<PAGE> 1
As filed with the Securities and Exchange Commission on December 13, 2000
Registration No. _________
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NORTH AMERICAN DATACOM, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
4813
(Primary Standard Industrial Classification Code Number)
84-1067694
(I.R.S. Employer Identification Number)
751 County Road 989
Building 1000
Iuka, Mississippi 38852
(662) 424-5050
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
The Company Corporation
2711 Centerville Road, Suite 400
Wilmington, DE
(302) 636-5440
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copy To:
John W. Titus, Esq.
BOULT, CUMMINGS, CONNERS & BERRY, PLC
414 Union Street
Suite 1600
P.O. Box 198062
Nashville, Tennessee 37215
(615) 252-2341
Approximate date of commencement of proposed sale to the public: from time to
time after the effective date of this Registration Statement as determined by
market conditions and other factors.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
==========================================================================================
Title Of Proposed Proposed
Each Class Maximum Maximum
Of Securities Amount Offering Aggregate Amount Of
To Be To Be Price Per Offering Registration
Registered Registered Share(1) Price(1) Fee
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.0001 per share (2) 2,302,624 $1.44 $3,315,779 $875.37
==========================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(c) for the purpose of calculating
the registration fee. Based on the average high and low prices per share of our
common stock as reported on the OTC Bulletin Board on December 8, 2000.
(2) Pursuant to Rule 416 under the Securities Act, there are also being
registered such additional number of shares as may be issuable as a result of
stock splits or stock dividends with respect to the shares of Common Stock being
registered.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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NORTH AMERICAN DATACOM, INC.
Cross-Reference Sheet
Showing Location in the Prospectus of
Information Required by Items of Form S-1
<TABLE>
<CAPTION>
Form S-1 Item Number and Caption Location In Prospectus
-------------------------------- ----------------------
<S> <C> <C>
Item 1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus Outside Front Cover
Item 2. Inside Front and Outside Back Cover page of Prospectus Table of Contents, Dealer Prospectus Delivery Obligation
Item 3. Summary Information and Risk Factors Summary, Risk Factors
Item 4. Use of Proceeds Use of Proceeds
Item 5. Determination of Offering Price *
Item 6. Dilution *
Item 7. Selling Security Holders Selling Stockholders
Item 8. Plan of Distribution Plan of Distribution
Item 9. Description of Securities to be Registered Description of Securities
Item 10. Interests of Named Experts and Counsel Legal Matters, Experts
Item 11. Information With Respect to the Registrant Market for Registrant's Common Equity and Related
Stockholder Matters, Selected Financial Data,
Management's Discussion and Analysis of Financial
Condition and Results of Operations, Business,
Management, Executive Compensation, Certain
Relationships and Related Transactions, Security
Ownership of Certain Beneficial Owners and Management,
Consolidated Financial Statements
Item 12. Disclosure of Commission Position on Indemnification
For Securities Act Liabilities Executive Compensation -- Indemnification and Exculpation
Provisions
Item 13. Other Expenses of Issuance and Distribution Other Expenses of Issuance and Distribution
Item 14. Indemnification of Directors and Officers Indemnification of Directors and Officers
Item 15. Recent Sales of Unregistered Securities Recent Sales of Unregistered Securities
Item 16. Exhibits and Financial Statement Schedules Exhibits and Financial Statement Schedules
Item 17. Undertakings Undertakings
</TABLE>
*Not Applicable
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Information contained in this prospectus is subject to completion or amendment.
The selling stockholders may not sell these securities until the Registration
Statement filed with the Securities and Exchange Commission is effective. This
prospectus shall not constitute an offer to sell or the solicitation of an offer
to buy nor shall there by any sale of these securities in any state in which
such offer, solicitation or sale would be unlawful.
PROSPECTUS
NORTH AMERICAN DATACOM, INC.
2,302,624 Shares of Common Stock
This prospectus relates to the offer and sale of outstanding shares of
our common stock by the selling stockholders identified on page 34 of this
prospectus. We will not receive any proceeds from the sale of our outstanding
shares of common stock by the selling stockholders. The selling stockholders may
offer and sell some, all or none of the common stock under this prospectus. The
selling stockholders may determine the prices at which they will sell their
shares of common stock, which may be at market prices prevailing at the time of
sale or some other price. In connection with such sales, the selling
stockholders may use brokers or dealers who may receive compensation or
commissions for such sales. The selling stockholders may also attempt to sell
their shares in isolated private transactions, at negotiated prices, with
institutional or other investors.
Our common stock is currently quoted on the NASD's over-the-counter
Bulletin Board under the symbol "NADA". On December 6, 2000, the last reported
sales price for our common stock was $1.50 per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD PURCHASE OUR COMMON STOCK ONLY IF YOU CAN AFFORD TO LOSE YOUR ENTIRE
INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is __________ __, 2000.
<PAGE> 4
You should rely only on the information contained in this document. We
have not authorized anyone to provide you with information that is different
from that contained in this prospectus. This document may only be used where it
is legal to sell these securities. The information in this prospectus may only
be accurate on the date of this prospectus, regardless of the time of delivery
of this prospectus or of any sale of our common stock.
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY 3
RISK FACTORS 5
USE OF PROCEEDS 10
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 10
SELECTED FINANCIAL DATA 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
BUSINESS 18
MANAGEMENT 25
EXECUTIVE COMPENSATION 27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 30
DESCRIPTION OF SECURITIES 31
SELLING STOCKHOLDERS 33
PLAN OF DISTRIBUTION 34
LEGAL MATTERS 35
EXPERTS 35
WHERE YOU CAN FIND MORE INFORMATION ABOUT US 36
DEALER PROSPECTUS DELIVERY OBLIGATION 36
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS F-2
</TABLE>
We have informed the selling stockholders that the anti-manipulative
rules under the Exchange Act of 1934, as amended (the "Exchange Act"), including
Regulation M, may apply to their sales in the market. We have furnished the
selling stockholders with a copy of these rules. We have also informed the
selling stockholders that they must deliver a copy of this prospectus with any
sale of their shares.
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SUMMARY
Because this is a summary, it does not contain all of the information
that may be important to you as a prospective purchaser of shares of our common
stock. You should read the entire prospectus carefully, including the risk
factors and the consolidated financial statements and the notes to the
consolidated financial statements of the company appearing elsewhere in this
prospectus, before you decide to purchase any shares of common stock. As used in
this prospectus the terms "we", "us" or "Company" mean North American DataCom,
Inc. and its subsidiaries.
ABOUT US
We are in the business of providing communications and information
technology services with an emphasis on wideband fiber optic and wireless
telecommunications services that support enterprise data storage solutions.
These services are intended to include Internet access services, on-line
critical data storage and retrieval, and data and voice networking. Our business
plan envisions offering a wideband fiber optics and wireless telecommunications
network that will service primarily Tier 2 markets by supporting wideband data,
voice and internet transmission. Tier 2 markets consist of those population
centers that are not in the primary 100 largest areas but are uniquely located
along railroad rights-of-way where fiber optic transmission facilities can be
easily accessed. Our short-term focus is on providing such services to Tier 2
markets in the southeast, primarily from Atlanta to Memphis.
We plan to engage in, and are currently in the process of developing,
the following lines of business:
- Enterprise Data Storage and Computing Facility
- Fiber Optic and Broadband Wireless Network
We are currently engaged in the following lines of business:
- Internet Access Service Provider
- Digital and Alpha Paging Services
- Telecommunications Consulting Projects
CORPORATE INFORMATION AND HISTORY
We were organized in September 1998 as North American Software
Associates, Limited, a Delaware corporation. Effective December 21, 1999, North
American Software Associates, Limited was acquired by Pierce International,
Inc., a Colorado corporation, in a share exchange transaction. In March 2000 we
moved our state of incorporation to Delaware and changed our name to North
American DataCom, Inc.
Our executive offices are located at 751 County Road 989, Building
1000, Iuka, Mississippi 38852. Our telephone number is (662) 424-5050. Our fax
number is (662) 424-5059.
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THE OFFERING
Securities offered by the selling
Stockholders 2,302,624 shares of common stock
Common stock outstanding 98,655,678 shares as of
December 8, 2000(1)
Options outstanding Options for 14,484,216 shares as
of December 8, 2000.
Use of proceeds We will receive no proceeds from
the sale of the common stock by the
selling stockholders.
Risk Factors An investment in the common stock
offered hereby involves a great
deal of risk. See "Risk Factors."
OTC Electronic Bulletin Board symbol. "NADA"
(1) Excludes shares issuable upon exercise of outstanding stock
options. We have approximately 14,484,216 options outstanding
as of December 8, 2000.
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RISK FACTORS
An investment in our common stock involves a high degree of risk,
including those risks discussed below. You should carefully consider these risk
factors along with all of the other information contained in this prospectus
before you decide to purchase shares of our common stock. If any of these risks
actually occur, our business, financial condition and operating results could be
adversely affected. If that happens, the trading price of our common stock could
decline and you could lose part or all of your investment. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties not presently known to us, or that we currently see as
immaterial, may also harm our business.
RISKS ASSOCIATED WITH OUR BUSINESS AND OPERATIONS
We are a start up company, have experienced historical operating losses and
received a going concern opinion from our auditors.
Substantially all of our historical revenues have been derived from
providing Internet access services and digital and alpha paging services. We
have no customers or revenues from our fiber optic and wireless broadband
network that we are currently attempting to develop or our enterprise data
storage facility that we are currently attempting to construct. Because our
operating history is extremely limited, and we have not actually commenced
operations on our fiber optic and wireless broadband network or our enterprise
data storage facility, you may find it difficult to evaluate our business
operations and prospects. We have experienced operating losses in each fiscal
quarter since we were founded and will likely continue to experience such
losses. As noted in our auditor's report dated September 18, 2000, our auditors
have indicated that there was substantial doubt as to our ability to continue as
a going concern.
We have immediate needs for substantial additional capital.
Our present operations do not provide sufficient cash flow to pay our
debts as they become due. We had negative working capital of approximately
$15,000,000 at September 30, 2000, and we expect we will need to obtain
additional capital of approximately $150,000,000 to finance our operating and
capital needs over the next twelve months. We are actively searching for sources
of financing in order to fund our business operations and capital needs, but
have no commitment to provide such financing as of the date of this Prospectus.
See "Management's Discussion and Analysis of Financial Condition - Liquidity."
If we fail to obtain additional capital our proposed operations will be
substantially restricted and we may not be able to pursue our proposed business
plan.
We are currently in default in paying certain material obligations.
In March 2000, we entered into an agreement with Qwest Communications
to purchase 500 miles of fiber conduit from New Orleans to Mobile, Alabama and
from Pensacola, Florida to Jacksonville, Florida. The total purchase price under
this agreement was approximately $15,000,000. Payments totaling approximately
$9,000,000 are currently due or past due under the agreement. We have not made
any of the payments due under this agreement and we are not able to make the
payments, but no default has been declared. Our obligations under this agreement
are personally guaranteed by our president. See "Certain Relationships and
Related Transactions." We have also entered into a contract with Thoroughbred
Technology and Telecommunications to lay fiber conduit between Atlanta and
Memphis, through Chattanooga, at a total cost of approximately $29,000,000, of
which 10% was due on October 15, 2000. The Company has received a notice of
default under this contract, as we have not made this payment and we are not
currently able to make the payment. If we are not able to obtain financing or
raise funds to satisfy these obligations, we may lose the ability to continue to
lay fiber optic cable and be subject to claims for contract breach. This would
impede our plans to develop and operate a fiber optic and wireless broadband
network and enterprise data storage facility.
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We lease our facilities and the lessor has the right to terminate the lease.
We lease our primary facility in Iuka, Mississippi from the Mississippi
Department of Economic and Community Development. This facility is critical to
our proposed business plan because it already contains many of the features
necessary for us to establish an enterprise data storage facility. Under our
current lease agreement the lessor has the right to terminate the lease on
ninety days prior written notice, regardless of whether we have defaulted under
the lease. Termination of the lease by the lessor, especially after we have
invested considerable time and funds in developing the facility as an enterprise
data storage facility, would cause material damage to us and to our proposed
business plans. See "Business - Properties".
We have certain outstanding obligations to pre-merger shareholders of Pierce
International, Inc.
As part of the share exchange transaction with Pierce International,
Inc. effected in December 1999, we agreed that as soon as practicable after the
closing of the share exchange transaction we would offer to those persons who
were shareholders of Pierce International, Inc. immediately prior to the
closing, by means of a registration statement filed with the Securities and
Exchange Commission, the right to purchase 0.26 of a share for each share held
by such person at a price of $0.25 per share at any time prior to the expiration
of one year from the effective date of the registration statement. As of the
date of this prospectus, we have determined that it is not yet practicable to
make such an offer, principally due to the expense of state registration of the
offer. There were approximately 7,515,705 shares outstanding held by Pierce
shareholders immediately prior to closing the share exchange transaction, and we
would need to issue approximately 1,954,083 additional shares of our common
stock in the event all options to purchase such shares were exercised. A sudden
increase in the number of shares of our common stock that is outstanding may
cause the price of the stock to go down and also could affect our ability to
raise equity capital.
Our operating results are likely to fluctuate widely from one period to another.
We expect that our operating results for the foreseeable future are
likely to fluctuate widely from quarter to quarter and from year to year. This
is especially true while we are building our fiber optic and wireless broadband
network. Fluctuation of results may occur due to a variety of factors including,
demand for and market acceptance of our products and services, reliability of
service and network availability, the ability to increase bandwidth as
necessary, customer retention, capacity utilization of our enterprise data
storage facility, the timing of customer needs, the timing and magnitude of
capital expenditures, changes in pricing policies or practices of competitors,
and changes in governmental regulations.
We will face significant competition in running our business.
Our market is intensely competitive. We may not have the resources to
compete successfully in the future. Current and potential competitors include
national, foreign and regional internet service providers, global, regional and
local telecommunications companies and the Regional Bell Operating Companies,
providers of server hosting and data storage services, and other technology
services and products companies. Most of these competitors will have
substantially greater resources than us. See "Description of Business -
Competition."
We are entering a new market.
The market for Internet system and network management solutions has
only recently begun to develop, is evolving rapidly and is characterized by an
increasing number of market entrants. This market may not prove to be viable or,
if it becomes viable, may not continue to grow. We currently incur costs in
excess of our revenues. If we cannot attract and retain a customer base, we will
not be able to increase our sales and revenues nor create economies of scale to
offset our fixed and operating costs.
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We will need to be able to manage growth.
In order for us to accomplish our proposed business plan, we must
experience rapid growth in building our enterprise data storage facilities and
network infrastructure, expand our service offering, expand our geographical
coverage, expand our customer base and increase the number of our employees.
This growth is expected to place a significant strain on our financial,
management, operational and other resources, including our ability to ensure
customer satisfaction. This expansion will require significant time commitments
from our senior management and involve the efficient management of multiple
relationships with a growing number of third parties. Our ability to manage
growth effectively will require us to continue to expand operating and financial
procedures and controls, to upgrade operational, financial and management
information systems and to attract, train, motivate and retain key employees. We
will also need to be able to attract, hire and retain qualified employees in
today's competitive employment market. If our executives are unable to manage
growth effectively, our business could be materially adversely affected.
If our systems fail, we could face significant costs.
We must protect our network infrastructure and equipment against damage
from human error, physical or electronic security breaches, power loss and other
facility failures, fire, earthquake, flood, telecommunications failure,
sabotage, vandalism and similar events. Despite precautions that we have taken,
a natural disaster or other unanticipated problems at one of our facilities
could result in interruptions in services or significant damage to customer
equipment or data. Any damage to or failure of our systems or service providers
could result in reductions in, or terminations of, services supplied to our
customers, which could have a material adverse effect on our business.
We will depend on network interconnections supplied by third parties.
We will rely, in part, on a number of public and private network
interconnections to allow our customers to connect to other networks. If the
networks with which we interconnect were to discontinue their interconnections,
our ability to exchange traffic would be significantly constrained. Furthermore,
our business could be harmed if these networks do not add more bandwidth to
accommodate increased traffic. Some of these networks will likely require the
payment of fees for the right to maintain interconnections. There usually is
nothing to prevent any networks from increasing fees or denying access. In such
cases, our ability to pursue the proposed business plan could be materially
adversely affected.
A portion of our business may be subject to international risks.
We are pursuing international business opportunities, especially with
respect to the Country of Turkey. Risks inherent in international operations
include unexpected changes in regulatory requirements, export restrictions,
tariffs and other trade barriers; challenges in staffing and managing foreign
operations; differences in technology standards; employment laws and practices
in foreign countries; longer payment cycles and problems in collecting accounts
receivable; political instability; changes in currency exchange rates and
imposition of currency exchange controls and potentially adverse tax
consequences.
Our business is likely to become dependant upon one or a few major customers.
Upon completion and commencement of operations of our planned fiber
optic and wireless broadband network and enterprise data storage facility, we
will likely experience periods during which we will be highly dependent on one
or a limited number of customers. Being dependent on a single or a few customers
will make it difficult to satisfactorily negotiate attractive prices for our
services and will expose us to the risk of substantial losses if a single
dominant customer stops conducting business with us.
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RISKS RELATED TO LEGAL REQUIREMENTS
We will have to comply with telecommunications regulations.
Most of our proposed business services and products are subject to
regulation at the federal and state levels. These regulations are in some cases
uncertain and are often undergoing change. If we fail to comply with these
regulations our business could be materially adversely effected. See
"Description of Business - Government Regulation."
We will have to comply with environmental regulations.
Our intended operations, especially the construction and operation of a
fiber optic network, are subject to various federal, state and local laws and
regulations relating to the protection of the environment. These environmental
laws and regulations, which have become increasingly stringent, are implemented
principally by the Environmental Protection Agency and comparable state
agencies, and govern the management of hazardous wastes, the discharge of
pollutants into the air and into surface and underground waters, and the
manufacture and disposal of certain substances. There are no material
environmental claims currently pending or, to our knowledge, threatened against
us. In addition, we believe that our operations are in material compliance with
current laws and regulations. We estimate that any expenses incurred in
maintaining compliance with current laws and regulations will not have a
material effect on our earnings or capital expenditures. However, current
regulatory requirements may change, currently unforeseen environmental incidents
may occur, or past non-compliance with environmental laws may be discovered on
our properties.
RISKS RELATED TO THE OFFERING
We may issue additional shares of common stock or preferred stock without
shareholder approval and may agree to register the resale of additional shares
of common stock.
Our Certificates of Incorporation authorizes the issuance of up to
150,000,000 shares of common stock and up to 10,000,000 shares of preferred
stock with such rights and preferences as our board of directors may determine
from time to time. Our board of directors may authorize us to issue additional
shares of common stock or one or more series of preferred stock without
shareholder approval. The existence or terms of these securities may adversely
affect the rights of holders of the common stock. In addition, we may grant
rights to other current or future holders of common stock to have their shares
of common stock registered for resale under the Securities Act of 1933. A
decision by any such shareholder to publicly sell a significant number of shares
of the common stock will have the potential to cause a material decrease in the
trading price of the common stock and may impair our future ability to raise
capital at prices or on terms favorable to us.
The market price of our common stock is extremely volatile.
Trading volume and prices for our common stock have fluctuated widely
since our share exchange transaction with Pierce International, Inc. During the
period from January to September 2000 the bid price for our common stock has
ranged from $0.95 per share to $9.13 per share. Our common stock trades only on
the NASD's OTC Bulletin Board. As a result, selling our shares may be more
difficult because smaller quantities of shares may be bought and sold,
transactions may be delayed, and news media coverage of us is limited. Further,
securities analysts do not cover our stock and institutional investors are
unlikely to purchase our stock. See "Market for Registrant's Common Equity and
Related Stockholder Matters." All of the shares registered for sale on behalf of
the selling stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. We filed a Registration Statement of which
this prospectus is a part to register these restricted shares for sale into the
public market by the selling stockholders. The effect of this Registration
Statement is to increase the number of unrestricted shares. A sudden increase in
the amount of unrestricted shares may cause the price of the stock to go
8
<PAGE> 11
down and also could affect our ability to raise equity capital. Any outstanding
shares not sold by the selling stockholders pursuant to this prospectus will
remain "restricted shares" in the hands of the holder, except for those held by
non-affiliates, for a period of one year, calculated pursuant to SEC Rule 144.
"Penny Stock" regulations may impair the liquidity of our common stock.
Because the bid price of our common stock is below $5.00 per share,
shares of common stock may be subject to the SEC's Rule 15g-9 and other penny
stock regulations under the Securities Exchange Act of 1934. Rule 15g-9 imposes
sales practice requirements on broker-dealers that sell low-priced securities to
persons other than established customers and institutional accredited investors.
For transactions covered by this rule, a broker-dealer must make a special
suitability determination for the prospective purchaser and have received the
purchaser's written consent to the transaction before the sale. Consequently,
this rule and other "penny stock" regulations may adversely affect the ability
of broker-dealers to sell our shares and may adversely affect the ability of
holders to sell their shares of common stock in the secondary market.
A small number of persons control the Company.
Robert R. Crawford, our President and sole director, controls
approximately 45% of our outstanding shares of common stock. In addition, a
trust for the benefit of certain adult members of Mr. Crawford's family controls
approximately 18% of our outstanding shares of common stock, of which Mr.
Crawford disclaims beneficial ownership. As a result, Mr. Crawford and his
family are able to exercise a significant influence over all matters requiring
shareholder or board of director approval, including the election of directors
and approval of significant corporate transactions. Such concentration of
ownership may also have the effect of delaying or preventing a change in control
of the Company.
We do not intend to pay, and expect to be unable to pay, dividends on our common
stock.
We have not paid dividends, and do not intend to pay any dividends in
the foreseeable future, since earnings, if any, are expected to be retained for
use in the development and expansion of our business.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "anticipate," "believe," "plan," "could," "would",
"estimate," "expect," "intend," "may," "should," and "will" or similar words.
For example, statements about the level of capital expenditures and working
capital that we may need to fund our business plan and the miles of fiber optic
plant that we expect to develop are forward-looking statements. You should read
statements that contain these words carefully because they discuss our future
expectations, contain projections or our future results of operations or of our
financial position or state other "forward-looking" information. There will
likely be events in the future that we are not able to accurately predict or
control. The factors listed above in the section captioned "Risk Factors" as
well as any cautionary language located elsewhere in this Prospectus, provide
examples of some of the risks, uncertainties and events that may cause our
actual results to differ materially from the expectations se describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of the events described in these risk factors and
elsewhere in this Prospectus could have a material adverse effect on our
business, results of operations and financial position.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock by the selling stockholders.
We will bear the expenses of the registration of the shares of common
stock offered herein and estimate that these expenses will be approximately
$55,000.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the over-the-counter electronic bulletin
board under the symbol "NADA". The market for the common stock has often been
sporadic, volatile and limited.
The following table shows the high and low bid prices for our common
stock as reported by NASDAQ during the past two years and current year. The
prices reflect inter-dealer quotations, without retail markup, markdown or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Quarter Ended High Bid Low Bid
-------------------- -------- -------
<S> <C> <C>
September 30, 1998 $ 0.23 $ 0.05
December 31, 1998 $ 0.15 $ 0.03
March 31, 1999 $ 0.12 $ 0.06
June 30, 1999 $ 0.10 $ 0.05
September 30, 1999 $ 0.10 $ 0.05
December 31, 1999 $ 1.69 $ 0.05
March 31, 2000 $ 9.13 $ 0.95
June 30, 2000 $ 7.06 $ 2.75
September 30, 2000 $ 6.94 $ 2.00
</TABLE>
Holders of Record
On November 28, 2000, we had approximately 477 registered holders of
record of our common stock.
Dividends
Holders of the our common stock are entitled to receive dividends when
and if declared by the Board of Directors out of funds legally available
therefor and, in the event of liquidation, to share pro rata in any distribution
of our assets after payment of liabilities and any preferential liquidation
distributions to our preferred stockholders. The Board of Directors is not
obligated to declare a dividend. We have not paid any dividends on our common
stock, and we do not have any current plans to pay any common stock dividends.
"Penny Stock" Rules
Because the bid price of our common stock has been below $5.00 per
share, the SEC's Rule 15g-9 may apply to our common stock. This rule imposes
additional sales practice requirements on a broker-dealer that sells Rule 15g-9
securities to persons other than the broker-dealer's established customers and
institutional accredited investors. For transactions covered under Rule 15g-9,
the broker-dealer must make a suitability determination of the purchaser and
receive the purchaser's written agreement to the transaction before the sale. In
addition, broker-dealers, particularly if they are market makers in the common
stock, have to comply with the disclosure requirements of Rules 15g-2, 15g-3,
15g-4, 15g-5 and 15g-6 under the Exchange Act unless the transaction is
10
<PAGE> 13
exempt under Rule 15g-1. Consequently, Rule 15g-9 and these other rules may
adversely affect the ability of broker-dealers to sell or to make markets in the
common stock and also may adversely affect the ability of purchasers of the
shares offered by this prospectus to resell their shares.
11
<PAGE> 14
SELECTED FINANCIAL DATA
The selected financial data set forth below have been derived from the
Company's consolidated financial statements included elsewhere in this
prospectus. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and related
notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Inception
(September 1, Three Months Three Months
Fiscal Year 1998) ended ended
Ended through September 30, September 30,
June 30, June 30, 2000 1999
2000 1999 (unaudited) (unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Service Revenues $ 269,649 $ 19,539 $ 69,432 $ 23,995
Cost of Services 117,924 24,667 48,014 10,378
------------ ------------ ------------ ------------
Gross Profit (Loss) 151,725 (5,128) 21,418 13,617
Selling, General and
Administrative Expenses 1,744,701 477,612 715,864 197,179
------------ ------------ ------------ ------------
Operating Loss (1,592,976) (482,740) (694,446) (183,562)
Other Income (Expense), Net (214,710) 184,650 (174,640) 3,823
------------ ------------ ------------ ------------
Loss before income tax
expenses (benefit) (1,807,686) (298,090) (869,086) (179,739)
Income tax expense (benefit) -- (990) -- --
------------ ------------ ------------ ------------
Net Loss (1,807,686) (297,100) (869,086) (179,739)
------------ ------------ ------------ ------------
Basic and Diluted Loss per
Common Share $ (0.03) $ (0.01) $ (0.01) $ 0.00
------------ ------------ ------------ ------------
Weighted Average Number of
Common Shares Outstanding 71,725,566 33,193,595 91,393,141 46,515,268
</TABLE>
<TABLE>
<CAPTION>
At September 30, At September 30,
At June 30, At June 30, 2000 1999
2000 1999 (unaudited) (unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital ($15,287,050) $ 622,031 ($14,817,932) $ 449,507
Total Assets 16,250,980 1,283,172 16,739,383 1,159,809
Long-Term Debt 23,917 29,079 23,917 83,248
Shareholders' Equity $ 775,304 $ 1,055,771 $ 1,475,343 $ 874,782
</TABLE>
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<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company was organized in September 1998 as North American Software
Associates, Limited, a Delaware corporation. The Company was organized to
provide a variety of telecommunications services. On April 1, 1999, the Company
acquired all of the assets of Freedom 2000, a local internet service provider,
in exchange for 577,123 shares of restricted common stock of the Company. On
December 3, 1999, the Company acquired all of the common stock of Action
Communications, Inc. ("Action"), a provider of digital and alpha numeric paging
services, in exchange for 1,731,339 shares of restricted common stock of the
Company. The Action transaction has been treated for accounting purposes as a
purchase of assets and liabilities, and revenues and expenses of Action prior to
December 3, 1999 have not been consolidated. Effective December 21, 1999, North
American Software Associates, Limited ("NAS") was acquired by Pierce
International, Inc. in a share exchange transaction and in March 2000 the
Company changed its name to North American DataCom, Inc. The transaction with
Pierce International, Inc. has been accounted for as a reverse acquisition since
the former shareholders of NAS owned controlling interest in the Company
immediately following the transaction and management of Pierce International,
Inc. was replaced by management of NAS.
The Company currently provides Internet and Alpha numeric paging
services to the mid-south area. The current operations do not rely on
trademarks, licenses, franchises or concessions held. Operations are not
seasonal, do not depend on a single customer and do not have a backlog of
orders.
The Company intends to provide broad-based communications and
information technology services with an emphasis on wideband fiber optic and
wireless telecommunications services that support enterprise data storage
solutions. These services are intended to include Internet access services,
on-line critical data storage and retrieval, and data and voice networking.
Currently the Company only provides Internet access services and digital and
alpha numeric paging services. All of the Company's historical revenues have
been derived from these services.
Results of Operations:
Because the Company only acquired Freedom 2000, its Internet service
provider, in April 1999, only a partial year of revenues and expenses from this
activity is reflected in the Company's results of operations for fiscal 1999,
compared with a full year of operations for fiscal 2000. Because the Company
only acquired Action Communications, Inc., its digital and alpha numeric paging
provider, in December 1999, none of the revenues and expenses from this activity
is reflected in the Company's results of operations for fiscal 1999 and the
quarter ended September 30, 1999, and only a partial year of operations is
reflected for fiscal 2000. As a result, management does not believe that the
Company's results of operation for fiscal 1999 and the quarter ended September
30, 1999 are directly comparable to results of operation for fiscal 2000 and the
quarter ended September 30, 2000, respectively, and are not indicative of
possible results in the future.
Fiscal Year Ended June 30, 2000 Compared to 1999
The Company's historical net service revenues consist primarily of
monthly fees from customers subscribing to the Company's Internet service
provider services or the Company's digital and alphanumeric paging services. Net
service revenues increased to $269,649 in fiscal 2000 from $19,539 in fiscal
1999, an increase of approximately 1,280%. This growth in net service revenues
was primarily the result of having a full year of operations for the internet
service provider in fiscal 2000, as compared with only three month's of
operations in fiscal 1999 and having seven months of operations generating
approximately $93,000 of revenues for the paging services in fiscal 2000, as
compared with no operations in fiscal 1999. In addition, the Company provided
Internet access service to approximately 1,500 customers at June 30, 2000 as
compared with only about 250 customers at June 30, 1999.
The Company's cost of services consist primarily of paging airtime,
postage and delivery expenses and allocated overhead costs. Cost of services
increased to $117,924 in fiscal 2000 from $24,667 in fiscal 1999, an increase of
approximately 378%. This increase in cost of services was primarily related to
the increase in net services provided. Cost of service, as a percent of net
service revenue, fell from 126% in fiscal 1999 to 43% in
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<PAGE> 16
fiscal 2000 due to the increased customer base and correlating increase in
revenue. As a result, gross profit in fiscal 2000 was $151,725, as compared with
a gross loss of $5,128 in fiscal 1999.
The Company incurred selling, general and administrative expenses of
approximately $1,744,701 in fiscal 2000 compared with $477,612 in fiscal 1999,
an increase of approximately 265%. These expenses consisted primarily of
telephone expenses, insurance expenses, payroll expenses, legal and professional
services and rent expense, as well as non-cash stock compensation. This increase
in selling, general and administrative expenses was primarily the result of
having a full year of operations for the Internet service provider in fiscal
2000, as compared with only three month's of operations in fiscal 1999 and
having seven months of operations for the paging services in fiscal 2000, as
compared with no operations in fiscal 1999. The Company experienced an increase
of approximately 200% in the number of employees from fiscal 1999 to fiscal
2000. Approximately $195,161 of general and administrative expense in fiscal
2000 was incurred by the Company in order to pursue its broadband
telecommunications network and enterprise data center business plans. In
addition, approximately $211,000 of general and administrative expense was
attributed to the merger with Pierce International, Inc. during fiscal 2000.
The Company incurred approximately $214,710 in other expense in fiscal
2000 as compared with $184,650 of other income in fiscal 1999. Other income
(expense) was primarily associated with the sale of 500,000 shares of New York
Regional Rail Corporation stock, investment income, interest expense and various
miscellaneous expenses. Imputed interest of approximately $180,282 was recorded
in fiscal 2000 relating to a contract to acquire rights-of-way and fiber conduit
which provided for payments over a period of months without stated interest.
Three Month Period Ended September 30, 2000 Compared
to Three Month Period Ended September 30, 1999
Net service revenues increased to $69,432 in quarter ended September 30,
2000 from $23,995 for the quarter ended September 30, 1999, an increase of
approximately 189%. This growth in net service revenues was primarily the result
of having operations generating approximately $18,174 of revenues for the paging
services in quarter ended September 30, 2000, as compared with no paging
operations for the same quarterly period in 1999. In addition, the Company
provided Internet access service to approximately 1,246 customers at September
30, 2000 as compared with only about 434 customers at September 30, 1999.
Cost of services increased to $48,014 for the quarter ended September 30,
2000 from $10,378 for the quarter ended September 30, 1999. This increase in
cost of services was primarily due to an increase in customers, net services
provided, and increasing cost concerning telecommunications services. Cost of
service, as a percent of net service revenue, increased from 43.3% for the
quarter ended September 30, 1999 to 69.2% for the quarter ended September 30,
2000. As a result, gross profit for the quarter ended September 30, 2000 was
$21,418, as compared with $13,617 for the quarter ended September 30, 1999.
The Company incurred selling, general and administrative expenses of
approximately $715,864 for the quarter ended September 30, 2000 compared with
$197,179 for the quarter ended September 30, 1999, an increase of approximately
263%. These expenses consisted primarily of telephone expenses, insurance
expenses, payroll expenses, legal and professional services and rent expense.
This increase in selling, general and administrative expenses was primarily the
result of having a full period of operations for paging services in during the
quarter ending September 30, 2000, as compared with no paging services
operations for the quarter ended September 30, 1999. In addition, the Company
experienced an increase of its number of employees to 28 employees at September
30, 2000 as compared to 11 employees at September 30, 1999. Approximately
$131,813 of general and administrative expense for the quarter ended September
30, 2000 was incurred by the Company in order to pursue its broadband
telecommunications network and enterprise data center business plans.
The Company incurred approximately $174,640 in other expense for the quarter
ended September 30, 2000 as compared with $3,823 of other income for the quarter
ended September 30, 1999. Other income (expense) was primarily associated with
investment income, interest expense and various miscellaneous expenses. Imputed
interest of approximately $182,263 was recorded in the quarter ended September
30, 2000 relating to a contract to acquire rights-of-way and fiber conduit which
provided for payments over a period of months without stated interest.
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<PAGE> 17
Liquidity:
The Company's primary liquidity and capital needs consist of funding
cash flow losses from operations, constructing and equipping the Company's
enterprise data center and constructing the Company's fiber optic and broadband
wireless telecommunications network. In fiscal 2000 the Company used
approximately $1,183,421 of net cash in operations. In fiscal 1999, the Company
used approximately $429,698 of net cash in operations. In fiscal 2000,
approximately $236,906 was provided by investing activities, of which $700,000
was attributed to the Company's collection of a $700,000 receivable in
connection with the sale of New York Regional Rail Corporation stock, and
$463,094 was used for the purchase of property and equipment. In fiscal 1999,
approximately $142,399 was used for the purchase of property and equipment. In
fiscal 2000 and fiscal 1999, approximately $954,110 and $585,450, respectively,
in funds were provided from financing activities, principally consisting of
proceeds from selling equity securities.
For the quarters ended September 30, 2000 and 1999, the Company used
approximately $522,273 and $201,561 of net cash in operations, respectively. For
the quarter ended September 30, 2000, the Company used approximately $143,977
in investing activities for the purchase of property and equipment and advanced
funds of $200,000 in connection with its proposed Turkish venture. Approximately
$1,597,125 in funds were provided from financing activities for the quarter
ended September 30, 2000, principally consisting of proceeds from selling equity
securities. Payments of $575,000 against a note payable were made in the
quarter. For the quarter ended September 30, 1999, the Company generated
$681,712 in investing activities (principally from the receipt of $700,000 in
proceeds discussed above) and generated $53,022 in financing activities.
In March 2000, the Company entered into an agreement with Qwest
Communications to purchase approximately 500 miles of fiber conduit from New
Orleans to Mobile, Alabama and from Pensacola, Florida to Jacksonville, Florida.
The total purchase price under this agreement is approximately $15,120,000.
Payments totaling approximately $9,000,000 are currently due or past due under
the agreement. Payments are due quarterly through March 31, 2001. The Company
has not made any of the payments due under this agreement, but no default has
been declared.
In August 2000, the Company also entered into an agreement with
Thoroughbred Technology and Telecommunications to lay fiber conduit from
Atlanta, Georgia to Chattanooga, Tennessee and from Chattanooga to Memphis,
Tennessee. The total cost of this project under the agreements that the Company
has already executed is approximately $29,000,000. 10% of this cost was due
October 15, 2000, with the remainder due as segments of the project are
completed. A notice of default under this agreement has been received by the
Company as the Company has not made any of the payments due under this
agreement.
If the Company is not able to obtain financing or raise funds to meet
its obligations under the Qwest agreement and cure the default and meet its
obligations under the Thoroughbred Technology agreement, the Company may lose
the ability to continue to lay fiber optic cable and be subject to claims for
contract breach. This would impede the Company's ability to develop and operate
its planned fiber optic and wireless broadband network and enterprise data
storage facility.
In July, the Company advanced $200,000 to Global Fiber Optic and
Wireless Communications, Ltd. ("Global") in anticipation of developing a joint
venture to develop internet and information technology services for Turkey. The
Company and Global plan to each have a fifty percent interest in any joint
venture formed. The Company will be required to provide electronic and
communications technologies, while Global will provide rights-of-way and other
real estate as needed in Turkey.
Management expects that the Company will require approximately
$150,000,000 in capital over the next twelve months to fund the following
anticipated needs. Estimated expenditures include, but are not limited to,
approximately $81,000,000 to acquire network rights-of-way, installation of
conduit and fiber optic cable, $28,000,000 for optical electronics and software,
$10,000,000 for operation support systems and network operation center software,
$9,500,000 for Tier IV enterprise data center infrastructure upgrade and
improvements, $11,000,000 in working capital and approximately $10,500,000 for
financing costs. Actual costs may vary from management's current expectations.
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<PAGE> 18
The Company plans to fund its liquidity and capital needs through joint
venture arrangements with strategic business partners, vendor financing and the
issuance of equity and debt securities. The Company is proceeding with
discussions with strategic partners, but has no commitments to provide financing
as of the date of this Prospectus.
In June 2000, the Company sold 300 shares of Series B cumulative
convertible preferred stock to Robert Crawford, the Company's president,
director and principal shareholder, for a purchase price of $1,000 per share. In
order to pay certain accounts payable and for use for working capital, in
September 2000, Mr. Crawford purchased from the Company 500 additional shares of
Series B cumulative convertible preferred stock for a purchase price of $1,000
per share. Each share of the Series B cumulative convertible preferred stock is
convertible into 500 shares of common stock commencing July 1, 2001, and is
entitled to an annual dividend of $60.
In order to pay certain accounts payable and for use for working
capital, in July 2000 the Company agreed to sell 317,500 shares of common stock
for a total purchase price of $635,000. In August 2000, the Company closed the
placement of these shares, and the Board of Directors authorized the issuance of
the 317,500 shares of common stock to satisfy the agreement. The Company further
agreed to use its best efforts to register the resale of such shares with the
SEC prior to February 2001. These shares are included in the registration
statement of which this Prospectus is a part.
In September 2000, the Company closed the private placement of 150,000
shares of common stock for a total purchase price of approximately $442,125. The
Company agreed to pay certain fees associated with the placement through the
issuance of an additional 3,000 shares of restricted common stock and the
payment of $13,700 in cash. The terms of the transaction provide that the
Company shall file a registration statement with SEC for the resale of the
150,000 shares by October 5, 2000. For each fifteen day period following October
5, 2000 in which the registration statement is not filed with the SEC, the
Company is required to make a payment to the private investor equal to $8,842
payable in cash or common stock based upon the closing OTC bid price of the
shares of Company's common stock as of the end of each fifteen day period. As of
December 8, 2000, the Company had issued an additional 20,225 shares of common
stock to such investors for not filing such registration statement by October 5,
2000. In addition, if the registration statement is not declared effective by
the SEC by February 2, 2001, the Company is required to make a payment to the
private investor equal to $44,212 payable in cash or common stock based upon the
closing OTC bid price of the shares of the Company's common stock as of such
date. These shares are included in the registration statement of which this
Prospectus is a part.
The Company's liquidity and capital needs are substantial and the
Company has no present commitments to fund those needs. As reflected in the
Company's financial statements for fiscal year ended June 30, 2000 filed with
the Company's Annual Report on Form 10-K, the auditors have expressed
substantial doubt about the ability of the Company to continue as a going
concern. As stated in note 11 to the unaudited financial statements, as of
September 30, 2000, the Company has negative working capital with obligations
totaling $15,240,123 due within one year of which approximately $9,000,000 is
past due. In addition, the Company has sustained losses totaling $2,971,947
since inception. The inability of the Company to secure additional capital and
financing and the inability of the Company to attain and maintain profitable
operations would have a material adverse effect on whether the Company would be
successful in implementing its proposed business plan and continue as a going
concern.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133 requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.
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<PAGE> 19
SFAS 133 is effective for the financial statements for periods
beginning after June 15, 2000. The Company has not entered into derivatives
contracts either to hedge existing risk or for speculative purposes.
Accordingly, the adoption of the new standard did not materially effect the
fiscal 2001 financial statements.
The Financial Accounting Standards Board issued Interpretation
("Interpretation") No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an Interpretation of APB Opinion No. 25" which is effective July
1, 2000. Interpretation No. 44 clarifies (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a
stock compensation plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Adoption of the provisions of the
Interpretation did not have a significant impact on our financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
101, -- Revenue Recognition, effective for fiscal years starting January 1,
2000, which outlines the basic criteria that must be met to recognize revenue
and provides guidance for presentation of revenue and for disclosure related to
revenue recognition policies in financial statements filed with the Securities
and Exchange Commission. We believe that adopting SAB No. 101 will not have a
material impact on our financial position or results of operations.
In September 2000, the Financial Accounting Standards Board issued SFAS
No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities ("SFAS 140"). SFAS 140 revises the standards for
accounting for Securitizations and other transfers of financial assets and
collateral and is effective for fiscal years ending December 15, 2000. We
believe that adopting SFAS 140 will not have a material impact on our financial
position or results of operations.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Effective June 7, 2000, the Company retained BDO Seidman, LLP ("BDO") to
act as the Company's independent certified public accountant. In this regard,
BDO replaced Spicer Jeffries & Co. ("Spicer") which audited the financial
statements of Pierce International, Inc., the Company's legal acquiror for the
fiscal year ended June 30, 1999. The reports of Spicer for this fiscal year did
not contain an adverse opinion or disclaimer of opinion and were not qualified
or modified as to audit scope or accounting principles. However, the report of
Spicer for this fiscal year was qualified with respect to uncertainty as to the
Company's ability to continue as a going concern. During the Company's two most
recent fiscal years and subsequent interim periods, there were no disagreements
with Spicer on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedures, which disagreements, if
not resolved to the satisfaction of Spicer, would have caused it to make
reference to such disagreements in its reports.
The Company has authorized Spicer to discuss any matter relating to the
Company and its operations with BDO.
The change in the Company's auditors was recommended and approved by the
board of directors of the Company. The Company does not have an audit committee.
During the two most recent fiscal years prior to June 7, 2000, the
Company did not consult with BDO regarding the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements,
or any matter that was the subject of a disagreement or reportable event as
defined in the regulations of the Securities and Exchange Commission.
The Company filed a Current Report on Form 8-K dated June 15, 2000,
reporting the change in accountants. Spicer reviewed the disclosures in the Form
8-K. The Company advised Spicer that it had the opportunity to furnish the
Company with a letter addressed to the Securities and Exchange Commission
concerning any new information, clarifying the Company's disclosures in the Form
8-K or stating any reason why Spicer did not agree with any statements made by
the Company in the Form 8-K. In a letter to the Company dated June 16, 2000,
Spicer advised the
17
<PAGE> 20
Company that it was in agreement with the statements made by the Company
concerning that firm.
Quantitative and Qualitative Disclosures about Market Risks
The Company has not entered into any transaction using derivative
financial instruments and believes that its exposure to market risk associated
with other financial instruments is not material. The Company's cash equivalents
are maintained primarily in money market risks maturing in less than three
months. Accordingly, the Company does not believe that it has any significant
exposure to interest rate risk. The Company currently operates only in the
United States and all sales are made in U.S. dollars. Accordingly, the Company
does not have any material exposure to foreign currency rate fluctuations.
BUSINESS
Overview
The Company was organized in September 1998 as North American Software
Associates, Limited, a Delaware corporation. We were organized to provide a
variety of telecommunications services. Effective December 21, 1999, North
American Software Associates, Limited was acquired by Pierce International,
Inc., a Colorado corporation, in a share exchange transaction, and in March
2000, we moved our state of incorporation to Delaware and changed our name to
North American DataCom, Inc.
We intend to provide communications and information technology services
with an emphasis on wideband fiber optic and wireless telecommunications
services that support enterprise data storage solutions. These services are
intended to include Internet access services, on-line critical data storage and
retrieval, and data and voice networking. Our business plan envisions offering a
wideband fiber optics and wireless telecommunications network that will service
primarily Tier 2 markets by supporting wideband data, voice and internet
transmission. Tier 2 markets consist of those population centers that are not in
the primary 100 largest areas but are uniquely located along railroad
rights-of-way where fiber optic transmission facilities can be easily accessed.
Our short-term focus is on providing such services to Tier 2 markets in the
southeast, primarily from Atlanta to Memphis.
We plan to engage in, and are currently in the process of developing,
the following lines of business:
- Enterprise Data Storage and Computing Facility
- Fiber Optic and Broadband Wireless Network
We are currently engaged in the following lines of business:
- Internet Access Service Provider
- Digital and Alpha Paging Services
- Telecommunications Consulting Projects
Enterprise Data Storage. We are in the process of furnishing and
equipping a facility in Iuka, Mississippi to position ourselves to provide
secure enterprise data storage and Internet access services for corporate,
government and other users. In January 1999 we entered into a lease agreement
for use of the facility that was originally constructed for the National
Aeronautics and Space Administration ("NASA") in 1994 to support the advanced
solid rocket motor project. When completed the facility originally housed a
fully functional $20 million computer and network operations center and provided
information processing and on-line data storage with a high level of security.
Budget cuts for the space shuttle caused the closure of this facility in 1996.
We believe that this facility, with its existing infrastructure and security
features, is ideally suited for providing secure enterprise data storage and
access services. Although we currently do not have any agreements with third
parties to provide these services, we are proceeding to equip and furnish our
facility to position ourselves to deliver these services in the future.
Fiber Optic and Broadband Wireless Network. We are in the process of
building a fiber optic and broadband wireless communications network, which will
allow for the high-speed transmission of large amounts of data. We intend to
market our high-speed data transmission network to businesses, government
agencies and institutions that
18
<PAGE> 21
may prefer optical networks over existing telephone and satellite data
transmission systems. In March 2000, we entered into an agreement with Qwest
Communications in which we purchased 504 miles of conduit installed along the
CSX railroad track from New Orleans, Louisiana to Mobile, Alabama, and from
Pensacola, Florida to Jacksonville, Florida. We have not yet installed fiber
optic cable within the conduit that we purchased from Qwest Communications. The
agreement with Qwest calls for payments of approximately $15 million over the
course of the agreement, approximately $9 million of which is currently due or
past due. In August 2000, we entered into an agreement with Thoroughbred
Technology and Telecommunications to lay fiber conduit between Atlanta, Georgia
and Chattanooga, Tennessee and from Chattanooga to Memphis, Tennessee, and we
have approximately 100 miles of conduit currently installed out of a total of
525 miles. We have not yet installed fiber optic cable within such conduit. The
agreement calls for payments of approximately $29 million over the course of the
agreement, approximately $2.9 million of which was due October 15, 2000 with the
balance due in specified installments as the conduit is installed. We have
received a notice of default under this contract, as we have not made the
payment due October 15, 2000 and we are not currently able to make the payment.
In addition, we have entered into an agreement with Tishomingo Railroad to
provide last mile access to our enterprise data center in Iuka, Mississippi.
Internet Access Service Provider. As of September 30, 2000, we provided
Internet access services to approximately 1,500 customers in Mississippi,
Tennessee and Alabama. The internet services that we provide to our customers
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.
As our fiber optic and broadband wireless network expands, we will attempt to
market our Internet access provider services to businesses and retail customers
along the route of the network.
Digital and Alpha Paging Services. Through our wholly-owned subsidiary,
Action Communications, Inc. ("Action"), we provide digital and alpha numeric
paging services to nine southeastern states and are expanding our coverage area
to include portions of the eastern and southwestern United States. As a
specialized mobile radio carrier, Action also provides dispatch, telephone and
global position system services.
Telecommunications Consulting Projects. We also propose to engage in
telecommunications consulting projects for corporations, governmental agencies
and institutions to upgrade their computer systems to function more effectively.
Industry Background
Internet usage is growing rapidly, and businesses are increasingly
embracing the Internet as a venue to sell their products and services. Many
Internet operations are critical to the businesses and customers using the
operations. In order to provide the quality, reliability, availability and
redundancy of these critical operations, corporate information technology teams
must make significant capital investments in facilities, personnel, equipment
and networks which must be maintained and upgraded on a continuous basis. This
investment is an inefficient use of resources, and has created the opportunity
for businesses like us to offer server hosting, Internet connectivity, remote
enterprise data storage and managed and professional telecommunications services
to third parties to enable reliable, high performance for critical Internet
operations.
The data storage management market has expanded rapidly as more
businesses and governmental agencies are outsourcing their data storage needs.
This has led to significant growth in the industry of data storage
infrastructure services, enterprise storage resource management, data
replication product development and an increase in the number of data centers
necessary for the growth in the data storage market. Although we are still in
our development phase, we believe that our current infrastructure and planned
expansion facilities will be well-positioned for servicing the growing need of
data storage services.
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<PAGE> 22
Products and Services
Enterprise Data Storage. We propose to become a Tier IV data center
supporting secure enterprise data hosting and storage services. A Tier IV
data center provides for its users site infrastructure capacity and capability
to permit any planned activity without disruption to the critical load. We lease
a state-of-the-art facility in Iuka, Mississippi that was originally designed
and constructed to house the computer engineering and programming center for the
NASA advanced solid rocket motor project. We believe that this facility is
uniquely designed to provide the physical environment necessary for a Tier IV
data center. If completed, this data center will enable us to offer enterprise
storage operations, Internet hosting co-location, web-based data storage and
general real-time data backup running 24-hours-a-day, 7-days-a-week. The
facility is custom designed with raised floors, HVAC temperature control systems
with separate cooling zones and full electric power redundancy. We intend to
develop and upgrade our current data center in Iuka, Mississippi to support up
to 65,000 square feet of raised floor data center services.
Our facility contains a full range of security features. These include
24-hour-a-day secured access with security breach alarms, cipher lock systems
and security guards on premises. The facility is housed in a government
constructed, nearly tornado-proof building using full redundant primary power
from two sources with multiple backup power generators. The facility currently
has a 1,000 square foot, temperature controlled telecommunications room adjacent
to a 3,200 square foot raised floor, temperature controlled computer room
complete with security, UPS power backup and emergency diesel generator backup.
The complex has a 50 mega-watt redundant power source provided by a TVA power
station for current and additional power requirements which should meet all of
our power requirements.
In addition, we provide 24-hour systems management with onsite personnel
who are trained in the areas of networks, Internet and transmission systems, and
who are available to monitor enterprise storage operations, data center
services, network operation controls, and Internet hosting. This physical and
technical environment is expected to provide our potential customers the
reliability and flexibility necessary to store mission critical web-based
information at affordable rates.
In order to upgrade our existing facilities to offer Tier IV services we
will need to upgrade various elements of our facilities, including: (i) multiple
data entrances, (ii) multiple power supplies, (iii) enhanced physical security
for the premises and (iv) expansion of square footage of raised floor space.
Currently we have data access to our hosting facility provided by microwave
wireless transmission and leased lines from Atlanta and Memphis. As our fiber
capacity is completed we expect to be able to provide dual redundant alternative
data entrances to our hosting and storage facility.
We plan to construct our enterprise data storage infrastructure around
the E-Business Infrastructure Architecture. E-Business Infrastructure
Architecture is the combination of hardware and software that is necessary to
operate the Tier IV data center. The core components of our data storage
infrastructure are expected to be fault tolerant enterprise storage,
Hewlett-Packard and Sun Micro servers, and Oracle database software. We have
selected a proven network structure and best in class components to build our
enterprise storage system. We expect the hardware configuration for data storage
to be EMC's Symmetrix open storage solution. The redundant storage architecture
and world class support is expected to make our storage solution equal to other
business data center providers.
The software that we have chosen for use in our enterprise storage
centers provides backups, testing, offline processing and performance
measurements to customers that require zero downtime. Our remote storage
facility is planned to provide mirroring of data between customer's data storage
systems to ensure continuous data availability.
We expect to use our fiber optic backbone for optical data transport and
retrieval.
While we are building our fiber network, we have installed a
communications tower to provide wireless connectivity, initially at 155 MBPS,
from our facility in Iuka, Mississippi into the nationwide Internet and
telecommunications system through Atlanta and Memphis. This provides us with an
interim capability to test market our enterprise data storage services,
web-hosting services, and competitive local exchange carrier (CLEC) and
interstate exchange carrier (IXC) telephone services to select markets.
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<PAGE> 23
Internet Access Service Provider. We provide Internet access service
under the tradename "Freedom 2000." We offer a wide range of Internet access
services in the northeastern Mississippi area, including access services to
business, government and residential users, web site development, web hosting,
and Internet network development.
Digital and Alpha Paging Services. Action provides digital and alpha
numeric paging in nine southeastern states and is currently attempting to expand
its coverage area to include portions of the eastern and southwestern United
States. Action is a specialized mobile radio carrier in northern Mississippi
providing dispatch, telephone and global positioning system services to support
automated vehicle location services in the coverage area.
Telecommunications Consulting Projects. We anticipate providing
telecommunications consulting services to governments, agencies, institutions
and business customers. In August 2000 we became a member of the Smart Solutions
Group. This group has proposed a complete state-of-the-art healthcare
information system for the country of Turkey. Smart Solutions Group includes
U.S. corporations such as EMC, Cisco, Oracle, Sun Microsystems and
Hewlett-Packard. The Smart Solutions Group has previously provided consultation
services in connection with security and healthcare plans in Belgium, Germany,
Slovenia and Singapore. We believe that our experience in creating our fiber
optic network in the southeastern United States will make us uniquely qualified
to consult and advise on construction on a similar system in Turkey. As of
September 25, 2000, we had not reached any formal agreements for consulting or
other services with Turkey.
Sales and Marketing
We have formed a sales and marketing group with its initial focus on
wholesale fiber optic and broadband services. The direct sales group plans on
forming strategic partnerships with other businesses offering complementary
services to target market sectors for fiber, bandwidth and data storage. We also
plan to explore alternative sales and marketing channels focusing on the
inter-exchange carriers, competitive local exchange carriers, Internet service
providers and data centers. Additional target markets include dotcom companies,
service providers and businesses which support small, medium and larger
operations that are computing sensitive. We retain a government lobbying firm in
Washington, D.C. to advise us on government contracting opportunities.
Fiber Optic and Broadband Wireless Network. When our fiber optics
network is complete we expect to market our services by focusing on Tier 2
communities along the route of the network. This will include interconnecting
with providers in Atlanta, Chattanooga and Memphis.
Enterprise Data Storage. When our data hosting and storage facilities
are complete and operational, we expect to market our services primarily to
governments, agencies, educational institutions, medical institutions and larger
businesses. Our sales and marketing staff will focus on marketing its data
center for dedicated Web hosting and complex custom hosting and professional
services. In addition, we intend to offer general co-location and shared Web
servers for customers that need multiple service offerings. We will further
focus on developing strategic partnerships to offer multiple service offerings,
including multiple service site support and dual data center redundancy. It is
expected that the services will exploit our network infrastructure for data
availability, data protection, scaleability and performance for the medical,
financial, government and corporate arenas.
Competition
The markets we currently serve, as an internet service provider and a
digital and alpha paging service provider, and the markets we plan to enter, as
a data storage provider and fiber optic and wireless network service provider,
are intensely competitive, and we expect competition from existing service
providers and new market entrants in the future. The principal competitive
factors that may affect our ability to compete include ability to deliver
services when requested by customers, technical expertise, network capability,
reliability and quality of service, access to network resources, including
circuits, equipment and interconnection capacity to other networks, price, brand
name recognition, network security and financial resources.
There can be no assurance that we will have the resources or expertise
to compete successfully in the future.
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<PAGE> 24
Current and potential competitors in the market include providers of server
hosting services, national foreign and regional ISPs, global, regional and local
telecommunications companies and the Regional Bell Operating Companies, and
other technology services companies.
Most of our competitors have substantially greater resources, more
customers, longer operating histories, greater name recognition, and more
established relationships in the industry. As a result, these competitors may be
able to develop and expand their network infrastructures and service offerings
more quickly, devote greater resources to the marketing and sale of their
products and adopt more aggressive pricing policies. In addition, these
competitors have entered and will likely continue to enter into business
relationships to provide additional services competitive with those that we are
proposing to provide.
Some of our competitors may be able to provide customers with additional
benefits in connection with the Internet system and network management
solutions, including reduced communications costs, which could reduce the
overall costs of their services relative to the costs of our services. We may
not be able to offset the effects of any price reductions. In addition, we
believe that our market is likely to encounter consolidation in the future which
could result in increased price and other competition.
Government Regulation
A significant portion of the services that we offer or that we expect to
offer are or will be subject to regulation at the federal and/or state levels.
The Federal Communications Commission (the "FCC") and state public utility
commissions regulate telecommunications carriers, which are companies that offer
telecommunications services to the public or to all prospective users on
standardized rates and terms. Our paging services and our anticipated data
transport services are expected to be regulated services.
The FCC exercises jurisdiction over common carriers and their facilities
and services, to the extent that they are providing interstate or international
communications. The various state utility commissions retain jurisdiction over
telecommunications carriers and their facilities and services to the extent that
they are used to provide communications that originate and terminate within the
same state. The degree of regulation varies from state to state.
In recent years, the regulation of the telecommunications industry has
been in a state of flux as the United States Congress and various state
legislatures have passed laws seeking to foster greater competition in
telecommunications markets. The FCC and state commissions have adopted many new
rules to implement those new laws and to encourage competition. These changes,
which are still incomplete, have created new opportunities and challenges for us
and our competitors. Certain of these and other existing federal and state
regulations are currently the subject of judicial proceedings, legislative
hearings and administrative proposals which could change, in varying degrees,
the manner in which this industry operates. Neither the outcome of these
proceedings nor their impact upon the telecommunications industry can be
predicted at this time. Indeed, future federal or state regulations and
legislation may be less favorable to us than current regulations and legislation
and therefore have a material and adverse impact on our business and financial
prospects by undermining our ability to provide telecommunications services at
competitive prices.
Federal Regulation and Legislation. We must comply with the requirements
of a common carrier under the Communications Act of 1934, as amended, to the
extent we provide regulated interstate services. These requirements include an
obligation that our charges, terms and conditions for communications services
must be "just and reasonable" and that we may not make any "unjust or
unreasonable discrimination" in our charges or terms and conditions. The FCC
also has jurisdiction to act upon complaints against common carriers for failure
to comply with their statutory obligations.
Comprehensive changes to the Communications Act were made by the 1996
Telecommunications Act, enacted on February 8, 1996. It represents a significant
milestone in telecommunications policy by establishing competition in local
telephone service markets as a national policy. The 1996 Telecommunications Act
removes many state regulatory barriers to competition and forecloses state and
local governments from creating laws preempting or effectively preempting
competition in the telecommunications market.
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<PAGE> 25
The 1996 Telecommunications Act places substantial interconnection
requirements on the traditional local telephone companies. Traditional local
telephone companies are required to provide physical collocation, which allows
us and other similar companies and other interconnectors to install and maintain
our own network termination equipment in the central offices of traditional
local telephone companies, and virtual collocation only if requested or if
physical collocation is demonstrated to be technically infeasible. This
requirement is intended to enable us, along with other competitive carriers, to
deploy our equipment on a relatively convenient and economical basis.
The 1996 Telecommunications Act in some sections is self-executing. The
FCC issues regulations interpreting the 1996 Telecommunications Act that impose
specific requirements upon which we and our competitors rely. The outcome of
various ongoing FCC rulemaking proceedings or judicial appeals of such
proceedings could materially affect our business and financial prospects by
increasing the cost or decreasing our flexibility in providing
telecommunications services. The FCC prescribes rules applicable to interstate
communications, including rules implementing the 1996 Telecommunications Act, a
responsibility it shares in certain respects with the state regulatory
commissions.
The 1996 Telecommunications Act also directs the FCC, in cooperation
with state regulators, to establish a universal service fund that will provide
subsidies to carriers that provide service to individuals that live in rural,
insular, and high-cost areas. A portion of carriers' contributions to the
universal service fund also will be used to provide telecommunications-related
facilities for schools, libraries and certain rural health care providers. The
FCC released its initial order in this context in June 1997, which requires all
telecommunications carriers to contribute to the universal service fund. The
FCC's implementation of universal service requirements remains subject to
judicial and additional FCC review. Additional changes to the universal service
regime could increase our costs and could otherwise adversely affect our
business.
State Regulation. Some of our services that are not limited to
interstate access potentially may be classified as intrastate services subject
to state regulation. All of the states where we operate, or intend to operate,
require some degree of state regulatory commission approval to provide certain
intrastate services and maintain ongoing regulatory supervision. In most states,
intrastate tariffs are also required for various intrastate services, although
our services are not subject to price or rate of return regulation. Actions by
state public utility commissions could cause us to incur substantial legal and
administrative expenses and adversely affect our business.
Local Government Regulation. In certain instances, we may be required to
obtain various permits and authorizations from municipalities, such as for use
of rights-of-way, in which we operate transmission facilities. Subject to
litigation are whether various actions of local governments over the activities
of telecommunications carriers such as ours, including requiring payment of
franchise fees or other surcharges, pose barriers to entry for competitive local
exchange carriers that violate the 1996 Telecommunications Act or may be
preempted by the FCC. While we are not a party to this litigation, we may be
affected by the outcome. If municipal governments impose conditions on granting
permits or other authorizations, or if they fail to act in granting such permits
or other authorizations, the cost of providing telecommunications and
transmission services may increase or negatively impact our ability to expand
our network on a timely basis and adversely affect our business.
Employees
As of November 28, 2000, we had 28 full-time and 3 part-time employees.
None of our employees is represented by a labor union, and we believe that our
employee relations are good. We believe that our future success will depend in
part on our continued ability to attract, hire and retain qualified personnel.
The competition for personnel is intense, and there can be no assurance that we
will be able to identify, attract and retain personnel in the future.
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<PAGE> 26
Properties
In January 1999, we entered into a ten-year lease for 25,000 square feet
of space in a specialized building in the Tri-State Commerce Park in Iuka,
Mississippi, with a current annual rent of approximately $87,500. Annual rent
under the lease increases to $100,000 for the year 2001 and increases to
$125,000 for years 2002 through 2008. The facility was completed for NASA in
1994 to provide computer engineering and programing for the advanced solid
rocket motor project. Budget cuts for the space shuttle caused closure of this
facility in 1996. We believe that this facility, with its existing
infrastructure and security features, is ideally suited for our present and
proposed business operations. The lease may be terminated, with or without
cause, upon ninety days written notice by either the lessor or us. In the event
of an early termination of the lease, we would need to relocate our core
operational facility. The early termination of the lease could adversely affect
our operations and result in significant relocation expenses. In such event, we
may not be able to locate a similar specialized structure within the Iuka,
Mississippi area in which to conduct our data storage operations. The lease also
provides us with a right of first refusal to lease an additional 75,000 square
feet of space in the building. We are currently negotiating with the lessor of
the property for an extension of the lease, modification of the termination
provisions of the lease and the option for us to purchase the property.
We also have a right of first refusal which expires in July 2001 to
lease an 18,000 square foot building and a 36,000 square foot building in the
Iuka, Mississippi area for our operations.
We also lease approximately 3,000 square feet of office space in Denver,
Colorado at an annual rent of approximately $36,000, which is used primarily for
sales and marketing purposes.
Legal Proceedings
We are not currently involved in any lawsuits.
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<PAGE> 27
MANAGEMENT
Our executive officers and directors as of November 28, 2000 are listed
below. Each director listed below will hold office until the next annual meeting
of shareholders. Cumulative voting is not permitted in the election of
directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert R. Crawford 61 President, Secretary, Director
Bryan Forman 60 Vice President
David Cray 47 Vice President, Corporate Treasurer
Jerry Buuck 46 Vice President, Sales and Marketing
Ted Roberts III 45 Vice President, Chief Information Officer
Florian Yoste III 57 Vice President, Government and Public Affairs
</TABLE>
Robert Crawford has been a director and the President of the Company
since August 1998. From 1989 to 1998, Mr. Crawford served as the Chairman and
Chief Executive Officer of New York Regional Rail Corporation and its
affiliates. In March, 1997, Mr. Crawford filed a voluntary petition for
protection of his personal assets under the federal bankruptcy code, but
subsequently withdrew the petition in April, 1997 and subsequently satisfied all
creditors.
Bryan Forman has been a Vice President of the Company and President of
North American InfoTech, LLC, one of our subsidiaries, since January 2000.
During the 19 year period prior to joining the Company, Mr. Forman was employed
by Qwest Transmission, Inc. where he served as a Vice President and General
Manager.
Jerry Buuck has been Vice President Marketing and Sales of the Company
and North American InfoTech, one of our subsidiaries, since January 2000. Mr.
Buuck was employed by Qwest Communications Corporation from 1995 to 2000 where
he served as Director of Business Development and Product Management.
David Cray has been Vice President, Corporate Treasurer of the Company
since April 2000. From 1994 to 2000, Mr. Cray owned and managed an independent
financial consulting firm. Previously, Mr. Cray held positions with various
broker-dealers and investment banking firms.
Ted Roberts III has been Vice President and Chief Information Officer
of the Company since November 1998. Mr. Roberts was an independent information
technology consultant from 1995 to November 1998.
Florian H. Yoste III has been Vice President of Government Affairs of
the Company since August 1999. From 1993 to 1999, Mr. Yoste served as Senior
Special Assistant to Executive Director for the Governor's Office of Economic
and Community Development, State of Mississippi.
Some of our other significant employees are summarized below:
Lawrence R. Lonergan has been General Counsel for North American
DataCom and North American InfoTech since February 2000. Mr. Lonergan was
previously a partner at the law firm of Catafago & Lonergan in New York, where
he practiced corporate and commercial litigation and handled various
transactional matters.
Gordon D. Evans has been Vice President of Operations of North American
InfoTech since January 2000. Mr. Evans' responsibilities include logistics,
strategic planning and manpower allocations for the construction of the
Company's Fiber Optic Network. Prior to joining the Company, Mr. Evans worked
for MCI Worldcom Telecommunications Corporation where he was a performance
analyst in MCI's Network Management Center.
Jerry Wilemon has been Senior Systems Engineer for the Company since
January 2000. From 1995 to 1999 Mr. Wilemon was an independent consultant for
the State of Mississippi, American Equipment and Action Communications, Inc. Mr.
Wilemon's professional career includes both domestic and international
assignments with Thiokol Corporation between 1994 and 1995, Lockheed Missiles
and Space Company between 1990 and 1994, and Morrison Kundsen Corporation
between 1979 and 1990, where he was director of material handling systems.
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<PAGE> 28
Jerry Duke has been Director of System Engineering for North American
InfoTech, a subsidiary of the Company, since January 2000. Prior to joining the
Company, Mr. Duke was Director of Field Operations for the entire wireless
communications network for Qwest Transmission Inc. from 1985 to 1999.
Robert Elmes, Jr. has been Director of Provisioning for North American
InfoTech since January 2000. Mr. Elmes was Provisioning Manager from 1983 to
1999 for Qwest Transmission, Inc.
Robert Mecchi has been Director of Network Operating Center at North
American InfoTech since January 2000. Between 1986 and 1999, Mr. Mecchi was
Director of Network Control for Qwest Transmission Inc.
Committees of the Board and Meetings
We do not have any audit, compensation or nominating committees of the
board of directors. The board of directors took action by written consent or at
a meeting eight times during our last fiscal year. All of the directors attended
at least 75% or more of the meeting of the board of directors during the periods
during which they served, during our last fiscal year.
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<PAGE> 29
EXECUTIVE COMPENSATION
The following table provides information concerning the compensation of
our chief executive officer for each fiscal year since our formation in
September 1998. No other executive officer received total salary and bonus in
excess of $100,000 during the last fiscal year.
<TABLE>
<CAPTION>
Annual Compensation
---------------------------
Other Annual
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($)
--------------------------- ---- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Robert R. Crawford(1) 2000 $ 57,000 0 0
1999 $ 52,500
</TABLE>
(1) In both fiscal 1999 and 2000, $52,500 of Mr. Crawford's salary was
paid in the form of shares of common stock at the rate at $1.00 per share. Mr.
Crawford did not accrue any long-term compensation in fiscal 1999 or fiscal
2000.
Employment Agreements.
We have entered into employment contracts with David Cray and Ted
Roberts. Mr. Cray's contract is for a term of three years commencing April 10,
2000, and Mr. Roberts contract is for a term of three years and two months
commencing November 1, 1998. Both contracts provide for base salary of $100,000
per annum plus benefits. Mr. Cray's contract also provided for the grant of
options for 250,000 shares of common stock at an exercise price of $3.00 per
share. Mr. Robert's contract provided for the grant of common shares equal to 5%
of the outstanding stock as of June 30, 1999 and for an option to purchase an
additional 5% as of September 30, 1999. Both contracts provide that we may
terminate the contract for certain events and provide that the employee will not
compete with us during the term of the contract and for three years thereafter
in a geographic area of 300 miles in the case of Mr. Cray and 1000 miles in the
case of Mr. Roberts. None of our other executive officers are subject to an
employment agreement at this time, however, we intend to enter into employment
contracts with certain additional executive officers in the near future.
Stock Option Plans.
As of December 8, 2000, we had stock options outstanding totaling
14,484,216 shares with exercise prices ranging from $.0433 to $3.00 per share
and expiration dates ranging from December 31, 2001 to December 31, 2004.
Approximately 8,442,468 of these options are held by officers and directors.
These options were issued pursuant to individual option agreement and are not
part of a stock option plan.
Our predecessor, Pierce International, Inc., previously had adopted an
Incentive Stock Option Plan which was discontinued in connection with our
reorganization with Pierce International, Inc. There are currently no
outstanding options under such stock plan. We intend to adopt a stock option
plan for our employees, directors and consultants in the future.
Directors
Currently, we have only one director. Directors have not been
compensated for the services they provide as directors. In the future,
non-employee directors may be reimbursed for expenses incurred in connection
with attending board and committee meetings and compensated for their services
as board and committee members.
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<PAGE> 30
Indemnification and Exculpation Provisions
Our certificate of incorporation provides the Company the right to
indemnify of our officers and directors to the fullest extent permitted by
Delaware law. In addition, under our certificate of incorporation, no director
shall be liable personally to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director; provided that the
certificate of incorporation does not eliminate the liability of a director for
(1) any breach of the director's duty of loyalty to the Company or its
stockholders; (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (3) acts or omissions in
respect of certain unlawful dividend payments or stock redemptions or
repurchases; or (4) any transaction from which such director receives improper
personal benefit.
28
<PAGE> 31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 30, 1999, our Board of Directors issued 85,000 of our
pre-merger common stock (981,091 shares post-merger) and agreed to issue 105,000
shares of our pre-merger common stock (1,211,936 shares post-merger), which has
not been completed as of the date of this prospectus, to James White, a former
director and officer of the Company, and Robert Crawford, President, sole
director and principal stockholder of the Company, respectively, for services
each provided to the Company in 1999 and 2000. Additional compensation of
$88,830 for fiscal year 2000 services were approved by our Board of Directors
for Mr. White and paid by issuing 26,320 shares of pre-merger common stock
(303,792 shares post-merger).
In March 2000, Mr. Crawford, president, sole director and principal
stockholder of the Company, guaranteed our obligations under an agreement for
the purchase by us of conduit from Qwest Communications for a purchase price of
approximately $15,120,000. See "Management's Discussion and Analysis -
Liquidity."
In July 2000, North American InfoTech, LLC, one of our subsidiaries,
entered into a right of way sublease agreement with Tishomingo Railroad Company,
a company which is owned and controlled by the son of Mr. Crawford. The right of
way agreement provides conduit access along certain railway lines to our
facilities in Iuka, Mississippi. As part of the consideration for the agreement,
a two percent membership interest in North American Infotech, valued by
management at $0, which is the historical carryover cost basis, was assigned to
Tishomingo Railroad Company.
During fiscal 2000, we issued various shares of common stock and Series
B convertible preferred stock to Robert R. Crawford, our president, sole
director and principal stockholder, for cash and for services. See "Market for
Registrant's Common Equity and Related Stockholder Matters" for a description of
these transactions.
29
<PAGE> 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of November 28, 2000 for (i) each of
our directors, (ii) each of our executive officers named in the Summary
Compensation Table, (iii) each person or group of affiliated persons whom we
know beneficially owns more than 5% of the outstanding common stock and (iv) all
of our directors and executive officers as a group.
Except as otherwise noted, to the best of our knowledge the persons
named in this table have sole voting and investing power with respect to all of
the shares of common stock held by them.
Options, warrants, conversion and other rights to acquire shares of our
common stock that are exercisable within 60 days of the table date are deemed to
be beneficially owned by the persons holding these options or warrants for the
purposes of computing percentage ownership of that person, but are not treated
as outstanding for the purpose of computing any other person's ownership
percentage of the total number of securities outstanding. As of the table date,
we had 98,649,783 shares of common stock outstanding.
<TABLE>
<CAPTION>
Amount of
Name and Address Beneficial Percent of
of Beneficial Owner Ownership Class
------------------- --------- -----
<S> <C> <C>
Robert R. Crawford(1) 44,740,758 45.39%
751 County Road 989
Iuka, MS 38852
Citrus Springs Trust 17,313,388 17.58%
Louis Villaume, Trustee
One Lakeside Plaza
Suite 602
Lake Charles, LA 70601
William H. Durham, MD 8,156,421 8.28%
c/o T. I. Starling
16 Lakeland Drive #501
Jackson, MS 39216
All directors and executive officers
as a group (6 persons)(1) 50,493,863 51.23%
</TABLE>
(1) Includes shares owned of record by Mr. Crawford's spouse.
30
<PAGE> 33
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue up to 150,000,000 shares of common stock,
$.0001 par value, of which 98,655,678 shares were issued and outstanding as of
December 8, 2000. All outstanding shares of our common stock are fully paid and
nonassessable. The following is a summary of the material rights and privileges
of our common stock.
VOTING. Holders of our common stock are entitled to cast one vote for
each share held at all stockholder meetings for all purposes, including the
election of directors. The holders of more than 50% of the voting power of our
common stock issued and outstanding and entitled to vote and present in person
or by proxy, together with any preferred stock issued and outstanding entitled
to vote and present in person or by proxy, constitute a quorum at all meetings
of our stockholders. The vote of the holders of a majority of our common stock
present and entitled to vote at a meeting, together with any preferred stock
present and entitled to vote at a meeting, will decide any question brought
before the meeting, except when Delaware law, our Certificate of Incorporation,
or our bylaws require a greater vote and except when Delaware law requires a
vote of any preferred stock issued and outstanding, voting as a separate class,
to approve a matter brought before the meeting. Holders of our common stock do
not have cumulative voting for the election of directors.
DIVIDENDS. Holders of our common stock are entitled to dividends when
and if declared by the Board of Directors out of funds available for
distribution. The payment of any dividends may be limited or prohibited by loan
agreement provisions or priority dividends for preferred stock that may be
outstanding.
PREEMPTIVE RIGHTS. The holders of our common stock have no preemptive
rights to subscribe for any additional shares of any class of our capital stock
or for any issue of bonds, notes or other securities convertible into any class
of our capital stock.
LIQUIDATION. If we liquidate or dissolve, the holders of each
outstanding share of our common stock will be entitled to share equally in our
assets legally available for distribution to our stockholders after payment of
all liabilities and after distributions to holders of preferred stock legally
entitled to be paid distributions prior to the payment of distributions to
holders of our common stock.
PREFERRED STOCK
We are authorized to issue up to 10,000,000 shares of preferred stock,
par value $.0001 per share, issuable from time to time in one or more series,
having such designation, rights, preferences, powers, restrictions and
limitations as may be fixed by the Board of Directors.
SERIES B CONVERTIBLE PREFERRED STOCK. In November 2000, we filed with
the Delaware Secretary of State a Certificate of Designation establishing the
series B convertible preferred stock consisting of 500,000 shares. As of
November 28, 2000, 800 shares of our series B convertible preferred stock were
issued and outstanding. The following is a summary of the rights, privileges and
preferences of the series B convertible preferred stock.
DIVIDENDS. The cumulative non-compounded dividend on the series A
convertible preferred stock is 6% per annum based on the stated value of $1,000
per share, payable in July of each year and as otherwise permitted by law and
declared by the Board of Directors, or upon the redemption or conversion of the
series B convertible preferred stock into common stock. We may not declare or
pay any dividends on the common stock unless we first declare and pay all unpaid
dividends on the series B convertible preferred stock.
CONVERSION. Each share of the outstanding series B convertible
preferred stock is convertible, at the election of the holder thereof, into 500
shares of our common stock.
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<PAGE> 34
VOTING. Each share of series B convertible preferred stock entitles
the holder to the number of votes equal to the number of shares of series B
convertible preferred stock held by such holder, provided that, in the event the
preferred dividend is not timely paid, each share of series B convertible
preferred stock will entitle the holder to the number of votes equal to the
number of shares of common stock into which it is convertible. The holders of
the common stock and the series B convertible preferred stock will vote as a
single class on all matters on which our stockholders vote, except where
otherwise required by law. The holders of the series B convertible preferred
stock do not have cumulative voting for the election of directors.
PREEMPTIVE RIGHTS. The holders of the series B convertible preferred
stock do not have preemptive rights to subscribe for any additional shares of
any class of our capital stock or for any issue of bonds, notes or other
securities convertible into any class of our capital stock.
LIQUIDATION RIGHTS. If we liquidate, dissolve or wind-up our business,
whether voluntary or otherwise, after we pay our debts and other liabilities,
the holders of the series B convertible preferred stock will be entitled to
receive from our remaining net assets, before any distribution to the holders of
our common stock, the amount of $1,000 per share of series B convertible
preferred stock in cash plus payment of all accrued but unpaid dividends.
Holders of the series B convertible preferred stock will not be entitled to
receive any other payments if we liquidate, dissolve or wind-up our business.
REDEMPTION RIGHTS. The holders of the series B convertible preferred
stock do not have any redemption rights.
WARRANTS AND OPTIONS
As of December 8, 2000, we had outstanding options and warrants to
purchase an aggregate of 14,484,216 shares of common stock at an average
weighted exercise price of $0.33 per share. Such warrants and options expire on
various dates from December 31, 2001 to December 31, 2004.
TRANSFER AGENT
The transfer agent for our securities is Florida Atlantic Stock
Transfer, Inc., 7130 Nob Hill Road, Tamarac, Florida; telephone 954-726-4954.
32
<PAGE> 35
SELLING STOCKHOLDERS
The securities offered by this prospectus are shares of common stock
held by various purchasers of our common stock.
In April 1999, we issued a warrant to purchase 10,000 shares of
pre-merger common stock (115,423 shares post-merger) to Jerry Wilemon, an
employee of the Company, for a total exercise price of $10,000 in connection
with the sale and issuance of certain other shares of common stock to such
investor. The investor exercised his option and purchased 115,423 shares of
common stock in August 2000. Under the terms of the option, the investor is
entitled to piggy-back registration rights for shares exercised, paid for and
purchased under such option, and such shares are being registered for resale
pursuant to the Registration Statement of which this Prospectus is a part.
In December 1999, we issued a warrant to purchase 1,000 shares of
pre-merger common stock (11,542 shares post-merger) to Jerry Murphy, a private
investor, for a total exercise price of $10,000 in connection with the sale and
issuance of certain other shares of common stock to such investor. The investor
exercised his option and purchased 11,542 shares of common stock in July 2000.
Under the terms of the option, the investor is entitled to piggy-back
registration rights for shares exercised, paid for and purchased under such
option, and such shares are being registered for resale pursuant to the
Registration Statement of which this Prospectus is a part.
In December 1999, we agreed to issue 1,687,934 shares of common stock
to Lumiere Companies, Inc. in connection with its facilitation of the business
combination between Pierce International, Inc. and us. In connection with such
issuance, Lumiere Companies is entitled to piggy-back registration rights with
respect to such shares and are being registered for resale pursuant to the
Registration Statement of which this Prospectus is a part.
In July 2000, we sold 317,500 shares of common stock to James Porter
Dean, Escrow Agent, for $635,000. In connection with the sale, we agreed to use
our best efforts to file a registration statement with the SEC for the resale of
the stock sold to such investor.
In September 2000, we closed a private placement to Cranshire Capital,
L.P. and Euram Cap Strat. "A" Fund Limited of 150,000 restricted shares of
common stock for a total sale price of $442,125. The placement agent engaged by
us to facilitate the transaction received 3,000 restricted shares of common
stock and a fee of $8,700. The terms of the transaction provide that we file a
registration statement with SEC for the resale of the shares by October 5, 2000.
For each fifteen day period following October 5, 2000 in which the registration
statement is not filed with the SEC, we are required to make a payment to the
private investors equal to $8,842 payable in cash or common stock based upon the
closing bid price of the shares of our common stock as of the end of each
fifteen day period. As of December 8, 2000, we have issued an additional 16,180
shares of common stock to Cranshire Capital, L.P. and an additional 4,045 shares
of common stock to Euram Cap Strat. "A" Fund Limited pursuant to the
registration rights agreement with such investors. In addition, if the
registration statement is not declared effective by the SEC by February 2, 2001,
we are required to make a payment to the private investors equal to $44,212
payable in cash or common stock based upon the closing bid price of the shares
of our common stock as of such date.
The proceeds of the foregoing transactions were utilized by us for
general working capital purposes. Other than Jerry Wilemon, who has been an
employee of the Company since January 2000, no other selling stockholder has
held any position or office or had any material relationship with us or any of
our predecessors or affiliates within three years of the date of this
prospectus.
33
<PAGE> 36
The following table sets forth, information provided by the selling
stockholders with regard to their beneficial ownership of our common stock as of
December 8, 2000 and upon completion of this offering. Unless otherwise
indicated in the footnotes, the persons and entities named in the table have
sole voting and sole investment power with respect to all shares beneficially
owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Common Shares
------------------------------------------------------------
Number of Shares Number of Shares Number of Shares Percent
Selling Stockholder(1) Prior to Sale Offered After Sale(1) After Sale
---------------------- ------------- ------- ------------- ----------
<S> <C> <C> <C> <C>
Cranshire Capital, L.P. 136,180 136,180 -0- *
c/o Downsview Capital, Inc.
666 Dundee Road, Suite 1901
Northbrook, IL 60062
Euram Cap Strat. "A" Fund Limited 34,045 34,045 -0- *
c/o JMJ Capital, Inc.
666 Dundee Road, Suite 1901
Northbrook, IL 60062
James Porter Dean, Escrow Agent 347,500 317,500 30,000 *
P.O. Box 1616
Corinth, MS 38835-1616
Jerry Wilemon 1,930,000 115,423 1,814,577 1.8%
194 Road 209
Burnsville, MS 38833
James Murphy 39,750 11,542 28,208 *
P.O. Box 33
Booneville, MS 38829-0033
Lumiere Companies, Inc. 1,687,934 1,687,934 -0- *
1601 Blake Street, Suite 500
Denver, CO 80202
</TABLE>
* Less than 1%.
(1) Because the selling stockholders may offer all, some or none of
their common stock, no definitive estimate as to the number of shares thereof
that will be held by the selling stockholder after such offering can be provided
and the following table has been prepared on the assumption that all shares of
common stock offered under this prospectus will be sold.
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees, and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market, or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
- ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
- block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
34
<PAGE> 37
- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
- an exchange distribution in accordance with the rules of the
applicable exchange;
- privately negotiated transactions;
- short sales;
- broker-dealers may agree with the selling stockholders to sell
a specified number of such shares at a stipulated price per
share;
- a combination of any such methods of sale; and
- any other method permitted pursuant to applicable law.
The selling stockholder may also sell shares under Rule 144 pursuant to
the Securities Act, if available, rather than under this prospectus.
The selling stockholder may also engage in short sales against the box,
puts and calls and other transactions in our securities or in derivatives of our
securities and may sell or deliver shares in connection with these trades. The
selling stockholder may pledge their shares to their brokers under the margin
provisions of customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares.
Broker-dealers engaged by the selling stockholder may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholder (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholder does not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholder and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are contractually obligated to pay certain fees and expenses of
certain of the selling stockholders, and intend to pay certain fees and expenses
of the other selling stockholders, which are incident to the registration of the
shares, including fees and disbursements of counsel to Cranshire Capital, L.P.
and Euram Cap Strat. "A" Fund Limited (not to exceed $5,000).
LEGAL MATTERS
Certain legal matters in connection with the common stock offered
hereby will be passed upon on behalf of the Company by Lawrence Lonergan, Esq.,
New York, New York.
EXPERTS
Our consolidated financial statements at June 30, 2000 and 1999, and
for the fiscal year ended June 30, 2000 and the period from inception of the
Company (September 1, 1998) through June 30, 1999, included in this prospectus
have been audited by BDO Seidman, LLP, independent certified public accountants,
to the extent and for the periods set forth in their report (which contain an
explanatory paragraph regarding the Company's ability to continue as a going
concern) appearing elsewhere herein, and are included in reliance upon such
report given upon authority of said firm as experts in auditing and accounting.
35
<PAGE> 38
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and special reports, and other information
with the SEC. You may read and copy any document we file with the SEC at the
SEC's public reference room located at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's public reference rooms located at it's regional offices
in New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0300 for further information on the operation of public reference
rooms. You can also obtain copies of this material from the SEC's Internet web
site, http://www.sec.gov containing reports, proxy statements and other
information regarding registrants that file electronically with the SEC.
Our common stock is quoted on the OTC Electronic Bulletin Board under
the symbol "NADA".
This prospectus is a part of a registration statement on Form S-1 filed
by us with the SEC under the Securities Act. This prospectus omits certain
information contained in the registration statement, and we refer you to the
registration statement and to the exhibits to the registration statement for
additional information about the common stock and us.
DEALER PROSPECTUS DELIVERY OBLIGATION
Until _____, 2001 (90 days after the commencement of this offering),
all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
delivery requirement is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to unsold allotments
or subscriptions.
36
<PAGE> 39
North American DataCom, Inc.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of June 30, 2000 and 1999 F-3
Consolidated Statements of Operations for the Year Ended June 30, 2000
and for the Period from Inception (September 1, 1998) to June 30, 1999 F-4
Consolidated Statements of Comprehensive Loss for the Year Ended June 30, 2000
and for the Period from Inception (September 1, 1998) to June 30, 1999 F-5
Statement of Changes of Stockholders Equity from Inception (September 1, 1998) to June 30, 2000 F-6
Statement of Cash Flows for the Year Ended June 30, 2000 and for
the Period from Inception (September 1, 1998) to June 30, 1999 F-7
Notes to Financial Statements F-8
Consolidated Balance Sheets as of September 30, 2000 and 1999 (unaudited) F-19
Consolidated Statements of Operations for the Three Months Ended September 30, 2000
and 1999 (unaudited) F-20
Consolidated Statements of Comprehensive Loss for the Three Months Ended September 30, 2000
and 1999 (unaudited) F-21
Statement of Changes of Stockholders Equity from June 30, 2000 to September 30, 2000 (unaudited) F-22
Statement of Cash Flows for the Three Months Ended September 30, 2000 and 1999 (unaudited) F-23
Notes to Financial Statements F-24
</TABLE>
F-1
<PAGE> 40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
North American DataCom, Inc.
Iuka, Mississippi
We have audited the accompanying consolidated balance sheets of North American
DataCom, Inc. and subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of operations, comprehensive income, stockholders'
equity, and cash flows for the year ended June 30, 2000 and for the period from
inception (September 1, 1998) to June 30, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of North American
DataCom, Inc. and subsidiaries at June 30, 2000 and 1999, and the results of
their operations and their cash flows for the year ended June 30, 2000 and for
the period from inception (September 1, 1998) to June 30, 1999, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 15 to the
financial statements, the Company has suffered recurring losses and has negative
working capital that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 15. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
Memphis, Tennessee
September 18, 2000
F-2
<PAGE> 41
NORTH AMERICAN DATACOM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Current Assets:
Cash and Equivalents $ 20,948 $ 13,353
Accounts Receivable, Net of allowance of $2,400 and $0 37,848 7,000
Receivable from broker -- 700,000
Notes Receivable (Note 5), net of long-term maturities 2,920 --
Inventories 438 --
Employee Advances 102,555 100,000
------------ -----------
Total Current Assets 164,709 820,353
------------ -----------
Investments (Note 4) 90,000 325,000
------------ -----------
Property and Equipment:
Leasehold Property and Improvements 15,880 3,758
Computers and Equipment 717,416 38,009
Communications Equipment and Wireless Towers (Note 6) 371,688 94,016
Conduit and Optic Fiber Construction In Process 14,396,891 --
Other Equipment 77,278 6,616
Office Furniture 3,231 --
------------ -----------
Total Property and Equipment 15,582,384 142,399
Less Accumulated Depreciation and Amortization (35,945) (5,570)
------------ -----------
Net Property and Equipment 15,546,439 136,829
------------ -----------
Other Assets (Notes 7 and 14) 449,832 990
------------ -----------
Total Assets $ 16,250,980 $ 1,283,172
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade Note Payable, net of unamortized discount (Note 6) $ 15,152,173 $ --
Accounts Payable 24,034 2,837
Accrued Expenses 275,552 166,985
Deferred Income Tax Liability (Note 14) -- 28,500
------------ -----------
Total Current Liabilities 15,451,759 198,322
Payable To Director 23,917 9,079
Notes Payable -- 20,000
------------ -----------
Total Liabilities 15,475,676 227,401
------------ -----------
Commitments and Contingencies (Notes 6, 8, 13 and 15)
Stockholders' Equity (Notes 11 and 12)
Convertible Preferred Stock, No Par Value; 400,000 shares authorized;
51,212 shares issued and outstanding at June 30, 1999 -- 512,120
Series B Convertible Preferred Stock, $.0001 Par Value; 6% Cumulative;
5,000 shares authorized; 300 shares issued and outstanding at June 30, 2000 300,000 --
Common Stock, $.0001 Par Value; 150,000,000 Shares Authorized;
97,992,758 and 4,030,000 Shares Issued and Outstanding 9,798 4,030
Additional Paid in Capital 2,667,567 790,221
Other accumulated comprehensive income (Note 4) (99,200) 46,500
Accumulated Deficit (2,102,861) (297,100)
------------ -----------
Total Stockholders' Equity 775,304 1,055,771
------------ -----------
Total Liabilities and Stockholders' Equity $ 16,250,980 $ 1,283,172
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 42
NORTH AMERICAN DATACOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the period
from inception
For the (September 1, 1998)
year ended through
June 30, 2000 June 30, 1999
------------- -------------------
<S> <C> <C>
Net Service Revenues $ 269,649 $ 19,539
Cost of Services 117,924 24,667
------------ -----------
Gross Profit (Loss) 151,725 (5,128)
Selling, General
and Administrative Expenses 1,744,701 477,612
------------ -----------
Operating Loss (1,592,976) (482,740)
Other Income (Expense), Net (214,710) 184,650
------------ -----------
Loss before income tax benefit (1,807,686) (298,090)
Income tax benefit (Note 14) -- (990)
------------ -----------
Net Loss $ (1,807,686) $ (297,100)
------------ -----------
Basic and Diluted Loss per
Common Share (Note 1) $ (0.03) $ (0.01)
============ ===========
Weighted Average Number of Common
Shares Outstanding - Basic and Diluted 71,725,566 33,193,595
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 43
NORTH AMERICAN DATACOM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(SEPTEMBER 1, 1998)
YEAR ENDED THROUGH
JUNE 30, 2000 JUNE 30, 1999
------------- -------------------
<S> <C> <C>
Net loss $(1,807,686) $(297,100)
Net unrealized gain (loss) on investments (Note 4) (145,700) 46,500
----------- ---------
Comprehensive loss $(1,953,386) $(250,600)
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 44
NORTH AMERICAN DATACOM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Series B Preferred Stock Preferred Stock Common Stock Additional Accumulated
Shares Amount Shares Amount Shares Par Value Paid In Capital Deficit
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, September 1, 1998
(inception) -- -- -- -- -- $ -- $ --
Issuance of initial common
stock -- -- 500,000 500 -- --
Issuance of stock for
investments -- -- 3,000,000 3,000 497,000 --
Acquisition of Freedom
(Note 3) -- -- 50,000 50 61,201 --
Exchange of notes for
preferred stock 51,212 512,120 -- -- 100,000 --
Stock issued to employees -- -- 450,000 450 112,050 --
Issuance of stock for
services -- -- 10,000 10 9,990 --
Sale of common stock -- -- 20,000 20 9,980 --
Unrealized gain on
Investments -- -- -- -- -- --
Net loss for period ended
June 30, 1999 -- -- -- -- -- (297,100)
-------------------------------------------------------------------------------------------------------
Balances, June 30, 1999 -- -- 51,212 512,120 4,030,000 4,030 790,221 (297,100)
Conversion of preferred
stock to common stock (51,212) (512,120) 2,020,296 20,203 491,917 --
Issuance of Series B
preferred stock 300 300,000 -- -- -- --
Exchange of notes for
common stock -- -- 164,916 1,649 106,455 --
Issuance of stock for
services -- -- 111,320 1,113 172,717 --
Sale of common stock -- -- 175,500 1,755 225,745 --
Acquisition of Action
Communications (Note 3) -- -- 150,000 1,500 344,395 --
Stock split (Note 3) 76,801,017 7,680 (7,680)
Acquisition of PRCI (Note 3) 80,000 20,000 861,809 86 (20,086) --
Issuance of shares for
acquisition services -- -- 1,687,934 169 101,107 --
Conversion of PRCI preferred
stock to common stock (80,000) (20,000) 80,000 8 19,992 --
Conversion of PRCI notes to
common stock -- -- 170,000 17 9,983 --
Exercise of warrants to
acquire common stock 80,000 8 59,992
Exercise of warrants to
acquire common stock -- -- 11,620,964 1,162 341,082 --
Conversion of debt to stock -- -- 39,002 4 2,141 --
Adjustment for change in par
value ($.01 to $.0001) -- -- 0 (29,586) 29,586 1,925
Net unrealized loss on
investments -- -- -- -- -- --
Net loss for the year ended
June 30, 2000 -- -- -- -- -- -- (1,807,686)
-------------------------------------------------------------------------------------------------------
Balances, June 30, 2000 300 $300,000 $ -- $ -- 97,992,758 $ 9,798 $2,667,567 $(2,102,861)
=======================================================================================================
<CAPTION>
Net Unrealized
Gain (Loss) on Stockholders'
Investments Equity
-----------------------------------
<S> <C> <C>
Balances, September 1, 1998
(inception) $ -- $ --
Issuance of initial common
stock -- 500
Issuance of stock for
investments -- 500,000
Acquisition of Freedom (Note 3) -- 61,251
Exchange of notes for
preferred stock -- 612,120
Stock issued to employees -- 112,500
Issuance of stock for services -- 10,000
Sale of common stock -- 10,000
Unrealized gain on
Investments 46,500 46,500
Net loss for period ended
June 30, 1999 -- (297,100)
-----------------------------
Balances, June 30, 1999 46,500 1,055,771
Conversion of preferred stock
to common stock -- --
Issuance of Series B preferred
stock -- 300,000
Exchange of notes for
common stock -- 108,104
Issuance of stock for services -- 173,830
Sale of common stock -- 227,500
Acquisition of Action
Communications (Note 3) -- 345,895
Stock split (Note 3) --
Acquisition of PRCI (Note 3) -- --
Issuance of shares for
acquisition services -- 101,276
Conversion of PRCI preferred
stock to common stock -- --
Conversion of PRCI notes to
common stock -- 10,000
Exercise of warrants to acquire
common stock 60,000
Exercise of warrants to acquire
common stock -- 342,244
Conversion of debt to stock -- 2,145
Adjustment for change in par
value ($.01 to $.0001) -- 1,925
Net unrealized loss on
investments (145,700) (145,700)
Net loss for the year ended
June 30, 2000 -- (1,807,686)
-----------------------------
Balances, June 30, 2000 $ (99,200) $ 775,304
=============================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 45
NORTH AMERICAN DATACOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
FOR THE (SEPTEMBER 1, 1998)
YEAR ENDED THROUGH
JUNE 30, 2000 JUNE 30, 1999
------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss for period $(1,807,686) $(297,100)
Adjustments to reconcile net loss to cash
provided by operations:
Depreciation and amortization 53,708 5,570
Gain on sale of investments -- (200,000)
Benefit for deferred income taxes -- (990)
Noncash compensation charge 131,830 42,000
Noncash interest charge 161,128 --
Noncash organizational expense charge 211,076 --
Provision for doubtful accounts 2,400 --
Changes in operating assets and liabilities,
net of acquisitions:
Inventories (438) --
(Increase) in accounts receivable (33,803) (107,000)
(Increase) in notes receivable (6,258) --
(Increase) in other assets (38,037) --
Increase in accounts payable
and accrued expenses 142,659 127,822
----------- ---------
Net cash used in operations (1,183,421) (429,698)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Due from broker 700,000 --
Purchase of property and equipment (463,094) (142,399)
----------- ---------
Net cash provided by (used in) investing activities 236,906 (142,399)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 522,089 --
Proceeds from sale of preferred stock 300,000 556,371
Proceeds from issuance of convertible notes 108,104 --
Increase in notes payable 23,917 29,079
----------- ---------
Net cash provided by financing activities 954,110 585,450
----------- ---------
INCREASE IN CASH for the period (Note 9) 7,595 13,353
Cash and cash equivalents, beginning of period 13,353 --
----------- ---------
Cash and cash equivalents, end of period $ 20,948 $ 13,353
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 46
North American DataCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies:
Nature of Business
The Company provides Internet access services and digital data and alpha paging
services primarily for customers in southern United States.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany accounts and
transactions are eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain estimates used by management are particularly susceptible to significant
changes in the economic environment. These include estimates of the realization
of long-lived assets and deferred tax assets. Each of these estimates, as well
as the related amounts reported in the financial statements, are sensitive to
near term changes in the factors used to determine them. A significant change in
any one of those factors could result in the determination of amounts different
from those reported in the consolidated financial statements and the effect of
such differences could be material.
Investments
Investments are classified as available-for-sale and are reported at estimated
market 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.
Taxes on Income
Income taxes are calculated using the liability method specified by Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"). Under SFAS 109, the Company provides for estimated income taxes payable
or refundable on current year income tax returns as well as the estimated future
tax effects attributable to temporary differences and carryforwards. Measurement
of deferred income taxes is based upon enacted tax laws and tax rates, with the
measurement of deferred income tax assets reduced by estimated amounts of tax
benefits not likely to be realized.
F-8
<PAGE> 47
North American DataCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued):
1. Summary of Significant Accounting Policies (Continued):
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 year ending June
30, 2000 and, after giving effect to the merger stock split, the period ending
June 30, 1999. Common stock equivalents consisting of stock options, convertible
notes and warrants were not considered in either period, as their effect would
be anti-dilutive.
The following details the Company's common stock equivalents (in post-merger
shares):
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Stock options 14,577,178 11,620,964
Convertible notes -- 1,903,130
Warrants -- 80,000
Convertible Preferred stock 150,000 2,020,396
---------- ----------
14,727,178 15,624,490
========== ==========
</TABLE>
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Major renewals and
improvements are capitalized, while maintenance and repairs are expensed when
incurred. Depreciation is computed over the estimated useful lives of
depreciable assets using the straight-line method. Useful lives for property and
equipment are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Conduit and optic fiber 25
Communications equipment and wireless towers 3-10
Computers 5
Other Equipment 3-10
Leasehold improvements Term of Lease
(Not to exceed
10 years)
</TABLE>
The carrying values of long-lived assets are periodically reviewed by the
Company and impairments would be recognized if the expected future operating
non-discounted cash flows derived from an asset were less than its carrying
value.
Licenses
Licenses relate to the Company's FCC License to provide personal communications
and paging services. Generally, amortization begins with the commencement of
service to customers and is computed using the straight-line method over an
estimated useful life of 15 years.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, consisting of cash
and cash equivalents, notes and accounts receivable, accounts payable, trade
note payable, and payable to director approximate their respective fair values.
F-9
<PAGE> 48
North American DataCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued):
2. The Organization and Business:
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. 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 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.
Accordingly, for periods prior to the merger, the consolidated financial
statements present the historic accounts of NADC (formerly NAS) and its
subsidiaries. The Company is engaged, or plans to engage, in the following lines
of business:
Business Lines
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 June 30, 2000 the Company provides Internet service 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: During fiscal 2000 the Company took delivery of equipment
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 June 30, 2000, the Company did not have any agreements with
any third parties regarding the storage of computer data.
Telecommunication Projects and Consulting: The Company 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.
At present, the Company operates in one segment, paging and internet access to
consumers and small businesses.
F-10
<PAGE> 49
North American DataCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued):
3. Acquisitions
On April 1999, the Company acquired all of the partnership interests of Freedom
2000 for $8,000 and 50,000 shares of the restricted pre merger common stock of
the Company (valued at $61,251). Freedom is an Internet service provider. This
transaction has been accounted for as purchase, accordingly, the results of
Freedom are included in the Company's consolidated statements of operations from
the date of acquisition. The purchase price of $69,251 has been allocated
primarily to property and equipment.
On December 3, 1999 the Company acquired all the common stock of Action
Communications, Inc. ("Action") for 150,000 shares of pre merger stock
(1,731,339 post merger shares) of the restricted common stock of the Company.
Action provides digital and alpha numeric paging to nine southeastern states,
and is currently 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, accordingly,
the results of operations of Action are included in the Company's consolidated
statements of operations from the date of acquisition. The purchase price of
$345,895 has been allocated to estimated fair value of the assets acquired and
liabilities assumed, as follows:
Property and Equipment $ 5,000
FCC License 370,000
Current liabilities (29,105)
-----------
$ 345,895
===========
On 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. This has been presented as a stock split with the
addition of 861,809 shares of PRCI that were outstanding at the date of merger.
As a result of the reverse merger, NAS assumed liabilities of $10,000 in the
form of a convertible Note, 80,000 shares of preferred equity with a book value
of $20,000 and paid in capital for the 7,515,705 common shares of PRCI
outstanding was approximately $850,000. There was a net operating loss carry
forward of approximately $880,000. There were no assets and no other
liabilities. Expenses incurred for this transaction totaling approximately
$211,000 were expensed.
PRCI had 400,000 authorized shares of no par value, Series 1 convertible
preferred stock with 80,000 shares outstanding at the date of merger. These
Series I Preferred Stock were converted in January 2000 into an identical number
of shares of the Company's Common Stock.
F-11
<PAGE> 50
North American DataCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued):
4. Investments:
The Company's investments are classified as available-for-sale. The amortized
cost, gross unrealized gains (losses) and estimated fair value, less the option
price of $.12 per share, for these investments were as follows at June 30, 2000
and June 30, 1999:
<TABLE>
<CAPTION>
Cost Gross Unrealized Estimated
June 30, 2000 Basis Gains (Losses) Fair Value
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Assigned interest in
New York Regional
Rail Corporation
Stock Options $ 250,000 $(160,000) $ 90,000
June 30, 1999
New York Regional
Rail Corporation
Stock $ 250,000 $ 75,000 $ 325,000
</TABLE>
During the fiscal year June 30, 1999, the Company sold 500,000 shares of New
York Regional Rail Corporation stock for $700,000. The cost of this investment
as determined by the specific identification method was $500,000.
5. Notes Receivable:
Sales of Action Communications' merchandise has created a trade note receivable
earning interest at 6% per annum with the final payment due July 2002.
Maturities of the receivables at June 30, 2000 are as follows:
Fiscal Year Ending June 30,
<TABLE>
<S> <C>
2001 $2,920
2002 3,100
2003 238
------
Total $6,258
</TABLE>
6. Property, Plant and Equipment:
In March 2000, the Company acquired 504 miles of fiber optic conduit for $15.12
million from Qwest. The purchase was price to be paid over a 12 month period
ending March 31,2001 and, accordingly, imputed interest of $723,109 was recorded
as a discount which is being amortized as an interest charge over the term of
the payable. For the period ending June 30, 2000 the interest charge associated
with this payable was $180,282. The Company currently is past due in its
payments on this obligation by approximately $9,000,000 and is actively
negotiating with the vendor for modifications to the repayment terms. In
addition, the Company acquired software for $575,000, in exchange for debt which
was retired in August of 2000.
7. Other Assets
Other assets consist of the following items as of:
<TABLE>
<CAPTION>
June 30, 2000 1999
-------- --------
<S> <C> <C>
FCC License, net of amortization of
$14,389 $355,611 $ --
Prepaid expenses 29,093 --
Deferred income tax asset 61,790 990
Notes Receivable, net of current maturities 3,338 --
-------- --------
Total $449,832 $ 990
======== ========
</TABLE>
F-12
<PAGE> 51
North American DataCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued):
8. 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 and the Company
plans to extend the lease for an additional 10 years. 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. This
lease has been straight lined for accounting purposes. Accordingly, rent
expenses associated with this lease was $112,500 and $56,250 for 2000 and 1999,
respectively. The lease may be terminated by either party at any time by giving
the other party 90 days written notice.
The Company also leases approximately 3,000 square feet of office space in
Denver, Colorado at an annual rent of approximately $36,000, which is used
primarily for sales and marketing purposes.
The Company has agreed to sell to the majority shareholder up to 5,000 shares of
Series B Preferred Stock at $1,000 per share. As June 30, 2000, 300 such shares
were sold. These shares are convertible into 500 shares of common stock for each
preferred share commencing July 1, 2001.
The Company has 2 employment agreements with the Vice President of Operations
and the corporate Treasurer which expire December 31, 2001 and April 10, 2003.
In addition to a base salary, the agreement provides for each employee options
to acquire the Company's stock. Compensation expensed in 2000 and 1999 were
$122,756 and $100,000, respectively.
On August 15, 2000, the Company entered into an agreement with a third-party
contractor to lay fiber optic conduit between Atlanta, Georgia and Chattanooga,
Tennessee and from Chattanooga to Memphis, Tennessee. The agreement calls for
payments of approximately $29 million over the course of the agreement,
approximately $2.9 million of which is due on October 15,2000 with the balance
due in specified installments as the conduit is installed.
9. Supplemental Cash Flow Information:
For purposes of the consolidated statements of cash flows, cash and cash
equivalents consists of cash on hand, demand deposit accounts and short-term
investments in certificates of deposit with maturities of three months or less.
Within the statement of cash flows, $109,800 of costs incurred as part of the
stock issuances has been netted against the $631,889 of proceeds received.
Noncash 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 to him a $250,000 convertible
note payable for 250,000 additional NYRR common shares and warrants to purchase
additional common shares at $.25 per share.
F-13
<PAGE> 52
North American DataCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued):
9. Supplemental Cash Flow Information (Continued):
Non cash investing and financing activities (Continued)
In June 1999, outstanding long-term debt obligations of $350,000 held by
shareholders were converted by the holders into shares of Series A Preferred
Stock. In November 1999, the Preferred shares were converted into 2,020,296
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 11 and
12)
In June 1999, the Company sold 500,000 shares of NYRR Common stock for $700,000
and realized a gain of $200,000. The cash from this sale was not received by the
Company until July 2000.
Other noncash equity transactions during the fiscal year June 30, 2000 were:
<TABLE>
<CAPTION>
No. of Dollar
June 30, 2000 Shares Amount
--------- --------
<S> <C> <C>
Issuance of stock for services 111,320 $173,830
Acquisition of Action Communications 150,000 345,895
Issuance of shares for services 1,687,934 101,276
Conversion of notes to common stock 170,000 10,000
Conversion of debt for stock 39,002 2,145
</TABLE>
In March 2000, the Company entered into an agreement to purchase approximately
$15,120,000 (before discount for imputed interest) of conduit and fiber optic
cable from an unrelated company with installment payments due over a 12-month
period. (See Note 6)
In December 1999, the Company purchased approximately $576,000 of data storage
equipment from an unrelated company in exchange for a note payable bearing
interest of 18% per annum, due June 30, 2000. This note was paid in full in
August 2000.
For the years ending June 30, 2000 and 1999, respectively, no cash was paid for
interest and income taxes.
10. Litigation:
The Company is not currently party to litigation.
11. Related Party Payable and Related Party Transactions:
In addition to those items discussed in Note 8, on November 30, 1999, the
Company issued 85,000 and agreed to issue 105,000 shares, which has not been
completed as of the date of this financial statement, of its pre-merger
restricted common stock to James White (former director) and Robert Crawford
(director), respectively, for services each provided to the Company in 1999 and
2000. Additional compensation of $88,830 for fiscal year 2000 services were
approved by the Board of Directors for Mr. White and paid by issuing 26,320
shares of restricted pre merger common stock.
F-14
<PAGE> 53
North American DataCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued):
12. Stockholders' Equity:
In June 1999 the Company authorized the exchange of $512,120 of Notes and debt
for 51,212 shares of Series A Convertible Preferred stock. These 51,212 shares
outstanding as of June 30, 1999 were converted into 2,020,296 shares of the
Company's common stock and subsequently exchanged for 23,319,933 shares of
restricted common stock as part of its reverse merger with PRCI in December
1999. In March 2000, options attached to the Notes were exercised and payment of
$342,244 was received for 11,620,964 of common shares. In addition, $2,145 of
debt was converted to 39,002 shares of common stock.
There are no Series A preferred shares outstanding as of June 30, 2000.
As discussed in Notes 2 and 3, the Company completed a reverse acquisition of
PRCI in a transaction accounted for in a manner similar to a recapitalization.
Shareholders of the Company received approximately 11.54 shares of PRCI common
stock for each share of common stock they held in the Company at the date of
merger.
In November 1998, and January 1999, the Company entered into employment
agreements with five initial employees to issue 450,000 restricted pre merger
common shares in exchange for $112,500. (See Note 9)
In February 1999, the Company exchanged 10,000 shares of its pre merger common
stock for services rendered, aggregating $10,000.
During the period from March to May 1999, the Company sold 20,000 shares of
restricted common stock for a total of $10,000.
During the period from April 1999 to December 3, 1999, the Company sold 175,500
shares of restricted common stock for a total of $227,500 at prices ranging from
$0.50 to $5.00 per share. There were options for the purchase of 55,500 shares
of pre merger common stock of the Company for $10 per share attached to certain
of the sales.
During November 1999, the Company exchanged 164,916 shares of restricted common
stock for $74,000 of convertible notes and $34,104 of advances made from a
director.
During December 1999, the Company exchanged 1,687,934 shares of restricted
common stock for services rendered, aggregating $101,276 for services rendered
in facilitating the PRCI merger.
In January 2000, 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
restricted common shares were issued.
In February 2000 a $10,000 convertible note of PRCI was converted into 170,000
shares of common stock.
In May 2000 the Company exchanged 111,320 pre merger (1,284,883 post merger
shares) shares of common stock for $173,830 of services provided to the Company
by James White in the period January 1999 to March 2000. The Board approved this
exchange in November 1999.
F-15
<PAGE> 54
North American DataCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued):
12. Stockholders' Equity (Continued):
In May 2000 the Board authorized 500,000 shares of Series B Senior Preferred
Stock. In June 2000 the Company authorized the sale of up to 5,000 shares of
Series B convertible preferred stock for $1,000 per share to a principal
shareholder. Each share is convertible into 500 shares of Rule 144 restricted
common stock of the Company. Each share carries a $60 dividend payable in July
annually with these dividends accumulating if not paid and has a right upon
liquidation to be redeemed before any common shareholders. If dividends are not
current the holders will have 500 voting rights for each share held. There are
no redemption rights for retiring this issue. As of June 30, 2000, 300 shares
were purchased for $300,000 and through September 20, 2000 a total of $800,000
was purchased.
13. Stock Option Plan:
As of June 30, 2000 the Company had common stock options outstanding totaling
14,577,178 shares as follows:
<TABLE>
<CAPTION>
Number of shares Price per share Expiration Dates
---------------- --------------- ----------------
<S> <C> <C> <C>
Officers and Directors 8,442,468 $.0433 to $3.00 12/31/01 - 12/31/04
Employees 1,036,690 $.087 - $3.00 12/31/01 - 12/31/04
----------
Sub-total 9,479,158
Investors and consultants 5,098,020 $.087 - $.866 12/31/01
----------
Total 14,577,178
==========
</TABLE>
In 1987 PRCI adopted an Incentive Stock Option Plan under which options granted
are intended to qualify as "incentive stock options" under Section 422A of the
Internal Revenue code of 1954, as amended. 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. The Board of Directors administers this Plan. During
the fiscal year June 30, 2000, the plan was abandoned.
All stock options issued to 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 of SFAS
123, the Company's net income (loss) and earnings (loss) per share would have
been reduced to the pro forma amounts presented below for the years ended:
<TABLE>
<CAPTION>
June 30 June 30
2000 1999
----------- -----------
<S> <C> <C>
Net income (loss)
As reported $(1,807,686) $ (297,100)
Pro forma (2,089,031) (378,791)
Earnings (loss) per share of common stock:
As reported $ (.03) $ (.01)
Pro forma $ (.03) $ (.01)
</TABLE>
The fair value of option grants is estimated on the date of grant utilizing the
Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1999 and 2000: average expected life of option of 2.67
years for 1999 and 2.75 years for 2000, expected volatility of 64% for both
years, average risk free interest rate of 5.72% for 1999 and 6.41% for 2000. The
weighted average fair value at date of grants is $0.03 per option for 1999 and
$3.77 per option for 2000.
The following options were outstanding as of June 30, 2000 and 1999. Options
generally vest over four years.
<TABLE>
<CAPTION>
Period ended
----------------------------------------------------
June 30, 2000 June 30, 1999
------------------------- ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
----------- ----- ---------- -----
<S> <C> <C> <C> <C>
Options outstanding, beginning of period 20,889,124 $0.16 -0- $ --
Options granted 250,000 5.00 20,889,124 0.16
Options exercised (11,659,966) 0.03 -0- --
----------- ----------
Options outstanding, end of period 9,479,158 $0.33 20,889,124 $0.16
=========== ==========
Option price range at end of period $0.09 to $5.00 $0.03 to $0.50
Weighted average fair value of options
granted during period $ 3.77 $ 0.03
Options exercisable, end of period 5,098,020 $0.51 4,386,058 $0.51
</TABLE>
The following options are outstanding to officers, directors, and employees:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Range of Number Weighted-average Number
Exercise Outstanding Remaining Weighted-Average Exercisable Weighted-average
Price at 6/30/2000 Contractual Life Exercise Price at 6/30/2000 Exercise Price
-------- ------------ ---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
0.08 3,347,255 2 to 4 years 0.03 -- --
0.43 4,616,903 3.25 0.43 -- --
0.50 1,265,000 3.25 to 5 -- -- --
6.00 250,000 2.75 3.77 -- --
------------ ------------
9,479,158 --
------------ ------------
</TABLE>
The following options are outstanding to investors:
<TABLE>
<CAPTION>
Range of Number Weighted-average Number
Exercise Outstanding Remaining Weighted-Average Exercisable Weighted-average
Price at 6/30/2000 Contractual Life Exercise Price at 6/30/2000 Exercise Price
-------- ------------ ---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
0.08 380,894 1.5 0.03 380,894 0.09
0.26 1,898,826 1.5 0.25 1,898,926 0.25
0.43 807,968 1.5 0.43 807,958 0.43
0.87 2,010,242 1.5 0.67 2,010,242 0.87
------------ -----------
5,098,020 5,098,020
------------ -----------
</TABLE>
F-16
<PAGE> 55
North American DataCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued):
14. Federal Income Tax Benefit:
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
June 30, 2000 1999
-------- --------
<S> <C> <C>
Deferred:
Federal $ 0 $ (830)
State 0 (160)
-------- --------
$ 0 $ (990)
======== ========
</TABLE>
Net deferred income tax assets arose from the following:
<TABLE>
<CAPTION>
June 30, 2000 1999
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts $ 1,000 $ --
Unrealized loss on sale of investments 60,800 --
Net operating loss benefit 1,825,000 111,400
Organization cost 39,100 7,490
Less valuation allowance (1,788,110) (111,400)
--------- ---------
Total deferred income tax assets 137,790 7,490
--------- ---------
Deferred income tax liabilities:
Depreciation (76,000) (6,500)
Unrealized gain on sale of
investments -- (28,500)
--------- ---------
Total deferred income tax liabilities (76,000) (35,000)
--------- ---------
Net deferred income tax asset
(liability) 61,790 (27,510)
Less deferred income tax (asset)
liability reflected in stockholders'
equity (60,800) 28,500
--------- ---------
Long-term net deferred income tax
asset $ 990 $ 990
========= =========
</TABLE>
At June 30, 2000, the Company had a net operating loss carryforward of
$1,696,607 that expires 2020. An allowance had been established for the deferred
tax asset related to the net operating loss.
The effective tax rate on income before taxes on income is different from the
maximum federal statutory tax rate. The following summary reconciles taxes at
the maximum federal statutory rate with the effective rate:
<TABLE>
<CAPTION>
June 30, 2000 1999
-------- -------
<S> <C> <C>
Income tax benefit at maximum
statutory rate (34.0)% (34.0)%
State income taxes, net of federal
tax benefit -- --
Increase in valuation allowance 31.1 38.0
Other items 2.9 (4.0)
-------- -------
Income tax expense (benefit), at
effective rate 0% 0%
</TABLE> -------- -------
F-17
<PAGE> 56
North American DataCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued):
14. Federal Income Tax Benefit (Continued):
The Company acquired a net operating loss of $880,000, which is subject to
certain restrictions under the Internal Revenue Service Code. The loss
carryforward expires 2003 through 2018.
15. Continuing Operations:
The accompanying 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. At June 30, 2000,
the Company has negative working capital with obligations totaling $15,451,759
due within one year of which approximately $9,000,000 is past due (Note 6). In
addition, losses totaling $2,102,861 have been generated since inception. These
matters raise substantial doubt about the company's ability to continue on as a
going concern. The continuation of the Company as a going concern is dependent
upon the Company raising additional capital, and attaining and maintaining
profitable operations. The Company has identified potential sources of capital
and potential joint venture and/or strategic partners and believes that they
will be able to secure the necessary capital to put their business plan into
operation.
16. Subsequent Events:
In July 2000, the Company sold 317,500 shares of common stock to an investor for
$635,000.
In September 2000, the Company sold an additional 500 shares of Series B
preferred stock to a principal shareholder for $500,000.
In September 2000, the Company sold 150,000 shares of its common stock to a
group of investors for $442,125.
17. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS
133 requires companies to recognize all derivatives contracts as either assets
or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (I) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS 133 amends the guidance in
SFAS No. 52, Foreign Currency Translation, to permit special accounting for a
hedge currency forecasted transaction with a derivative. It also supersedes SFAS
No. 80, Accounting for Future Contracts, SFAS No. 105, Disclosure of Information
about Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk, and SFAS No. 119, Disclosure
about Derivative Financial Instruments. In addition, it amends SFAS No. 107,
Disclosures about Fair Value of Financial Instruments, to include in SFAS No.
107 the disclosure provisions about concentrations of credit risk from SFAS No.
105.
SFAS 133 is effective for the financial statements for periods beginning after
June 15, 2000. Historically, the Company has not entered into derivatives
contracts either to hedge existing risk or for speculative purposes.
Accordingly, the adoption of the new standard did not have a material effect on
its fiscal 2001 financial statements.
The Financial Accounting Standards Board issued Interpretation
("Interpretation") No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an Interpretation of APB Opinion No. 25" which is effective July
1, 2000. Interpretation No. 44 clarifies (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a
stock compensation plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Adoption of the provisions of the
Interpretation are not expected to have a significant impact on our financial
statements.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101, --
Revenue Recognition, which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the Securities and Exchange Commission. SAB No. 101 is effective for fiscal
years beginning after December 31, 1999. The adoption of SAB No. 101 did not
have a material impact on our financial position or results of operations.
In September 2000, the Financial Accounting Standards Board issued SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities ("SFAS 140"). SFAS 140 revises the standards for accounting for
Securitizations and other transfers of financial assets and collateral and is
effective for fiscal years ending December 15, 2000. We believe that adopting
SFAS 140 will not have a material impact on our financial position or results of
operations.
F-18
<PAGE> 57
NORTH AMERICAN DATACOM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, JUNE 30,
2000 2000
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Equivalents $ 176,823 $ 20,948
Accounts Receivable, Net of allowance of $2,400 at
September 30 and June 30, 2000 37,905 37,848
Notes Receivable, net of long-term liabilities 2,920 2,920
Advance to Affiliate (Note 5) 200,000 --
Inventories 1,988 438
Employee Advances 2,555 102,555
------------ ------------
Total Current Assets 422,191 164,709
------------ ------------
Investments (Note 3) 60,000 90,000
------------ ------------
Property and Equipment:
Leasehold Property and Improvements 15,960 15,880
Computers and Equipment 722,156 717,416
Communications Equipment and Wireless Towers 470,560 371,688
Conduit and Optic Fiber (Notes 4 and 7) 14,432,996 14,396,891
Other Equipment 81,458 77,278
Office Furniture 3,231 3,231
------------ ------------
Total Property and Equipment 15,726,361 15,582,384
Less Accumulated Depreciation and Amortization (48,323) (35,945)
------------ ------------
Net Property and Equipment 15,678,038 15,546,439
------------ ------------
Other Assets (Note 6) 579,154 449,832
------------ ------------
Total Assets $ 16,739,383 $ 16,250,980
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade Notes Payable, net of unamortized discount (Note 4) $ 14,759,436 $ 15,152,173
Accounts Payable 235,277 24,034
Accrued Expenses 245,410 275,552
------------ ------------
Total Current Liabilities 15,240,123 15,451,759
------------ ------------
Payable to Director 23,917 23,917
------------ ------------
Total Liabilities 15,264,040 15,475,676
------------ ------------
Commitments and Contingencies
Stockholders' Equity
Convertible Preferred Stock, No Par Value; 400,000 shares
authorized -- --
Series B Convertible Preferred Stock, $.0001 Par Value; 6%
Cumulative; 5,000 shares authorized; 800 shares issued and
outstanding as of September 30, 2000 (Note 8) 800,000 300,000
Common Stock, $.0001 Par Value; 150,000,000 Shares Authorized;
98,588,223 and 97,992,758 Shares Issued and Outstanding (Note 8) 9,858 9,798
Additional Paid in Capital 3,766,632 2,667,567
Other accumulated comprehensive income (129,200) (99,200)
Retained Earnings (Accumulated Deficit) (2,971,947) (2,102,861)
------------ ------------
Total Stockholders' Equity 1,475,343 775,304
------------ ------------
Total Liabilities and Stockholders' Equity $ 16,739,383 $ 16,250,980
============ ============
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-19
<PAGE> 58
NORTH AMERICAN DATACOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------ ------------
<S> <C> <C>
Net Service Revenues $ 69,432 $ 23,995
Cost of Services 48,014 10,378
------------ ------------
Gross Profit 21,418 13,617
Selling, General and Administrative Expenses 715,864 197,179
------------ ------------
Operating Loss (694,446) (183,562)
Other Income (Expense), Net (174,640) 3,823
------------ ------------
Loss before income tax expense (benefit) (869,086) (179,739)
Income tax expense (benefit) -- --
------------ ------------
Net Loss $ (869,086) $ (179,739)
------------ ------------
Basic and Diluted Loss per Common Share (Note 1) $ (0.01) $ 0.00
============ ============
Weighted Average Number of
Common Shares Outstanding - Basic and Diluted (Note 1) 91,393,141 46,515,268
============ ============
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-20
<PAGE> 59
NORTH AMERICAN DATACOM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
--------- ---------
<S> <C> <C>
Net loss $(869,086) $(179,739)
Net unrealized loss on investments (Note 4) (30,000) --
--------- ---------
Comprehensive loss $(899,086) $(179,739)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-21
<PAGE> 60
NORTH AMERICAN DATACOM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Series B Convertible
Preferred Stock Preferred Stock Common Stock
------------------ ---------------------- ----------------------- Additional
Shares Amount Shares Amount Shares Par Value PIC
------ -------- ------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 1999 -- $ -- 51,212 $ 512,120 4,030,000 $ 4,030 $ 790,221
==== ======== ======= ========= ========== ======== ===========
BALANCES, SEPTEMBER 30, 1999 -- $ -- 51,212 $ 512,120 4,030,000 $ 4,030 $ 790,221
==== ======== ======= ========= ========== ======== ===========
BALANCES, JUNE 30, 2000 300 $300,000 -- $ -- 97,992,758 $ 9,798 $ 2,667,567
==== ======== ======= ========= ========== ======== ===========
Issuance of Series B preferred
stock 500 500,000 -- -- -- -- --
Sale of common stock -- -- -- -- 317,500 32 634,968
Sale of common stock -- -- -- -- 150,000 15 442,110
Exercise of stock options
to acquire common stock -- -- -- -- 11,542 1 9,999
Exercise of stock options
to acquire common stock -- -- -- -- 115,423 12 9,988
Issuance of shares for services -- -- -- -- 1,000 -- 2,000
Net unrealized loss from
investments -- -- -- -- -- -- --
Net loss for the period ended
September 30, 2000 -- -- -- -- -- -- --
---- -------- ------- --------- ---------- -------- -----------
BALANCES, SEPTEMBER 30, 2000 800 $800,000 -- $ -- 98,588,223 $ 9,858 $ 3,766,632
==== ======== ======= ========= ========== ======== ===========
<CAPTION>
Net
Unrealized
Gain (Loss)
Accumulated on Stockholders'
Deficit Investments Equity
----------- ----------- -----------
<S> <C> <C> <C>
BALANCES, JUNE 30, 1999 $ (297,100) $ 46,500 $ 1,055,771
Net loss for the period
ended September 30, 1999 (179,739) -- (179,739)
----------- --------- -----------
BALANCES, SEPTEMBER 30, 1999 $ (476,839) $ 46,500 $ 876,032
=========== ========= ===========
BALANCES, JUNE 30, 2000 $(2,102,861) $ (99,200) $ 775,304
=========== ========= ===========
Issuance of Series B preferred
stock -- -- 500,000
Sale of common stock -- -- 635,000
Sale of common stock -- -- 442,125
Exercise of stock options
to acquire common stock -- -- 10,000
Exercise of stock options
to acquire common stock -- -- 10,000
Issuance of shares for services -- -- 2,000
Net unrealized loss from
investments -- (30,000) (30,000)
Net loss for the period ended
September 30, 2000 (869,086) -- (869,086)
----------- --------- -----------
BALANCES, SEPTEMBER 30, 2000 $(2,971,947) $(129,200) $ 1,475,343
=========== ========= ===========
</TABLE>
F-22
<PAGE> 61
NORTH AMERICAN DATACOM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (869,086) $(179,739)
Adjustments to reconcile net loss to cash provided by operations:
Depreciation and amortization 18,545 --
Noncash interest charge 182,263 --
Noncash promotional expense charge 2,000 --
Changes in operating assets and liabilities, net of acquisitions:
Inventory (1,550) --
(Increase) decrease in accounts receivable and trade receivables 99,943 990
(Increase) decrease in other assets (135,489) (27,416)
Increase (decrease) in accounts payable and accrued expenses 181,101 4,604
----------- ---------
Net cash used in operations (522,273) (201,561)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Due from broker -- 700,000
Purchase of property and equipment (143,977) (18,177)
Investment in NYRR -- (111)
Advance to Affiliate-Turkey (200,000) --
----------- ---------
Net cash provided by (used in) investing activities (343,977) 681,712
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 1,097,125 --
Proceeds from sale of preferred stock 500,000 --
Proceeds from issuance of convertible notes -- (133)
Proceeds (Payments) from Notes Payable (575,000) 53,155
----------- ---------
Net cash provided by financing activities 1,022,125 53,022
----------- ---------
INCREASE IN CASH for the period (Note 8) 155,875 533,173
CASH, beginning of period 20,948 13,353
----------- ---------
CASH, end of period $ 176,823 $ 546,526
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-23
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In management's opinion, the information and amounts furnished in this report
reflect all adjustments which are necessary for the fair presentation of the
financial position and results of operations for the periods presented. All
accruals are of a normal and recurring nature. These financial statements should
be read in conjunctions with the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2000.
NATURE OF BUSINESS
The Company intends to provide communications and information technology
services with an emphasis on wideband fiber optic and wireless
telecommunications services that support enterprise data storage solutions,
primary for customers in southern United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material intercompany accounts and transactions are
eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain estimates used by management are particularly susceptible to significant
changes in the economic environment. These include estimates of the realization
of long-lived assets and deferred tax assets. Each of these estimates, as well
as the related amounts reported in the financial statements, are sensitive to
near term changes in the factors used to determine them. A significant change in
any one of those factors could result in the determination of amounts different
from those reported in the consolidated financial statements and the effect of
such differences could be material.
INVESTMENTS
Investments are classified as available-for-sale and are reported at estimated
market value, with unrealized gains and losses, net of taxes, reported as a
separate component of stockholders' equity.
F-24
<PAGE> 63
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.
TAXES ON INCOME
Income taxes are calculated using the liability method specified by Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"). Under SFAS 109, the Company provides for estimated income taxes payable
or refundable on current year income tax returns as well as the estimated future
tax effects attributable to temporary differences and carryforwards. Measurement
of deferred income taxes is based upon enacted tax laws and tax rates, with the
measurement of deferred income tax assets reduced by estimated amounts of tax
benefits not likely to be realized.
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 quarter ending
September 30, 2000 and, after giving effect to the merger stock split, the
quarter ending September 30, 1999. Common stock equivalents consisting of stock
options, convertible notes and warrants were not considered in either period, as
their effect would be anti-dilutive.
The following details the Company's common stock equivalents (in post-merger
shares):
<TABLE>
<CAPTION>
QUARTER ENDING QUARTER ENDING
SEPT. 30, 2000 SEPT. 30, 1999
-------------- --------------
<S> <C> <C>
Stock options 14,611,178 11,659,966
Convertible notes -- 1,903,130
Warrants -- 80,000
Convertible Preferred stock 400,000 23,318,779
---------- ----------
15,011,178 36,961,875
========== ==========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Major renewals and
improvements are capitalized, while maintenance and repairs are expensed when
incurred. Depreciation is computed over the estimated useful lives of
depreciable assets using the straight-line method. Useful lives for property and
equipment are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Conduit and optic fiber 25
Communications equipment and wireless towers 3-10
Computers 5
Other Equipment 3-10
Leasehold improvements Term of lease (Not to
exceed 10 years)
</TABLE>
The carrying values of long-lived assets are periodically reviewed by the
Company and impairments would be recognized if the expected future operating
non-discounted cash flows derived from an asset were less than its carrying
value.
F-25
<PAGE> 64
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, consisting of cash
and cash equivalents, notes and accounts receivable, accounts payable, trade
note payable, and payable to director approximate their respective fair values.
BUSINESS LINES
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 September 30, 2000 the Company provides Internet service
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: During fiscal 2000 the Company took delivery of equipment
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 September 30, 2000, the Company did not have any agreements
with any third parties regarding the storage of computer data.
Telecommunication Projects and Consulting: The Company 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.
At present, the Company operates in one segment, paging and internet access to
consumers and small businesses.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS
133 requires companies to recognize all derivatives contracts as either assets
or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (I) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.
SFAS 133 is effective for the financial statements for periods beginning after
June 15, 2000. The Company has not entered into derivatives contracts either to
hedge existing risk or for speculative purposes. Accordingly, the Company's
adoption of the new standard on July 1, 2000 did not have a material effect its
financial statements.
The Financial Accounting Standards Board issued Interpretation
("Interpretation") No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an Interpretation of APB Opinion No. 25" which is effective July
1, 2000. Interpretation No. 44 clarifies (a) the definition of employee for
purposes of
F-26
<PAGE> 65
applying Opinion 25, (b) the criteria for determining whether a stock
compensation plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Adoption of the provisions of the
Interpretation has not had a significant impact on our financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101, --
Revenue Recognition, which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the Securities and Exchange Commission. We believe that adopting the
provisions of SAB No. 101 has not had a material impact on our financial
position or results of operations.
In September 2000, the Financial Accounting Standards Board issued SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities ("SFAS 140"). SFAS 140 revises the standards for accounting for
Securitizations and other transfers of financial assets and collateral and is
effective for fiscal years ending December 15, 2000. We believe that adopting
SFAS 140 will not have a material impact on our financial position or results of
operations.
3. INVESTMENTS:
The Company's investments are classified as available-for-sale. The amortized
cost, gross unrealized gains (losses) and estimated fair value, less the option
price of $.12 per share, for these investments were as follows at September 30,
2000 and June 30, 2000:
<TABLE>
<CAPTION>
Gross
Cost Unrealized Estimated
September 30, 2000 Basis Gains (Losses) Fair Value
---------------------------------------------------------------------------------
<S> <C> <C> <C>
New York Regional
Rail Corporation
Stock Options $ 250,000 $(190,000) $ 60,000
June 30, 2000
New York Regional
Rail Corporation
Stock Options $ 250,000 $(160,000) $ 90,000
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
In March 2000, the Company acquired 504 miles of fiber optic conduit for $15.12
million from Qwest. The purchase price was to be paid over a 12 month period
ending March 31, 2001 and, accordingly, imputed interest of $723,109 was
recorded as a discount which is being amortized as an interest charge over the
term of the payable. For the quarterly period ending September 30, 2000 the
interest charge associated with this payable was $182,263. The Company currently
is past due in its payments on this obligation by approximately $9,000,000 and
is actively negotiating with the vendor for modifications to the repayment
terms.
On August 15, 2000, the Company entered into an agreement with a third-party
contractor to lay fiber optic conduit between Atlanta, Georgia and Chattanooga,
Tennessee and from Chattanooga to Memphis, Tennessee. The agreement calls for
payments of approximately $29 million over the course of the agreement,
approximately $2.9 million of which was due on October 15, 2000 with the balance
due in specified installments as the conduit is installed. The Company has
received a notice of default under this contract, as they have not made this
payment. If they are not able to obtain financing or raise funds to satisfy
these obligations, they may lose the ability to continue to lay fiber optic
cable and be subject to claims for contract breach.
5. ADVANCES TO AFFILIATES
In July, the Company advanced $200,000 to Global Fiber Optic and Wireless
Communications, Ltd. ("Global") in anticipation of developing a joint venture to
develop internet and information technology services for Turkey. The Company and
Global plan to each have a fifty percent interest in any joint venture formed.
The Company will be required to provide electronic and communications
technologies, while Global will provide rights-of-way and other real estate as
needed in Turkey.
F-27
<PAGE> 66
6. OTHER ASSETS
Other assets consist of the following items as of:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
-------- --------
<S> <C> <C>
FCC License, net of amortization of
$20,556 and $14,389, respectively $349,444 $355,611
Prepaid expenses 164,582 29,093
Deferred income tax asset 61,790 61,790
Notes receivable, net of current
maturities 3,338 3,338
-------- --------
Total $579,154 $449,832
======== ========
</TABLE>
7. MINORITY INTEREST IN NET ASSETS OF SUBSIDIARY
In July 2000, the Company acquired 12 miles of right-of-way from the Tishomingo
Railroad, a company owned by the son of the President of NADC, for an
acquisition price consisting of a two percent ownership interest in North
American InfoTech, LLC ("NAIT"), a subsidiary of the Company valued at $0, which
is the historical carryover cost basis. NAIT had no significant operations
during the quarter ended September 30, 2000.
8. STOCKHOLDERS' EQUITY:
In May 2000, the Board authorized 500,000 shares of Series B Preferred Stock. In
June 2000, the Company authorized the sale of up to 5,000 shares of Series B
convertible preferred stock for $1,000 per share to a principal shareholder.
Each share is convertible into 500 shares of Rule 144 restricted common stock of
the Company. Each share carries a $60 dividend payable in July annually with
these dividends accumulating if not paid and has a right upon liquidation to be
redeemed before any common shareholders. If dividends are not current the
holders will have 500 voting rights for each share held. There are no redemption
rights for retiring this issue. In September 2000, the Company sold 500 shares
of Series B Preferred Stock to a principal shareholder for $500,000.
In July 2000, $10,000 of stock options were exercised for 11,542 shares of
common stock.
In July 2000, the Company awarded 1,000 shares of its common stock to three
individuals for non-cash prize from a logo contest held for local-area students.
In August 2000, the Company sold 317,500 shares of common stock to an investor
for $635,000.
In August 2000, $10,000 of stock options were exercised for 115,423 shares of
common stock.
In September 2000, the Company sold 150,000 shares of its common stock to a
group of investors for $442,125.
F-28
<PAGE> 67
9. SUBSEQUENT EVENTS:
In October, November and December 2000, the Company issued 20,225 shares of
common stock to a group of investors pursuant to the terms of an agreement
previously entered into by the Company and such investors. No additional
consideration was paid to the Company for such shares.
During October 2000, the Company issued 30,000 shares of common stock to an
investor for costs associated with a previous sale of securities to such
investor. Also, in October 2000, the Company issued 3,000 shares of common stock
valued at $8,850 for a placement fee arising from previous sale of common stock
by the Company.
10. LIQUIDITY:
The accompanying 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. At September 30,
2000, the Company has negative working capital with obligations totaling
$15,240,123 due within one year of which approximately $9,000,000 is past due
(Note 6). In addition, losses totaling $2,971,947 have been generated since
inception. These matters raise substantial doubt about the company's ability to
continue on as a going concern. The continuation of the Company as a going
concern is dependent upon the Company raising additional capital, and attaining
and maintaining profitable operations. The Company has identified potential
sources of capital and potential joint venture and/or strategic partners and
believes that they will be able to secure the necessary capital to put their
business plan into operation.
F-29
<PAGE> 68
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of this offering in connection with the issuance and
distribution of the securities being registered, all of which are to be paid by
the Registrant, are as follows:
<TABLE>
<S> <C>
Registration Fee $ 875
Legal Fees and Expenses $28,500
Accounting Fees and Expenses $18,000
Printing $ 2,500
Miscellaneous Expenses $ 5,125
Total $55,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of the state of Delaware (Section 102) allows a
corporation to eliminate the personal liability of directors of a corporation to
the corporation or to any of its stockholders for monetary damage for a breach
of his/her fiduciary duty as a director, except in the case where the director
breached his/her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of a
dividend or approved a stock repurchase in violation of Delaware corporate law
or obtained an improper personal benefit. The Certificate of Incorporation, as
amended, of North American Datacom, Inc., contains a provision which eliminates
directors' personal liability as set forth above. The General Corporation Law of
the state of Delaware (Section 145) gives Delaware corporations broad powers to
indemnify their present and former directors and officers and those of
affiliated corporations against expenses incurred in the defense of any lawsuit
to which they are made parties by reason of being or having been such directors
or officers, subject to specified conditions and exclusions; gives a director or
officer who successfully defends an action the right to be so indemnified; and
authorizes the corporation to buy directors' and officers' liability insurance.
Such indemnification is not exclusive of any other right to which those
indemnified may be entitled under any bylaw, agreement, vote of stockholders or
otherwise. The Company's Certificate of Incorporation, as amended, provides that
the Company is empowered to indemnify, to the fullest extent as expressly
authorized by the General Corporation Law of the state of Delaware, the
directors and officers of the Company. This right of indemnification is not
exclusive of any other right which any person may acquire under any statute,
bylaw, agreement, contract, vote of stockholders or otherwise. The Company, as
permitted by the General Corporation Law of the State of Delaware, may purchase
liability policies which indemnify its officers and directors against loss
arising from claims by reason of their legal liability for acts as officers or
directors subject to limitations and conditions as set forth in the policies.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) The following is a summary of our transactions during the last three years
preceding the date hereof involving sales of our securities that were not
registered under the Securities Act.
In September 1998, the Company was organized and issued 500,000 shares of common
stock to Arlene Crawford, the wife of Robert Crawford, the president, director
and principal shareholder of the Company, for a subscription price of $500.
In September 1998, the Company issued 1,500,000 shares of common stock to Robert
Crawford, the president, director and principal shareholder in return for the
assignment to the Company of 250,000 shares of New York Regional Railroad
Corporation ("NYRR") common stock. In addition, the Company issued Mr. Crawford
a $250,000
II-1
<PAGE> 69
convertible note in return for the assignment of an additional 250,000 shares of
NYRR common stock and issued Mr. Crawford warrants to purchase an additional
500,000 shares of common stock of the Company at $0.25 per share.
In September 1998, the Company issued 1,500,000 shares of common stock to a
former director and employee of the Company in exchange for an option to acquire
500,000 shares of NYRR common stock held by such person, which option was valued
at $50,000.
In April 1999, the Company issued to Freedom 2000 50,000 shares of pre-merger
common stock valued at $61,251 in connection with the acquisition of all the
partnership interests of Freedom 2000, an internet service provider. The Company
paid an additional $8,000 to Freedom 2000 in connection with the transaction.
In November 1998 and January 1999, the Company issued 450,000 shares of common
stock to employees in return for payments totaling $112,500.
In February 1999, the Company issued 10,000 shares of common stock to an
employee for services rendered valued at $10,000.
In May 1999, the Company sold 20,000 shares of common stock to an investor for
$10,000.
In June 1999, the Company authorized the exchange of $512,120 of notes and debt
for 51,212 shares of Series A convertible preferred stock. These 51,212 shares
outstanding as of June 30, 1999 were converted into 2,020,296 shares of the
Company's pre-merger common stock and subsequently exchanged for 23,319,933
shares of post-merger common stock as part of its reverse merger with Pierce
International, Inc. in December 1999. In March 2000, options attached to the
notes were exercised and payment of $342,244 was received for 11,620,964 shares
of post-merger common stock. In addition, $2,145 of debt was converted into
39,002 shares of post-merger common stock.
During the period from April 1999 to December 3, 1999, the Company sold 175,500
shares of pre-merger common stock for a total of $227,500 at prices ranging from
$0.50 to $5.00 per share to various private investors. There were options for
the purchase of 55,500 shares of pre-merger common stock of the Company for $10
per share attached to certain of the sales.
During November 1999, the Company exchanged 164,916 shares of pre-merger common
stock for $74,000 of convertible notes and $34,104 of advances made from Robert
R. Crawford, the Company's president, director and principal shareholder.
On December 3, 1999, the Company acquired all of the common stock of Action
Communications, Inc for 150,000 shares of pre-merger (1,731,339 post-merger)
common stock valued at $345,895.
During December 1999, the Company exchanged 1,687,934 shares of post-merger
common stock for services rendered, aggregating $101,276.
On December 21, 1999, the Company entered into a share exchange agreement with
Pierce International, Inc. (the "merger") in which 77,662,826 shares of common
stock were issued by Pierce International, Inc. in exchange for the outstanding
shares of North American Software Associates, Ltd. As a result of the
transaction, the Company assumed liabilities of $10,000 in the form of a
convertible note and 80,000 shares of preferred equity, which were both
subsequently converted into common stock. As part of the merger transaction, the
Company agreed that as soon as practicable after the closing of the merger
transaction, the Company would offer to those persons who were shareholders of
Pierce International, Inc. immediately prior to the closing, by means of a
registration statement filed with the Securities and Exchange Commission, the
right to purchase 0.26 of a share of common stock for each share held by such
person at a price of $0.25 per share at any time prior to the expiration of one
year from the effective
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<PAGE> 70
date of the registration statement. As of the date of this Registration
Statement, the Company has neither filed such registration statement nor made
such offer.
In January 2000, 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 shares
of common stock were issued.
In February 2000, a $10,000 convertible note of Pierce International, Inc. was
converted into 170,000 shares of common stock.
In May 2000, the Company exchanged 111,320 pre-merger (1,284,883 post-merger)
shares of common stock for $173,830 of services provided to the Company by an
individual who was then an officer of the Company during the period January 1999
to March 2000. The Board of Directors of the Company approved this exchange in
November 1999.
In May 2000, the Board of Directors of the Company authorized 500,000 shares of
Series B convertible preferred stock. In June 2000, the Company authorized the
sale of up to 5,000 shares of Series B convertible preferred stock of $1,000 per
share to Robert R. Crawford, the Company's president, director and principal
shareholder. Each share is convertible into 500 shares of common stock of the
Company. Each share carries a $60 dividend payable in July annually with these
dividends accumulating if not paid. If dividends are not current the holders
will have 500 voting rights for each share held. There are no redemption rights
for retiring this issue. As of June 30, 2000, 300 shares were purchased for
$300,000.
In July 2000, holders of stock options exercised the options and acquired 11,542
shares of common stock at an aggregate exercise price of $10,000.
In July 2000, the Company awarded 1,000 shares of its common stock to three
individuals as a non-cash prize in connection with a logo contest held for local
area students.
In August 2000, holders of stock options exercised the options and acquired
115,423 shares of common stock at an aggregate exercise price of $10,000.
In August 2000, the Company sold 317,500 shares of common stock to an investor
for $635,000. During October 2000, the Company issued 30,000 shares of common
stock to such investor for costs associated with this sale of common stock.
In September 2000, the Company sold an additional 500 shares of Series B
preferred stock to Robert R. Crawford, the Company's president, director and
principal shareholder.
In September 2000, the Company sold 150,000 shares of common stock to two
investors for $442,125. The Company issued the placement agent 3,000 shares of
restricted common stock and paid a facilitation fee of $8,700 to such placement
agent in connection with this transaction. In October, November and December
2000, the Company issued 20,225 shares of common stock to such investors
pursuant to the terms of a registration rights agreement entered into in
connection with such transaction. No additional consideration was paid to the
Company for such shares.
The sales and issuances of securities in the transactions described above were
deemed to be exempt from registration under the Securities Act in reliance upon
Section 4(2) of the Securities Act, Regulation D promulgated thereunder or Rule
701 promulgated under Section 3(b) of the Securities Act, as transactions by an
issuer not involving any public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701, and, in the case of the issuance of common stock as a prize in a
logo contest, on the basis that no "sale" as defined in the Securities Act
occurred.
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(b) There were no underwritten offerings employed in connection with any of the
transactions set forth in Item 15(a).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Index of Exhibits
Number Description
2.1 Agreement to Exchange Common Stock Between Pierce International, Inc.
and the Company(2)
3.1 Certificate of Incorporation dated December 15, 1999(1)
3.1.1 Amendment to Certificate of Incorporation dated March 10, 2000 (1)
3.1.2 Certificate of Merger dated March 20, 2000(1)
3.1.3 Certificate of Designation of Series B Convertible Preferred Stock
dated November 15, 2000(*)
3.2 By-Laws of Company (1)
4.1 Securities Purchase Agreement dated September 5, 2000 by and between
the Company, and Cranshire Capital, L.P. and Euram Cap Strat. "A" Fund
Limited (1)
4.2 Registration Rights Agreement dated September 5, 2000 between the
Company, and Cranshire Capital, L.P. and Euram Cap Strat. "A" Fund
Limited(1)
5.1 Opinion of Lawrence R. Lonergan, Esq.(*)
10.1 Lease Agreement effective January 1, 1999 between the State of
Mississippi and the Company(1)
10.2 Right of First Refusal Agreement effective January 1, 1999 between the
State of Mississippi and the Company(1)
10.3 Fiber Optic Conduit Agreement dated August 15, 2000 between
Thoroughbred Technology and Telecommunications, Inc. and North American
InfoTech, LLC(1)
10.4 Right of Way Entry Agreement dated August 15, 2000 among Norfolk
Southern Railway Company, Thoroughbred Technology and
Telecommunications, Inc., and North American InfoTech, LLC(1)
10.5 Right of Way Sublease Agreement dated July 6, 2000 between Tishomingo
Railroad Company, Inc. and North American InfoTech, LLC(1)
10.6 Agreement for Sale of Conduit dated March 31, 2000 between Qwest
Communications Corporation and the Company(1)
10.7 Employment Agreement dated November 16, 1998 between North American
Software Associates, Ltd. and Ted Roberts III(1)
10.8 Employment Agreement dated April 1, 2000 between the Company and David
Cray(1)
10.9 Common Stock Purchase Option (and amendment to Employment Agreement)
dated June 20, 2000 between the Company and David Cray(1)
16 Letter on change in certifying accountant(3).
21 List of subsidiaries of Company(1)
[27 Financial Data Schedule(4)]
23.1 Consent of BDO Seidman, LLP(*)
23.3 Consent of Counsel (see Exhibit 5.1 of this filing)(*)
(+) Indicates a management contract or any compensatory plan, contract or
arrangement.
(*) Filed herewith.
(1) Previously filed in Form 10-K for the year ended June 30, 2000.
(2) Previously filed in Form 8K on December 20, 1999.
(3) Previously filed in Form 8K on June 15, 2000.
(4) Previously in Form 10-K for the year ended June 30, 2000 and in
Form 10-Q/A for the three month period ended September 30, 2000.
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ITEM 17. UNDERTAKINGS.
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement,
notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(b) The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
as expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
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(d) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time is was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to securities
offered therein, and the offering of such securities shall be deemed to be the
initial bona fide offering thereof.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Iuka,
State of Mississippi, on December 12, 2000.
North American Datacom, Inc. (Registrant)
By: /S/ ROBERT R. CRAWFORD
----------------------------------
Robert R. Crawford
President and Chief Executive Officer
Date: December 12, 2000
By: /S/ DAVID CRAY
----------------------------------
David Cray
Treasurer and Principal Accounting Officer
Date: December 12, 2000
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ ROBERT R. CRAWFORD Director, President and December 12, 2000
----------------------------------- Chief Executive Officer
Robert R. Crawford
/S/ David Cray Treasurer and Principal December 12, 2000
----------------------------------- Accounting Officer
David Cray
</TABLE>
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