| ****UNITED STATES****
****SECURITIES AND EXCHANGE COMMISSION****
****Washington, DC 20549****  
**Form 10-Q**
                                (Mark one)
[ X ] QUARTERLY    REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** **
For the    quarterly period ended: September 30, 2001  
[       ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For    the transition period from ____________ to _____________  
Commission    file number: 33-17679  
**North    American DataCom, Inc.**
(Exact    name of small business issuer as specified in its charter)  
Delaware84-1067694
(State or    other jurisdiction of incorporation or organization) (IRS Employer Identification    No.)
751 County Road 989,    Building 1000, Iuka, MS38852
(Address of    principal executive offices)(Zip Code)
662-424-5050
(Issuer’s    telephone number)
Check    whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of    the Exchange Act during the past 12 months (or for such shorter period that the registrant    was required to file such report (s)), and (2) has been subject to such filing    requirements for the past 90 days. Yes [ X ] No [ ]APPLICABLE ONLY TO    CORPORATE ISSUERSState the number of    shares outstanding of each of the issuer’s classes of common equity, as of the latest    practicable date: Common Stock, $.0001    par value, 100,547,074 shares outstanding as of November 19, 2001.
 

 

 

 

 

 

**TABLE OF CONTENTS**

**PART I. FINANCIAL INFORMATION**
Page     Item 1. Financial Statements (Unaudited).3Item 2. Management’s Discussion and Analysis of    Financial Condition and 12               Results of Operations.Item 3. Quantitative and Qualitative Disclosures About Market    Risk.18  
**PART II. OTHER INFORMATION**     Item 1. Legal Proceedings.18Item 2. Changes in Securities and Use of Proceeds.20Item 3. Default Upon Senior Securities.20Item 4. Submission of Matters to a Vote of Security Holders.20Item 5. Other Information.20Item 6. Exhibits and Reports on Form 8-K.20
 

**PART I  FINANCIAL INFORMATION**

Item 1. Financial Statements (Unaudited)
Condensed Financial Information (Unaudited)Page   Condensed Consolidated Balance    Sheets2   Condensed Consolidated Statements    of Operations3   Condensed Consolidated Statements    of Comprehensive Loss4   Condensed Consolidated Statements    of Changes in Stockholders' Equity4   Condensed Consolidated Statements    of Cash Flows4   Notes to Condensed Consolidated    Financial Statements5
 
**NORTH AMERICAN    DATACOM, INC.
Consolidated Balance    Sheets as of September 30, 2001 (Unaudited) and June 30, 2001    
ASSETS 
Sept. 30, 2001
June 30, 2001(Unaudited)Current    Assets      Cash and Cash Equivalents
$30,783$18,484      Accounts Receivable, Net of Allowance of $2,400 for September 30, 2001        and June 30, 200169,51376,230      Inventories7,5415,978      Employee Advances2,5552,555      Other8,000-Total    Current Assets
$118,392$
103,247  Investments    (Note 3)- -Property    and Equipment      Conduit and Optic Fiber (Note 4)14,525,90514,525,905      Computers and Equipment728,102728,032      Communications Equipment and Wireless Towers638,568627,507      Software352,374351,184      Other96,520123,763        Total Property and Equipment16,341,46916,356,391           Less Accumulated Depreciation and Amortization(134,371)(107,992)      Net Property and Equipment16,207,09816,248,399Other Assets    (Note 5)702,924651,794TOTAL ASSETS
$17,028,414
$
17,003,440  
LIABILITIES AND STOCKHOLDERS' EQUITY   Current    Liabilities:      Trade Note Payable, Net of Unamortized Discount (Note 4)
$15,118,000$15,118,000      Accounts Payable993,3581,044,558      Accrued Expenses719,292692,103      Dividends Payable-55,950      Notes Payable (Note 10)140,000-      Convertible Notes Payable33,54133,541        Total Current Liabilities17,004,19116,944,152Payable to    Officer- 25,662TOTAL    LIABILITIES
$17,004,191
$
16,969,814
  
Commitments and Contingencies (Notes 4, 5, 6 and 8)- - 
  
Stockholders' Equity (Note 9)
   Convertible Preferred Stock, No Par Value; 400,000 Shares Authorized    -- 
   Series B Convertible Preferred Stock, $.0001 Par Value; 
        6% Cumulative; 5,000 Shares Authorized; 2,003 and 1,756 Shares
     Issued and Outstanding as of September  30, 2001    and June 30, 20012,002,4321,755,492
   Common Stock, $.0001 Par Value 150,000,000 Shares Authorized,
     100,547,074 and 100,167,074 Shares Issued and    Outstanding 
         as September 30, 2001and  June    30, 2000, respectively10,05410,016
   Additional Paid-In Capital 4,585,656
4,585,655
   Other Accumulated Comprehensive Income (250,000)(250,000)
   Accumulated Deficit(6,380,106)
(6,067,538)TOTAL    STOCKHOLDERS' EQUITY24,223
33,626TOTAL    LIABILITIES AND STOCKHOLDERS' EQUITY
$17,028,414
$
17,003,440See Accompanying Notes to Condensed    Consolidated Financial Statements (Unaudited)
 

**NORTH    AMERICAN DATACOM, INC.**
Condensed    Consolidated Statements of Operation 
(Unaudited)    
For the Three    Months Ended September 31, 2001
For the Three    Months Ended September 31, 2000Net Service    Revenues
$138,923
$69,432Cost of    Services30,33548,014  Gross    Profit108,58821,418     Selling, General and Administrative421,198715,864Operating    Loss(312,610)(694,446)Other Income    (Expense):      Interest Expense-(182,416)      Other427,776Total Other    Income (Expense)42(174,640)Loss Before    Income Tax Expense (Benefit)
$(312,568)$(869,086)      Income Tax Expense (Benefit)
- 
- Net Loss
$(312,568)$(869,086)Net Loss    Applicable to Common Shareholder(312,568)(869,086)Basic and    Diluted Loss per Common Share (Note 1)$(0.003)$(0.01)Weighted    Average Number of Common Shares Outstanding      Basic and Diluted (Note 1)100,420,40791,393,141
See    Accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
 

**NORTH AMERICAN DATACOM, INC.**
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)  
For the Three Months Ended September 31, 2001
For the Three Months Ended September 31, 2000Net loss
$(312,568)
$(869,086)Net change    in unrealized loss on investments (Note 3)-(30,000)Comprehensive    loss
$(312,568)$(899,086)
See Accompanying Notes to Condensed Consolidated Financial    Statements (Unaudited)
 

**NORTH AMERICAN DATACOM, INC.**
Condensed Consolidated Statements of Changes in Stockholders Equity
(Unaudited)
Net
Series B Preferred 
Common Stock 
Additional
Unrealized
Stock 
Par
Paid-In
Accumulated
Loss on
Stockholders'
Shares
Amount
Shares 
Value
Capital
Deficit
Investments
EquityBalance, June 30, 20011,756$1,755,492
100,167,074
$10,016
$4,585,656$
(6,067,538)$(250,000)$33,626Issuance of Series Bpreferred stock 191190,990-----190,990Preferred Stock Issuanceof additional Series BPreferred Stock (Note 7)5655,950-----55,950Issuance of shares for services rendered--90,000912,591--12,600Issuance of shares forequipment--40,00049,996--10,000Issuance of shares for settlement of claims    (Note 7)--250,0002525,600--25,625Stock options (Note 10)- ---8,000--8,000Net loss for the period  ended September    30, 2001-----(312,568)-(312,568)Balance, September 30,    2001
2,003
$2,002,432100,547,074
$10,054
$4,641,843
$(6,380,106)
$(250,000)$24,223See Accompanying Notes to Condensed    Consolidated Financial Statements (Unaudited)
 

**NORTH AMERICAN DATACOM, INC.**
Condensed Consolidated Statement of Cash Flows
(Unaudited)    
For the Three Months Ended Sept. 30, 2001 
For the Three Months Ended Sept. 30, 2000 CASH FLOW    FROM OPERATING ACTIVITIES:Net Loss
$(312,568)
$(869,086)Adjustment    to reconcile net loss to cash used in operations:      Depreciation and amortization (Note 4)40,94918,545      Noncash interest charge (Note 4)-182,545Changes in    operating assets and liabilities:      Decrease in accounts receivable6,71799,943      Increase in inventory(1,563)(1,550)      (Increase) Decrease in other assets and employee advances34,158(135,489)      Increase in accounts payable and accrued expenses24,215183,101NET CASH    USED IN OPERATING ACTIVITIES(208,092)(522,273)  CASH FLOWS    FROM INVESTING ACTIVITIES:      Purchases of property and equipment(18,953)(143,977)      Proceeds from the sale of property and equipment27,017-      Other advance (Note 5)-(200,000)NET CASH    PROVIDE BY (USED IN) INVESTING ACTIVITIES8,064(343,977)  CASH FLOWS    FROM FINANCING ACTIVITIES:      Proceeds from sale of common stock (Note 9)-1,097,125      Payments on trade note payable-(575,000)      Proceeds from sale of preferred stock (Note 9)165,327500,000      Increase in notes payable (Note 7)47,000-NET CASH    PROVIDED BY FINANCING ACTIVITIES212,3271,022,125  INCREASE    (DECREASE) IN CASH AND CASH EQUIVALENTS:12,299155,875CASH AND    CASH EQUIVALENTS AT BEGINNING OF PERIOD18,48420,948CASH AND    CASH EQUIVALENTS AT END OF PERIOD
$ 30,783
$ 176,823
See    Accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
 

**NORTH AMERICAN DATACOM, INC.**
NOTES TO THE    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)**1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
**Basis of Presentation**

Theaccompanying unaudited condensed consolidated financial statements of North AmericanDataCom, Inc. (the “Company”) have been prepared in accordance with accountingprinciples generally accepted in the United States of America for interim financialinformation and with the instructions for Form 10-Q and Article 10 of Regulation S-X.Accordingly, they do not include all of the information and footnotes required byaccounting principles generally accepted in the United States of America for completefinancial statements.

In theopinion of management, the accompanying unaudited condensed consolidated financialstatements include all adjustments, consisting only of normal recurring adjustments,necessary for the fair presentation of the Company’s financial position as ofSeptember 30, 2001 and its results of operations and cash flows for the three-monthperiods ended September 30, 2001 and 2000. These financial statements should be read inconjunction with the Company’s audited consolidated financial statements as of June30, 2001 including the notes thereto

**Nature of Business**

The Company intends to provide communications and information technologyservices with an emphasis on broadband fiber optic and wireless telecommunicationsservices that support enterprise data storage solutions, primarily for customers insouthern United States.

**Principles of Consolidation**

The consolidated financial statements include the accounts of theCompany and its wholly-owned subsidiaries. All material intercompany accounts andtransactions have been eliminated.

**Use of Estimates**

Thepreparation of financial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements. Estimates alsoaffect the reported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates.

Certainestimates used by management are particularly susceptible to significant changes in theeconomic environment. These include estimates of the realization of investments,long-lived assets and deferred tax assets. Each of these estimates, as well as the relatedamounts reported in the financial statements, are sensitive to near term changes in thefactors used to determine them. A significant change in any one of those factors couldresult in the determination of amounts different from those reported in the consolidatedfinancial statements and the effect of such difference could be material.

**Investments**

Investmentsare classified as available-for-sale and are reported at fair value, with unrealized gainsand losses, net of taxes, reported as a separate component of stockholders’ equity.

Realizedgains and losses, and declines in value judged to be other then temporary, are included inother income. The cost of securities sold is based on the specific identification methodand interest earned is included in other income.

**Revenue Recognition**

Revenue is recognized when services are rendered.

**Taxes on Income**

Incometaxes are calculated using the liability method specified by Statement of FinancialAccounting Standards No. 109, Accounting for Income Taxes (“SFAS 109”). UnderSFAS 109, the Company provides for estimated income taxes payable or refundable on currentyear income tax returns as well as the estimated future tax effects attributable totemporary differences and carry forwards. Measurement of deferred income taxes is basedupon enacted tax laws and tax rates, with the measurement of deferred income tax assetsreduced by estimated amounts of tax benefits not likely to be realized.

**Loss per Share**

Basic and diluted loss per common share have been computed based uponthe weighted average number of shares outstanding during the three-month periods endingSeptember 30, 2001 and 2000. Common stock equivalents consisting of stock options,convertible notes, convertible preferred stock and warrants were not considered in eitherperiod, as their effect would be anti-dilutive. The maximum number of shares assuming fullconversion from the Company’s per share computations is as follows:

September 30, 2001
September 30, 2000Stock Options13,751,91614,611,178Convertible Notes47,208-Convertible Preferred Stock5,453,851400,00019,252,97515,011,178
**Property, Plant and Equipment**

Property, plant and equipment are stated at cost.Major renewals and improvements are capitalized, while maintenance and repairs areexpensed when incurred. Depreciation is computed over the estimated useful lives ofdepreciable assets using the straight-line method. Useful lives for property and equipmentare as follows:

YearsConduit and optic fiber 
25Communications equipment and wireless towers 
3-10Computers
5Other Equipment 
3-10Leasehold improvements 
Term of leaseSoftware
3
The carrying values of long-lived assets areperiodically reviewed by the Company and impairments would be recognized if the expectedfuture operating non-discounted cash flows derived from an asset were less than itscarrying value.

**Licenses**

Licensesrelate to the Company’s FCC License to provide personal communications and pagingservices. Generally, amortization begins with the commencement of service to customers andis 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, consistingof cash and cash equivalents, notes and accounts receivable, accounts payable and payableto director approximate their respective fair values.

**Business Lines**

**Fiber Optic andBroadband Wireless Network:** The Company is building a fiber optic and broadbandwireless communications network, which will allow for the high-speed transmission of largeamounts of data. It is expected that businesses, government agencies and institutions willuse the Company’s network as a preferred alternative to existing telephone andsatellite data transmission systems. The Company installed a wireless network connectingIuka, MS to Atlanta, GA and Memphis, TN during fiscal 2001. This wireless networkcurrently operates at a DS-3 bandwidth level.

The Company plans toassist corporations, government agencies and institutions in the design and installationof their own internal telecommunications networks. The Company plans to usestate-of-the-art technology, which will enable its clients to transfer and receive largeamounts of data at high speed between both internal and external sources.

In March 2000, theCompany entered into an agreement with Qwest Communications in which the Company purchased504 miles of conduit installed along the CSX railroad track from New Orleans, Louisiana toMobile, Alabama, and from Pensacola, Florida to Jacksonville, Florida. Fiber optic cablehas not yet been installed within such conduit purchased from Qwest Communications. Theagreement with Qwest calls for payments of approximately $15 million over the course ofthe agreement, all which is currently past due by the Company. Qwest has declared adefault, but has not initiated arbitration or other proceedings to recover the conduit.

In August 2000, theCompany entered into an agreement with a third-party contractor to lay fiber conduitbetween Atlanta, Georgia and Chattanooga, Tennessee and from Chattanooga to Memphis,Tennessee. The contractor did not complete the conduit installation. The Company has notmade any payments under this agreement. This agreement was terminated due to changes inthe schedule of installations. The Company plans to amend certain terms of the agreementbased upon new schedules. The Company has installed 24 miles of conduit, of whichapproximately 8 miles was sold to Bell South in fiscal 2001, providing access to theCompany’s enterprise data center in Iuka, Mississippi.

While the Company is building itsfiber network, the Company has installed a communications tower to provide wirelessconnectivity, initially at 500 MBPS, from the Company’s facility in Iuka, Mississippiinto the nationwide Internet and telecommunications system through Atlanta and Memphis.This provides the Company with an interim capability to test market its enterprise datastorage services, web-hosting services, and competitive local exchange carrier (CLEC) andinterstate exchange carrier (IXC) telephone services to select markets.

**Internet Access:**As of September 30, 2001, the Company provides Internet access services to 1,455 customersin Mississippi, Tennessee and Alabama. Internet services provided by the Company includebasic dial-up access to the Internet through standard computer modems, high speed Internetaccess, and the design and hosting of websites for customers. As the Company’s fiberoptic and broadband wireless network expands, the Company will attempt to market itsInternet access provider services to businesses and retail customers along the route ofthe network.

**Digital and AlphaPaging Services:**Through its wholly-owned subsidiary, Action Communications, Inc.(“Action”), the Company provides digital and alpha numeric paging services tonine southeastern states and is expanding its coverage area to include portions of theeastern and southwestern United States. As a specialized mobile radio carrier, Action alsoprovides dispatch, telephone and global position system services.

**Remote DataStorage:** During fiscal 2000, the Company took delivery of $575,000 of equipment thatwill allow third parties to store and access data stored in digital form on computersystems maintained and operated by the Company in its facility in Iuka, Mississippi. 

In November 2000, theCompany was awarded a $300,000 research contract to demonstrate commercial applications ofstatewide remote sensing data. The Company worked with PixSell, Inc., a Mississippiinformation technology company, and the University of Mississippi’s Department ofComputer and Information Science. Under the six-month contract, which was completed inSeptember 2001, the Company expanded and enhanced the existing “MississippiView” data management system. The View System was developed by PixSell to providegreater access to Mississippi statewide remote sensing satellite and imagery. The enhancedarchived View System makes it a Real Time asset for education, state agencies, and MSCIcommercial users. MSCI is a partnership between the National Aeronautics and SpaceAdministration (NASA), the University of Mississippi, and high technology businesses. NASAand the State of Mississippi fund MSCI projects. The mission of MSCI is to develop aremote sensing industry in Mississippi by commercializing the technologies developed byNASA at the Stennis Space Center in Hancock County, Mississippi.

**Application ServiceProvider:** In August 2001, the Company reached an agreement with Infusion SoftwareGroup, LLC (Infusion) to form Global PTX, LLC. The Company and Infusion have establishedan Application Service Provider business to design, develop and implement data warehousingand data mining applications. Global PTX will establish Private Trade Exchanges focusingon providing customers with an “end-to-end” solution for their businessstrategies. Initial development activities will be designed to target the Manufacturingand Retail Business Industry Sectors, specifically focused on vendor/customer supply chainmanagement. Infusion is a specialized software and marketing service provider toenterprises throughout the United States. 

Atpresent, the Company provides four distinct services to consumers and small businesses:Internet access, digital and alpha paging services, remote data storage and applicationservices.

**2. Recent Accounting Pronouncements:**

In June 2001, the Financial Accounting Standards Board issued SFAS No.141, Business Combinations (“SFAS 141”) and No. 142, Goodwill and OtherIntangible Assets (“SFAS 142”), which collectively address business combinationsand intangible assets acquired individually, with a group of other assets, or in abusiness combination. SFAS 141 and 142 will become effective July 1, 2002 and are notexpected to have a material impact on the Company’s financial position or results ofoperations.

**3. Investments:**

The Company’s investments are classified as available-for-sale. Theamortized cost, gross unrealized losses and estimated fair value, less the option price of$0.12 per share, for these investments were as follows at September 30, 2001 and June 30,2001.
September 30,    2001
Cost Basis
Gross Unrealized Losses
Estimated Fair ValueNew York Regional Rail CorporationStock Options$250,000$(250,000)$0  June 30, 2001New York Regional Rail CorporationStock Options$250,000$(250,000)$0**4. Property, Plant and Equipment:

In March 2000, theCompany entered into an agreement with Qwest Communications in which the Company purchased504 miles of conduit installed along the CSX railroad track from New Orleans, Louisiana toMobile, Alabama, and from Pensacola, Florida to Jacksonville, Florida. Fiber optic cablehas not yet been installed within such conduit purchased from Qwest Communications. Theagreement with Qwest calls for payments by the Company of approximately $15 million overthe course of the agreement, all of which is currently past due. Qwest has declared adefault, but has not initiated arbitration or other proceedings to recover the conduit.The $15 million became due and payable on March 31, 2001. Previously, the Company hadrecorded a discount on the note payable of $723,109, which was fully amortized intoexpense at March 31, 2001. 

The Company hasinstalled 24 miles of conduit, of which approximately 8 miles was sold to Bell South inFebruary 2001, providing access to the Company’s enterprise data center in Iuka,Mississippi.

**5. OtherAssets:**

Other assets consist of the following items asof:

For the period ended
September 30, 2001
September 30, 2000FCC License, net of amortization of $45,224 and $20,556, respectively$324,776$349,444Advance to Affiliates200,000-Investment in Global PTX, LLC93,000-Other85,148229,710$702,924$579,154
In July 2000, theCompany and Global Fiber Optic and Wireless Communications, Ltd. (“Global”) eachadvanced $200,000 for developing a joint venture to provide a 4,000 mile fiber opticcommunications and Internet network in Turkey. The Company and Global will each have afifty (50%) percent interest in the joint venture. The Company will be required to provideelectronic and communications technologies, while Global will provide rights-of-way andother real estate as needed in Turkey. Currently, the advances are being used by theproposed joint venture to purchase rights-of-way and other assets to be utilized in thefuture operations of the joint venture. The advance is guaranteed by the majorityshareholder and repayment is secured by certain Company payables to the majorityshareholder.

In August 2001, theCompany reached an agreement with Infusion Software Group, LLC (Infusion) to form GlobalPTX, LLC. The Company and Infusion have established an Application Service Providerbusiness to design, develop and implement data warehousing and data mining applications.Global PTX will establish Private Trade Exchanges focusing on providing customers with an“end-to-end” solution for their business strategies. Initial developmentactivities will be designed to target the Manufacturing and Retail Business IndustrySectors, specifically focused on vendor/customer supply chain management. Infusion is aspecialized software and marketing service provider to enterprises throughout the UnitedStates. During the quarter ended September 30, 2001, the Company invested $93,000 in thisventure (See Note 7).

**6. Commitments:**

In March 2001, theCompany agreed to a new 20-year lease, effective January 1, 1999, with the State ofMississippi for its main facilities in Iuka, Mississippi. This lease provides the Companywith 25,000 square feet of office and equipment space at the former National Aeronauticsand Space Administration facility. The State, acting through the Mississippi DevelopmentAuthority (MDA), has also granted the Company a 10-year right of first refusal to lease anadditional 75,000 square feet at the Iuka facility, to accommodate the Company's expansivebusiness plan.

The Company also leases approximately3,000 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 lease expiresNovember 30, 2003.

The Company has agreed to sell to themajority shareholder up to 5,000 shares of Series B Preferred Stock at $1,000 per share.As of September 30, 2001, 2,003 such shares were sold to the shareholder.

The Company has one employment agreementwith the Vice President of Operations, which expires December 31, 2001. In addition to abase salary, the agreement provides the employee options to acquire the Company's stock.

**7. SupplementalCash Flow Information:**

For purposes of the consolidatedstatements of cash flows, cash and cash equivalents consists of cash on hand, demanddeposit accounts and short-term investments in certificates of deposit with maturities ofthree months or less.

**Noncash investing and financingactivities**
**September 30, 2001**Noncash investment in Global PTX, LLC from notes payable$93,000
Noncash equity transactions during theperiod ended September 30, 2001:
**September 30, 2001****No. of    Shares**
**Dollar    Amount**
Payable    to officer converted to preferred stock
26
$25,662
Conversion    of preferred dividends payable to preferred stock
56
$55,950
Issuance    of stock for services
90,000
$12,600
Issuance    of stock for equipment
40,000
$10,000
Issuance    of stock for settlement of claims (Note 9)
250,000
$25,625
Issuance    of stock options
-
$8,000
**8. Litigation:**

On March 26, 2001, the Company was servedwith a summons and complaint entitled Tom Epperson, Freddie Wilson and Omega Shelters,Inc. v. North American DataCom, Inc. and North American Infotech, LLC, (U.S.D.C. NorthernDistrict of Mississippi, Case No. 1:02CV105-D-D). The action relates to alleged damagesresulting from an agreement to build a prototype composite fiber shelter by OmegaShelters, which prototype was subject to the Company’s receipt and acceptance. Theagreement at issue also contains an arbitration provision. In the complaint plaintiffstates that Omega Shelters’ immediate predecessor, Yellow Creek Lodges, Inc., wasforced into bankruptcy in the United States Bankruptcy Court for the Northern District ofMississippi. While the dismissed action sought damages of $2.2 million, the Companybelieves that the claim for damages is wholly without merit and that the Company will notbe materially adversely affected by the outcome of any future proceedings, if filed. Bydecision of the Court dated June 28, 2001, the matter was dismissed without prejudice forlack of subject matter jurisdiction. No further action has been filed.

David Cray, former Vice President andCorporate Treasurer, departed the Company effective March 5, 2001, upon his return from aleave of absence. Mr. Cray and the Company disagree about the terms and circumstances ofMr. Cray’s departure, and will attempt to reach an agreement, and, if necessary,resolve the matter through the arbitration process.

On June 13, 2001, the Company was servedwith a summons and complaint in the matter known as OptiCom v. North American DataCom,Inc., (County Court of Tishomingo, State of Mississippi, Cause No. CV01-0077(G)T).Plaintiff OptiCom has alleged that the Company has failed to pay $28,000 for opticalconduit provided for the last mile access along the Tishomingo Railroad. The Company isdefending the lawsuit and has engaged OptiCom in settlement negotiations.

The Company does not believe the ultimateoutcome of the aforementioned matters will have a significant impact on the Company’sfinancial position and results of operations or liquidity.

**9.Stockholders' Equity:**

In September 2001, the Company sold 191shares of Series B Convertible Preferred Stock to a principal shareholder for $190,990. InJuly 2001, the cumulative dividends payable on the Series B Convertible Preferred Stocktotaling $55,950 from fiscal 2001 were exchanged for 56 additional shares of Series BConvertible Preferred Stock. The conversion ratio was amended by action of the Board ofDirectors to 8,333 shares of restricted common stock for each share of Series BConvertible Preferred Stock that was issued after June 30, 2001, to reflect recent changesin the price of its shares of common stock on the OTC:BB.

In August 2001, the Company issued 90,000shares of common stock totaling $12,600 for electrical services rendered.

In August 2001, the Company issued 40,000shares of common stock totaling $10,000 in exchange for equipment.

In August 2001, the Company issued250,000 shares of common stock totaling $25,625 to a former employee in full and fairsettlement of claims and in exchange for reciprocal general releases related to histermination in July 2001.

**10. NotesPayable:**

In September 2001,a note was issued to Citrus Springs Trust, a significant shareholder, in the amount of$100,000 due on or before December 31, 2001. Interest will accrue at a rate of one and onehalf percent (1.50%) per month on the unpaid balance of this note after the maturity date.The note holder was granted an option to acquire a block of 100,000 shares ofnon-restricted common stock for ten cents ($0.10) a share, which is exercisable untilDecember 31, 2003.

In September 2001,a note was issued to Jack Freeman, President, in the amount of $40,000 due on or beforeDecember 31, 2001. Interest will accrue from September 1, 2001 at a rate of three quartersof a percent per month until maturity and at one and one half percent (1.50%) per month onthe unpaid balance of this note after the maturity date. The note holder was granted anoption to acquire a block of 100,000 shares of non-restricted common stock for sixteencents ($0.16) a share, which is exercisable until December 31, 2003.

Collectively, thestock options were valued at $8,000 and deferred as financing costs.

**11. Liquidity:**

The accompanying financial statementshave been prepared on a going concern basis, which contemplates continuity of operationsand realization of assets and satisfaction of liabilities in the normal course ofbusiness. At September 30, 2001, the Company has negative working capital totaling$16,900,000. The Qwest obligation, discussed earlier under in Note 4, accounts for $15.1million of this amount. The Company has an arrearage of certain federal tax liabilities ofapproximately $600,000, including payroll liabilities. In addition, the Company incurredlosses totaling $5,986,455 since inception (September 1, 1998). These matters raisesubstantial doubt about the Company's ability to continue on as a going concern. Thecontinuation of the Company as a going concern is dependent upon the Company raisingadditional capital, and attaining and maintaining profitable operations.

The Company has identified potentialsources of capital and potential joint venture and/or strategic partners and believes thatthey will be able to secure the necessary capital to put their business plan intooperation. The capital requirements for the Global PTX are included in the earlierannounced capital planning. This is part of the EDS Center investment of Segment 1 of thebandwidth network. In March 2001, the Company entered into an agreement with IFG PrivateEquity LLC. Under this agreement IFG will purchase up to $50 million of the Company'scommon stock through February 2003. The agreement is planned to operate in a mannersimilar to a line of credit, allowing the Company to draw upon funds periodically, whenand if desired. The funding is planned to provide the underlying support to proceed withthe business plan. The funding is subject to SEC approval of a registration filingregarding the equity financing. The Company intends to use the financing to immediatelyexpand its fiber optic and related data storage operations. As of September 30, 2001, theregistration filing has not been submitted to the SEC for review, and the Company can makeno assurances that such registration statement will be become effective when filed.

**Item 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations**

As used in this Quarterly Report on Form10-Q, the term the "Company" means North American DataCom, Inc. and itssubsidiaries.

Forward-Looking Statements

The discussion in this report on Form10-Q contains forward-looking statements that involve risks and uncertainties. Thestatements contained in this Report that are not purely historical are forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933, as amended(the "Act"), and Section 21E of the Securities Exchange Act of 1934 (the"Exchange Act"), including statements regarding its expectations, beliefs,intentions or strategies regarding the future. All forward-looking statements included inthis document are based on information available to the Company on the date hereof. TheCompany’s actual results could differ materially from those described in itsforward-looking statements. Factors that could cause or contribute to such differencesinclude, but are not limited to, its negative working capital, its ability to raiseadditional capital at terms and conditions satisfactory to the Company, its limitedoperating history in a new and rapidly evolving industry; its ability to implement itsbusiness plan; and its ability to successfully market its products and services. See thediscussion under "Risks Affecting Future Results" below. Reference is made toExhibit 99.1, "Private Securities Litigation Reform Act of 1995, Safe HarborCompliance Statement for Forward-Looking Statements".

The Company makes forward-lookingstatements in the "Management’s Discussion and Analysis of Financial Conditionand Results of Operations" in this Quarterly Report. These forward-looking statementsinclude, but are not limited to, statements about its plans, objectives, expectations,intentions and assumptions and other statements that are not historical facts. The Companygenerally intend the, words "expect", anticipate", "intend","plan", "believe", "seek", "estimate" and similarexpressions to identify forward-looking statements.

Acquisitions

The Company was organized in September1998 as North American Software Associates, Limited, a Delaware corporation. It wasorganized to provide a variety of telecommunications services. On April 1, 1999, theCompany acquired all of the assets of Freedom 2000, a local Internet Service Provider(ISP), in exchange for 577,123 restricted shares of its common stock. 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 exchangefor 1,731,339 restricted shares of its common stock. The Action transaction has beentreated for accounting purposes as a purchase of assets and liabilities, and revenues andexpenses of Action prior to December 3, 1999 have not been consolidated. EffectiveDecember 21, 1999, North American Software Associates, Limited ("NAS") wasacquired 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 PierceInternational, Inc. has been accounted for as a reverse acquisition since the formershareholders of NAS owned controlling interest in the Company immediately following thetransaction and management of Pierce International, Inc. was replaced by management ofNAS.

Overview

The Company is in the process ofdeploying a 3,000 mile broadband network in the states of Tennessee, Mississippi,Louisiana, Alabama, Georgia and Florida, to provide application services,communications and information technology services with an emphasis on wideband fiberoptic and wireless telecommunications services that support Enterprise Data Storage (EDS)and Application Service solutions. The Company utilizes advanced, state-of-the-arttechnology for its network to provide a wide range of services to telecommunicationcompanies, ISPs and large organizations, including government agencies and departments.Its plan is to provide superior quality and secure broadband communications in connectionwith its data storage services. The Company’s Enterprise Data Storage business (EDS)enables it to archive data, using two highly secure "Major Center" at itsheadquarters in Iuka, MS. In addition, the Company plans to initially operate fiveco-location data storage "Satellite Centers" to provide mirroring and archivingservices that are directly connected by its fiber optic network at its Major Center inIuka, MS.

The Company also provides Internet accessservices and digital and alphanumeric paging services. To date, the Company’srevenues have been derived from its Internet access services, paging services and datastorage to consumers and small businesses.

In August 2001, the Company reached anagreement with Infusion Software Group, LLC (Infusion) to form Global PTX, LLC. TheCompany and Infusion have established an Application Service Provider business to design,develop and implement data warehousing and data mining applications. Global PTX willestablish Private Trade Exchanges focusing on providing customers with an“end-to-end” solution for their business strategies. Initial developmentactivities will be designed to target the Manufacturing and Retail Business IndustrySectors, specifically focused on vendor/customer supply chain management. Infusion is aspecialized software and marketing service provider to enterprises throughout the UnitedStates. During the quarter ended September 30, 2001, the Company invested $93,000 in thisventure.

Revised Business Plan Information

OnOctober 24, 2001, the Company announced its approved revised Business Plan. The revisedplan is focusing on immediate revenue growth and immediate reduction of investment andexpenses associated with delayed broadband infrastructure development. This Plan that hadbeen formulated last year with Cap Gemini Ernst and Young, calls for the construction of a3,000-mile fiber optic network throughout the Southeast United States. The Company hasdivided the proposed fiber optic network construction into six discreet segments. TheCompany now plans to complete the first segment (roughly 550 route miles, extending fromAtlanta to Memphis) by late 2002. The original 5-year Plan identified a $700 millioncapital investment for seven EDS centers, plus the 3,000-route-mile broadband network. Thecurrent market pricing has reduced the estimated capital investment to under $400 million.Revenues at the end of 5 years were projected to be over $500 million.

TheCompany’s revised business plan continues to project operating cash flow to bebreakeven by the end of this fiscal year, June 30, 2002. The revenues and net income inthe next fiscal year are estimated at approximately $60 million and $10 million,respectively. Under the revised plan, the Company still expects to have a positive cashflow by June 2002, and profits in August 2002.

Results ofOperations

For the Three-Month Period EndedSeptember 30, 2001 Compared to the Three-Month Period Ended September 30, 2000

For the three-month period endedSeptember 30, 2001, the Company had net service revenues of $92,946 compared to $69,432for the comparable period of the prior year, excluding Pixsell revenue of $45,977 for thethree-month period ended September 30, 2001. This represents an increase of $23,514 or34%. Cost of services was $30,335 during the three-month period ended September 30, 2001compared to $48,014 for the three-month period ended September 30, 2000. The decrease incost of services is a reflection of control of incremental costs and results of costreduction efforts further described below. The Company’s gross profit margins were,excluding Pixsell, were 67% and 31%, respectively. 

The Company incurred selling, general andadministrative expenses of $421,198 during the three-month period ended September 30, 2001compared to $715,864 for the same period of the prior year. This decrease was primarilyattributed to the expense reduction program put in place in June 2001, which decreasedlabor expense by $46,000, travel expense by $27,000, and legal expenses by $87,000. Inaddition, during the three-month period ended September 30, 2001 no employee relocationexpense was incurred compared to $45,000 incurred during the same period of the prioryear. In effect, its operating loss decreased from $694,446 during the three-month periodended September 30, 2000 to $312,610 for the three-month period ended September 30, 2001or a decrease of 55%.

The Company had other income of $42 forthe three-month period ended September 30, 2001 compared to other expense of $174,640 forthe three-month period ended September 30, 2000. The other expense during the three-monthperiod ended September 30, 2000, was largely attributable to the imputed interest expenserelating to a contract to acquire rights-of-way and fiber conduit. 

Liquidity

Total current assets at September 30,2001 were $110,392 compared to $103,247 at its fiscal year ended June 30, 2001, or anincrease of 7%. The Company’s accounts receivable decreased by $6,717 from $76,230 atJune 30, 2001 to $69,513 at September 30, 2001. 

Fixed assets, consisting principally ofproperty and equipment, was $16,207,098 at September 30, 2001 compared to $16,248,399 atJune 30, 2001. This decrease was primarily due to the sale of a vehicle of $27,017. Otherassets increased from $651,794 at June 30, 2001 to $702,924 at September 30, 2001. Thisincrease was primarily attributable to an investment in Global PTX, LLC of $93,000. Totalassets at September 30, 2001 were $17,020,414 compared to $17,003,440 at June 30, 2001.

The current liabilities were $17,004,191at September 30, 2001 compared to $16,944,152 at June 30, 2001. The Qwest obligation,discussed in Note 4 of the Condensed Consolidated Notes to Financial Statements, accountsfor $15.1 million of these amounts. At September 30, 2001, the Company had accountspayable of $993,358 compared to $1,044,558 at June 30, 2001. This decrease is primarilydue to the expense reduction program put in place in June 2001, which decreased travelexpense and legal expenses, conversion of accounts payable to common stock and payment ofaccounts payable by notes payable. At September 30, 2001, the Company had accrued expensesand other liabilities of $892,833 compared to $781,594 at June 30, 2001. The increase inaccrued expense and other liabilities is attributable to the increase in notes payable of$140,000, which was used to fund the Company’s working capital, and is partiallyoffset by conversion of dividends payable and payable to officer to preferred stock.

For the three-month period endedSeptember 30, 2001, the Company used $208,092 for its operating activities, of which$34,158 was attributable to a decrease in other assets and $24,215 increase in accountspayable, compared to $522,273 cash used for operating activities, of which $135,489 wasattributable to an increase in other assets and $183,101 increase in accounts payable,during the same three-month period of the prior year. This improvement in cash flow fromoperating activities was principally the result of an increase in current liabilities. Forthe three-month period ended September 30, 2001, the Company’s cash flow provided byinvesting activities was $8,064, from the purchase and sale of some property andequipment. The negative cash flow from operating activities was financed with proceedsfrom the sale of Series B Convertible Preferred Stock and proceeds from the issuance ofconvertible notes. The Company had $30,783 of cash at September 30, 2001 compared to cashof $176,823 at fiscal year end June 30, 2001.

The Company has modified its businessplan to accommodate prevailing capital market conditions and the difficulty in securingfinancing at acceptable terms. The Company estimates that its capital needs to beapproximately $18,000,000 during the next twelve months. This will fund approximately$5,000,000 for network assets; $8,000,000 for data storage center construction andimprovements; and $5,000,000 for working capital requirements. Actual costs and estimatesmay vary from its current expectations, which could materially adversely affect itsbusiness and financial conditions. These are included in the five-year capital plandiscussed herein.

In addition, the Company’s liquidityis adversely affected by accounts payable from the purchase from Qwest of approximately500 miles of fiber conduit from New Orleans, LA to Mobile, AL and from Pensacola, FL toJacksonville, FL. The total purchase price under the bill of sale is approximately$15,120,000. This is being renegotiated to revise the payment schedule with Qwest. TheCompany plans to achieve a revised payment schedule, of which there can be no assurance. 

In August 2000, the Company entered intoan agreement with a third-party contractor to lay fiber conduit between Atlanta, Georgiaand Chattanooga, Tennessee and from Chattanooga to Memphis, Tennessee. The contractor didnot complete the conduit installation. The Company has not made any payments under thisagreement. This agreement was terminated due to changing in the schedule of installations.The Company plans to amend certain terms of the agreement based upon new schedules. 

In order to fund working capital needs,the Company sold restricted securities (See Note 9, Stockholders' Equity, to the Notes toCondensed Consolidated Financial Statements) to Robert Crawford, chairman of the Board,Chief Executive Officer, director and principal shareholder as follows: in September 2001,the Company sold 191 shares of Series B Convertible Preferred Stock for $190,990. In July2001, the cumulative dividends payable on the Series B Convertible Preferred Stocktotaling $55,950 for fiscal 2001 were exchanged for 56 additional shares of Series BConvertible Preferred Stock.

Continuing capital requirements aresubstantial, and the Company is planning to fund those needs. As reflected in theCompany’s financial statements for its fiscal year ended June 30, 2001, which werefiled with its Annual Report on Form 10-K, the accountant's opinion included agoing-concern qualification. Reference is made to Note 10, Liquidity, to theCompany’s Notes to Condensed Consolidated Financial Statements and the disclosurethat as of September 30, 2001, the Company had negative working capital totalingapproximately $16,900,000. The Qwest obligation accounts for $15.1 million of this amount(See Note 4 in the Condensed Consolidated Notes to financial statements). The Company hasan arrearage of certain federal tax liabilities of approximately $600,000, includingpayroll liabilities. In addition, the Company has sustained start-up losses of $5,986,455,since inception (September 1, 1998). The continuation of the Company as a going concern isdependent upon the Company raising additional capital, and attaining and maintainingprofitable operations.

The Company has identified potentialsources of capital and potential joint venture and/or strategic partners and believes thatit will be able to secure the necessary capital to implement its revised business plan.The capital requirements for the Global PTX are included in the earlier announced capitalplanning. This is part of the EDS Center investment of Segment 1 of the bandwidth network.

In March 2001, the Company entered intoan agreement with IFG Private Equity, LLC. Under this agreement IFG will purchase up to$50 million of the Company’s common stock through February 2003. The agreement isplanned to operate in a manner similar to a line of credit, allowing the Company to drawupon funds periodically, when and if desired. The funding is planned to provide theunderlying support to proceed with the business plan. The funding is subject to SECapproval of a registration filing regarding the equity financing. The Company intends touse the financing to immediately expand its fiber optic and related data storageoperations. As of November 2001, the registration filing has not been submitted to the SECfor review, and the Company can make no assurance that such registration statement willbecome effective when filed.

Risks Affecting Future Results

A number of risk factors exist that mayimpair or prevent the Company from accomplishing the its proposed business plan in some orall respects. Those risk factors include the following matters among others: 

The Company is a Start Up withHistorical Losses. 

Substantially all of the Company’shistorical revenues have been derived from its Internet access provider services anddigital and alpha paging services. The Company has experienced operating losses in eachfiscal quarter since inception and will likely continue to experience such losses. Becausethe Company’s operating history is extremely limited, and has just commencedoperations on its fiber optic and wireless broadband network and enterprise data storage(EDS) facility, it is difficult to evaluate the Company’s business operationsand prospects.

The Company Needs SubstantialAdditional Capital – Insolvency.

Present cash flow from operations is notsufficient to pay certain of the Company’s debts as presently structured. AtSeptember 30, 2001, the Company had negative working capital of approximately $16,900,000,and estimates that it will need to secure additional capital of approximately $18,000,000to finance its operations and capital needs over the next twelve months. See thediscussion under "Liquidity" above. The failure of the Company to obtainadditional capital will significantly restrict its proposed operations and may make itimpossible for the Company to fulfill the timing of its proposed business plan.

Default of Certain Obligations.

In March 2000, theCompany entered into an agreement with Qwest Communications in which the Company purchased504 miles of conduit installed along the CSX railroad track from New Orleans, Louisiana toMobile, Alabama, and from Pensacola, Florida to Jacksonville, Florida. Fiber optic cablehas not yet been installed within such conduit purchased from Qwest Communications. Theagreement with Qwest calls for payments of approximately $15 million over the course ofthe agreement, all which is currently past due by the Company. Qwest has declared adefault, but has not initiated arbitration or other proceedings to recover the conduit.

In August 2000, the Company entered intoan agreement with a third-party contractor to lay fiber conduit between Atlanta, Georgiaand Chattanooga, Tennessee and from Chattanooga to Memphis, Tennessee. The contractor didnot complete the conduit installation. The Company has not made any payments under thisagreement. This agreement was terminated due to changing in the schedule of installations.The Company plans to amend certain terms of the agreement based upon new schedules. TheCompany has installed 24 miles of conduit, of which approximately 8 miles was sold to BellSouth in fiscal 2001, providing access to the Company’s enterprise data center inIuka, Mississippi.

The Company Leases its Facilities.

On March 7, 2001, the Company finalized anew 20-year lease with the State of Mississippi for its primary facility in Iuka, MS, for25,000 square feet of office and equipment space. This facility is essential to theCompany’s proposed business plan because it already contains many of the featuresnecessary for the Company to establish an enterprise data storage (EDS) facility. TheState of Mississippi, acting through the Mississippi Development Authority (MDA), has alsogranted the Company a 10-year right of first refusal to lease an additional 75,000 squarefeet at the Iuka facility, to accommodate the Company’s expansive business plan. 

The Company Experiences General RisksAssociated with Business. 

The future success of the Company isheavily dependent on its ability to develop, promote and sustain strong governmentrelationships, reach agreements with certain third parties necessary for thetelecommunications needs of its operations and attract and retain customers at suitableprices. The Company’s business involves competition with existing companies many ofwhich have far greater capital resources and longer operating histories than the Company.There can be no assurance that the business of the Company will ever be profitable. 

The Company will Likely ExperienceCustomer Concentration. 

Until and unless the Company securesmultiple customer relationships, it is likely that the Company will experience periodsduring which it will be highly dependent on one or a limited number of customers.Dependence on a single or a few customers will make it difficult to satisfactorilynegotiate attractive prices for the Company's services and will expose the Company to therisk of substantial losses if a single dominant customer stops conducting business withthe Company. 

The Company Must Comply withTelecommunications Regulations.

Most of the Company's proposed businessservices and products are subject to regulation at the federal and state levels. Theseregulations are in some cases uncertain and are often undergoing change. The failure ofthe Company to comply with these regulations could have a materially adverse effect on theCompany. 

The Company Must Comply withEnvironmental Regulations. 

The Company's intended operations,especially the construction and operation of a fiber optic network, are subject to variousfederal, state and local laws and regulations relating to the protection of theenvironment. These environmental laws and regulations, which have become increasinglystringent, are implemented principally by the Environmental Protection Agency andcomparable state agencies, and govern the management of hazardous wastes, the discharge ofpollutants into the air and into surface and underground waters, and the manufacture anddisposal of certain substances. There are no material environmental claims currentlypending or, to the Company's knowledge, threatened against the Company. In addition, theCompany believes that its operations are in material compliance with current laws andregulations. The Company estimates that any expenses incurred in maintaining compliancewith current laws and regulations will not have a material effect on the Company'searnings or capital expenditures. However, there can be no assurance that currentregulatory requirements will not change, that currently unforeseen environmental incidentswill not occur, or that past non-compliance with environmental laws will not be discoveredon the Company's properties. 

The Company's Operating Results areLikely to Fluctuate Widely. 

The Company expects that its operatingresults for the foreseeable future are likely to fluctuate widely from quarter to quarterand from year to year. This is especially true while the Company is building its fiberoptic and wireless broadband network. Fluctuation of results may occur due to a variety offactors including, demand for and market acceptance of the Company's products andservices, reliability of service and network availability, the ability to increasebandwidth as necessary, customer retention, capacity utilization of the Company'senterprise data storage facility, the timing of customer needs, the timing and magnitudeof capital expenditures, changes in pricing policies or practices of competitors, andchanges in governmental regulations. 

The Company will Face SignificantCompetition. 

The Company's market is intenselycompetitive. There can be no assurance that the Company will have the resources to competesuccessfully in the future. Current and potential competitors include national, foreignand regional Internet service providers, global, regional and local telecommunicationscompanies and the Regional Bell Operating Companies, providers of server hosting and datastorage services, and other technology services and products companies. Most of thesecompetitors will have substantially greater resources than the Company. 

The Company is Entering a New Market.

The market for Internet system andnetwork management solutions has only recently begun to develop, is evolving rapidly andis characterized by an increasing number of market entrants. This market may not prove tobe viable or, if it becomes viable, may not continue to grow. The Company currently incurscosts in excess of its revenues. If the Company cannot attract and retain a customer base,it will not be able to increase its sales and revenues nor create economies of scale tooffset its fixed and operating costs.

The Company Must be able to ManageGrowth. 

In order for the Company to accomplishits proposed business plan, it must experience rapid growth in building its enterprisedata storage facilities and network infrastructure, expand its service offering, expandits geographical coverage, expand its customer base and increase the number of employees.This growth is expected to place a significant strain on the Company's financial,management, operational and other resources, including its ability to ensure customersatisfaction. This expansion will require significant time commitments from seniormanagement and involve the efficient management of multiple relationships with a growingnumber of third parties. The Company's ability to manage its growth effectively willrequire the Company 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. The ability to attract, hire and retainqualified employees in today's competitive employment market is another significantchallenge which the Company faces. If the Company's executives are unable to manage growtheffectively, the Company's business could be materially adversely affected.

System Failures Could Lead toSignificant Costs. 

The Company must protect its networkinfrastructure and equipment against damage from human error, physical or electronicsecurity breaches, power loss and other facility failures, fire, earthquake, flood,telecommunications failure, sabotage, vandalism and similar events. Despite extensiveprecautions the Company has taken, a natural disaster or other unanticipated problems atthe Company's facilities could result in interruptions in services or significant damageto customer equipment or data. Any damage to or failure of the Company's systems orservice providers could result in reductions in, or terminations of, services supplied tothe Company's customers, which could have a material adverse effect on the Company'sbusiness.

The Company will Depend on NetworkInterconnections with Third Parties. 

The Company will rely, in part, on anumber of public and private network interconnections to allow its customers to connect toother networks. If the networks with which the Company interconnects were to discontinuetheir interconnections, the Company's ability to exchange traffic would be significantlyconstrained. Furthermore, the Company's business could be harmed if these networks do notadd more bandwidth to accommodate increased traffic. Some of these networks will likelyrequire the payment of fees for the right to maintain interconnections. There usually isnothing to prevent any networks from increasing fees or denying access. In such cases, theCompany's ability to pursue the proposed business plan could be materially adverselyaffected. 

Some of the Company's Business may beSubject to International Risks. 

The Company is pursuing internationalbusiness opportunities, especially with respect to the Country of Turkey. Risks inherentin international operations include unexpected changes in regulatory requirements, exportrestrictions, tariffs and other trade barriers; challenges in staffing and managingforeign operations; differences in technology standards; employment laws and practices inforeign countries; longer payment cycles and problems in collecting accounts receivable;political instability; changes in currency exchange rates and imposition of currencyexchange controls and potentially adverse tax consequences.

**Item 3. Quantitative and Qualitative Disclosures About MarketRisk**

The Company has not entered into any transaction using derivativefinancial instruments and believes that its exposure to market risk associated with otherfinancial instruments is not material. The Company's cash equivalents are maintainedprimarily in money market risks maturing in less than three months. Accordingly, theCompany does not believe that it has any significant exposure to interest rate risk. TheCompany 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 currencyrate fluctuations. 

**PART II. OTHER INFORMATION**

**Item 1. Legal Proceedings**

Reference is made in Note 8 to the Notesto Condensed Consolidated Financial Statements. 

On March 26, 2001, the Company was servedwith a summons and complaint entitled Tom Epperson, Freddie Wilson and Omega Shelters,Inc. v. North American DataCom, Inc. and North American Infotech, LLC, (U.S.D.C. NorthernDistrict of Mississippi, Case No. 1:02CV105-D-D). The action relates to alleged damagesresulting from an agreement to build a prototype composite fiber shelter by OmegaShelters, which prototype was subject to the Company’s receipt and acceptance. Theagreement at issue also contains an arbitration provision. In the complaintplaintiff’s state that Omega Shelters’ immediate predecessor, Yellow CreekLodges, Inc., was forced into bankruptcy in the United States Bankruptcy Court for theNorthern District of Mississippi. While the dismissed action sought damages of $2.2million, the Company believes that the claim for damages is wholly without merit and thatthe Company will not be materially adversely affected by the outcome of any futureproceedings, if filed. By decision of the Court dated June 28, 2001, the matter wasdismissed without prejudice for lack of subject matter jurisdiction. No further action hasbeen filed.

David Cray, the Company's former vicepresident and treasurer, resigned his positions effective March 5, 2001, which resignationfollowed a leave of absence. The Company disagrees with Mr. Cray regarding the terms andcircumstances of Mr. Cray’s departure and has received a Notice of Arbitration fromMr. Cray pursuant to his employment agreement. The Company is exploring avenues to resolvethe matter with Mr. Cray, and believes that it has strong meritorious to Mr. Cray'sclaims. The Company does not believe that any claims by Mr. Cray, even if successful, willhave a material adverse effect upon the Company or its financial condition. 

On June 13, 2001, the Company was servedwith a summons and complaint in the matter known as OptiCom v. North American DataCom,Inc., (County Court of Tishomingo, State of Mississippi, Cause No. CV01-0077(G)T).Plaintiff OptiCom has alleged that the Company has failed to pay $28,000 for opticalconduit provided for the last mile access along the Tishomingo Railroad. The Company isdefending the lawsuit and has engaged OptiCom in settlement negotiations.

**Item 2. Changes in Securities and Use of Proceeds**

In August 2001, the Company  issued the following restricted sharesof common stock:

The Company issued 90,000 restricted shares of common stock to MagnoliaElectric Company for services rendered to the Company. These shares were valued at $0.14per share, the closing bid price of our common stock at the day of issuance.The Company issued 12,500 restricted shares of common stock to Jamie Wadkins, 20,000restricted shares of common stock to Keith Barnett and 7,500 restricted shares of commonstock to Edgar Earl Wadkins for equipment. These shares were valued at $0.20 per share,the closing bid price of our common stock at the day of issuance.The Company issued 250,500 restricted shares of common stock for a settlement of claimsagainst the Company. These shares were valued at $0.22 per share, the closing bid price ofour common stock at the day of issuance.

The sales and issuances of restricted securitiesin the transactions described above were deemed by the Company to be exempt from theregistration requirements under the Act in reliance upon Section 4(2) of the Act,Regulation D promulgated thereunder, and, in the case of the issuance of common stock as aprize in a logo contest, on the basis that no "sale" as defined in the Actoccurred. 

**Item 3. Default Upon Senior Securities**

None

**Item 4. Submission of Matters to a Vote of Security Holders**

None

**Item 5. Other Information**

None

**Item 6. Exhibits and Reports on Form 8-K**

During the quarter ended September 30, 2001, we did not file anyReports on Form 8-K.

 

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the issuer has caused thisreport to be signed on its behalf by the undersigned, thereunto duly authorized.

North American DataCom, Inc.
By: /s/ Robert  R. CrawfordRobert R. Crawford, Chairman, Chief Executive Officer and Chief Financial    OfficerDated: November 19, 2001Iuka, MS**** |
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