UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
Commission file No. 33-17679
NORTH AMERICAN DATACOM, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1067694
(State of incorporation) (I.R.S. Employer Identification Number)
751 County Road 989 Iuka, MS 38852
(Address of principal executive offices) (Zip Code)
(662) 424-5050
(Registrant's Telephone Number)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the proceeding 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 [ ]
As of May 31, 2000, the Company had approximately 97,994,622 outstanding shares
of common stock.
<PAGE>
INDEX
PART I - CONDENSED FINANCIAL INFORMATION Page
Item 1. Unaudited Condensed Financial Information
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statement of Comprehensive Income 5
Condensed Consolidated Statement of Changes in Stockholders' Equity 6
Condensed Consolidated Statements of Cash Flows 7
Notes to Condensed Consolidated Financial Statements 8-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II - OTHER INFORMATION AND SIGNATURES
ITEMS 1 through 6 14-15
Signatures 15
<PAGE>
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, June 30,
2000 1999
Current Assets:
Cash $333,226 $722,353
Accounts Receivable 15,645 -
Notes Receivable (Note 9) 135,741 -
Employee Advances 42,393 154,033
------------- -----------
Total Current Assets 527,005 876,386
------------- -----------
Investments (Note 4) 208,350 322,500
------------- -----------
Property and Equipment (Note 5):
Leasehold Property and Improvements 15,986 3,758
Computers and Equipment 769,489 38,009
Communications Equipment 356,611 94,016
Conduit and Optic Fiber 14,269,500 -
Other Equipment 40,352 6,617
------------- -----------
15,451,938 142,400
Less Accumulated Depreciation and
Amortization (35,946) (5,570)
------------- -----------
Net Property and Equipment 15,415,992 136,830
------------- -----------
Other Assets 486,812 24,446
------------- -----------
Total Assets $16,638,159 $1,360,162
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade Note Payable (net of
discount of $850,500) $ 14,269,500 $ -
Accounts Payable (Note 7) 662,500 25,375
Accrued Expenses 51,665 28,235
Advances from Related Parties 194,645 16,647
------------- -----------
Total Current Liabilities 15,178,310 70,257
------------- -----------
Notes Payable 30,079 -
------------- -----------
Total Liabilities 15,178,310 100,336
------------- -----------
Commitments and Contingencies (Note 6 and 8)
Stockholders' Equity (Note 10)
Convertible Preferred Stock, No Par
Value; 400,000 Shares Authorized; 51,212
Shares Issued and Outstanding as of - 512,120
June 30, 1999
Common Stock, $.001 Par Value; 150,000,000
Shares Authorized; 97,824,622 (as adjusted)
Shares Issued and Outstanding 2,838,158 694,251
Other accumulated comprehensive income (Note 4) (41,650) 47,125
Retained Earnings (Accumulated Deficit) (1,336,659) 6,330
------------- -----------
Total Stockholders' Equity 1,459,849 1,259,826
------------- -----------
Total Liabilities and
Stockholders' Equity $16,638,159 $1,360,162
============= ===========
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
(UNAUDITED)
--------------------------------------------------------------------------------
For the Three Months For the Nine For the
Ended March 31, Months Ended period
from
inception
(September
1, 1998)
through
--------------------------------------------------------------------------------
2000 1999 March 31, March 31,
2000 1999
Net Service Revenues $69,787 $ 1,875 $ 167,997 $ 1,875
Cost of Services 22,420 - 29,742 -
Gross Profit 47,367 1,875 138,255 1,875
Selling, General
and Administrative Expenses 326,568 70,889 1,009,792 70,889
Operating Loss
(279,201) (69,014) (871,537) (69,014)
Other Income (Expenses), Net (70) - 6,233 -
Net Loss (279,271) (69,014) (865,304) (69,014)
Basic and Diluted Loss per
Common Share (Note 2) $ (0.003) $ (0.001) $ (0.010) $ (0.001)
========= ======= =========== ==========
Cash dividends per
common share $ - $ - $ - $ -
See accompanying notes to financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
For the three months For the nine months
ended March 31, ended March 31,
2000 1999 2000 1999
---------- --------- ------- --------
Net loss
$(279,271) $(69,014) $(865,304) $(69,014)
Net unrealized loss on investments
(Note 4) (41,650) - (41,650) -
---------- --------- --------- -------
Comprehensive loss
$(320,921) $(69,014) $(906,954) $(69,014)
========== ========= ========= ========
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY For the
Period from Inception (September 1, 1999) through March 31, 2000
(Notes 9 and 10)
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred Common Stock Additional Accumulated Net Unrealized Stockholders'
Stock Gain (Loss) on
Shares Amount Shares Par Value PIC Deficit Investments Equity
Balances, September 1, $ - $ - $ - $ - $ - $ - $ - $ -
1998
Issuance of - - 500,000 500 - - - 500
initial common
stock
Exchange of stock for 3,000,000 3,000 497,000 - - 500,000
investments
Acquistion of
Freedom 50,000 50 61,201 - - 61,251
Exchange of notes
for preferred stock 51,212 512,120 - - - - - 512,120
Stock issued to - - 450,000 450 112,050 - - 112,500
employees
Issuance of stock - - 10,000 10 9,990 - - 10,000
for services
Sale of common - - 20,000 20 9,980 - - 10,000
stock
Unrealized gain on
Investments - - - - - - 47,125 47,125
Net loss - - - - - (225,116) - (225,116)
Balances, June 30, 1999 51,212 512,120 4,030,000 4,030 690,221 (225,116) 47,125 1,028,380
Conversion of
preferred stock
to common stock (51,212) (512,120) 2,048,480 2,048 510,072 - - -
Exchange of notes
for common stock - - 164,916 165 107,939 - - 108,104
Issuance of stock
for services - - 85,000 85 84,915 - - 85,000
Sale of common
stock - - 175,500 176 227,324 - - 227,500
Acquisition of
Action Communications - - 150,000 150 599,850 - - 600,000
Acquisition of
PRCI 80,000 20,000 77,662,826 77,663 - (246,239) - (148,576)
Issuance of
shares for
services rendered - - 1,687,934 1,688 99,588 - - 101,276
Conversion of
PRCI preferred
stock to
common stock (80,000) (20,000) 80,000 80 19,920 - - -
Conversion of
PRCI notes to
common stock - - 170,000 170 9,830 - - 10,000
Exercise of
warrants to acquire
common stock - - 11,739,966 11,740 390,504 - - 402,244
Net unrealized
loss from
investments - - - - - - (88,775) (88,775)
Net loss for nine
months ended March
31, 2000 - - - - - (865,304) - (865,304)
Balances, March 31,
2000 $ - $ - $97,994,629 $7,995 $2,740,163 $(1,336,659) $(41,650) $1,459,849
============== ============ ============ ========= ========== ============ ========= ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CASH FLOWS
(UNAUDITED)
For the nine For the period
months ended from inception
March 31, 2000 (September 1,
1998)
through
March 31, 1999
-------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (865,304) $ (69,014)
Adjustments to reconcile net loss to cash
provided by operations:
Depreciation and amortization 30,374 -
Changes in operating assets and liabilities,
net of acquisitions:
Decrease in accounts receivable (16,001) (155,908)
Increase (decrease) in
accounts payable and accrued expenses (146,448) 14,412
-------------- -----------------
Net cash used in operations (997,379) (210,510)
-------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (179,529) (94,406)
Purchase of investments (52,851) (750,000)
Increase in other assets (38,037) (8,947)
Decrease notes receivable (129,105) 1,147
-------------- -----------------
Net cash used in investing activities (399,522) (852,206)
-------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in advances from related 81,915 396,966
parties
Proceeds from sale of common stock 979,971 664,250
Increase in notes payable (54,112) 20,000
-------------- -----------------
Net cash provided by financing activities 1,007,774 1,081,216
-------------- -----------------
INCREASE (DECREASE) IN CASH for the period
(Note 7) (389,127) 18,500
CASH, beginning of period
722,353 -
-------------- -----------------
CASH, end of period $ 333,226 $ 18,500
============== =================
See accompanying notes to financial statements.
<PAGE>
NORTH AMERICAN DATACOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation:
In the opinion of management, the accompanying unaudited, condensed,
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the Company's financial
position as of March 31, 2000, and its results of operations for the three- and
nine-month periods ending March 31, 2000 and 1999 (1999 represents the period
from inception - September 1, 1998), and its cash flows for the three- and
nine-month period ending March 31, 2000 and 1999. The results of operations for
the interim periods are not necessarily indicative of the results to be expected
for the fiscal year.
The Company
On March 17, 2000 the Company changed its name to North American DataCom,
Inc. from Pierce International, Inc. North American DataCom, Inc. and its
subsidiaries ("NAD or the "Company") are developing a major southern United
States communications network. This network combines state-of-the-art fiber
optics, wireless and satellite technologies with traditional business resources
to provide wideband real-time data communication. The Company is engaged, or
plans to engage, in the following lines of business: fiber optic and broadband
wireless network, Internet access, remote data storage, consulting, and
telecommunications projects.
Operations
Effective December 21, 1999, North American Software Associates, Limited
("NAS") (incorporated in September 1998) merged into Pierce International, Inc.
("PRCI") in exchange for 76,801,017 shares of the PRCI's common stock. The
merger has been accounted for as a reverse acquisition, whereby NAS is deemed
the acquirer because the shareholders of NAS obtained a controlling interest in
the Company as a result of the merger.
The Company is engaged, or plans to engage, in the following businesses:
Fiber Optic and Broadband Wireless Network. The Company is building a fiber
optic and broadband wireless communications network, which will allow for the
high-speed transmission of large amounts of data. It is expected that
businesses, government agencies and institutions will use the Company network as
a preferred alternative to existing telephone and satellite data transmission
systems.
Internet Access As of March 31, 2000 the Company has provided Internet service
to over 1,500 customers in Mississippi, Tennessee and Alabama. Internet services
provided by the Company include basic dial-up access to the Internet through
standard computer modems, high speed Internet access, and the design and hosting
of websites for customers.
Remote Data Storage The Company took delivery of equipment in December, 1999
having a cost of approximately $575,000 that will allow third parties to store
and access data stored in digital form on computer systems maintained and
operated by the Company in its facility in Iuka, Mississippi. As of March 31,
2000, the Company did not have any agreements with any third parties regarding
the storage of computer data.
Consulting The Company plans to assist corporations, government agencies, and
institutions in upgrading their computer systems to function more effectively
with current economic, technical and commercial conditions.
Telecommunication Projects The Company, through expansion of its Action
Communication business, plans to assist corporations, government agencies and
institutions in the design and installation of their own internal
telecommunications networks. The Company plans to use state-of-the-art
technology, which will enable its clients to transfer and receive large amounts
of data at high speed between both internal and external sources.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
2. Summary of Significant Accounting Policies:
Investments
Investments are classified as available-for-sale and are reported at
estimated fair value, with unrealized gains and losses, net of taxes, reported
as a separate component of stockholders' equity. Realized gains and losses, and
declines in value judged to be other than temporary, are included in other
income. The cost of securities sold is based on the specific identification
method and interest earned is included in other income.
Revenue Recognition
Revenue is recognized when services are rendered.
Earnings per Share
Basic and diluted loss per share of common stock have been computed based
upon the weighted average number of shares outstanding during the three- and
nine-month periods ending March 31, 2000, and 1999 (1999 represents the period
from inception - September 1, 1998). Common stock equivalents were not
considered, as their effect would be anti-dilutive.
Stock Options
Stock options are granted to certain officers and key employees, and also
to certain non-employees in exchange for services. As permitted under the
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"), the Company measures compensation
cost for employee stock-based compensation using the intrinsic value based
method of accounting prescribed by Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees," and to provide pro forma disclosures
of net income (loss) and earnings (loss) per share as if the fair value based
method of accounting had been applied. Stock options granted to non-employees in
exchange for services are valued at fair value at the time the services are
rendered.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated on a
straight-line basis for book purposes and accelerated methods for tax purposes
over the following estimated useful lives: conduit and optic fiber - 15 years;
communications equipment - 3-10 years; computers and equipment - 3-7 years;
leasehold property and improvements - the term of the lease; and other equipment
- 3-10 years.
Continuing Operations
The accompanying unaudited financial statements have been prepared on a
going concern basis, which contemplates continuity of operations and realization
of assets and satisfaction of liabilities in the normal course of business. The
Company is in the process of identifying potential sources of capital and
potential joint venture and/or strategic partners. The continuation of the
Company as a going concern is dependent upon the Company raising additional
capital, and attaining and maintaining profitable operations.
3. Acquisitions
On December 3, 1999 the Company acquired all the common stock of Action
Communications, Inc. ("Action") in exchange for approximately 150,000 shares of
the restricted common stock of the Company (valued at approximately, $600,000).
Action currently provides digital and alpha numeric paging to nine southeastern
states, and is expanding its coverage area to include portions of the eastern
and southwestern United States. Action is also a specialized mobile radio
carrier providing dispatch, telephone and Global Position System ("GPS")
services. This transaction has been accounted for as a purchase, and
accordingly, the results of operations of Action are included in the Company's
consolidated
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
3. Acquisitions (continued)
statements of operations from the date of acquisition. The purchase price has
been allocated to the estimated fair value of the assets, acquired and the
liabilities assumed.
4. Investments:
The Company's investments are classified as available-for-sale. The
amortized cost, gross unrealized gains (losses) and estimated fair value of
these investments were as follows at March 31, 2000 and June 30, 1999:
Amortized Gross Unrealized Estimated
March 31, 2000 Cost Gains (Losses) Fair Value
New York Regional Rail Corporation
Stock Options $250,000 ($41,650) $208,350
June 30, 1999
New York Regional Rail Corporation
Stock Options $250,000 $72,500 $322,500
The Company previously held assigned common stock interests in New York
Regional Rail Corporation ("NYRR") that were sold in May 1999 with a realized
gain of $200,000. Cash received was invested in money market instruments. The
above represents options to acquire 500,000 shares of NYRR common stock for $.12
per share.
5. Property, Plant and Equipment
In March 2000, the Company acquired 505 miles of fiber optic conduit for
$15,120,000. (See Note 7)
6. Commitments:
The Company currently leases 25,000 square feet at the former NASA
facility from the State of Mississippi. The lease expires in December 2008.
Total rentals under this lease for the year ending December 2000 will be
approximately $87,500, $100,000 for the year ending December 2001, and $125,000
for each remaining year.
7. Non cash investing and financing activities:
In September 1998, the Company agreed with Robert Crawford, a Director and
President of the Company, to exchange 1,500,000 shares of common stock for the
assignment of 250,000 shares of New York Regional Rail Corporation ("NYRR")
common shares. In addition, the Company issued a $250,000 note payable for
250,000 additional NYRR common shares. In May 1999, the Company, generating a
realized gain of $200,000 (See Notes 2 and 5), sold the 500,000 shares of NYRR
common stock at $1.40 per share (See Notes 2 and 5).
In March 2000, the Company entered into an agreement to purchase
approximately $15,120,000 of conduit and fiber optic cable from an unrelated
company. The purchase is personally guaranteed by the Chief Executive Officer of
the Company. (See Note 5) Payments are to be made quarterly through March 2001
and the agreement is non-interest bearing. Accordingly, the trade payable has
been discounted using an implicit interest rate of approximately 9%.
In December 1999, the Company purchased approximately $575,000 of data
storage equipment from an unrelated company in exchange for a note payable
bearing interest of 18% per annum, due June 30, 2000.
8. Litigation:
As of March 31, 2000, the Company was not a party to any litigation.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
9. Related Party Payable and Related Party Transactions:
In addition to those items discussed in Note 7, on November 30, 1999, the
Company agreed to exchange options to acquire 85,000 and 105,000 shares of its
pre merger restricted common stock to James White and Robert Crawford, for
services each, respectively, provided to the Company in 1999. Included in Notes
Receivable is a $50,000 notes receivable from a company owned by a relative of
the Company's Chief Executive Officer. The note is unsecured, non-interest
bearing, and no set repayment plan.
10. Stockholders' Equity:
The Company has 400,000 authorized shares of no par value, Series 1
convertible preferred stock. There were no preferred shares outstanding as of
March 31, 2000, and there were 51,212 shares outstanding as of June 30, 1999.
The preferred shares are entitled to dividends, when and as declared by the
Company's Board of Directors, from funds which are legally available.
The Company issued 80,000 shares of convertible Series I preferred stock
in 1997. The stock was issued in conjunction with a private placement conducted
by PRCI. The Series I Convertible Preferred Stock holders are entitled to
dividends when and as declared by the Company's Board of Directors from funds,
which are legally available. These Series I Preferred Stock shares were
converted in January 2000 into an identical number of shares of the Company's
restricted common stock.
As discussed in Note 2, the Company completed a reverse acquisition of
PRCI in a transaction accounted for in a manner similar to a recapitalization.
In November 1998, and January 1999, the Company entered into employment
agreements with five initial employees to issue 450,000 restricted common
shares, based on a vesting formula, in exchange for $112,500.
In February 1999, the Company exchanged 10,000 shares of its common stock
for services rendered, aggregating $10,000.
During the period from April 1999, to December 3, 1999, the Company sold
195,500 shares of restricted common stock for a total of $237,500 at prices
ranging from $0.50 to $5.00 per share.
In June 1999, the Company issued 51,212 shares of convertible preferred
stock to retire notes payable totaling $512,120. These preferred shares were
converted into 2,048,480 shares of restricted common stock of the Company in
November 1999.
In June 1999, long-term debt obligations of $350,000 held by shareholders
were converted into shares of Series A Preferred Stock. In November 1999, the
Preferred shares were converted into 1,567,500 pre-merger common shares of the
Company. The Preferred shareholders and certain note holders also held options,
expiring in 2000 and 2001, to acquire approximately 1,263,750 pre-merger common
shares for $563,750. (See Notes 9 and 10)
Notes issued by the Company between January and November 1999 aggregating
approximately $525,000 were exchanged for 164,916 shares of restricted common
stock of the Company in December 1999.
In January 2000 all the 80,000 preferred shares were converted into 80,000
shares of common stock of the Company. Also in January 2000, the warrants
attached to these preferred shares were exercised with payment of $60,000, and
80,000 Rule 144 restricted common shares were issued.
In February 2000 a $10,000 convertible note of PRCI was converted into
170,000 shares of common stock.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
10. Stockholders' Equity (continued)
On March 31, 2000 options were exercised and payment made for 11,739,966
Rule 144 restricted common shares (See Note 11).
11. Stock Option Plan:
As of March 31, 2000 the Company had common stock options outstanding
totaling 16,116,301 shares as follows:
Number of Exercise Number of Options Expiration Grantee
Options Price Exercisable at Date
March 31, 2000
4,616,903 0.043319 $ 4,616,903 12/31/01 Employees
4,963,171 0.086638 4,963,171 12/31/01 Non-employees
577,113 0.043319 577,113 12/31/01 Non-employees
115,423 0.086638 115,423 12/31/00 Non-employees
1,878,926 0.250000 1,878,926 12/31/01 Non-employees
92,338 0.086638 92,338 12/31/01 Non-employees
3,000,987 0.173276 3,000,987 12/31/01 Non-employees
230,845 0.433191 230,845 12/31/01 Non-employees
640,595 0.866382 640,595 12/31/01 Non-employees
--------------
16,116,301
==============
All stock options issued to officers and employees have an exercise price
not less than the fair market value of the Company's common stock on the date of
grant, and in accordance with accounting for such options utilizing the
intrinsic value method there is no related compensation expense recorded in the
Company's financial statements. Had compensation cost for stock-based
compensation been determined based on the fair value at the grant dates
consistent with the method prescribed by SFAS 123, there would have been no
effect on the Company's net loss or loss per share amounts for the periods
presented in the accompanying statements of operations.
On August 10, 1987, PRCI adopted an Incentive Stock Option Plan (the
"Plan") where under options granted are intended to qualify as "incentive stock
options" under Section 422A of the Internal Revenue code of 1954, as amended
(the "Code"). Pursuant to the Plan, options to purchase up to 400,000 shares of
the Company's Common Stock may be granted to employees of the Company. This Plan
is administered by the Board of Directors. As of the date of this report, no
options have been granted under this Plan.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations:
The following is management's discussion and analysis of certain
significant factors that have affected the Company's financial condition and
results of operations during the periods included in the accompanying unaudited
balance sheets and statements of operations.
Safe Harbor Statement Under Private Securities Litigation Reform Act of
1995
This Quarterly Report on Form 10-Q and other reports and statements issued
on behalf of the Company may include forward-looking statements in reliance on
the safe harbor provided by the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to substantial risks and
uncertainties, including those discussed below, and actual results may differ
materially from those contained in any such forward-looking statement. The
review of factors pursuant to the Private Securities Litigation Reform Act of
1995 should not be construed
Safe Harbor Statement Under Private Securities Litigation Reform Act of 1995
(continued)
as exhaustive. Further, the Company undertakes no obligation to update or revise
any such forward-looking statements to reflect subsequent events or
circumstances.
MERGER OF NORTH AMERICAN SOFTWARE ASSOCIATES, LIMITED WITH PIERCE INTERNATIONAL
Effective December 21, 1999, NAS merged into Pierce International, Inc. in
exchange for 76,801,017 shares of common stock. The merger was accounted for as
a reverse acquisition since the former shareholders of NAS now own a controlling
interest in the Company. In connection with this transaction, the management of
the Company resigned and was replaced by the management of NAS.
In January 1999 the Company entered into a 10-year lease for an initial
25,000 square foot segment of this facility at annual rent of approximately
$90,000. The Company has options to lease additional segments totaling 100,000
square feet. The Company believes that this facility, with its existing
infrastructure and security features, is ideally suited for the Company's
present and proposed business.
As of March 31, 2000, the Company had approximately 30 full time
employees. The Company plans to hire additional employees as may be required by
the level of its operations.
As of December 20, 1999, PRCI had 7,515,705 outstanding shares of common
stock and 80,000 outstanding shares of preferred stock. Each share of preferred
stock is convertible into one share of common stock.
Effective December 21, 1999, PRCI acquired all of the issued and
outstanding shares of NAS in exchange for 77,662,826 shares of PRCI common
stock. The former shareholders of NAS became owners of a controlling interest in
PRCI. In connection with this transaction, the former management of PRCI
resigned and was replaced by the management of NAS (See Form 8-K, dated December
21, 1999).
Liquidity
The Company expects the first segment of the network to cost approximately
$70 million and will link the following metropolitan regions and the communities
between these locations: Memphis, TN - Huntsville, AL - Chattanooga, TN -
Atlanta, GA. The second and third segments, estimated to cost in excess of $100
million, will link: Chattanooga, TN - Birmingham, AL - New Orleans, LA -
Jacksonville, FL.
The Company plans to fund the cost of its planned network through joint
venture arrangements with third parties. The Company plans to provide initial
capital to this venture. The Company's third party members in the venture will
provide right-of-way access, equipment and engineering and other technical
services. The Company plans to raise the initial capital funds for the venture
through private placement sale of Company debt and equity securities.
As of March 31, 2000, the Company had entered into several preliminary
agreements with third parties relating to this network.
Working capital at March 31, 2000 was negative $15,501,805. Of this
amount, the seller of the fiber optic conduit purchased by the Company is
financing $15,120,000. An initial payment of $2,000,000 was due May 15, 2000 and
a second payment of $4,048,000 was due May 31, 2000. These payments have not
been made as due and the Company is currently working with the vendor to
restructure the agreement. The Company is planning to sell common stock to
private investors to fund these payments. The acquisition of data storage
equipment is also financed by its manufacturer and is due for payment on or
about June 30, 2000. Payment for this equipment will be financed by sale of
equity or debt instruments by the Company on or before June 30, 2000. The
Company plans to continue to rely heavily on its current shareholders and option
holders to fund its operations for the foreseeable future.
<PAGE>
Results of Operations:
During the quarter ended March 31, 2000 the Company had a net operating
loss from its current operations of $279,271. For the nine-month period ending
March 31, 2000 the Company had a net operating loss of $865,304. The Company
started operations in January 1999, and did not have operations in 1998. These
losses are due to the incipient nature of the Company's operations and will
likely continue for the foreseeable future as the Company continues to expand
its operations.
Revenues are currently derived from local Internet service (approximately
51%) and local pager and communication services (approximately 49%). Both these
businesses currently have positive operating margins. Management plans to
significantly expand its ISP and its communication and pager services along the
fiber optic network it is developing. In addition, as of March 31, 2000, the
Company has invested approximately $700,000 in its Remote Data and Storage
business and $200,000 for planning and engineering in its fiber optic venture
affiliate, North American InfoTech. Neither of these businesses are expected to
have revenues until the 3rd quarter of fiscal 2001. Both are planned to have
positive cash flows starting the 1st quarter of fiscal 2002.
Other Matters:
On April 7, 2000 the Company's OTCBB trading symbol was changed from
"PRCI" to "NADA." The Company filed a Form 12B-25 with the Securities Exchange
Commission on May 15, 2000, indicating that the Company would be late in filing
its Form 10-Q for the quarter ended March 31, 2000. Accordingly, the
Over-the-Counter Bulletin Board ("OTCBB") appended the letter "E" to the
Company's trading symbol. Management believes that the Company will be able to
have the "E" removed shortly after the filing date of this Form 10-Q. However,
if for some reason this designation is not removed in a timely manner, the
trading of the Company's common stock may be suspended on the OTCBB. Should this
occur, the Company's common shares would likely be traded in the "Pink Sheets,"
which could significantly reduce the ability of the Company's shareholders to
readily trade the common stock of the Company.
On April 28, 2000 the Company was approved by the State of Mississippi as
an ICX carrier, an interstate marketer of telecommunication products, and a
CLEC, a competitive local exchange carrier, which provides local
telecommunications products and services.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company currently does not have significant market risks related to
interest rate risk, foreign currency exchange rate risk, commodity price risk,
or other relevant market risks.
PART II - OTHER INFORMATION
On March 10, 2000, the Company held a shareholders' meeting, and three
items were approved. The first item approved was the amendment of the Company's
Articles of Incorporation, such that the authorized capitalization of the
Company will be increased to 150,000,000 shares of common stock, $0.001 par
value, and 10,000,000 shares of preferred stock, no par value.
The second item of business approved was to change the name of the Company
to North American DataCom, Inc. The last item of business approved was the
merger of the Company, which resulted in the Company becoming a Delaware
corporation. The terms of the merger were provided in the proxy statement for
the meeting, which was sent to all of the Company's shareholders of record
February 4, 2000.
<PAGE>
PART II - OTHER INFORMATION (continued)
As a result of the March 10, 2000 shareholders meeting and the approval of
the authorized shares of the Company to 150,000,000 common shares the balance of
the 76,801,017 shares arising from the PRCI merger were authorized to be issued.
These shares are all restricted pursuant to Rule 144 of the Securities Exchange
Commission. The balance will be issued when the authorized shares are increased
by vote of the shareholders.
ITEMS 1 through 6 (a) - Form 8-K, dated December 20, 1999 provides responses
required.
ITEM 6 (b) - Form 8-K, dated December 20, 1999, disclosing the merger of the
Company with North American Software Associates, Ltd. was filed on January 3,
2000.
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 hereunto duly authorized.
NORTH AMERICAN DATACOM, INC.
- - - - - - - - - - - - - - -
(Registrant)
DATE: June 15, 2000
/s/ Robert R. Crawford
- - - - - - - - - - - - - - - - - - - - - -
Robert R. Crawford, Chief Executive Officer
/s/ David A. Cray
- - - - - - - - - - - - - - - - - - - - - -
David A. Cray, V.P., Corporate Treasurer
