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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10QSB
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(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from_________________to________________
COMMISSION FILE NUMBER 1-13764
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.)
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Delaware 11-2649088
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
425 Broad Hollow Road
Suite 206
Melville, New York 11747
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (516) 501-0466
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the registrant's common stock ($.60 par value)
outstanding as of November 13, 1998 was 25,452,825 shares.
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<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1998 (unaudited)
and March 31, 1998
Consolidated Statements of Operations for the six and three months
ended September 30, 1998 (unaudited) and 1997 (unaudited)
Consolidated Statements of Cash Flows for the six and three months
ended September 30, 1998 (unaudited) and 1997 (unaudited)
Consolidated Statement of Changes in Stockholders' Equity for the
six months ended September 30, 1998 (unaudited)
Notes to Consolidated Financial Statements
Item 2. management's discussion and analysis
PART II. OTHER INFORMATION
SIGNATURE PAGE
1
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
ASSETS 1998 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash ............................................... $ 137,999 $ 1,767,930
Accounts Receivable
(Net of $63,000 Allowance for Doubtful Accounts at
September 30, 1998 and $71,000 at March 31, 1998) 50,681 62,217
Prepaid Expenses ................................... -- 21,071
------------ ------------
TOTAL CURRENT ASSETS ....................... 188,680 1,851,218
------------ ------------
PROPERTY AND EQUIPMENT:
Property and Equipment ............................. 1,540,153 1,686,122
Accumulated Depreciation ........................... (717,797) (649,732)
------------ ------------
NET PROPERTY AND EQUIPMENT ................. 822,356 1,036,390
------------ ------------
OTHER ASSETS:
PCS Licenses ....................................... 13,011,318 22,300,351
Prepaid Marketing Service Contract ................. 125,000 --
Paging System Costs ................................ 651,082 676,614
Debt Issue Cost .................................... 210,918 1,020,000
Security Deposits and Other Assets ................. 180,590 127,666
------------ ------------
TOTAL OTHER ASSETS ......................... 14,178,908 24,124,631
------------ ------------
TOTAL ASSETS .......................................... $ 15,189,944 $ 27,012,239
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses .................................. $ 1,805,635 $ 1,316,606
Notes Payable--Other ................................................... 647,525 795,677
Current Portion of Long Term Debt ...................................... 365,360 332,524
Current Portion of Notes Payable to FCC ................................ 575,292 158,670
------------ -----------
TOTAL CURRENT LIABILITIES ....................................... 3,393,812 2,603,477
------------ -----------
LONG TERM LIABILITIES:
Notes Payable to FCC ................................................... 9,059,900 18,760,307
Long Term Debt ......................................................... 380,384 1,087,345
------------ -----------
TOTAL LONG TERM LIABILITIES ..................................... 9,440,284 19,847,652
------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 45 authorized Series C Non-voting
Convertible, 21.55 Shares issued and outstanding at September 30, 1998
and 45 at March 31, 1998 ............................................. -- --
Common Stock, par value $.60 per share, 40,000,000
authorized, 24,333,028 issued and outstanding at September 30, 1998
and 5,531,705 at March 31, 1998 ...................................... 14,656,639 3,375,845
Additional Paid-In Capital ............................................. 13,824,637 24,443,726
Accumulated Deficit .................................................... (24,841,590) (21,203,461)
Discount on Common Stock available to
Series C Preferred Shareholders ...................................... (1,283,838) (2,055,000)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY ...................................... 2,355,848 4,561,110
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $ 15,189,944 $27,012,239
------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX SIX
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Paging & Two Way Radio ................... $ 411,032 $ 1,152,573
Commissions .............................. -- 442,259
Electronics .............................. -- 9,614
----------- -----------
TOTAL REVENUES .................... 411,032 1,604,446
----------- -----------
Cost of Sales:
Paging & Two Way Radio ................... 352,816 735,673
Commissions .............................. -- 275,562
Electronics .............................. -- 389,275
----------- -----------
TOTAL COST OF SALES ............... 352,816 1,400,510
----------- -----------
GROSS PROFIT ...................... 58,216 203,936
----------- -----------
Selling, General And Administrative Expenses:
Selling .................................. -- 954,952
General and Administrative ............... 2,066,010 2,346,338
----------- -----------
TOTAL SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ........ 2,066,010 3,301,290
----------- -----------
LOSS FROM OPERATIONS ........................ (2,007,794) (3,097,354)
----------- -----------
Other Income (Expense):
Interest Expense ......................... (1,655,591) (1,613,529)
Interest Income .......................... 25,256 3,499
----------- -----------
TOTAL OTHER INCOME (EXPENSE) ............. (1,630,335) (1,610,030)
---------- -----------
LOSS BEFORE MINORITY INTEREST ............... (3,638,129) (4,707,384)
----------- -----------
MINORITY INTEREST IN LOSS OF
CONSOLIDATED SUBSIDIARIES ................... -- (15,161)
----------- -----------
NET LOSS .................................... $(3,638,129) $(4,722,545)
=========== ===========
LOSS PER COMMON SHARE ....................... $ (0.32) $ (4.26)
=========== ===========
See Notes to Consolidated Financial Statements.
4
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
THREE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Paging & Two Way Radio............................................... $ 207,693 $ 607,041
Commissions.......................................................... -- 346,686
---------- ----------
TOTAL REVENUES ............................................... 207,693 953,727
---------- ----------
COST OF SALES:
Paging & Two Way Radio............................................... 181,353 388,506
Commissions.......................................................... -- 189,899
Electronics.......................................................... -- 379,854
---------- ----------
TOTAL COST OF SALES .......................................... 181,353 958,259
---------- ----------
GROSS PROFIT ............................................... 26,340 (4,532)
---------- ----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling.............................................................. -- 412,748
General and Administrative........................................... 1,265,500 1,408,143
---------- ----------
TOTAL SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ................................... 1,265,500 1,820,891
---------- ----------
LOSS FROM OPERATIONS ................................................... (1,239,160) (1,825,423)
---------- ----------
Other Income (Expense):
Interest Expense..................................................... (816,791) (1,519,266)
Interest Income...................................................... 6,538 3,069
---------- ----------
TOTAL OTHER INCOME (EXPENSE) ........................................ (810,253) (1,516,197)
---------- ----------
LOSS BEFORE MINORITY INTEREST .......................................... (2,049,413) (3,341,620)
---------- ----------
MINORITY INTEREST IN LOSS OF
CONSOLIDATED SUBSIDIARIES .............................................. -- (11,359)
---------- ----------
NET LOSS ............................................................... $(2,049,413) $(3,352,979)
========== ==========
LOSS PER COMMON SHARE .................................................. $(0.14) $(2.98)
========== ==========
See Notes to Consolidated Financial Statements.
5
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ....................................... $(3,638,129) $(4,722,545)
Adjustments to Reconcile Net Loss to
Net Cash Used By Operations:
Issuance of Common Stock for Interest Expense .. -- 33,334
Issuance of Common Stock for Consulting Services -- 131,500
Depreciation and Amortization .................. 210,429 618,941
Non-cash Amortization of Finance Charges ....... 1,579,504 1,383,161
Marketing Service Contracts .................... (125,000) 354,452
Minority Interest in Loss (Income) ............. -- (15,161)
Changes in:
Accounts Receivable ............................ 11,536 (260,214)
Inventories .................................... -- (293,949)
Prepayments .................................... 21,071 (103,044)
Accounts Payable and Accrued Expenses .......... 482,147 304,203
Accrued Interest ............................... 42,171 885,671
Security Deposits and Other .................... (39,223) (1,075)
----------- -----------
TOTAL ADJUSTMENTS ...................... 2,182,635 3,037,819
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES ............. (1,455,494) (1,684,726)
----------- -----------
See Notes to Consolidated Financial Statements.
6
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIEs
PCS License.......................................................... $ -- $ (6,544)
Additions to Property and Equipment.................................. (49,589) (46,139)
Paging System Costs and Other Assets................................. -- (1,000,345)
---------- -----------
NET CASH USED IN INVESTING ACTIVITIES .................................. (49,589) (1,053,028)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred Private Placement Costs..................................... -- 347,971
Payment for Deferred Registration Costs.............................. -- (316,242)
Net Proceeds of Shareholder Loans.................................... -- 70,145
Payment of Private Placement Advance................................. -- (1,628,254)
Payments of Bank and Other Loans..................................... -- (399,499)
Proceeds from Other Loans............................................ -- 309,742
Proceeds from Debentures............................................. -- 2,908,334
Principal Payments of Capital Lease Obligations...................... (80,529) (80,097)
Proceeds from Sale of Common Stock................................... -- 1,604,759
Payments of Long Term Debt........................................... (44,319) --
---------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ....................... (124,848) 2,816,859
---------- -----------
NET INCREASE (DECREASE) IN CASH ........................................ (1,629,931) 79,105
---------- -----------
CASH, BEGINNING OF PERIOD .............................................. 1,767,930 48,620
---------- -----------
CASH, END OF PERIOD .................................................... $ 137,999 $ 127,725
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
7
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE FOR CASH FLOWS
CASH PAID DURING THE PERIOD FOR:
Interest............................................................. $ 41,838 $ 177,941
Taxes................................................................ -- --
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Common Stock Issued for Payment of Loan Payable...................... -- 375,000
Exchange of Convertible Debentures for Common Stock.................. 448,553 --
Exchange of Common Stock for Convertible Debentures.................. -- 2,013,093
Exchange of Convertible Notes for Common Stock....................... 173,152 --
Exchange of Preferred Stock for Common Stock......................... 6,962,611 --
Non-cash Interest Capitalized on Notes Payable to FCC................ 416,622 --
</TABLE>
See Notes to Consolidated Financial Statements.
8
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 199 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss............................................................. $(2,049,413) $(3,352,979)
Adjustments to Reconcile Net Loss to
Net Cash Used By Operations:
Issuance of Common Stock for Consulting Services..................... -- 131,500
Depreciation and Amortization........................................ 125,501 263,460
Provision for Bad Debts.............................................. -- (4,404)
Non-cash Amortization of Finance Charges............................. 791,859 1,383,161
Marketing Service Contracts.......................................... (125,000) 177,226
Minority Interest in Loss (Income)................................... -- (11,359)
Changes in:
Accounts Receivable.................................................. (1,762) (210,343)
Inventories.......................................................... -- (364,309)
Prepayments.......................................................... 20,164 (103,044)
Accounts Payable and Accrued Expenses................................ 369,474 349,420
Accrued Interest..................................................... 22,784 469,049
Security Deposits and Other.......................................... (40,809) --
---------- ----------
TOTAL ADJUSTMENTS ........................................... 1,162,211 2,080,357
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES .................................. (887,202) (1,272,622)
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
9
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
PCS License.......................................................... $ -- $ 442,249
Additions to Property and Equipment.................................. (16,902) (40,615)
Paging System Costs and Other Assets................................. -- (994,746)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES .................................. (16,902) (593,112)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment for Deferred Registration Costs.............................. -- (178,273)
Net Proceeds of Shareholder Loans.................................... -- 49,756
Proceeds from Other Loans............................................ -- 309,742
Payments of Bank and Other Loans..................................... -- (35,440)
Proceeds from Debentures............................................. -- 1,847,032
Principal Payments of Capital Lease Obligations...................... (26,268) (22,805)
Payments of Long Term Debt........................................... (19,444) --
---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ....................... (45,712) 1,970,012
---------- ----------
NET INCREASE (DECREASE) IN CASH ........................................ (949,816) 104,278
---------- ----------
CASH, BEGINNING OF PERIOD .............................................. 1,087,815 23,447
---------- ----------
CASH, END OF PERIOD .................................................... $ 137,999 $ 127,725
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
10
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Supplemental Disclosure For Cash Flows
CASH PAID DURING THE PERIOD FOR:
Interest............................................................. $ 10,070 $ 83,678
Taxes................................................................ -- --
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Exchange of Common Stock for Convertible Debentures.................. -- 2,013,093
Exchange of Convertible Notes for Common Stock....................... 173,152 --
Exchange of Preferred Stock for Common Stock......................... 4,885,133 --
Non-cash Interest Capitalized on Notes Payable to FCC................ 208,311 --
</TABLE>
See Notes to Consolidated Financial Statements.
11
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
DISCOUNT ON
COMMON
STOCK
PREFERRED STOCK COMMON STOCK ADDITIONAL AVAILABLE TO
------------------ --------------------- PAID-IN ACCUMULATED PREFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SHAREHOLDERS TOTAL
--------- ------- -------- ---------- ------------ ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of March 31, 1998....... 45 -- 5,531,705 $ 3,375,845 $24,443,726 $(21,203,461) $(2,055,000) $4,561,110
Conversion of 8% cumulative
convertible debentures into
Common Stock..................... -- -- 1,108,155 664,893 (176,340) -- -- 488,553
Conversion of Series C Preferred
Stock into Common Stock.......... (23.45) -- 11,604,352 6,962,611 (6,962,611) -- -- --
Conversion of 10% Promissory
Notes into Common Stock.......... -- -- 6,088,816 3,653,290 (3,480,138) -- -- 173,152
Amortization of discount on Common
Stock available to Preferred
Shareholders..................... -- -- -- -- -- -- 771,162 771,162
Net Loss........................... -- -- -- -- -- (3,638,129) - (3,638,129)
--------- ------- ----------- ----------- ----------- ------------ ----------- ----------
Balance as of September 30, 1998... 21.55 -- 24,333,028 $14,656,639 $13,824,637 $(24,841,590) $(1,283,838 $2,355,848
========= ======= =========== =========== =========== ============ =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
12
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS ACTIVITY AND BASIS OF PRESENTATION
In June of 1998, Northeast Digital Networks, Inc. (the "Company") changed
its name from Electronics Communications Corp. During 1994, Electronics
Communications Corp. changed its name from Genetic Breeding, Inc. to Internow
Affiliates, Inc. and then to Electronics Communications Corp. Effective on
January 1, 1994, the Company acquired Free Trade Distributors, Inc. (which
engaged in the wholesale distribution of cellular telephones and related
accessories and electronic products) and Trade Zone Distributors, Inc. (which
engaged in the activation of cellular radio subscribers for commissions), both
serving the New York Metropolitan Area. The Company no longer distributes
cellular telephones and related accessories and electronic products nor does it
engage in the activation of cellular telephones for commissions.
In 1995, the Company formed Electrocomm Wireless, Inc., a Delaware
corporation, as a subsidiary, to become a radio paging and two-way radio carrier
in the New York Metropolitan Area and the State of New Jersey. The Company is
presently inactive. In July 1995, the Company formed Personal Communications
Network, Inc. ("PCN"), a Delaware corporation, to participate in the Federal
Communications Commission ("FCC") auction for licenses to engage in personal
communications services ("PCS"). On May 8, 1996, the Company obtained six PCS
licenses for $26,452,200 entitling it to operate wireless PCS telephone systems
covering nearly 1.5 million people in five states. On June 8, 1998, the Company
elected a debt relief option (the "Disaggregation Option") offered by the FCC.
The election of the Disaggregation Option for all six licenses permitted the
return of 15 MHz of the 30 MHz originally awarded the Company in exchange for a
reduction of the debt incurred for such licenses (see Note 2). PCN is 100% owned
by the Company.
On March 22, 1996, Threshold Communications, Inc. ("TCI") acquired
substantially all of the assets and assumed certain liabilities of General
Communications and Electronics, Inc. ("GCE"). GCE is in the business of
reselling paging air time to corporate clients. TCI also acquired as part of
this transaction 56 2/3% of the outstanding stock of General Towers of America,
Inc. (which engages in the business of providing two way radio services in the
New York Metropolitan Area). TCI and its subsidiary General Towers of America,
Inc. ("GTA") are treated as subsidiaries of the Company. During the first
quarter of fiscal 1999, GTA ceased all operations.
On June 28, 1996, the Company acquired 51% of TCI. On January 2, 1998, the
Company purchased the remaining 49% of TCI for a $90,000 cash payment.
On July 31, 1997, the Company's board of directors effected a 1 for 12
reverse stock split of its $.05 par value common stock. The new common stock has
a $.60 per share par value. On May 28, 1998, the Company's stockholders ratified
the reverse stock split at a special meeting of stockholders. All references to
number of common shares for all periods presented reflects the ratification and
have been retroactively restated for the reverse stock split. See Note 15(B) for
discussion of proposed reverse stock split.
On August 11, 1997, the Company changed its fiscal year end from December
31 to March 31.
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-QSB and Article 10 of
Regulation S-X. Accordingly, they do not necessarily include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months and three
months ended September 30, 1998 are not necessarily indicative of the results
that may be expected for the year ended March 31, 1999. The unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10KSB as amended for the year ended March 31,
1998.
13
<PAGE>
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries, Free Trade Distributors, Inc., Trade Zone
Distributors, Inc., Personal Communications Network, Inc., Threshold
Communications, Inc. and majority owned General Towers of America, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
(C) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
straight line and accelerated methods over the estimated useful lives of the
respective assets (5 to 7 years).
(D) REVENUE RECOGNITION
It is the Company's policy to categorize revenue into either (i) sales of
its paging and two way radio services, (ii) commissions for fees earned on sales
of cellular radio service contracts, and (iii) sales of electronic goods. Sales
of electronic goods are recognized when they are shipped.
Commissions are inclusive of fees earned for the sale of cellular telephone
service contracts and residuals received on those contracts. Revenues and
related commissions from the sale of the service contracts are recognized at the
point of activation. Revenues from residuals are realized when approved by the
cellular telephone service supplier and are paid on customer usage for a maximum
of three years.
Revenues from paging and two-way radio services are recognized in the
beginning of the month for which they are invoiced.
(E) CONCENTRATION OF CREDIT RISK
The Company maintains its major cash accounts in banks in New York. The
total cash deposits are insured by the Federal Deposit Insurance Corporation up
to $100,000 per account. Uninsured balances at September 30, 1998 totaled
approximately $54,858.
(F) 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 and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
(G) FAIR VALUE OF FINANCIAL INSTRUMENTS
At September 30 and March 31, 1998, the fair values of cash, accounts
receivable, non-convertible short term debt and current portion of long-term
debt and accounts payable, approximated their carrying values because of the
short-term nature of these instruments. The fair value and carrying amount of
the Company's long term notes payable to the FCC with an actual interest rate of
7% and the corresponding PCS Licenses were adjusted to reflect an imputed
interest rate of 14% which more closely corresponds to the Company's borrowing
rate.
14
<PAGE>
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(H) EARNINGS PER SHARE
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standard (SFAS) No. 128, "Earnings Per Share" which was
issued in February 1997 and is effective for periods ending after December 15,
1997. SFAS No. 128 replaces the presentation of primary and fully diluted
earnings per share. The Company uses the weighted-average number of common
shares outstanding during each period to compute basic earnings per common
share. Diluted earnings per share is computed using the weighted-average number
of common shares and dilutive potential common shares outstanding. Dilutive
potential common shares are additional common shares assumed to be exercised.
(I) STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting For Stock Issued To Employees (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is recorded.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation".
(J) RECLASSIFICATIONS
Certain amounts from previous periods have been reclassified to conform to
the current presentation.
NOTE 2 -- PCS LICENSES
The PCS licenses were awarded in a FCC "C" Block Auction as discussed in
Note 1(A). The markets awarded the Company include Elmira-Corning, New York;
Bangor/Lewiston-Auburn/Waterville-Augusta, Maine; and
Burlington/Rutland-Bennington, Vermont. The Vermont markets encompass virtually
the entire state. The Maine markets cover a majority of the population and most
of the state geographically. The licenses expire and are subject to renewal 10
years from the date obtained.
The Company's total winning bids amounted to $26,452,200, after the 25%
discount provided to small businesses, for which the Company qualified under the
terms of the auction. The Company deposited cash of $2,645,220. The remaining
balance is payable over the next 10 years with 7% interest only during the first
six years. On March 31, 1997, the FCC imposed a moratorium on the payment of
interest until March 31, 1998. On March 24, 1998, the FCC released an Amendment
of the Commission's Rules Regarding Installment Payment Financing for Personal
Communications Services (PCS) Licensees, WT Docket 97-82, Order on
Reconsideration of the Second Report and Order whereby the moratorium on the
payment of interest was extended to July 31, 1998.
On October 16, 1997, in an effort to bring relief to C-Block license
holders, the FCC offered three options. The three options are as follows: (1) an
"Amnesty Option" permitting return of the licenses which will result in the
forfeiture of the original down payment of $2,645,220 and the return to the
Company of the previous installments paid which amount to approximately
$286,000; (2) a "Disaggregation Option" permitting the return of 15 megahertz of
the 30 megahertz of spectrum awarded under the licenses, back to the FCC and
reducing the current note payable to the FCC by 50%; and (3) a "Prepayment
Option" permitting the exchange of all licenses in a particular BTA for a
partial reduction of the current note payable to the FCC (equal to 70% of the
total down payments of the surrendered licenses).
15
<PAGE>
NOTE 2 -- PCS LICENSES (CONTINUED)
On June 8, 1998, the Company elected the Disaggregation Option. As a
result, 15 MHz of the 30 MHz of spectrum awarded under the licenses were
returned to the FCC. Debt incurred for the licenses was reduced from $23,806,980
to $11,903,490 ($8,795,452 when discounted using an imputed interest rate of
14%--see Note 1(G)). Accrued and capitalized interest due to the FCC of
$2,233,418 was reduced by $1,810,300 to $423,118 after applying a credit for 50%
of the total accrued and capitalized interest, a credit of $529,044 for 40% of
the downpayment forfeiture and a credit of $164,547 for 50% of the interest
payments made. Total suspended accrued interest due to the FCC of $423,118 is to
be paid in eight quarterly installments of $52,890. Quarterly interest payments
due on the FCC notes were reduced from $416,622 to $208,311.
Included in the license costs are certain legal and professional fees
incurred in obtaining the licenses. Capitalized PCS interest in the amount of
$839,740 and $2,233,418 is included in PCS Licenses at September 30, 1998 and
March 31, 1998, respectively. The Company has not begun PCS service and will
require substantial additional financing to pay the balance of the purchase
price for the PCS licenses and to construct the system prior to initiating PCS
service. No assurance can be given that such financing will become available.
Assuming inception of PCS services, the Company will amortize the licenses and
related costs over a forty-year period.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
September 30, March 31,
1998 1998
--------- ---------
Paging equipment $1,446,822 $1,619,250
Computer and other equipment 74,376 47,917
Leasehold improvements,
furniture and fixtures 18,955 18,955
--------- ---------
1,540,153 1,686,122
Less: Accumulated depreciation (717,797) (649,732)
--------- ---------
Net Property and Equipment $ 822,356 $1,036,390
========= =========
NOTE 4 -- PREPAID MARKETING SERVICE CONTRACT
In July 1998, the Company entered into an agreement with a public relations
and direct marketing advertising firm specializing in the dissemination of
information about publicly traded companies. In consideration for a $250,000
cash payment and 100,000 options to purchase the Company's Common Stock at an
exercise price of $.375 (the closing bid price on the date of the agreement),
the public relations firm is to publicize the Company to brokers, prospective
investors and shareholders. The terms of the agreement are to be fulfilled over
an approximate 6 month period. A prepaid asset was initially recorded for
$250,000 and is being amortized over the 6 month period.
NOTE 5 -- NOTES PAYABLE
(A) NOTES PAYABLE -- FCc
After applying the effects of the election of the Disaggregation Option as
discussed in Note 2, Notes Payable--FCC consist of six 7% 10 year notes
aggregating $11,903,490 ($8,795,452 when discounted using the imputed interest
rate of 14%--see Note 1(G)). Accrued interest as of September 30, 1998 amounted
to $839,740 for a total obligation of $9,635,192 of which $575,292 is current.
The notes are payable in quarterly installments of interest only for the first
six years and principal plus interest thereafter. The notes are secured by the
PCS licenses. The interest payment due December 31, 1996 was partially paid on
March 31, 1997. As discussed in Note 2, the Company had not made a quarterly
interest payment since March 31, 1997 due to an FCC moratorium on quarterly
interest payments. The payment of interest was to be resumed on July 31, 1998.
The Company deferred the payment due on July 31, 1998. The July 31, 1998 payment
in the amount of $341,644 (including a 5% late charge) was made on
16
<PAGE>
October 27, 1998. The payment of the October 27, 1998 quarterly installment in
the amount of $261,201 was deferred and is due on January 27, 1999 with a 5%
late charge.
(B) NOTES PAYABLE -- OTHER
(1) In connection with the Company's acquisition of the 51% interest in
TCI, the Company was contingently liable to pay the difference between the
market value at the date of acquisition of the Company's common stock used as
consideration for a portion of the acquisition price and the average market
price of the Company's stock during the period in which a restriction on the
resale of the stock expired. This resulted in the recognition of an obligation
for $277,567.
(2) During the 1998 fiscal third quarter, the Company borrowed $300,000
from one lender and $200,000 from a second lender. The Company agreed to issue
its 10% promissory notes to the lenders in the principal amounts of the loans.
The notes are payable one year after the loans together with interest at a 10%
annual rate payable semi-annually in cash, or at the Company's option, in shares
of Common Stock. The note principal is convertible at the holder's option into
shares of Common Stock at a conversion price equal to the lesser of $1.125 per
share or a Conversion Formula similar to the Conversion Formula of the Series C
Preferred Stock. In accordance with Emerging Issues Task Force ("EITF") Abstract
D-60 "Accounting for the Issuance of Convertible Preferred Stock and Debt
Securities with a Nondetachable Conversion Feature", the Company recorded a debt
issue cost and a corresponding increase to additional paid in capital of
$506,000, representing the difference between the fair market value of the
Company's common stock on the date of the loan and the conversion price. The
cost is being amortized over the life of the loan. In addition, the Company
issued five-year warrants to the lenders exercisable to purchase 100,000 shares
of Common Stock for each $100,000 loan (i.e., an aggregate 500,000 shares of
Common Stock) at an exercise price per share equal to 120% of the closing bid
price for such Common Stock on the trading day immediately preceding the day of
a particular loan. In accordance with SFAS No. 123, the Company recorded a debt
issue cost and a corresponding increase to additional paid in capital of
$1,111,000, representing the fair value of the warrants on the date of grant.
The fair value of the warrants were estimated using the Black-Scholes option
pricing model with the following weighted-average assumptions: the risk free
interest rate of 14%, dividend yield of 0.0%, volatility factors of the expected
market price of the Corporation's common stock of 203.1% and a weighted-average
expected life of the warrants of 5 years. This cost is being amortized over the
life of the loan.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected price volatility.
As the warrants have characteristics significantly different from those of
normal publicly traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of the aforementioned warrants.
On October 26, 1998, the holder of $300,000 of principal amount of the
notes executed amendments wherein the repayment of principal of $100,000 plus
accrued interest from one note was deferred until April 30, 1999 and the
repayment of principal of $200,000 plus accrued interest from a second note was
deferred until May 13, 1999. The original maturity dates were October 31, 1998
and November 13, 1998, respectively. In addition, the amendments provide that
the holder will not convert any of the principal amount or exercise any of the
related warrants until the new maturity dates. In consideration for the deferral
of the maturity dates and conversion rights, the Company decreased the exercise
price of the warrants to $.09375 per share (the closing bid price on the day
preceding the date of the amendments).
As of September 30, 1998, $160,000 of principal plus $13,152 of accrued
interest was converted into 6,088,816 shares of the Company's Common Stock.
Accrued interest on the remaining notes outstanding was $29,958 as of September
30, 1998.
17
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 -- LONG-TERM DEBT
A summary of long-term debt follows:
<TABLE>
<CAPTION>
Interest September 30, March 31,
Description Rate 1998 1998
---------- ------- ------- -------
<S> <C> <C> <C>
Convertible Debentures (a) 8% $ 113,666 $ 593,332
Installment notes payable
monthly through August 1999 (b) 12% 110,519 151,300
Capital leases and notes (c) Various 521,559 675,237
--------- ----------
745,744 1,419,869
Less: Current maturities 365,360 332,524
--------- ----------
$ 380,384 $1,087,345
========= ==========
</TABLE>
(a) This represents the remaining principal outstanding plus $13,666 of
accrued interest as of September 30, 1998 from an August 7, 1998 Regulation S
Private Placement Offering pursuant to which the Company issued $4,970,334
principal amount of 8% Cumulative Convertible Debentures (the "Debentures"). The
principal amount of the Debentures are convertible into shares of the Company's
common stock at the option of the holder, commencing 41 days after issuance, at
a price equivalent to a 30% discount from market based upon the five (5) day
average daily closing bid price, as reported on NASDAQ, for the five (5) trading
days immediately preceding the applicable date of conversion. The Debentures
bear interest at the rate of 8% per annum payable on August 7 of each year
commencing August 7, 1998. The Debentures are redeemable and callable for
conversion under certain circumstances and are due June 30, 2000.
As of September 30, 1998, $4,870,334 of the Debentures had been converted
into 5,047,597 shares of the Company's common stock.
(b) In connection with TCI'S acquisition of GCE, the Company assumed a
$350,000 non-interest bearing note. The outstanding principal amount of this
non-interest bearing note was $116,667 and $165,278 at September 30 and March
31, 1998, respectively, less unamortized discount (discount is based on interest
of 12%) for a net balance of $110,519 (including accrued interest) and $151,300,
respectively. Due to the ongoing liquidity problems of the Company, as of
November 13, 1998, the Company is in arrears under the terms of this note.
(c) The obligations under capital leases are collateralized by paging
equipment with a book value of approximately $458,000 as of September 30, 1998.
The interest rates on the capitalized leases and notes range from approximately
10% to 25% and the lease rates are imputed based on the lower of the Company's
incremental borrowing rate at the inception of each lease or the lessor's
implicit rate of return. Due to the ongoing liquidity problems of the Company,
as of November 13, 1998, the Company is in arrears under all of its capital
leases. The Company is in discussions with each of the lessors and is attempting
to negotiate payment terms in order to cure the arrearages. If agreements cannot
be reached, the equipment securing the leases may have to be returned to the
lessors with any residual balance still owed under the lease obligations.
Additionally, due to the Company's exit from the two way radio business
conducted in its GTA subsidiary (see Note 1(A)), in July 1998, equipment with a
book value of approximately $80,000 was returned to the lessor. The Company is
currently in litigation with the lessor regarding the residual balance owed. See
Note 14(B) for further discussion of the lawsuit.
18
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 -- LONG-TERM DEBT (CONTINUED)
Long-term debt at September 30, 1998 matures as follows:
Year Ending September 30:
----------------------
1999 $365,360
2000 279,573
2001 99,604
2002 1,207
--------
$745,744
========
NOTE 7 -- SUPPLEMENTAL DISCLOSURE OF LOSS PER SHARE
Basic and Diluted Loss Per
Common Share:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Loss per Common Share $(0.32) $(4.26) $(0.14) $(2.98)
--------- -------- --------- --------
Weighted Average Common Shares
Outstanding 11,220,249 1,109,587 14,287,161 1,124,823
========= ======== ========= ========
NOTE 8 -- CONVERTIBLE PREFERRED STOCK
On December 24, 1997, the new Board of Directors of the Company authorized
the issuance of a minimum of 20 shares and a maximum of 45 shares of Series C
Preferred Stock ("Preferred Stock") at the aggregate subscription price of
$100,000 per share pursuant to an offer and sale of such Preferred Stock in a
Regulation S Private Placement Offering. Holders of the Preferred Stock are
entitled to receive a 10% cumulative annual dividend payable semi-annually in
cash, or at the Company's option, in shares of the Company's common stock $.60
par value. The Preferred Stock is non-voting and is convertible in whole or in
part at any time commencing fifty (50) days after issuance at the election of
the holder, into shares of common stock at an initial conversion price equal to
a 25% discount from the average closing bid price for the common stock in the
over-the-counter market for the five trading days immediately preceding the
conversion, said discount thereafter increasing at the rate of 2% per calendar
month commencing March 1, 1998 up to a maximum discount of 35% ("the Conversion
Formula"). The Company has no ability to force conversion but 24 months after
issuance of the initial Preferred Stock, any outstanding Preferred Stock will
automatically convert into shares of Common Stock based on the Conversion
Formula then in effect. The Company paid a placement fee equal to 13% of the
gross proceeds to the Placement Agent. As of December 31, 1997, the Company
issued 30 shares of Preferred Stock and received $2,595,000, net of $405,000 in
expenses. In accordance with EITF D-60, the Company recorded an adjustment for
the discount on Common Stock available to Preferred shareholders and a
corresponding increase to additional paid in capital of $1,615,000, representing
the value of the 35% conversion discount offered on the Preferred Stock. This
cost is being amortized over the period in which the maximum discount will be
realized, commencing with the date of the issuance.
On January 20, 1998, the Company completed its December 1997 Regulation S
Private Offering through the sale of an additional 15 shares of its 1997 Series
C Convertible Preferred Stock and received $1,302,500 net of $197,500 in
expenses. In accordance with EITF D-60, the Company recorded an adjustment for
the discount on Common Stock available to Preferred shareholders and a
corresponding increase to additional paid in capital of $808,000, representing
the value of the 35% conversion discount offered on the Preferred Stock. This
cost is being amortized over the period in which the maximum discount will be
realized, commencing with the date of the issuance.
19
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8 -- CONVERTIBLE PREFERRED STOCK (continued)
As of September 30, 1998, 23.45 shares of the Series C Convertible
Preferred Stock had been converted into 11,604,352 shares of the Company's
common stock. (See Note 15(A))
As of September 30, 1998, there were dividends in arrears of $161,625 on
the 21.55 shares outstanding of the Series C Convertible Preferred Stock.
NOTE 9 -- INCOME TAXES
The Company adopted the liability method of accounting for income taxes, as
set forth in SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred taxes are determined based on the differences between the
financial statement and tax basis of assets and liabilities at enacted tax rates
in effect in the years in which the differences are expected to reverse. At
December 31, 1997, the Company had federal net operating loss carryforwards of
approximately $11,000,000, which will expire beginning in fiscal 2010. These
losses are limited by the provisions of Section 382 of the Internal Revenue Code
due to a considered more than 50% change in ownership with the issuance of the
Convertible Subordinated Debentures in August 1997. Following such a change, the
utilization of tax loss carryforwards is limited to the value of the Company on
the date of such change, multiplied by the Federal long-term exempt rate (the
"annual limitation"). To the extent amounts available under the annual
limitation are not used, they may be carried forward for the remainder of 15
years from the date the losses were originally incurred. As a result of the
change in ownership, use of net operating losses will be limited to
approximately $300,000 per year subject to certain additional limitations.
The Company has deferred tax asset of approximately $1,500,000 at December
31, 1997, representing principally the tax benefit of the loss carry forwards
under Section 382 and for periods subsequent to the effective date of the Plan.
This deferred tax asset has been offset by a 100% valuation allowance. A
valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. Based on the Company's
operating results to date a full valuation allowance has been recorded at
December 31, 1997.
NOTE 10 -- STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
On October 30, 1997, the Board of Directors of the Company (the "Board"),
subject to shareholder approval, adopted the October 30, 1997 Stock Option Plan
(the "1997 Plan"). The aggregate number and class of shares which may be the
subject of options granted pursuant to the 1997 Plan is 1,000,000 shares of
Common Stock, $.60 par value, of the Company. The options to be granted may, at
the discretion of the Company, be designated to be options which will qualify
for incentive stock option treatment ("ISO's) under the Internal Revenue Code of
1986, as amended (the "Code") or options which will not so qualify
("Non-ISO's"). Officers, directors and key employees of the Company or
subsidiaries of the Company, as determined by the Board, shall be eligible to
receive options under the 1997 Plan. The exercise price for the Shares
purchasable under ISOs granted pursuant to the 1997 Plan shall not be less than
100%, or, in the case of an ISO granted to a Ten Percent Shareholder, 110%, of
the fair market value per share of the Shares subject to the ISO under the plan
at the Date of Grant, as determined by the Board. Under the 1997 Plan, the Board
shall have absolute discretion in determining the period during which, the rate
at which, and the terms and conditions upon which any option granted may be
exercised. Except as set forth in the 1997 Plan, ISOs shall terminate upon the
date of voluntary or involuntary termination of employment regardless of the
expiration date specified in such ISO. No option granted under the Plan may be
sold, pledged, assigned or transferred in any manner except to the extent that
options may be exercised by an executor or administrator upon the death of the
holder.
The 1997 Plan and any options granted pursuant to the 1997 Plan prior to
May 28, 1998 received approval of the shareholders at the special meeting in
lieu of an annual meeting held on May 28, 1998.
20
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10 -- STOCK OPTIONS AND WARRANTS (continued)
Non-ISO's issued and outstanding at September 30, 1998 are as follows:
Shares Exercise Price Expiration
Issuable Per Share Date
------- -------- --------
Non ISO's Issued to
President and CEO in October 1997 300,000 (a) 9/2007
Non ISO's Issued to
Directors in October 1997 145,000 (b) (b)
Non ISO's issued to former Director
and employee 230,000 $2.25 9/2002
-------
Total 675,000
=======
(a) The exercise prices for the 300,000 shares granted to the President and
CEO on 10/30/97 are as follows: 100,000 with an exercise price of the mean
between closing bid and closing asked prices on 10/30/97; 100,000 at $1.75 per
share; 100,000 at $2.00 per share. The term of all options is ten years.
(b) The exercise prices and the terms for the 145,000 options are as
follows: (i) five-year non-qualified options to purchase 100,000 shares at the
closing mean price for the common stock on 10/30/97; 1/3 immediately
exercisable, 1/3 commencing 11/1/98 and 1/3 commencing 11/1/99; and (ii)
five-year non-qualified options, exercisable to purchase 45,000 shares at the
closing mean price for the common stock on 10/30/97.
ISO's issued and outstanding at September 30, 1998 are as follows:
Shares Exercise Price Expiration
Issuable Per Share Date
------- -------- --------
ISO's issued to President
& CEO in October 1997 200,000 $1.453125 (c)
ISO's issued to Secretary,
Executive VP and CFO 100,000 $2.109375 12/2002
ISO's issued to Vice
President of Operations 50,000 (d) 1/2003
-------
Total 350,000
=======
(c) The exercise prices for the 200,000 shares issued to the President &
CEO in October 1997 are as follows: (i) 68,817 shares purchasable upon exercise
of incentive stock options at an exercise price of $1.453125; (ii) 131,183
shares purchasable upon exercise of incentive stock options at an exercise price
of $1.453125 per share, which options are first exercisable in 1999 (68,817
shares) and in 2000 (62,366 shares).
(d) The exercise price equals the mean between the closing bid and the
closing asked prices for the Company's common stock in the over-the-counter
market on February 19, 1998.
On July 31, 1998, the Board of Directors approved the issuance to certain
key employees options to purchase an aggregate of 100,000 shares of the
Company's common stock at an exercise price of $.75 per share. At September 30,
1998, options to purchase 55,000 shares were available for grant under the 1997
Plan. The additional 45,000 shares to be issued are subject to shareholder
approval of an increase in the number of shares authorized under the 1997 plan.
21
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10 -- STOCK OPTIONS AND WARRANTS (continued)
Options outstanding are summarized as follows:
Six Months
Ended Year Ended
September 30, 1998 March 31, 1998
-------------------- ----------------
Options Outstanding at
Beginning of Period 1,025,000 80,000
Options Granted -- 1,548,077(a)
Options Expired -- --
Options Exercised -- (523,077)
Options Transferred -- --
Options Cancelled -- (80,000)
------------ ------------
Options Outstanding at
End of Period 1,025,000 1,025,000
============ ============
Exercise Price per Share $.62-$2.29 $.62-$2.29
Fair Value of Options Granted $1.66 $1.66
(a) 945,000 of the options granted during the year ended March 31, 1998
were under the October 30, 1997 Incentive Stock Option Plan approved by the
shareholders on May 28, 1998 ("1997 Plan") and 80,000 options were granted via
Board of Directors approval in September 1997. The remaining 603,077 options
granted during the year ended March 31, 1998 were pursuant to the unanimous
written consent of the Board of Directors on September 29, 1997.
Proforma results of operations, had SFAS 123 been used to account for
stock-based compensation cost, would have resulted in additional compensation
expense of approximately $2,966,000 for the year ended March 31, 1998 resulting
in a proforma net loss of approximately $13,446,000 for that same reporting
period.
The fair market value of the warrants were estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions, respective: risk-free interest rates of 14%, dividend yield of
0.0%, volatility factors of the expected market price of the Company's Common
Stock of 203% and an expected life equaling the warrants exercise periods.
WARRANTS
As of September 30, 1998, there are five-year warrants outstanding
exercisable to purchase 500,000 shares of Common Stock that were issued in
connection with a lending transaction as discussed more fully in Note 5(B)(2).
As of September 30, 1998, there were Class B Warrants outstanding
exercisable to purchase an aggregate 27,750 shares of the Company's common stock
at an exercise price of $1.20 per share and Class A warrants that expire on May
12, 1999 to purchase 570,415 shares of the Company's Common Stock at an exercise
price of $2.25 per share.
NOTE 11 -- OPERATING LEASE
On December 8, 1997, the Company entered into a five year operating lease
expiring December 31, 2002 for 1,500 square feet of office space in Melville,
Long Island, New York. Minimum future rental payments under this operating
lease, including electric is $35,735 per annum. NOTE 12 -- BUSINESS PLAN AND
LIQUIDITY
NOTE 12--BUSINESS PLAN AND LIQUIDITY
The Company's wholly owned subsidiary, PCN, is currently seeking to raise
funds, which may include the issuance of equity securities, necessary to build
out a wireless communications network, thus utilizing the Company's six PCS
licenses in Vermont, Maine and a portion of upstate New York, with certain
overlap in Pennsylvania and New Hampshire. On October 21, 1998, the Company
received a commitment for a $16 million term loan facility from a PCS equipment
vendor. The commitment is subject to, among other conditions, the Company
obtaining binding commitments for equity contributions and/or subordinated debt
in the amount of at least $16 million. The commitment expires on December 15,
1998. There can be no assurance that the Company will be able to secure
financing sufficient to cover the cost associated with the system build out, its
operations and the FCC licenses.
22
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12--BUSINESS PLAN AND LIQUIDITY (CONTINUED)
See Note 2 for further discussion of debt reduction resulting from the
Company's election of the Disaggregation Option. Based on management's
continuing negotiations for vendor and other third party financing, election of
the Disaggregation Option as discussed in Note 2 should enhance PCN's ability to
secure such financing.
In July 1998, management made the decision to discontinue reselling paging
airtime for Skytel, a nationwide paging carrier, and focus its sales efforts on
adding direct subscribers and resellers to the Company's 900 MHz Glenayre paging
system. In connection with this decision, management entered into a settlement
agreement effective July 1, 1998 with Skytel. Pursuant to the terms of the
settlement agreement, the Company paid Skytel approximately $98,000 and tendered
its Skytel customer base and the corresponding accounts receivable to Skytel,
who will assume all future billing, collections and customer service. Skytel
will apply 25% of all future cash collections from the transferred customer base
against the remaining balance due to Skytel after payments made under the
Settlement Agreement. Once the balance due to Skytel of approximately $194,000
(after applying the $98,000 payment discussed above) has reached $75,000, Skytel
will release the Company from any further obligations under the Settlement
Agreement. As of September 30, 1998, the balance due to Skytel was approximately
$130,000.
On March 16, 1998, TCI, the Company's wholly owned paging subsidiary,
entered into a Management Service Agreement with Paging Source of New York
("PSNY"). Under this Agreement, PSNY was to, among other things, perform
billing, customer service and other management services for a monthly fee. As a
result of PSNY's subsequent breach of this Agreement, TCI has internalized the
management of paging operations. In response to this, TCI purchased new billing
software, hired a general manager, director of sales and several customer
service representatives and billing personnel. Due to ongoing losses from
operations, management is seeking to exit from its paging operations. This may
involve the sale of the paging customer base as well as the sale of paging
equipment (see Note 3) and the settlement of the related capital lease
obligations (see Note 6).
The Company's financial statements for the three months ended September 30,
1998 have been prepared on a going concern basis, which contemplates the
realization of assets and settlement of liabilities and commitments in the
normal course of business. The Company has continued to incur net losses with a
net loss of $3,638,129 for the six months ended September 30, 1998. The Company
had a working capital deficiency of $3,205,132 at September 30, 1998 and its
cash used by operations during the six months ended September 30, 1998 was
$1,455,494. If cash flows from operations were assumed to be the same for the
fiscal year 1999 as 1998, the Company would continue to have a working capital
deficiency. Recognizing that the Company must generate additional resources or
consider modifying operations to enable it to continue operations with available
resources, management has retained a public relations firm and certain other
independent consultants to assist it in taking steps to minimize this cash
shortfall and to assist it in identifying entities interested in its business.
However, no assurances can be given that the efforts of the Company or that of
its consultants will be successful in raising additional capital. Furthermore,
there can be no assurance, assuming the Company raises additional funds, that
the Company will achieve profitability or positive cash flow. If the Company is
unable to obtain adequate additional financing, the Company may be required to
seek bankruptcy protection from its creditors. NOTE 13 -- CONTINGENT LIABILITIES
NOTE 13--CONTINGENT LIABILITIES
On July 31, 1998, the Company (by order of the board of directors) entered
into an amended and restated employment agreement with the president. The term
of the agreement is for five years commencing on November 1, 1997 and expiring
October 31, 2002 with compensation of approximately $975,000 over the five-year
term. On July 31, 1998, the Company (by order of the board of directors) entered
into an amended and restated employment agreement with the chief financial
officer. The term of the agreement is for five years commencing on January 2,
1998 and expiring on January 1, 2003 with compensation of approximately $815,000
over the five-year term.
23
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NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14 -- PENDING LITIGATION
(A) On or about October 15, 1997, the Company was served with a Summons in
an action entitled: Motorola, Inc., Plaintiff, v. Electronics Communications
Corp., Defendant, in the Superior Court of New Jersey Law Division: Union County
Special Civil Part. Motorola claims the Company owes it approximately $106,000
including interest for merchandise, consisting of various pager parts and
equipment, restocking fees of approximately $13,100, and attorneys' fees. On or
about May 15, 1998, Motorola filed a Motion for Summary Judgment with the
Superior Court of New Jersey Law Division, Essex County. On June 19, 1998,
Motorola's motion for summary judgement was denied. In October 1998, the Company
executed a Stipulation of Settlement with Motorola in settlement of the lawsuit,
which requires the Company to pay $126,500 to Motorola by November 15, 1998. As
a result of the Company not making the settlement payment of $126,500 on
November 15, 1998, Motorola has sought an Order of Judgement for $126,500 and is
seeking a judgment for an as yet undetermined amount for its claim for lost
profits. The "lost profits" claim asserts that due to the Company's failure to
purchase certain equipment, Motorola sustained lost profits of approximately
$1.2 million. The Company will seek to defend against the claim. Pursuant to the
Stipulation of Settlement, the Company has the right to pay Motorola the sum of
$131,500 in full satisfaction of its obligations under the Stipulation of
Settlement at any time prior to entry of judgement on Motorola's loss profits
claim.
(B) On October 29, 1998, the Company received an Amended Complaint from
Madison Leasing Co., Inc. Due to the Company's default under the terms of a
lease for two way radio equipment, Madison is seeking to recover approximately
$160,000 plus interest and attorneys fees. Madison has obtained an Order for
Judgement in the amount of approximately $160,000. The Company is disputing the
amounts set forth in the judgement and the service of such judgement on the
Company. However, at this time management cannot make a determination as to the
outcome of the disputes set forth above.
NOTE 15 -- SUBSEQUENT EVENTS
(A) As of November 13, 1998, an additional .4 shares of the 1997 Series C
Convertible Preferred Stock had been converted into 875,213 shares of the
Company's Common Stock.
(B) In response to a notice that its common stock would be delisted from
trading on the NASDAQ Small Cap Market due to failure to maintain a minimum
$1.00 bid price in the over-the-counter market, in September 1998, the Company's
Board of Directors approved a 1 for 8 reverse stock split of its common stock
subject to stockholder approval. A special stockholder meeting was to be held on
October 15, 1998 to consider the proposed reverse stock split. In October 1998,
the Company announced that the stockholder meeting date was being postponed and
is now expected to be held sometime in late December 1998 or January 1999. In
addition, because of the relatively low market price for the common stock, the
Board approved a substantially larger reverse stock split of up to 1 for 40.
Additionally, the Company requested a hearing with NASDAQ to discuss the
delisting. The hearing was held on October 29, 1998. As of November 13, 1998, no
decision has been rendered by NASDAQ.
(C) On November 4, 1998, the Company began a Private Offering the terms of
which provide for the subscription of a minimum of 500 and a maximum of 5,000
shares of Series D Preferred Stock, $.01 par value, $1,000 stated value and
purchase price per share. Holders of the Series D Preferred Stock are entitled
to receive a dividend (provided the Company has either sufficient surplus or net
income) at the rate of 10% of the stated value per annum, payable upon
conversion in cash, or at the option of the holder, in shares of the Company's
Common Stock. The Series D Preferred Stock is non-voting and is convertible,
subject to certain quantitative limitations, commencing February 1, 1999 into
shares of the Company's Common Stock at a conversion price equal to the lower of
(i) the closing bid price of the Company's Common Stock on the date of issuance
of the Series D Preferred Stock, or (ii) 75% of the average closing bid price of
the Company's Common Stock for the five trading days immediately preceding the
date on which the Company receives a Conversion Notice from a holder of Series D
Preferred Stock. The Series D Preferred Stock is subject to redemption by the
Company at a redemption price equal to the sum of the stated value and the
accrued dividends thereon, multiplied by 133%. The Placement Agent for this
offering will be
24
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15 -- SUBSEQUENT EVENTS (continued)
paid a placement fee of 11% and a non-accountable expense allowance of 2% of any
offering proceeds received as well as five-year warrants exercisable to purchase
5,000,000 shares of the Company's Common Stock at an exercise price of 110% of
the closing bid price of the Company's Common Stock on the day immediately
preceding the initial closing.
The initial closing occurred on November 6, 1998 pursuant to which 500
shares of the Series D Preferred Stock were issued for $500,000 of which the
Company received proceeds of $48,500 after deducting fees and expenses and the
repayment of a $374,000 advance received on October 28, 1998. The advance was
personally guaranteed by the Company's President & CEO. In consideration for the
personal guarantee, the Company will issue to the President and CEO, subject to
Board of Directors approval, 10 year warrants, with full registration rights, to
purchase 1,000,000 shares of the Company's Common Stock at an exercise price of
$.09375 per share (opening bid price on the date of the guarantee).
(D) On October 16, 1998, the Company entered into a purchase and sale
contract for an 8,000 square foot switching and customer care facility located
in South Burlington, Vermont. The total purchase price of the building was
$550,000 of which a down payment of $80,000 was made. Closing is scheduled on or
before May 3, 1999 and, until such time, the Company will lease the facility on
a month to month basis.
25
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
OVERVIEW
The Company through its PCN subsidiary, is licensed by the FCC to provide
wireless telecommunications services, which include the ability to deliver
traditional telephony along with new digital technologies that allow fax,
internet, e-mail and short message services (e.g., sports scores, weather, stock
quotes, etc). PCN's personal communication services ("PCS") licenses cover
nearly contiguous markets in Vermont, Maine and a small portion of Northern New
Hampshire, as well as a small market in Upstate New York that extends into
Pennsylvania. PCN's six Basic Trading Areas ("BTA") cover approximately 1.5
million potential subscribers ("POPs"). The Company is currently in the
engineering and design phase for the build out of a wireless mobile
communications network utilizing GSM as its technology platform. PCN is also
licensed to provide local and long distance services in Vermont, Maine and New
York and may incorporate such services through "bundling," upon completion of
its PCS network.
The Company, through its TCI subsidiary, currently operates a state of the art
digital 900MHz Glenyre satellite-based Flex paging system, which covers the New
York Metropolitan area and New Jersey. As discussed in Note 12, the Company is
seeking to exit from its paging operations.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE AND SIX MONTHS
ENDED SEPTEMBER 30, 1997
Total revenues decreased $746,034 or 78% for the three months ended September
30, 1998 compared to the three months ended September 30, 1997. Paging and Two
Way Radio revenues decreased $399,348 or 66% for that same three month
comparative period. There were no Commissions revenues for the three months
ended September 30, 1998 compared to $346,686 for the three months ended
September 30, 1997.
Total revenues decreased $1,193,414 or 74% for the six months ended September
30, 1998 compared to the six months ended September 30, 1997. Paging and Two Way
Radio revenues decreased $741,541 or 64% for that same six month comparative
period. There were no Commissions or Electronics revenues for the six months
ended September 30, 1998 compared to $442,259 and $9,614, respectively, for the
six months ended September 30, 1997. The Company attributes the decrease in
Electronics revenues to its exit from the distribution of consumer electronics,
which was conducted at the Company's wholly owned subsidiary, FTD. FTD was
engaged in the wholesale distribution of cellular telephones, related
accessories and other electronic products.
The Commissions revenue decrease for both the three and six month comparative
periods was due to the Company ceasing activations of cellular phones which was
primarily due to the loss of the Company's Master Agent Agreement with NYNEX
Mobile Communications, Inc. ("NYNEX") and Bell Atlantic Mobile, Communications,
Inc. ("BAM"). On May 15, 1997, the Company entered into a Settlement &
Separation Agreement (the "Settlement Agreement") whereby the Company severed
its agency relationship with NYNEX and BAM with respect to the solicitation of
cellular activations. The contract with NYNEX and BAM was the Company's largest
source of commission income. As a result of the Settlement Agreement, the
Company's inability to establish a profitable relationship with another cellular
carrier, a lack of available resources and continuing losses, the Company ceased
cellular phone activations. This resulted in a related decrease in cost of sales
$189,899 and $275,562 for the three and six month comparative periods,
respectively.
The decrease of Paging and Two Way Radio revenues for both the three and six
month comparative periods was due to management's redirecting of the Company's
resources towards the restructuring of the Company and its subsidiaries in the
third and fourth quarter of fiscal 1998, thus requiring a significant reduction
of sales and marketing personnel. The restructuring included a highly focused
effort to raise additional capital in order to settle numerous obligations of
the Company and its subsidiaries and re-position the Company and its PCN
subsidiary for entry into the personal communications service business,
including the preparation of a business plan for PCN and requests for proposals
26
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NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
that were sent to various vendors of GSM equipment. This redirection of
resources resulted in a corresponding decrease in Paging and Two Way Radio cost
of sales of approximately $207,153 or 53% for the three month comparative period
and $382,857 or 52% for the six month comparative period.
Selling, General and Administrative Expenses ("SGA") for the three months ended
September 30, 1998 was $1,265,500 compared to $1,820,891 for the three months
ended September 30, 1997, a decrease of $555,391 or 31%. SGA for the six months
ended September 30, 1998 was $2,066,010 compared to $3,301,290 for the six
months ended September 30, 1997, a decrease of $1,235,280 or 37%. This was
principally attributable to the Company's restructuring and the resulting
significant reduction in sales and marketing personnel, somewhat offset by
expenses incurred due to the Company's refocusing of its efforts towards the
build-out of its PCS licenses and provision of digital wireless services and the
initial engineering and design of the proposed PCS network. Additionally, SGA
for the three months ended September 30, 1998 increased $464,990 or 58% compared
to the three months ended June 30, 1998 principally due to the amortization of
the prepaid marketing service contract as discussed in Note 4 as well as
increased engineering and design costs associated with proposed build-out of the
PCS network.
Interest expense was $816,791 for the three months ended September 30, 1998
compared to $1,519,266 for the three months ended September 30, 1997 and
$1,655,591 for the six months ended September 30, 1998 compared to $1,613,529
for the six months ended September 30, 1997. The increase in interest expense
for the three month comparative period is primarily attributable to the private
placement of the 8% convertible debentures on August 7, 1997 which resulted in a
non-cash finance charge of approximately $1.4 million. For the six month
comparative period, total interest expense was virtually unchanged as the
approximate $1.4 million non-cash finance charge for the six month period in
1997 is somewhat offset by the amortization of deferred finance charges
associated with the $500,000 10% promissory notes (see Note 5(B)(2)) and the
Company's Series C Preferred Stock (see Note 8) for the six month period in
1998.
Net Loss for the three months ended September 30, 1998 was $2,049,413 compared
to $3,352,979 for the three months ended September 30, 1997 and $3,638,129 for
the six months ended September 30, 1998 compared to $4,722,545 for the six
months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation through September 30, 1998, the Company has financed its
operations and met its capital requirements primarily through the use of its
cash flow from capital investments, including the issuance of convertible notes
and debentures and convertible preferred stock.
The Company incurred net losses of $3,638,129 and $4,722,545 for the six months
ended September 30, 1998 and the six months ended September 30, 1997,
respectively. The Company attributes the decrease principally due to the
decrease in SGA as discussed above in the Results of Operations section.
The Company had a working capital deficiency of $3,205,132 as of September 30,
1998.
Net cash used in operating activities for the three months ended September 30,
1998 was $887,202 compared to $1,272,622 for the three months ended September
30, 1997 and $1,455,494 for the six months ended September 30, 1998 compared to
$1,684,726 for the six months ended September 30, 1997.
Net cash used in investing activities for the three months ended September 30,
1998 was $16,902 compared to $593,112 for the three months ended September 30,
1997 and $49,589 for the six months ended September 30, 1998 compared to
$1,053,028 for the six months ended September 30, 1997.
Net cash used by financing activities for the three months ended September 30,
1998 was $45,712 compared to net cash provided by financing activities of
$1,970,012 for the three months ended September 30, 1997. Net cash used by
financing activities for the six months ended September 30, 1998 was $124,848
compared to net cash provided by financing activities for the six months ended
September 30, 1997 of $2,816,859.
27
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
The Company's financial statements for the three months ended September 30, 1998
have been prepared on a going concern basis, which contemplates the realization
of assets and settlement of liabilities and commitments in the normal course of
business. The Company has continued to incur net losses with a net loss of
$3,638,129 for the six months ended September 30, 1998. The Company had a
working capital deficiency of $3,205,132 at September 30,1998 and its cash used
by operations during the six months ended September 30, 1998 was $887,202. If
cash flows from operations were assumed to be the same for the fiscal year 1999
as 1998, the Company would continue to have a working capital deficiency.
Recognizing that the Company must generate additional resources or consider
modifying operations to enable it to continue operations with available
resources, management has retained a public relations firm and certain other
independent consultants to assist it in taking steps to minimize this cash
shortfall and to assist it in identifying entities interested in its business.
However, no assurances can be given that the efforts of the Company or that of
its consultants will be successful in raising additional capital. Furthermore,
there can be no assurance, assuming the Company raises additional funds, that
the Company will achieve profitability or positive cash flow. If the Company is
unable to obtain adequate additional financing, the Company may be required to
seek bankruptcy protection from its creditors.
YEAR 2000 ISSUE
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000. The
Year 2000 issue affects virtually all companies and organizations. The Company
has reviewed its existing computer programs and it believes that it will not be
adversely affected by the Year 2000 Issue. However, there can be no assurance
that the Company's suppliers, creditors, customers and financial service
organizations may not be adversely affected by the Year 2000 issue and as a
result, there can be no assurance as to the impact of the Year 2000 issue on the
Company.
FORWARD LOOKING STATEMENTS
In addition to statements of historical fact, this quarterly report contains
forward-looking statements reflecting the Company's expectations or beliefs
concerning future events which could materially affect the Company's performance
in the future. The Company cautions that these and similar statements involve
risks noted in the Company's SEC filings which may cause actual results to
differ materially. Such risks include the possible inability of the Company to
raise additional financing required to pay the purchase price for its PCS
licenses and to build out its planned PCS network. Forward-looking statements
are made in the context of information available as of the date stated. The
Company undertakes no obligation to update or revise such statements to reflect
new circumstances or unanticipated events as they occur.
28
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NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company incorporates herein the information set forth in Note 14 to
the Financial Statements of this report.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters in a Vote of Security Holders
See Item 4 of the Company's Annual Report on Form 10KSB for the year
ended March 31, 1998
Item 5. Other Information
None
Item 6. Exhibit and Reports on Form 8-K
None
29
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NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.) AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DATED: November 19, 1998 NORTHEAST DIGITAL NETWORKS, INC.
(formerly ELECTRONICS COMMUNICATIONS CORP.)
By: /s/ Joseph A. Rosio
------------------------------------
Joseph A. Rosio, President, Principal Executive Officer
By: /s/ Christopher J. Garcia
------------------------------------
Christopher J. Garcia, Treasurer, Principal Financial
and Accounting Officer
30
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