of providing switched
and switchless value added telecommunication services. The
Company offers the Universal Telephone Number service enabling
customers to receive and make telephone calls, messages, faxes
and paging on a single telephone number. The Company also
provides long distance calling cards and line services from
EasyTel, all of which are readily available.
11. The Company's customers range from large firms to residential
telephone users. There currently is a dependence on Quixtar
Network Marketing Company, which has about 300,000 independent
Quixtar/Amway distributors, and is responsible for a significant
portion of the Company's current subscribers. The Company has
approximately 11,000 active subscribers.
12. The Company does not own any of the patents or trademarks on the
products or services it re-sells.
13. The Company entered into an April 23, 1998 agreement with EasyTel
by which the Company acquired the right to open new geographic
markets to re-sell the EasyTel products and services for ten
years (which is renewable for successive five year terms). Once
the Company opens a new geographic market, it has the exclusive
right to sell in that market for a period of two years. The
Company is currently negotiating with EasyTel to significantly
increase this period. For the Canadian market, the right to
re-sell is exclusive for a period of twenty years. If the
agreement with EasyTel is not extended beyond its initial 10-year
term, the Company and EasyTel will continue to have joint
ownership of the switches and they will continue to share equally
in all revenues generated by the Company during the term of the
agreement.
14. The Company is responsible for all start-up costs in opening a
new re-selling market. EasyTel and the Company each share
one-half of the adjusted gross revenues (net of certain defined
expenses such as telephone DIAL-tone charges, easy tips, customer
service, charge backs credit card discounts, account activation
fees and monthly sales commissions) and share one-half of costs
of equipment and installation.
5
<PAGE>
15. EasyTel provides some of the products and services as a licensee
from the Universal Office Corporation, a Nevada corporation.
EasyTel is financially dependent on its share of the Company's
revenues to fulfill its obligations to the Company such as
developing and maintaining software. EasyTel is responsible for
providing technical support, remote operation of
telecommunications platforms, software maintenance, software
development, long distance access maintenance, maintenance of
customer account information, billing, payment processing, and
credit card charge processing.
16. On February 11, 2000, the Company acquired all the stock and
stock rights of EasyTel Canada Corporation for $250,000 US
dollars, 1,000,000 common shares of the Company, and assumption
of an EasyTel Canada bank loan secured by a portion of the cash
proceeds ($32,500) paid to the seller. Monthly payments are
$2,187 plus interest.
On November 3, 2000, the Company incorporated a wholly-owned
subsidiary in Canada, Pacific TelCom (Canada) Inc. On November 6,
2000, the Company entered into an Agreement to Terminate the
acquisition of EasyTel Canada Corporation. Also on November 6,
2000, the Company and its wholly-owned subsidiary Pacific TelCom
(Canada) Inc. acquired all the stock and stock rights of EasyTel
Canada Corporation for $250,000 US Dollars and 1,125,000 Class A
Special Shares of Pacific TelCom (Canada) Inc. convertible to
1,125,000 common shares of the Company, and assumed the same loan
of EasyTel Canada Corporation, on the same terms as on February
11, 2000.
17. On September 16, 2000, the Company purchased 45.05% of M&M
Communications, which owns a 144 port telecommunications switch
in Encino, California and is a party to agreements among EasyTel
and the Alliance of entities, which refer customers to EasyTel
services. The Company paid $5,000 cash and has executed a
non-interest bearing promissory note due December 1, 2000 for
$129,232 as well as issuing 53,693 shares of the Company's stock
to Asher Milgrom, the seller. As additional consideration, the
Company will pay a 3 year earn-out on 45.05% of the revenues
generated by the Alliance under the M&M Re-Seller's
Representative Agreements, fixed at $8,000 per month for the term
of the earn-out, provided that the Re-Seller's Representative
Agreements remain in effect.
6
<PAGE>
18. On October 2, 2000, the Company entered into a Sale of Assets
Agreements with Axon Connectivity Technology, Inc., a Nevada
corporation, in which the Company purchased assets consisting of
a 144 port telecommunications switch in San Diego, California, a
144 port telecommunications switch located in Minneapolis,
Minnesota, the rights to the completion of the purchase and
installation of a 144 port switch in New York City, New York, the
rights to the completion of the purchase and installation of a
144 port switch in Miami, Florida and the rights to all proceeds
from all accounts hosted on these telecommunication switches. The
Company has executed a non-interest bearing installment
promissory note due December 1, 2000 for $428,040 as well as
issuing 192,816 shares of the Company's stock to Axon
Connectivity Technology, Inc., the Seller.
19. The Company does not currently need any governmental approval for
re-selling its products and services. If the government were to
regulate the Company's re-selling business, costs and potential
liability would increase and the Company's competitive position
would be impacted by decreased profits and the pressure to
increase prices.
20. In the last two fiscal years, there have been no expenditures for
research and development activities. The Company does not own the
technology it uses. A future sale of its business would involve
an allocation of the total sale price between the value of the
customer base owned by the Company and the value of the
technology owned by EasyTel.
21. There are no costs or effects of compliance with Federal, state,
and local environmental laws.
22. The Company has 12 full time employees.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
PLAN OF OPERATION
1. The Company has satisfied its past cash requirements from
periodic payments on unsecured one-year promissory notes dated
May 12, 1998 of $100,000 each at 8% interest per annum from
related parties. Such notes have now been paid in full. In
addition, there was a $100,000 promissory note payable in
exchange for print media service from a related party, which is
expected to be used in 2000. The Company's rapid expansion, and
its ability to continue as a going concern, requires raising
additional funds within the next 12 months.
7
<PAGE>
2. In the first six months of 2000, the Company raised $1,600,000
and received commitments for $2,100,000 by the November 30, 2000
Placement closing date on an outstanding $5,000,000 Private
Placement Offering.
3. The Company is making a Form 10-SB filing and intends to make a
subsequent filing for trading as a small cap stock issue on
NASDAQ. The Company may elect to do a smaller public offering
pursuant to Regulation "A" for $5,000,000 to be followed with a
larger secondary public offering.
4. On September 14, 2000, the Company's Board of Directors approved
a resolution for the Company to issue up to $10,000,000 in
Medium-Term, Convertible, 9% Capital Notes in increments of
$500,000 per Capital Note. An underwriting firm has approved this
offering.
5. The Company will continue to pursue leasing lines as an
alternative to cash financing.
6. As a co-venturer of the products and services of others, the
Company does not do any research; but, it does plan to develop
its market within the next 12 months by making greater use of
independent marketing entities and individuals.
7. Within the next 12 months, the Company expects to add 2
administrative and 12 additional customer service personnel. In
addition, it plans to add over $10,000,000 to its switching
equipment and software (the Universal Office Platform).
8. The Company is negotiating with various entities to offer the
following services:
- Dial 1 + long distance
- A national activation agent for Nextel and Verizon Wireless
- Re-Seller of ISP services in certain states
ITEM 3. DESCRIPTION OF PROPERTY.
The Company's primary office space is located at 4270 S. Decatur Blvd.,
Suite A-9, Las Vegas, Nevada 89103 under a one year triple net lease of 2,489
square feet for $44,802 per year, which has been pre-paid. The lease expires
March 26, 2001 with an option to renew for one year at a fixed 4% annual rent
increase.
8
<PAGE>
Because the Company is co-locating its hardware and Universal Office
platform with companies such as MCI WorldCom, it is not necessary to establish
offices with their attendant costs. The Company plans to lease administrative
offices of no more than 1,000 square feet per office as additional market areas
are opened.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
(1) (2) (3) (4)
Name and Address Amount and Nature Percent
Title of Class of Beneficial Owner of Beneficial Owner(1) of Class
Common Shares Bill J. Angelos, Jr. 1,467,900 Shares 14.04
5604 Sligo Street
Las Vegas, NV 89130
Common Shares Kenneth G. Mason 1,319,571 Shares 12.62
1618 Spence Avenue
Wilmette, IL 60091
Common Shares Richard A Chase 1,247,500 Shares 11.93
6218 Ramirez Mesa Dr.
Malibu, CA 90265
Common Shares EasyTel 756,459 Shares 7.23
320 E. Charleston Blvd.
Suite 204-221
Las Vegas, NV 89104
_________________
(1) All shareholder information as of June 30, 2000
9
<PAGE>
(B) SECURITY OWNERSHIP OF MANAGEMENT.
(1) (2) (3) (4)
Name and Address Amount and Nature Percent
Title of Class of Beneficial Owner of Beneficial Owner of Class
Common Shares Bill J. Angelos, Jr. 1,467,900 Shares 14.04
Director
5604 Sligo Street
Las Vegas, NV 89130
Common Shares Kenneth G. Mason 1,319,571 Shares 12.62
Director
1618 Spencer Avenue
Wilmette, IL 60091
Common Shares Richard A. Chase 1,247,500 Shares 11.93
Director
6218 Ramirez Mesa Dr.
Malibu, CA 90265
Common Shares Richard C. Goldstein 673,032 Shares 6.43
Director
53 Hetherington Crescent
Thornhill, Ontario L4J 2M9
Common Shares James G. Floor 500,000 Shares 4.78
Director
7120 Summerwood Ct.
Granite Bay, CA 95746
Common Shares Harry Brix 200,000 Shares 1.91
Director
541 Division Street
Campbell, CA 95008
Common Shares Driggs Jessup 110,000 Shares 1.05
Director
305 Creekside Place
Nampa, ID 83686
10
<PAGE>
Common Shares Bob Blanchard 100,000 Shares .96
Director
5075 Cascade Rd., SE
Suite K
Grand Rapids, MI 49546
Common Shares Richard Wiggins 100,000 Shares .96
Director
P. O. Box 88
Cambridge, ID 83610
Common Shares Randall L. Skala 6,730 Shares .06
Director
15760 Ventura Blvd., #A10
Encino, CA 91436
Common Shares All Directors and Officers 5,724,733 Shares 54.74
------------------------------------------------------------------------------
(C) CHANGES IN CONTROL.
There are no provisions in the charter or by-laws that would delay, defer
or prevent a change in control of the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
(A) DIRECTORS AND EXECUTIVE OFFICERS.
Director in
Term of Other Reporting
Name Age Position Office Companies
--------------------- --- --------------- ------- ---------
Bill J. Angelos, Jr. 50 Chairman and 2 Years No
Chief Executive
Officer
Director
Mr. Angelos, as an independent financial consultant and investment banker for
almost 20 years, has represented several companies in mergers with publicly
traded corporations; formed two insurance companies; co-developed $30 million of
real estate in Arizona, Oregon and new Mexico; managed an energy resource
company with 42 oil and gas wells; has completed several Regulation D private
placements; and founded a MESBIC (Minority Enterprise Small Business investment
Company) which raised capital and managed a $6 million loan portfolio.
11
<PAGE>
Paul H. Jachim 42 President and 1 Years No
Chief Operating
Officer
Paul Jachim, President and COO of Pacific Telcom is a Senior Executive with
demonstrated skills in the strategic development and successful implementation
of businesses. Most recently as President and CEO, Mr. Jachim led the
successful launch of Spectra Serve, Inc. a supply chain service business of
Union Camp Corporation now International Paper. Mr. Jachim has over 20 years of
General and Operations Management P&L experience, 10 of those years with Proctor
& Gamble. His education consists of a Bachelors Degree in Engineering and an
M.B.A. from Kellogg Graduate School of Management, Northwestern University.
Kenneth G. Mason 49 Secretary and 2 Years No
Director
Mr. Mason has been a licensed attorney for more than 20 years. His practice
concentrates in corporate formation, corporate transactions, corporate finance,
capital structure reorganizations, mergers, acquisitions, asset management and
protection, corporate and commercial litigation, and general civil litigation.
He has assisted clients in the fields of finance, high tech, computer software
engineering, construction and other areas of manufacturing and commercial
finance. Mr. Mason has been on the faculty of De Paul University, College of
Law and has served as a Special Deputy Prosecuting Attorney for the County of
Pierce, State of Washington.
Richard A. Chase 50 Vice President 2 Years No
Chief of Media
And Marketing
Services and
Director
Since 1968, Mr. Chase has been involved in various entrepreneurial ventures,
including Elan Associates, the largest retailer of fresh cut flowers in the
United States. Mr. Chase was a founding partner of Bermudez & Associates, the
largest independent Hispanic advertising agency in the United States. Mr. Chase
was the co-founder and past CEO of Media Resources International, Ltd., a media
barter company. Mr. Chase is also president of Chase Investments, Inc.
Franklin D. 32 Vice President 2 Years No
Wittman, Jr Sales and Training
Mr. Wittman has over 15 years of computer related experience. Most recently, he
was responsible for overall operations of Mirage Development, Inc., where he
developed the company's corporate identity and was responsible for marketing of
construction and corporate projects. Mr. Wittman also consults for many
companies on the World Wide Web.
12
<PAGE>
Brandi M. Wittman 30 Vice President 1 Year No
Client Services
Ms. Wittman manages Pacific TelCom's customer call center in Las Vegas and
co-ordinates customer care issues with EasyTel. She has over 10-years of
Customer Service experience and has been instrumental in developing the
Company's policies and procedures in this area.
Robert E. Gilbert 62 Vice President 2 Years No
And Controller
Mr. Gilbert has over 40 years experience in accounting and has provided
accounting and financial consulting services to such firms as Mirage Development
Corporation, InfoUSA, Concord Business Investments, Inc., Bankers Financial
Corporation, Electronic Clearing House and Transamerica Financial Corporation.
Harry G. Brix 53 Director 1 Year Yes
Mr. Brix is Chairman of Paging Dimensions, Inc., a public corporation, which
operates in an allied, but not competing, aspect of telecommunications with the
Company. He is also the Chairman of Brix Group, Inc., Voice Systems Research
and Tape Deck Corp. The Brix Group, Inc. operates American Wireless, a division
which vends digital and other wireless cellular phones nationwide. The division
also operates a group which is capable of activation new wireless communications
subscribers for 90% of the nation. None of Mr. Brix's current positions are
with competitors of the Company. Mr. Brix has had direct management experience
in the telecommunications field since 1971. He has distributed wireless
products and services for such companies as Motorola, Panasonic, Mitsubishi and
Audiovox.
Randall L. Skala 32 Director 1 Year No
Mr. Skala is President and Chief Operating Officer of EasyTel, which he
co-founded in March 1995. He is also a director of InfoUSA, the parent company
of EasyTel and a director of Universal Office Corporation. Randall Skala was
the technical and operational manager of Infotrust Telco, which developed a call
processing platform for pre-paid calling cards and other telecommunication
services.
13
<PAGE>
J. Michael Brown 53 Director 1 year No
Mr. Brown is the Chief Executive Officer and President of ProfileHealth.com.
Mr. Brown is an attorney with an advanced management degree from the Harvard
Business School. He recently retired as a Vice President in AT&T's Law &
Government Affairs group where he was extensively involved with a broad variety
of information technologies and Internet applications.
Richard C. 40 Director 1-Year No
Goldstein
Mr. Goldstein founded EasyTel Canada Corporation and is its President. He is
also President of First Republic Securities Corp., a licensed securities dealer
in the Province of Ontario.
Driggs M. Jessup 46 Director 1 Year No
Mr. Jessup is President and owner of Jessup Enterprises, a national and
international e-commerce company. He is also a consultant for Marketing Team
Fitness.com, a corporate fitness company. Mr. Jessup is also a professional
speaker and trainer for INA (InterNet Association).
Richard Wiggins 43 Director 1 Year No
Mr. Wiggins is an accountant. He is Vice President and General Manager of
Cambridge Telephone (a local exchange carrier providing telephone and CATV
service in Southwestern Idaho). He is President of Council Telephone Company (a
local exchange carrier), CTC Telcom (a CLEC and ISP provider), CTC Construction
(a utility contracting company), and Idaho Telephone Association.
Bob Blanchard 45 Director 1 Year No
Mr. Blanchard currently serves as the President/CEO of e-Alliance Holding, Inc.,
which is a multi-national strategic business alliance, and President/COO of
ProNet Global, Inc. that is a leading provider of resources to independent
business owners. Earlier, Mr. Blanchard was Vice President of Strategy &
Business Development for Reliable Energy Inc., a management consulting firm. He
also served as Corporate Director of US Xchange, L.L.C., a start up CLEC with a
network in operation in the Midwest, and Director of North America for Amway
Corporation one of the world's largest direct selling companies. Mr. Blanchard
holds a M.B.A. from Northwestern University.
James G. Floor 58 Director 1 Year No
Mr. Floor is President and Director of International Networking Association,
Inc. He owns Floor Enterprises, Inc., which provides training and support for
thousands of independent business owners throughout the United States and Canada
14
<PAGE>
and generates millions of dollars of revenue annually. Mr. Floor is also an
elected member of the Independent Business Owners Association International of
Quixtar Corporation and a member of the Board of E. Alliance, Inc. Mr. Floor
has a B.S. in Architectural Engineering and an M.B.A.
James E. Janz 59 Special 1 Year No
Advisor to
The Board
Mr. Janz has been a businessman for over 37 years. He has developed an
international marketing company that does over one billion dollars worth of
business per year. He has been a leader in distribution technology for over 10
years assisting in the development of leading edge technology for the
distribution of goods and services worldwide.
Mr. Janz currently serves as Chairman of World Serve. He is on the Board of
Internet Associates. He has served as the Chairman of the Foundation Board of
Trinity University and as the Chairman of a task force on Small Business for the
province of British Columbia.
(B) SIGNIFICANT EMPLOYEES.
There is no significant employee that is not an officer.
(C) FAMILY RELATIONSHIPS.
Franklin D. Wittman, Jr. and Brandi M. Wittman are husband and wife.
There are no other family relationships among the present or
contemplated directors and executive officers.
(D) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
None of the directors, executive officers, promoters and control persons
have been involved in certain legal proceedings during the past five years.
15
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
(a) (b) (c) (d) (e)
Name and
Principal Al Other
Position Year Salary ($) Bonus ($) Compensation($)
--------------------------------------------------------------------------------
Bill J. Angelos, Jr. $120,000 + $500 0.5%
Chairman and for each new of Net After
Chief Executive Officer Market opened Tax Profits
$240,000 Cap
Kenneth G. Mason $-0- $5,000 per month
Secretary Legal Retainer
Franklin D. Wittman, Jr. $54,000
Vice President
Brandi M. Wittman $30,000
Vice President
Robert E. Gilbert $36,000
Vice President
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The following Company shares were issued in 1991 for organizational
services:
Edward L. Daniel 1,168,000
Kenneth G. Mason 1,364,000
Sterling Capital Consultants 15,000
Bill J. Angelos, Jr. 1,317,900
Unsecured one year promissory notes dated May 12, 1998 of $100,000 each at
8% interest per annum were made to the Company from related parties, Edward L.
Daniel, Sheldon I. Herman, Bill J. Angelos, Jr., and Kenneth G. Mason in
exchange for shares of the Company. The Notes receivable from related parties
were paid in 1999.
16
<PAGE>
On May 5, 1998, Richard A. Chase made a $100,000 promissory note at 8%
interest per annum, payable in print media advertising, to the Company in
exchange for 1,200,000 Company shares. The Note from Richard A. Chase, payable
in prepaid advertising expense, is expected to be used in 2000.
In consideration of EasyTel entering into a Strategic Alliance Agreement
with the Company on April 23, 1998, the Company issued 756,459 shares of its
common shares to EasyTel.
Two Notes Payable by the Company were paid in full subsequent to December
31, 1999 to XXXLLC ($112,000 dated 12/31/98 at 6% interest) and to Cascade
Partners ($25,929), an affiliate of the Company's Chairman and Chief Executive
Officer, Bill J. Angelos, Jr.
On April 1, 1998, the Company entered into a 5-year employment agreement
with Bill J. Angelos, Jr., the Chairman, Chief Executive Officer and a Director
of the Company. He is to receive $120,000 per year plus $500 for each new
geographic market opened. There is a base cap of $20,000 per month and a bonus
compensation of of 1% (0.5%) of the net after tax profits.
Kenneth G. Mason, the Secretary and a Director of the Company receives a
legal retainer of $5,000 per month.
The Company has a 5 year Agency Agreement with Driggs Jessup, a Director of
the Company, for the promotion of subscriptions for the Company's services.
During the second quarter of 2000, the Company received $108,959
nonrecurring, non-cash, consulting income from EasyTel for the sale and exchange
of telecommunication equipment.
ITEM 8. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceedings and is not
aware of any proceeding that any governmental authority may be contemplating.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no public trading market for the Company's common equity shares.
As of June 30, 2000, there were 365 shareholders of record of 10,458,540
outstanding common equity shares (including 1,686,600 shares in the name of
Drayton Hall & Co. shareholders not yet exchanged for Pacific Telcom, Inc.
certificates).
17
<PAGE>
The Company has never declared any cash dividends on its common equity shares.
The only restriction limiting its ability to pay any cash dividends is the
availability of sufficient funds and a decision of the Board of Directors to
make such payments.
<TABLE>
<CAPTION>
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
Date Title Amount Sold Purchaser Consideration
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
04/23/98 Common 756,459 EasyTel Right to re-sell
EasyTel products
05/05/98 Common 233,333 Edward L. Daniel $100,000 Note
05/05/98 Common 233,333 Kenneth G. Mason $100,000 Note
05/05/98 Common 233,333 Bill J. Angelos, Jr. $100,000 Note
05/05/98 Common 1,200,000 Sheldon I. Herman $100,000 Note
05/05/98 Common 200,000 Harry G. Brix Marketing Services
05/05/98 Common 1,200,000 Richard A. Chase $100,000 Note
payable in print
media advertising
12/24/99 Common 60,000 Baradaran Revocable $150,000
Trust
12/30/99 Common 10,000 Daniel Robert &
Dorothy Joan Egan $ 25,000
12/31/99 Common 6,000 CBD Int'l Inc. $ 15,000
PSP FBO Clark C. Broome
01/01/00 Common 28,000 Benno & Ingrid Gauer $ 70,000
01/10/00 Common 21,980 CPM Networks Investments, LTD
Yousa Jaber $ 54,950
01/14/00 Common 20,000 Gerry & Virginia Doell $ 50,000
01/12/00 Common 20,000 Richard & Katherine $ 50,000
Lyons
01/24/00 Common 60,000 Alfred & Sharon Knight $150,000
01/26/00 Common 6,861 Albert J. Dyck $ 17,152.50
01/26/00 Common 6,000 Leon & Connie Oosterhoff $ 15,000
01/28/00 Common 10,000 Gary Oosterhoff $ 25,000
02/01/00 Common 8,000 Ray & Vivian Schartner $ 20,000
02/02/00 Common 12,000 Frederick & Madelon $ 30,000
Holpp
02/03/00 Common 3,000 Scott Robinson $ 7,500
02/07/00 Common 24,000 Gary Smith $ 60,000
02/08/00 Common 6,000 Bill Angelos $ 15,000
02/08/00 Common 6,000 Kerry Angelos $ 15,000
02/08/00 Common 6,000 Vic Devlaeminck $ 15,000
02/10/00 Common 15,000 Brad & Cheryl Biegert $ 15,000
02/10/00 Common 116,000 Thomas Ashlock $ 290,000
02/11/00 Common 1,000,000 EasyTel Canada 8,914,850 common shares of EasyTel Canada
02/15/00 Common 8,000 Ibrahim Darwish $ 20,000
02/17/00 Common 18,000 Brian & Leeann Bunn $ 45,000
02/18/00 Common 6,000 Gloria Rosela Askew $ 15,000
02/26/00 Common 12,000 Jack & Rita Daughery $ 30,000
03/21/00 Common 16,000 Dan Boettcher $ 40,000
03/30/00 Common 6,000 David Lovett $ 15,000
04/12/00 Common 20,000 Richard & Katherine $ 50,000
Lyons
04/13/00 Common 8,000 Ronald & Colleen $ 20,000
Polinder
04/17/00 Common 12,000 Mallard Mac Enterprises, Ltd. $ 45,000
04/17/00 Common 26,000 577990 Alberta, Ltd. $ 97,500
5/17/00 Common 6,000 John H. Macbeth $ 15,000
5/17/00 Common 8,000 Reg Hardin Radford $ 20,000
5/17/00 Common 6,500 Dennis Wickersham $ 16,250
05/20/00 Common 6,000 Robin Kressback $ 15,000
05/29/00 Common 6,000 Robert H. DuBose III. $ 15,000
05/30/00 Common 6,000 Robert H. DuBose $ 15,000
05/31/00 Common 7,000 William Hoffman $ 17,500
06/02/00 Common 6,000 W. Glenn & Connie $ 15,000
Norton
06/07/00 Common 6,000 Michael & Margaret $ 15,000
Faulkner
06/20/00 Common 18,000 James Elliott $ 45,000
6/29/00 Common 6,000 Roger Charest $ 15,000
6/29/00 Common 6,000 Magnolia Place $ 15,000
6/29/00 Common 6,000 Colin Porozni $ 15,000
6/29/00 Common 6,000 Nick & Nancy Porozni $ 15,000
6/29/00 Common 6,000 Probob Holdings Ltd. $ 15,000
6/29/00 Common 6,000 Reg Hardin Radford $ 15,000
6/29/00 Common 6,000 782409 Azbram Ltd. Willis Porozni $ 15,000
6/29/00 Common 6,000 Mallett Property Management, Ltd. $ 15,000
6/29/00 Common 7,000 Ronald A. Pearson $ 17,500
6/29/00 Common 6,000 Ray & Vivian Turris $ 15,000
6/29/00 Common 6,000 571403 BC LTD $ 15,000
6/29/00 Common 8,720 591384 B.C. LTD $ 21,800
09/16/00 Common 53,693 Asher Milgrom 45.05% of M&M
Communications
09/16/00 Common 192,816 Axon Connectivity Telecommunication
Technology, Inc. Switches
09/29/00 Common 12,000 Todd Adamson $ 30,000
</TABLE>
The Company claims Section 4(2), and regulation "D", Rule 505, private
offering exemptions from the registration provisions of the Securities Act of
1933 for the above unregistered securities sales in the United States within the
last three years.
ITEM 11. DESCRIPTION OF SECURITIES.
The Company has only one class of common equity shares. There are no
restrictive dividend, voting, or preemption rights. Nor are there any
provisions in the charter or By-Laws that would delay, defer or prevent a change
in control of the Company.
18
<PAGE>
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
There are indemnification provisions in the By-Laws of the Company for its
Directors and Officers. A temporary binder has been issued for Directors'
Errors and Omissions Insurance with a policy date of August 10, 2000.
ITEM 13. FINANCIAL STATEMENTS.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no changes in accountants or disagreements with the
Company's accountants on accounting and financial disclosure.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
Independent Auditors Report . . . . . . . . . . . . . . . F - 2
Balance sheet. . . . . . . . . . . . . . . . . . . . . . . F - 3
Statements of income and expense. . . . . . . . . . . . F - 4
Statements of shareholders' equity . . . . . . . . . . . F - 5
Statements of cash flows . . . . . . . . . . . . . . . . F - 6
Notes to financial statements. . . . . . . . . . . . . . F - 7
19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Pacific Telcom, Inc. and Subsidiary
I have audited the accompanying balance sheets of Pacific Telcom, Inc. and
Subsidiary as of June 30, 2000, December 31, 1999 and 1998, and the related
statements of income and changes in shareholders' equity for the six month
interim period ending June 30, 2000, the years in the ended December 31, 1999,
and 1998, and the statements of cash flows for the interim period ended June 30,
2000 and the years ended December 31, 1999 and 1998. These financial statements
are the responsibility of the Pacific Telcom Inc. management. My responsibility
is to express an opinion on these consolidated financial statements based on my
audits. The June 30, 2000 statements of the Subsidiary, EasyTel Canada, were
audited by other auditors whose report, dated August 25, 2000, expressed an
unqualified opinion on those statements.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Pacific Telcom Inc. and Subsidiary
as of June 30, 2000, December 31, 1999 and 1998, and the results of its
operations for the interim period ending June 30, 2000, the two years in the
period ended December 31, 1999, and its cash flows for the interim period ending
June 30, 2000 and the years ended December 31, 1999 and 1998, in conformity with
generally accepted accounting principles.
This report is intended solely for the information and use of management, the
Board of Directors and for required regulatory reporting. The report is not
intended to be and should not be used by anyone other than these specified
parties.
David Christensen CPA
Vancouver, Washington
September 12, 2000
F - 2
<PAGE>
<TABLE>
<CAPTION>
PACIFIC TELCOM, INC.
CONSOLIDATED BALANCE SHEETS
As of June 30, 2000 and December 31,
June 30, 2000 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equilivants (Note 1) $ 382,701 $ 69,901 $ 65,436
Account Receivable EASYTEL- Joint Venture (Note 1) 307,564 8,592
Subscription Receivable 60,367
Other Receivables (Note 1) 23,284
------------ ---------- ----------
Total Current Assets 773,916 78,493 65,436
Fixed Assets
Telecommunications Platform Equipment, Net 2,479,496 141,869 167,633
Furniture and Equipment, Net 137,979 71,231 16,348
------------ ---------- ----------
Total Fixed Assets, Net (Notes 1 & 7) 2,617,475 213,100 183,981
License for Canadian Operations (Note 3) 158,378
Goodwill (Notes 1 & 3) 966,707 - -
Notes Receivable-Related Party - - 266,534
Print media Due (Note 8) 86,000 100,000 100,000
Prepaid and Deferred Expenses 94,652 26,293 2,575
------------ ---------- ----------
TOTAL ASSETS 4,697,128 417,886 618,526
============ ========== ==========
Liabilities
Current Liabilities
Accounts Payable 1,439,089 6,009 100,589
Payroll Liabilities 8,232 62,125 54,000
Notes Payable-Current Portion (Notes 9 & 10)
Note Payable - Cascade Partners - 25,929
Note Payable - XXXLLC - 112,000 150,000
Note Payable-Bank 17,420
Contingent Contract Payable (Note 3) 150,000
Reserve for Customer Prepaid Balances 46,927
------------ ---------- ----------
Total Current Liabilities 1,661,668 206,063 304,589
------------ ---------- ----------
Long Term Liabilities
Due to EasyTel USA for Telecommunication Equipment 615,150
Shareholder Advances 121,651
Note Payable-Bank (Note 9) 30,300
------------ ---------- ----------
Total Liabilities 2,428,769 206,063 304,589
------------ ---------- ----------
Shareholders equity
Common Stock-No Par
Common Stock - No Par, 25,000,000 Authorized 3,440,153 922,500 641,000
Issued and Outstanding at June 30, 2000, 10,458,540 shares
Issued and Outstanding at 12-31-99, 8,727,459 shares
Issued and Outstanding at 12-31-98, 8,697,459 shares
Total Common Stock-No Par 3,440,153 922,500 641,000
Deficit accumulated during development stage (Note 2) (1,189,778) (710,677) (327,063)
Accumulated Other Comprehensive Income (Note 18) 17,984 - -
------------ ---------- ----------
Total Shareholders Equity (Notes 13 & 19) 2,268,359 211,823 313,937
------------ ---------- ----------
Total Liabilities and Shareholders Equity 4,697,128 417,886 618,526
============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
F - 3
<PAGE>
<TABLE>
<CAPTION>
PACIFIC TELCOM, INC.
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSE
6 months Ending December 31 December 31
June 30, 2000 1999 1998
------------- ------------- ----------
<S> <C> <C> <C>
Ordinary Income/Expense
Total Sales Revenue (Note 1) $ 637,128 $ 118,857 $ 1,124
Total Cost of Services Sold 591,339 126,487 23,142
------------- ------------- ----------
Gross Profit from Sales 45,789 (7,630) (22,018)
------------- ------------- ----------
Operating Expenses
Advertising 7,704 7,513 1,250
Automobile Expense 1,518 2,948 1,717
Computer Parts, Software & Supplies 5,440 3,041 2,558
Consulting Fees 32,250 18,500 20,000
Delivery and Messenger 5,691 3,141 1,184
Development and other expenses 595 1,140 110,161
Filing fees 4,206 - -
General and Administrative 20,400 9,343 4,254
Independent Contractor 17,439 70,500 5,000
Insurance 4,085 2,884 1,085
Interest Expense 1,736 22,027 -
Payroll Expenses 143,637 78,328 54,000
Printing and Reproduction 2,207 4,084 2,186
Professional Fees 41,695 64,284 37,059
Rent 1,400 18,527 8,000
Repairs 3,883 - -
Stock Transfer Fees 2,287 3,852 2,476
Taxes 10,042 - -
Telephone 24,989 11,542 3,707
Travel & Entertainment 90,219 56,490 10,086
Utilities 1,005 2,996 50
------------- ------------- ----------
Total Expense 422,428 381,139 264,773
------------- ------------- ----------
Net Operating Income\(Loss) (376,639) (388,769) (286,791)
Other Income\Expense
Total Other Income (Note 6) 109,495 19,351 6,209
------------- ------------- ----------
Other Expense 22,946
Amortization Expense (Notes 1& 3) 38,812
Depreciation Expense (Notes 1& 7) 150,199 35,561 14,937
------------- ------------- ----------
Total Other Expense 211,957 35,561 14,937
------------- ------------- ----------
Net Other Income\Expense (102,462) (16,210) (8,728)
------------- ------------- ----------
Income/Loss before tax (479,101) (404,980) (295,519)
------------- ------------- ----------
Tax Benefit-Deferred Tax NOL (Notes 11 & 12 ) - 21,365 -
------------- ------------- ----------
Net Income\(Loss) (Note 18) (479,101) (383,615) (295,519)
============= ============= ==========
Per Share-Basic (Note 16) $ (0.04) (0.04) (0.03)
Per Share-Diluted $ (0.04) (0.04) (0.03)
</TABLE>
The accompanying notes are an integral part of these statements
F - 4
<PAGE>
<TABLE>
<CAPTION>
PACIFIC TELECOM, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHARDHOLDERS EQUITY
FOR THE PERIOD ENDED JUNE 30, 2000 AND THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Retained Other Total
Common Stock Earnings\ Comprehensive Shareholders
Shares Amount (Loss) Income Equity
-------------- ----------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
------------------------------- -------------- ----------- --------------- ------------- -----------
Balance December 31, 1997 3,449,900 $ 31,000 $ (31,543) - $ (543)
------------------------------- -------------- ----------- --------------- ------------- -----------
Net Loss for 1998 $ (295,519) $ (295,519)
Common Stock Issued $ 610,000
------------------------------- -------------- ----------- --------------- ------------- -----------
Balance December 31, 1998 8,697,459 $ 641,000 $ (327,062) - $ 313,938
------------------------------- -------------- ----------- --------------- ------------- -----------
Net Loss for 1999 $ (383,615) $ (383,615)
Common Stock Issued $ 281,500
------------------------------- -------------- ----------- --------------- ------------- -----------
Balance December 31, 1999 8,727,459 $ 922,500 $ (710,677) - $ 211,823
=============================== ============== =========== =============== ============= ===========
Consolidated Net Loss for
period ending June 30, 2000 (479,101) (479,101)
Common Stock Issued 2,517,653 2,517,653
Comprehensive Income 17,984 17,984
------------------------------- -------------- ----------- --------------- ------------- -----------
Balance June 30, 2000 10,458,540 $3,440,153 (1,189,778) $ 17,984 $2,268,359
=============================== ============== =========== =============== ============= ===========
</TABLE>
F - 5
<PAGE>
<TABLE>
<CAPTION>
PACIFIC TELCOM, INC.
CONSOLIDATED STATEMENT OF CASH AND CASH EQUILIVANTS
for the period ending June 30, 2000 and the year ended December 31,
June 30, 2000 1999 1998
------------ ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income/(Loss) $ (479,101) $(383,615) $(295,511)
Adjustments to reconcile Net Income
to net cash provided by operations:
Amortization 33,335 - -
Depreciation 150,199 35,528 2,038
Non-cash gain for sale/exchange of equipment (108,959) - -
Accounts receivable (increase)\decrease (322,256) (14,690) 6,098
Subscription receivable (increase) (60,367) - -
Notes receivable-Related Party (increase)\decrease - 266,534 (266,534)
Accounts Payable change increase\(decrease) 2,061,100 (69,012) 75,021
Increase in Customer Prepaid balances 46,927 - -
Payroll Liabilities change increase\(decrease (53,893) 62,125 -
Accounts payable change for legal services - (19,500) 19,500
Salaries Payable increase\decrease change - (54,000) 54,000
Notes Payable increase (reduction)- Cascade (25,929) 25,929 -
Notes Payable increase\(reduction) - XXXLLC (112,000) (38,000) 150,000
Notes payable to bank current portion increase 17,420 - -
------------ ---------- ----------
Net cash provided by Operating Activities: 1,625,577 (188,701) (255,388)
------------ ---------- ----------
INVESTING ACTIVITIES:
Purchase of Telecommunication Equipment (2,473,900) - -
Purchase of Furniture and Equipment (130,618) (64,650) (186,050)
Purchase of EasyTel Canada (101,055) - -
Change of Prepaid Expenses (68,359) (23,718) (102,575)
Other 957 34 -
------------ ---------- ----------
Net cash provided by Investing Activities (2,772,975) (88,334) (288,625)
------------ ---------- ----------
FINANCING ACTIVITIES:
Sales of Common Stock-No Par 1,600,000 281,500 610,000
------------ ---------- ----------
Net cash provided by Financing Activities 1,600,000 281,500 610,000
------------ ---------- ----------
Net cash increase for period 452,602 4,465 65,987
Cash at beginning of period 69,901 $ 65,436 $ (551)
------------ ---------- ----------
Cash and cash equilivants at end of period 382,701 $ 69,901 $ 65,436
============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
F - 6
<PAGE>
PACIFIC TELCOM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
INTERIM PERIOD ENDED JUNE 30, 2000 AND
YEARS ENDED DECEMBER 31, 1999, 1998
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
This is a summary of significant accounting policies of Pacific Telcom Inc. and
subsidiary EasyTel Canada. The financial statements and notes are representation
of the Company's management who is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of the
financial statements.
NATURE OF OPERATIONS
The Company is a telecommunications business. The Company has entered into a
joint venture with EasyTel so that the Company can offer advanced
telecommunications packages suited for business, professional and individual
users.
CONSOLIDATED STATEMENTS
The Consolidated Financial Statements include the accounts of the parent company
and subsidiary (EasyTel Canada), after elimination of intercompany accounts and
transactions. The accounts of the subsidiary are consolidated as of June 30,
2000. The statements are not consolidated as of December 1999 and December 1999
as EasyTel Canada was purchased on February 11, 2000.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers cash in banks
to be cash equivalents.
ESTIMATES INHERENT IN THE FINANCIAL STATEMENTS
Preparing the Company's financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ALLOWANCE FOR ACCOUNTS RECEIVABLE:
A valuation allowance for accounts receivable is based on management's estimate
of the amount necessary to recognize possible losses. There currently is an
allowance for accounts receivable as June 30, 2000 in the amount of $42,384.
F - 7
<PAGE>
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY FOR ACCOUNTING FOR BUSINESS COMBINATIONS, ALLOCATION OF PURCHASE PRICE,
AND ACQUISITION CONTINGENCIES
The Company assesses each business combination to determine whether the pooling
of interests or the purchase method of accounting is appropriate. For those
business combinations accounted for under the pooling of interests method, the
financial statements are combined with those of the Company at their historical
amounts, and, if material, all periods presented are restated as if the
combination occurred on the first day of the earliest year presented. For those
acquisitions accounted for using the purchase method of accounting, the Company
allocates the cost of the acquired business to the assets acquired and the
liabilities assumed based on estimates of fair values thereof. These estimates
are revised during the allocation period as necessary when, and if, information
regarding contingencies becomes available to define and quantify assets acquired
and liabilities assumed. The allocation period varies but does not exceed one
year. To the extent contingencies are resolved or settled during the allocation
period, such items are included in the revised allocation of the purchase price.
After the allocation period, the effect of changes in such contingencies is
included in results of operations in the periods in which the adjustments are
determined.
In certain business combinations, the Company agrees to pay additional amounts
to the seller's contingent upon achievement of certain conditions. Contingent
payments, when incurred, are recorded as purchase price adjustments, based on
the nature of each contingent payment.
ACCOUNTING POLICY FOR GOODWILL
Cost in excess of net assets of the business acquired (goodwill) represents the
unamortized excess of the cost of acquiring a business over the fair values of
the net assets received at the date of acquisition. It is being amortized on a
straight-line basis over periods of 15 years and is stated net of accumulated
amortization of $33,335 and at June 30, 2000. Amortization expense charged to
operations was $33,335 for the period ending June 30, 2000.
PROPERTY AND EQUIPMENT AND DEPRECIATION METHODS
Property and equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized, and minor replacements, maintenance, and
repairs are charged to expense as incurred. When property and equipment are
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in the
results of operations for the respective period. Depreciation is provided over
the estimated useful lives of the related assets using the straight-line method
for financial statement purposes. The Company uses other depreciation methods
(generally accelerated) for tax purposes where appropriate. The estimated useful
lives for significant property and equipment categories are as follows:
Vehicles 3 to 5 years
Furniture and equipment 3 to 10 years
F - 8
<PAGE>
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
ADVERTISING COSTS
Advertising expenditures are expensed when incurred. Total advertising expenses
were $12,500 for the period ending June 30, 2000, $7,513 in 1999 and $1,250 in
1998.
CONTINGENCIES
Certain conditions may exist as of the date the financial statements are issued,
which may result in a loss to the Company but which will only be resolved when
one or more future events occur or fail to occur. The Company's management and
its legal counsel assess such contingent liabilities, and such assessment
inherently involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the Company or unasserted
claims that may result in such proceedings, the Company's legal counsel
evaluates the perceived merits of any legal proceedings or unasserted claims as
well as the perceived merits of the amount of relief sought or expected to be
sought therein.
If the assessment of a contingency indicates that it is probable that a material
loss has been incurred and the amount of the liability can be estimated, then
the estimated liability would be accrued in the Company's financial statements.
If the assessment indicates that a potentially material loss contingency is not
probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the
range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they
involve guarantees, in which case the nature of the guarantee would be
disclosed.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation. These reclassifications
had no effect on previously reported results of operations or retained earnings.
F - 9
<PAGE>
NOTE 2-REALIZATION OF ASSETS:
As shown in the accompanying financial statements, the Company incurred a net
loss of $479,101, $383,615 and $295,519 during the 6-month period ending June
30, 2000 and the years ended December 31, 1999, and December 31, 1998. The
Company's current liabilities exceeded its current assets by $887,752 as of June
30, 2000. However, most of the current liabilities are payable to the company's
joint venture partner, EasyTel USA for equipment to be placed into service.
Company management have projected sales revenue, based on current activity, to
meet and exceed, the operating needs of the company in the current operating
year ended December 31, 2000.
These factors, as well as the uncertain conditions that the Company faces
relative to its continued ability to raise capital and conduct operations create
an uncertainty as to the Company's ability to continue as a going concern. The
Company has developed a plan to raise capital, and has currently met the capital
goals of management through sales of stock to shareholders, and has additional
commitments. The ability of the Company to continue as a going concern is
dependent upon the continued success of the plan. The financial statements do
not include any adjustments that might be necessary should the Company be unable
to continue as a going concern.
The Company has an outstanding Private Placement Offering for $5,000,000.
Subsequent to December 31, 1999, and in the first six months of 2000, the
Company has raised $1,600,000 in additional capital and has additional
commitments for $2,100,000 by the Placement closing date of October 31, 2000.
NOTE 2(A)-SUBSEQUENT EVENTS
Subsequent to June 30, 2000, the Company is in the process of securing an
equipment leases for additional expansion into other market areas.
On September 14, 2000, the Board of Directors approved a resolution for the
Company to issue up to $10,000,000 in Medium-Term, Convertible, 9% Capital Notes
in increments of $500,000 per Capital Note. The underwriting firm has approved
this offering.
NOTE 3-PURCHASE OF EASYTEL CANADA
On February 11, 2000, the Company acquired EasyTel Canada, which is involved in
the development of the telecommunications business in Canada. The acquisition,
which was accomplished through the issuance of common stock and cash, was
accounted for under the purchase method of accounting and, accordingly, the
results of operations have been included in the Company's consolidated financial
statements since the date of acquisition. The purchase price of approximately
$1,171,000 was allocated to the individual assets acquired and liabilities
assumed based upon their respective estimated fair values at the effective date
of acquisition. The transaction resulted in cost in excess of net assets
acquired of approximately $1,000,000, of which $90,510 was allocated to Licenses
and the remainder to Goodwill.
F - 10
<PAGE>
NOTE 4-EXCLUSIVE RIGHTS
In a special meeting of the shareholders on April 2, 1998, the shareholders
approved the issuance of shares (not to exceed 10% of the current number of
issued shares) to the shareholders of EasyTel Inc. (a Nevada Corporation) for
the purpose of acquiring the marketing and reselling rights of the products and
services of EasyTel Inc.
NOTE 5-ACCOUNTS RECEIVABLE EASYTEL-JOINT VENTURE
The accounts receivable are due from the joint venture partner, EasyTel USA.
Revenue of the company is shared with EasyTel USA in exchange for the use of the
technology for the telecommunications platforms. The revenue share with EasyTel
USA is 50% of gross revenue.
NOTE 6-UNUSUAL OR NONRECURRING INCOME WITH JOINT VENTURE PARTNER
The results of operations for the second quarter of 2000 include (1) a $108,959
nonrecurring, non-cash, other consulting income derived from EasyTel USA (a
related party) for the sale and exchange of telecommunication equipment.
NOTE 7-FIXED ASSETS AND DEPRECIATION EXPENSE
Premises and equipment consisted of the following for the 6 month period ending
June 30,200 and for the years ending at December 31:
<TABLE>
<CAPTION>
June 30 1999 1998
----------- --------- ---------
<S> <C> <C> <C>
Telecommunications Platform Equipment $2,654,461 $180,561 $180,561
Furniture and Equipment 213,655 83,037 18,387
Less: accumulated depreciation (250,641) (50,498) (14,937)
----------- --------- ---------
2,617,475 213,100 184,011
</TABLE>
Depreciation expense for the 6 months ended June 30, 2000, 1999 and 1998 was
$150,199, $35,561 and $14,937 respectively.
NOTE 8-PRINT MEDIA DUE
Print media due represents media/barter credit from MRI International that was
granted in exchange for stock issuance. The credit is for media that is
available at the time of booking and does not have a cash redemption value, and
the estimated value is stated in terms of media time credits and not cash value.
NOTE 9-BANK LOAN
The company assumed a bank loan with the purchase of EasyTel Canada. A portion
of the cash proceeds ($32,500) paid to the seller was assigned as collateral for
the loan. The loan bears interest at prime plus 3 % and matures in June 2003.
Payments are made monthly consisting of $2,167 of principal plus interest.
F - 11
<PAGE>
NOTE 10-NOTES PAYABLE
Notes payable to Cascade Partners and XXXLLC represent current obligations of
the company. The note payable to XXX LLC is dated 12-31-98 with interest at 6%
and was paid in full subsequent to December 31, 1999.
The note to Cascade Partners was paid in full subsequent to December 31, 1999.
NOTE 11-INCOME TAXES
The provision for income taxes consists of the following:
DECEMBER 31,
1999 1998
-------- --------
Currently Payable:
Federal 0 0
State 0 0
Deferred Tax Expense (21) (0)
-------- --------
Total (21) 0
-------- --------
The net deferred tax liability on the balance sheet at December 31, 1998
consists of the following:
DECEMBER 31,
1999 1998
Deferred Tax Assets 21 -
-------- --------
Deferred Tax Liabilities - -
21 -
-------- --------
The net deferred federal income tax asset resulting from differences between
financial reporting and tax bases for depreciation. There was no valuation
allowance for deferred tax assets as of December 31, 1999. The Company has
determined that it is not required to establish a valuation allowance for the
deferred tax assets as management believes it is more likely than not that the
deferred tax asset of $21,000 will be realized principally through carry forward
of taxable income in future years.
NOTE 12-NON-CAPITAL LOSS CARRYFORWARD
The company has non-capital loss carryforwards to reduce taxable income.
Pacific Telcom Inc. has net operating loss carryforwards available of $788,943
that expire in years 2011 through 2019. EasyTel Canada has loss carryforwards
of $494,000 that expire in years 2005 through 2007.
NOTE 13-STOCKHOLDERS' EQUITY
F - 12
<PAGE>
On May 07, 1991, the number of authorized shares of common stock was increased
from 1,000,000 to 25,000,000 shares. The shares have no par value and no
market.
NOTE 14-RELATED PARTY TRANSACTIONS
The following transactions occurred between the Company and other affiliated
parities:
1. Shares were issued for organizational services to the only three
stockholders in the amounts stated below:
Edward L. Daniel 1,168,000
Kenneth G. Mason 1,364,000
Bill J. Angelos, Jr. 1,317,900
2. Kenneth G. Mason is the company legal advisor and also a major
shareholder.
NOTE 15-LEASE OBLIGATION
The Company has entered into an operating lease agreement for its corporate
office on March 27, 2000 for one year. The annual rent of $41,666 was prepaid.
The Company records monthly rent expense equal to the total paid over the lease
term, divided by the number of months of the lease term. The Company has an
option to renew the lease for one year at a maximum increase of 4%.
NOTE 16-EARNING PER SHARE
Basic net earnings (loss) per common share is computed by dividing net earnings
(loss) applicable to common shareholders by the weighted-average number of
common shares outstanding during the period. Diluted net earnings (loss) per
common share is determined using the weighted-average number of common shares
outstanding during the period, adjusted for the dilative effect of common stock
equivalents, consisting of shares that might be issued upon exercise of common
stock options.
NOTE 17-EMPLOYMENT AGREEMENTS WITH RELATED PARTIES
The company has entered into employment agreements with the following
shareholder-officers with basic terms of the agreement as follows:
Name Term Base Compensation Bonus Compensation
---- ---- ------------------ ------------------
Bill J. Angelos, Jr. 5 years $10,000 per month 1\2 of 1% of net income
Plus $500 increases
for new Geographic markets
F - 13
<PAGE>
NOTE 18-COMPREHENSIVE INCOME
Comprehensive income consists of net income and other gains and losses affecting
shareholders' equity that, under generally accepted accounting principles are
excluded from net income. For the Company, such items consist primarily of
foreign currency translation gains and losses. The changes in the components of
other comprehensive income (loss) are as follows:
-------------------
2000
-------------------
Pre-Tax Tax
Amount Expense
--------- --------
Net Loss (479,101) $ 0
--------- --------
Foreign currency
translation 17,984 $ 0
adjustments
Total other
Comprehensive loss (461,117) $ 0
========= ========
NOTE 19- STOCK TRANSACTIONS
On March 26, 1998, the Board of Directors declared a hundred-for-one stock split
and a cash dividend of $.07 per share for the first half of 1998. In addition,
the shareholders approved a resolution increasing the number of shares
authorized to 10 million of no par stock.
On April 24, 1998, the Board of Directors declared a three-for-two stock split
of the then currently issued and outstanding shares. All share and per share
amounts have been restated to retroactively reflect these stock splits.
F - 14
<PAGE>
(A) EXHIBITS
The following exhibits are filed with this registration statement:
Exhibit
Number Exhibit Name
------- ------------
3.1 Articles of Incorporation
3.2 Amendment to the Articles of Incorporation
3.3 Amendment to the Articles of Incorporation
3.4 By-Laws
3.5 Letter Of Good Standing from the State of Illinois
4.1 Sample Stock Certificate of the Registrant
5.1 Legality Opinion Letter
10.1 Strategic Alliance Agreement - EasyTel/Pacific TelCom
10.2 Addendum to Strategic Alliance Agreement
10.3 Alliance Agreement - ILD
10.4 Alliance Agreement - INA
10.5 Alliance Agreement - ProNet
10.6 Alliance Agreement - IC
10.7 Alliance Agreement - N21
10.8 Stock Purchase Agreement - M&M
10.9 Exhibit to Stock Purchase Agreement - M&M
10.10 Asset Purchase Agreement - Axxon
10.11 Exhibit to Asset Purchase Agreement - Axxon
10.12 Stock Purchase Agreement - EasyTel Canada (Dated 2/11)
10.13 Exhibits to Stock Purchase Agreement - EasyTel Canada (Dated 2/11)
10.14 Termination of Stock Purchase Agreement - EasyTel Canada (Dated 2/11)
10.15 Stock Purchase Agreement - EasyTel Canada (Dated 11/6)
10.16 Exhibits to Stock Purchase Agreement - EasyTel Canada (Dated 11/6)
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
PACIFIC TELCOM, INC.
(Registrant)
Date: November 9, 2000 By /s/ Bill J. Angelos, Jr.
------------------------------------
Bill J. Angelos, Jr.,
Chairman and Chief Executive Officer
<PAGE>
