| ****UNITED STATES****
****SECURITIES AND EXCHANGE COMMISSION****
****Washington, DC 20549****  
**Form 10-Q/A**
                                (Mark one)
[ X ] QUARTERLY    REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** **
For the    quarterly period ended: March 31, 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, 98,656,448 shares outstanding as of May 10, 2001.
 

 

 

 

 

 

**TABLE OF CONTENTS**

**PART I. FINANCIAL INFORMATION**
Page     Item 1. Financial Statements (Unaudited).2Item 2. Management’s Discussion and Analysis.11Item 3. Quantitative and Qualitative Disclosures About Market    Risk.19  
**PART II. OTHER INFORMATION**     Item 1. Legal Proceedings.19Item 2. Changes in Securities and Use of Proceeds.19Item 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.21
 

**PART I  FINANCIAL INFORMATION**

Item 1. Financial Statements
Condensed Financial Information (Unaudited)Page   Condensed Consolidated Balance    Sheets2   Condensed Consolidated Statements    of Operation4   Condensed Consolidated Statements    of Comprehensive Operations4   Condensed Consolidated Statements    of Changes in Stockholders' Equity4   Condensed Consolidated Statements    of Cash Flows5   Notes to Condensed Consolidated    Financial Statements 6
 
**NORTH AMERICAN    DATACOM, INC.
Consolidated Balance    Sheets as of March 31, 2001 (Unaudited) and June 30, 2000    
ASSETS
March 31, 2001
June 30, 2000Current    Assets      Cash and Cash Equivalents
$78,868$20,948      Accounts Receivable, Net of Allowance of $2,400 for March 31, 2001        and June 30, 2000134,91637,848      Notes Receivable, Net of Long-term Maturities- 2,920      Inventories5,728438      Employee Advances2,555102,555Total    Current Assets222,067
164,709  Investments    (Note 3)- 90,000Property    and Equipment      Conduit and Optic Fiber14,524,20314,396,891      Computers and Equipment727,233717,416      Communications Equipment and Wireless Towers626,169371,688      Software351,124-       Other Equipment65,21577,278      Vehicle34,201-       Leasehold Improvements15,96015,880      Office Furniture3,6813,231        Total Property and Equipment16,347,78615,582,384           Less Accumulated Depreciation and Amortization(87,287)(35,945)      Net Property and Equipment16,260,49915,546,439Advance to    Affiliate (Note 5)200,000- Other    Assets (Note 6)470,480449,832  TOTAL    ASSETS
$17,153,046
$
16,250,980  
LIABILITIES AND STOCKHOLDERS' EQUITY  Current    Liabilities:      Trade Note Payable, Net of Unamortized Discount (Note 4)
$15,118,000$15,152,173      Accounts Payable1,104,24924,034      Accrued Expenses and Other Liabilities (Note 8)364,282275,552      Convertible Notes Payable33,541-         Total Current Liabilities16,620,07215,451,759Payable to    Director- 23,917TOTAL    LIABILITIES
$16,620,072
$
15,475,676
  
Commitments and Contingencies- - 
  
Stockholders' Equity
   Convertible Preferred Stock, No Par Value; 400,000 Shares Authorized    -- 
   Series B Convertible Preferred Stock, $.0001 Par Value; 
        6% Cumulative; 500,000 Shares Authorized; 1,504 and 300 Shares
     Issued and Outstanding as of March 31, 2001 and June 30,    20001,503,641300,000
   Common    Stock, $.0001 Par Value 150,000,000 Shares Authorized,         98,656,448 Shares Issued and Outstanding as March 31,    2001and      97,992,758 Shares Issued and Outstanding at June 30,    2000  
9,865
 

9,798
   Additional Paid-In Capital3,880,963
2,667,567
   Other Accumulated Comprehensive Income(189,200)(99,200)
   Retained Earnings (Accumulated Deficit)(4,672,295)
(2,102,861)  TOTAL    STOCKHOLDERS' EQUITY532,974
775,304  TOTAL    LIABILITIES AND STOCKHOLDERS' EQUITY
$17,153,046
$
16,250,980See Accompanying Notes to Condensed    Consolidated Financial Statements
 

**NORTH    AMERICAN DATACOM, INC.**
Condensed    Consolidated Statements of Operation
(Unaudited)
For the Three    Months Ended March 31, 2001
For the Three    Months Ended March 31, 2000
For the Nine    Months Ended March 31, 2001
For the Nine    Months Ended March 31, 2000Net Service    Revenues
$201,999$69,787
$358,372
$167,997Cost of    Services60,43422,420156,66029,742  Gross    Profit141,56547,367201,712138,255Expenses:     Selling, General and Administrative731,719326,5682,245,6731,009,792Operating    Loss(590,154)(279,201)(2,043,961)(871,537)     Other Income (Expense), Net(176,410)(70)(525,473)6,233Loss Before    Income Tax Expense (Benefit)(766,564)(279,271)(2,569,434)(865,304)      Income Tax Expense (Benefit)
- 
- 
- 
- Net Loss
$(766,564)
$(279,271)
$(2,569,434)
$(865,304)Basic and    Diluted Loss PerCommon    Share (Note 1)
$(0.01)
$(0.003)
$(0.03)
$(0.02)Weighted    Average Number of Common Shares Outstanding      Basic and Diluted (Note 1)98,656,4484,106,65598,546,36241,837,863
See Accompanying Notes to Condensed Consolidated Financial    Statements
 

**NORTH AMERICAN DATACOM, INC.**
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)  
For the Three    Months Ended March 31, 2001
For the Three    Months Ended March 31, 2000
For the Nine    Months Ended March 31, 2001
For the Nine    Months Ended March 31, 2000Net loss
$(766,565)$(279,271)
$(2,569,434)
$(865,304)Net change    in unrealized loss   on    investments (Note 3)- (41,650)(90,000)(41,650)Comprehensive    loss
$(766,565)
$(320,921)
$(2,659,434)$(906,954)
See Accompanying Notes to Condensed Consolidated Financial    Statements
 

**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, 2000300$300,00097,992,758$9,798$2,667,567$(2,102,861)$(99,200)$775,304Issuance of Series B preferred stock 500500,000-----500,000Sale of common Stock--317,50032634,968--635,000Sale of common Stock--150,00015442,110--442,125Exercise of stock options to acquire  common stock--11,54219,999--10,000Exercise of stock options to acquire  common stock--115,423129,988--10,000Issuance of shares for services--1,000-2,000--2,000Net unrealized loss from investments------(30,000)(30,000)Net loss for the period  ended September 30, 2000-----(869,086)-(869,086)Balance, September 30, 2000800$800,00098,588,223$9,858$3,766,632$(2,971,947)$(129,200)$1,475,343Issuance of shares for services--20,225244,188--44,190Issuance of shares for financial services   rendered--30,000359,997--60,000Issuance of shares for financial services   rendered--3,00018,842--8,843Exercise of stock options to acquire  common stock--15,00011,304--1,305Issuance of Series B preferred stock 326325,904-----325,904Net change in unrealized loss  from investments------(60,000)(60,000)Net loss for the period  ended December 31, 2000-----(933,784)-(933,784)Balance, December 31, 20001,126$1,125,90498,656,448$9,865$3,880,963$(3,905,731)$(189,200)$921,801Issuance of Series B preferred stock 378$377,737-----377,738Net change in unrealized loss  from investments--------Net loss for the period  ended March 31, 2001-----(766,564)-(766,565)Balance, March 31, 20011,504$1,503,64198,656,448$9,865$3,880,963$(4,672,295)$(189,200)$532,974See Accompanying Notes to Condensed    Consolidated Financial Statements
 
**NORTH    AMERICAN DATACOM, INC.
Condensed    Consolidated Statement of Cash Flows
(Unaudited)   
For the Nine    Months Ended March 31, 2001
For the Nine    Months ended March 31, 2000CASH FLOW    FROM OPERATING ACTIVITIES:Net Loss
$(2,569,434)
$(865,304)Adjustment    to reconcile net loss to net cash used in Operating Activities:      Depreciation and amortization (Note 4)646,61530,374Changes in    operating assets and liabilities, net of acquisitions::      (Increase) Decrease in accounts receivable(97,068)(16,001)      (Increase) Decrease in notes receivable2,920(129,105)      (Increase) Decrease in inventory(5,290)-       Increase (Decrease) in other assets and employee advances60,851(38,037)      Increase (Decrease) in accounts payable and accrued expenses1,283,977(146,448)NET CASH    USED IN OPERATING ACTIVITIES(677,429)(1,164,521)  CASH FLOWS    FROM INVESTING ACTIVITIES:      Purchases of property and equipment(801,347)(179,529)      Purchase of investments- (52,851)      Advance to affiliate (Note 5)(200,000)- NET CASH    USED IN INVESTING ACTIVITIES(1,001,347)(232,380)  CASH FLOWS    FROM FINANCING ACTIVITIES:      Proceeds from sale of common stock (Note 7)1,098,431979,971   Payments on trade    note payable(575,000)-    Proceeds from sale of    preferred stock (Note 7)1,203,641-    Net borrowings under    notes payable(23,917)(54,112)   Proceeds from    issuance of convertible notes payable33,54181,915NET CASH    PROVIDED BY FINANCING ACTIVITIES1,736,6961,007,774  INCREASE    (DECREASE) IN CASH AND CASH EQUIVALENTS:57,920(389,127)CASH AND    CASH EQUIVALENTS AT BEGINNING OF PERIOD20,948722,353CASH AND CASH EQUIVALENTS AT END OF    PERIOD
$78,868
$333,226  Supplemental schedule of non-cash    operating activities:   Issuance of common    stock for payment of accounts payable
$115,032
$- 
See Accompanying    Notes to Condensed Consolidated Financial Statements
 

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

Theaccompanying unaudited consolidated financial statements of North American DataCom, Inc.(the "Company") have been prepared in accordance with accounting principlesgenerally accepted in the United States of America for interim financial information andwith the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they donot include all of the information and footnotes required by accounting principlesgenerally accepted in the United States of America for complete financial statements. Inthe opinion 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 of March31, 2001 and the results of its operations and its cash flows for the three-and nine-monthperiods ended March 31, 2001 and 2000. These financial statements should be read inconjunction with the Company’s audited consolidated financial statements as of June30, 2000 including notes thereto, included in the Company’s 1999 Annual Report onForm 10-K for fiscal year ended June 30, 2000.

NATURE OF BUSINESS

The Company intends to provide communications andinformation technology services with an emphasis on broadband fiber optic and wirelesstelecommunications services that support enterprise data storage solutions, primary forcustomers in southern United States.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include theaccounts of the Company and its wholly owned subsidiaries. All material intercompanyaccounts and transactions are eliminated.

USE OF ESTIMATES

The preparation of financial statements inconformity with accounting principles generally accepted in the United State of Americarequires management to make estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements. Estimates also affect the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates.

Certain estimates used by management areparticularly susceptible to significant changes in the economic environment. These includeestimates of the realization of long-lived assets and deferred tax assets. Each of theseestimates, as well as the related amounts reported in the financial statements, aresensitive to near term changes in the factors used to determine them. A significant changein any one of those factors could result in the determination of amounts different fromthose reported in the consolidated financial statements and the effect of such differencescould be material.

INVESTMENTS

Investments are classified as available-for-saleand are reported at estimated fair value, with unrealized gains and losses, net of taxes,reported as a separate component of stockholders' equity. Realized gains and losses, anddeclines in value judged to be other than temporary, are included in other income. Thecost of securities sold is based on the specific identification method and interest earnedis included in other income.

REVENUE RECOGNITION

Revenue is recognized when services are rendered.

TAXES ON INCOME

Income taxes are calculated using the liabilitymethod specified by Statement of Financial Accounting Standards No. 109, Accounting forIncome Taxes ("SFAS 109"). Under SFAS 109, the Company provides for estimatedincome taxes payable or refundable on current year income tax returns as well as theestimated future tax effects attributable to temporary differences and carry forwards.Measurement of deferred income taxes is based upon enacted tax laws and tax rates, withthe measurement of deferred income tax assets reduced by estimated amounts of tax benefitsnot likely to be realized.

EARNINGS PER SHARE

Basic and diluted loss per share of common stockhave been computed based upon the weighted average number of shares outstanding during thequarter ending March 31, 2001 and, after giving effect to the merger stock split, thequarter ending March 31, 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 following details the Company's actual commonstock issuable under various agreements (in post-merger shares):

March 31, 2001
March 31, 2000Stock Options14,104,21615,116,301Convertible Notes47,2081,903,130Warrants- 80,000Convertible Preferred Stock1,808,00023,318,77915,959,42440,418,210
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 lease
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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financialinstruments, consisting of cash and cash equivalents, notes and accounts receivable,accounts payable and payable to director approximate their respective fair values.

BUSINESS LINES

Fiber Optic and Broadband Wireless Network: TheCompany is building a fiber optic and broadband wireless communications network, whichwill allow for the high-speed transmission of large amounts of data. It is expected thatbusinesses, government agencies and institutions will use the Company's network as apreferred alternative to existing telephone and satellite data transmission systems. TheCompany installed a wireless network connecting Iuka, MS to Atlanta, GA and Memphis, TN.This wireless network currently operates at a DS-3 bandwidth level.

Internet Access: As of March 31, 2001, theCompany provides Internet service in Mississippi, Tennessee and Alabama. Internet servicesprovided by the Company include basic dial-up access to the Internet through standardcomputer modems, high speed Internet access, and the design and hosting of websites forcustomers.

Remote Data Storage: During fiscal 2000, theCompany took delivery of equipment that will allow third parties to store and access datastored in digital form on computer systems maintained and operated by the Company in itsfacility in Iuka, MS. As of March 31, 2001, the Company has started its operation with aninitial agreement. This agreement provided $62,884 in revenues for the EDS line in thisquarter.

Telecommunication Projects and Consulting: TheCompany plans to assist corporations, government agencies and institutions in the designand installation of their own internal telecommunications networks. The Company plans touse state-of-the-art technology, which will enable its clients to transfer and receivelarge amounts of data at high speed between both internal and external sources.

At present, the Company operates two segments,Internet access, including paging, and remote data and storage to consumers and smallbusinesses. However, due to limited operations of the two segments, the Company has notpresented segment final information as the Company's management does not separatelyevaluate each segment on a stand alone basis. In future periods, the Company will presentsuch information when meaningful.
**2. RECENT ACCOUNTING PRONOUNCEMENTS**
In June 1998, the Financial Accounting StandardsBoard issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities("SFAS 133"). SFAS 133 requires companies to recognize all derivatives contractsas either assets or liabilities in the balance sheet and to measure them at fair value. Ifcertain conditions are met, a derivative may be specifically designated as a hedge, theobjective of which is to match the timing of gain or loss recognition on the hedgingderivative with the recognition of (i) the changes in the fair value of the hedged assetor liability that are attributable to the hedged risk or (ii) the earnings effect of thehedged forecasted transaction. For a derivative not designated as a hedging instrument,the gain or loss is recognized in income in the period of change.

In June 2000, the FASB issued Statement ofFinancial Accounting Standards No. 138, "Accounting for Derivative Instruments andCertain Hedging Activities (an amendment of FASB Statement No. 133)." The adoption ofSFAS 138 did not have a material impact on the results of operations, financial positionand liquidity of the Company. SFAS 133, as amended by 138, was effective for all fiscalquarters of all fiscal years beginning after June 15, 2000.

The Financial Accounting Standards Board issuedInterpretation ("Interpretation") No. 44, "Accounting for CertainTransactions involving Stock Compensation, an Interpretation of APB Opinion No. 25"which is effective July 1, 2000. Interpretation No. 44 clarifies (a) the definition ofemployee for purposes of applying Opinion 25, (b) the criteria for determining whether astock compensation plan qualifies as a non-compensatory plan, (c) the accountingconsequence of various modifications to the terms of a previously fixed stock option oraward, and (d) the accounting for an exchange of stock compensation awards in a businesscombination. Adoption of the provisions of the Interpretation has not had a significantimpact on our financial statements. 

In December 1999, the SEC issued Staff AccountingBulletin ("SAB") No. 101, -- Revenue Recognition, which outlines the basiccriteria that must be met to recognize revenue and provides guidance for presentation ofrevenue and for disclosure related to revenue recognition policies in financial statementsfiled with the Securities and Exchange Commission. We believe that adopting the provisionsof SAB No. 101 will not have a material impact on our financial position or results ofoperations.

In September 2000, the Financial AccountingStandards Board issued SFAS No. 140, Accounting for Transfers and Servicing of FinancialAssets and Extinguishment of Liabilities ("SFAS 140"). SFAS 140 revises thestandards for accounting for securitizations and other transfers of financial assets andcollateral and is effective for fiscal years beginning after December 15, 2000. We believethat adopting SFAS 140 will not have a material impact on our financial position orresults of operations.
**3. INVESTMENTS**
The Company's investments are classified asavailable-for-sale. The amortized cost, gross unrealized gains (losses) and estimated fairvalue, less the option price of $.12 per share, for these investments were as follows atMarch 31, 2001 and June 30, 2000. The Company has exercised its option rights, but has notyet been issued stock by NYRR, as legal issues are being worked out by Company counsel.
March 31, 2001
Cost Basis
Gross Unrealized Gains (Losses)
Estimated Fair ValueNew York Regional Rail CorporationStock Options$250,000$(250,000)$0  June 30, 2000New York Regional Rail CorporationStock Options$250,000$(160,000)$90,000** 

4. PROPERTY, PLANT AND EQUIPMENT:**
In March 2000, the Company acquired 504 miles offiber optic conduit for $15.1 million from Qwest. The purchase price was to be paid over a12-month period ending March 31, 2001. Accordingly, imputed interest of $723,109 wasrecorded as a discount, which is being amortized as an interest charge over the term ofthe payable. For the three and nine-month quarterly periods ended March 31, 2001 theinterest charge associated with this payable was $176,301 and $540,827, respectively. TheCompany is not current under the payment schedule provided in the bill of sale. TheCompany is currently renegotiating with the vendor for modifications of the payment termsunder the bill of sale. Management believes it will be successful in its renegotiationswith Qwest to modify the terms under the bill of sale.

On August 15, 2000, the Company entered into anagreement with a subsidiary of Norfolk Southern Company to lay fiber optic conduit betweenAtlanta, GA and Chattanooga, TN and from Chattanooga to Memphis, TN. The cost of thisproject is approximately $29 million. While approximately $2.9 million was due in October2000, the third party contractor is five months late on its installation as of the date ofthis Quarterly Report.  Therefore, we have not made any payments under thisagreement. The Company and the contractor are currently discussing issues related to thedelays in the installation and the timing of payments. 
**5. ADVANCE TO AFFILIATE**
In July 2000, the Company and Global Fiber Opticand Wireless Communications, Ltd. ("Global") each advanced $200,000 fordeveloping a joint venture to provide a 4,000 mile fiber optic communications and Internetnetwork in Turkey. The Company and Global will each have a fifty (50%) percent interest inthe joint venture.  The Company will be required to provide electronic andcommunications technologies, while Global will provide rights-of-way and other real estateas needed in Turkey. Currently the advances are being used by the proposed joint ventureto purchase rights-of-way and other assets to be utilized in the future operations of thejoint venture.
**6. OTHER ASSETS**
Other assets consist of the following items asof:

March 31, 2001
March 31, 2000FCC License, net of amortization of $32,890 and $14,389, respectively$337,110$355,611Deposits37,0000Prepaid expenses34,58032,431Deferred income tax asset61,79061,790   Total$470,480$449,832** 

7. STOCKHOLDERS' EQUITY:**
In May 2000, the Board authorized 500,000 sharesof Series B Convertible Preferred Stock, par value $.0001, having a 6% cumulativedividend. In June 2000, the Company authorized the sale of up to 5,000 shares of itsSeries B Convertible Preferred Stock for $1,000 per share to a principal shareholder. Eachshare of the Series B Convertible Preferred Stock is convertible into 500 shares of Rule144 restricted common stock of the Company. The $60 cumulative annual dividend for eachshare of the Series B Convertible Preferred Stock is payable in July annually and if notpaid the dividend is accumulating. The Series B Convertible Preferred Stock is senior toand has a right upon liquidation to be redeemed before any distribution to any commonshareholders. If dividends payable on the Series B Convertible Preferred Stock are notcurrent the holders of our Series B Convertible Preferred Stock will have 500 votes pereach share of Series B  Convertible Preferred Stock held. There are no redemptionrights applicable to the issued and outstanding Series B Convertible Preferred Stock. InSeptember 2000, the Company sold 500 shares of Series B Convertible Preferred Stock to aprincipal shareholder for $500,000. During December 2000, the Company sold 326 shares ofSeries B Convertible Preferred Stock to a principal shareholder for $325,904. In March2001, the Company sold 378 shares of Series B Convertible Preferred Stock to a principalshareholder for $377,738. The conversion ratio was amended by action of the Board ofDirectors from 500 shares of restricted common stock for each share of Series BConvertible Preferred Stock that was issued after September 30, 2000 to 2000 restrictedshares of common stock,  to reflect recent changes in the price of our shares ofcommon stock on the OTC:BB. The conversion ratio was adjusted on December 28, 2000.

In July 2000, stock options were exercised topurchase 11,542 shares of common stock for $10,000.

In July 2000, the Company awarded 1,000 shares ofits common stock to three unaffiliated individuals for non-cash prize from a logo contestheld for local-area students.

In August 2000, stock options were exercised for115,423 shares of common stock for $10,000.

In August 2000, the Company sold 317,500restricted shares of common stock for a total purchase price of $635,000 to a privateinvestor pursuant an agreement.  In October 2000, the Company issued to a third partypursuant to a financial service agreement 30,000 restricted shares of common stock valuedat $59,997. 

In September 2000, the Company completed aprivate placement of 150,000 restricted shares of common stock for a total purchase priceof approximately $442,125. The Company agreed to pay certain fees associated with theprivate placement in the form of  3,000 restricted shares of common stock and $13,700in cash. The agreement provided that the Company prepare and file a registration statementwith the SEC for the resale of the 150,000 restricted shares by October 5, 2000. For eachfifteen-day delay  following the October 5, 2000 date that the registration statementwas not filed with the SEC, the Company was required to make a payment to the privateinvestor in cash or common stock equal to $8,842.   The Company  filed aregistration statement for the resale of such shares on December 13, 2000, and issued theprivate investor 20,225  additional shares of common stock to satisfy this agreement.The registration statement was declared effective by the SEC on January 31, 2001. Thevalue of the  20,225 shares of common stock issued during the period from Octoberthrough December 2000 was $44,188.

In December 2000, stock options were exercisedfor 15,000 shares of common stock for $1,305. 
**8. LIQUIDITY**
On February 21, 2001, the Company announced thatit had entered into a binding Letter of Agreement with IFG Private Equity, LLC, anAtlanta-based institutional investor, for a minimum of $25 million in equity financing,with an option for an additional $25 million.  

The accompanying financial statements have beenprepared on a going concern basis, which contemplates continuity of operations andrealization of assets and satisfaction of liabilities in the normal course of business. AtMarch 31, 2001, the Company has negative working capital with obligations totaling$16,620,072 due within one year, of which approximately $15 million is related toequipment purchased from Qwest (See Note 4 above). The Company is currently renegotiatingwith Qwest for modifications of the payment terms under the bill of sale. In addition,losses totaling $4,672,295 have been generated since inception. The Company has anarrearage of certain federal tax liabilities of approximately $300,000, including payrollliabilities. The continuing losses and the amount of current liabilities raise substantialdoubt about the Company's ability to continue on as a going concern. The continuation ofthe Company as a going concern is dependent upon the Company's ability to raise additionalcapital, and attaining and maintaining profitable operations, of which there can beno  assurance. The Company has identified potential sources of capital and potentialjoint venture and/or strategic partners and believes that the Company will be able tosecure the necessary capital at satisfactory terms and conditions to continue its businessplan.
**9. LITIGATION**
David Cray, the Company's former vice presidentand treasurer, resigned his positions effective March 5, 2001, which resignation followeda 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 defenses to Mr. Cray's claims. We do not believe that any claims by Mr. Cray, even if successful, willhave a material adverse effect upon the Company or its financial condition. 

On March 26, 2001, the Company was served with asummons and complaint in an action, 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 Company has been granted anextension, until May 30, 2001, to answer, appear, move or otherwise respond to thelawsuit. The action relates to alleged  damages resulting from an agreement to builda prototype composite fiber shelter by Omega Shelters, which prototype was subject to theCompany's receipt and acceptance. The agreement at issue also contains an arbitrationprovision. In the complaint  plaintiff's state that Omega Shelters' immediatepredecessor, Yellow Creek Lodges, Inc., was forced into bankruptcy in the United StatesBankruptcy Court for the Northern District of Mississippi. The Company believes that ithas meritorious defenses to the action, disputes the allegations, and intends to vigorously defend the lawsuit. While the action seeks damages of $2.2 million, we believethat the claim for damages is wholly without merit and that the Company will not bematerially adversely effected by the outcome of the proceeding. Neither can we determineat the date of this Quarterly Report what impact the bankruptcy proceeding involvingplaintiff corporation's predecessor will have on this action. 

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

As used in thisQuarterly Report on Form 10-Q, the terms "we", "us", "our"or the "Company" mean North American DataCom, Inc. and its subsidiaries.

Forward-LookingStatements

The discussion in thisreport on Form 10-Q contains forward-looking statements that involve risks anduncertainties. The statements contained in this Report that are not purely historical areforward-looking statements within the meaning of Section 27A of the Securities Act of1933, as amended (the "Act"), and Section 21E of the Securities Exchange Act of1934 (the "Exchange Act"), including statements regarding our expectations,beliefs, intentions or strategies regarding the future. All forward-looking statementsincluded in this document are based on information available to us on the date hereof. Ouractual results could differ materially from those described in our forward-lookingstatements. Factors that could cause or contribute to such differences include, but arenot limited to, our negative working capital, our ability to raise additional capital atterms and conditions satisfactory to us, our limited operating history in a new andrapidly evolving industry; our ability to implement our business plan; and our ability tosuccessfully market our products and services. See the discussion under "RisksAffecting Future Results" below. Reference is made to Exhibit 99.1, "PrivateSecurities Litigation Reform Act of 1995, Safe Harbor Compliance Statement forForward-Looking Statements".

We makeforward-looking statements in the "Management’s Discussion and Analysis ofFinancial Condition and, Results of Operations" in this Quarterly Report. Theseforward-looking statements include, but are not limited to, statements about our plans,objectives, expectations, intentions and assumptions and other statements that are nothistorical facts. We generally intend the, words "expect", anticipate","intend", "plan", "believe", "seek","estimate" and similar expressions to identify forward-looking statements.

Acquisitions

The Company was organized in September 1998 as North American SoftwareAssociates, Limited, a Delaware corporation. We were organized to provide a variety oftelecommunications services. On April 1, 1999, we acquired all of the assets of Freedom2000, a local Internet Service Provider (ISP), in exchange for 577,123 restricted sharesof our common stock. On December 3, 1999, we acquired all of the common stock of ActionCommunications, Inc. ("Action"), a provider of digital and alpha numeric pagingservices, in exchange for 1,731,339 restricted shares of our common stock. The Actiontransaction has been treated for accounting purposes as a purchase of assets andliabilities, and revenues and expenses of Action prior to December 3, 1999 have not beenconsolidated. Effective December 21, 1999, North American Software Associates, Limited("NAS") was acquired by Pierce International, Inc. in a share exchangetransaction and in March 2000 we changed our name to North American DataCom, Inc. Thetransaction with Pierce International, Inc. has been accounted for as a reverseacquisition since the former shareholders of NAS owned controlling interest in the Companyimmediately following the transaction and management of Pierce International, Inc. wasreplaced by management of NAS. 

Overview

We are in the process of deploying a 3,000 mile fiber optic network inthe states of Tennessee, Mississippi, Louisiana, Alabama, Georgia and Florida,  toprovide broad-based communications and information technology services with an emphasis onwideband fiber optic and wireless telecommunications services that support Enterprise DataStorage (EDS) solutions. We utilize advanced, state-of-the-art technology for its networkto provide a wide range of services to telecommunication companies, ISPs and largeorganizations, including government agencies and departments. Our plan is to providesuperior quality and secure broadband communications in connection with our data storageservices. Our Enterprise Data Storage business (EDS) enables us archive data, using twohighly secure "Major Center" at our headquarters in Iuka, MS. In addition, thewe plan to operate five co-location data storage "Satellite Centers" to providemirroring and archiving services that are directly connected by our fiber optic network atour Major Center in Iuka, MS.

In addition, we also provide Internet access services and digital andalpha-numeric paging services. To date, our start-up revenues have been derived from ourInternet access services.

Segment Installation Information

In September 2000 we retained Cap Gemini/Ernstand Young to revise our existing Business Plan and Model. The revised business plan andmodel were completed in December 2000. The revised 5 year plan calls for a $725 millioncapital investment for the seven EDS Centers and the 3,000 route mile Fiber optic network.Revenues at the end of 5 years are projected to be over $500 million.

Current capital market conditions have promptedus to divide the Business Plan and Model into six independent network segments. Wedetermined that Segment 1, the fiber optic route connecting Memphis, TN to Iuka, MS and  to Atlanta, GA was strategically the most important and therefore would beconstructed first. The capital budget to develop and operate the Segment 1 network and EDSbusiness is estimated at approximately $75,000,000 during its first 18 months of operationthrough approximately September 2002. 

Segment 1 of our Business Plan consists ofapproximately 550 miles of the network from Atlanta, GA to Memphis, TN. This segment 1will serve: 12 of the 49 smaller cities within the region having populations of upto100,000 people;  3 of 13 medium sized cities having populations between 100,000 and500,000 people; and  3 of the largest 7 cities in the region. We have identified TierTwo markets consisting of those population centers that are not in the primary 100 largestareas but are uniquely located along our railroad rights-of-way where we can install andeasily maintain on a cost-efficient basis our fiber optic transmission facilities. We alsointend to  provide such services to Tier Two markets in the southeast, initially fromAtlanta, GA to Memphis, TN. The present fiber optic infrastructure in this rural region isdeemed inadequate for such market compared to other parts of the country. It is our firmbelief that by developing our network to serve an underserved area, we will bewell-positioned to benefit in the future from expected traffic growth.  The MajorCenter and two of the five Satellite Centers are expected to be operational in Segment 1.The first two Satellite centers are planned to be in Chattanooga and Memphis, TN. Weproject that we will begin to generate revenues from Segment 1 in September 2001, to havea positive cash flow from operations in mid-2002, and to be profitable by year-end 2002.These projected dates are subject to our ability to raise necessary capital to meet ourcapital requirements at terms satisfactory to us.

Results of Operations

For the Nine-Month Period Ended March 31, 2001Compared to the Nine-Month Period Ended March 31, 2000

Our fiscal year ends June 30th. Westarted business in February 1999 and our first full fiscal year ended on June 30, 2000.This Quarterly Report provides the first nine-month period to period comparison. 

In April 1999, we acquired Freedom 2000, itsInternet service provider. In December 1999, we acquired Action Communications, Inc., adigital and alpha numeric paging provider. Only four months of the revenues and expensesfrom Action is reflected in our results of operations for the period ended March 31, 2000.As a result, we do not believe that our results of operations for the period ended March31, 2000 are directly comparable to results of operations for the period ended March 31,2001, nor do we believe the results are necessarily indicative of possible results in thefuture.

Our current net service revenues consistprimarily of monthly fees from customers subscribing to our Internet access services andour digital and alphanumeric paging services. Net service revenues increased to $358,372in the nine-month period ended March 31, 2001 from $167,997 for the nine month periodended March 31, 2000, an increase of approximately 113%. This increase was primarily dueto the fact that our  paging service revenues during the nine-month period endedMarch 31, 2001 was from nine months of operations while we were only in operation for fourmonths at March 31, 2000. In addition, we increased our customer base for our Internetaccess service to approximately 1500 customers at March 31, 2001  compared withapproximately 1000 customers at March 31, 2000 or an increase of 50%. During the periodended March 31, 2001, we received $43,534 from the sale of one conduit and $62,884 underan initial agreement for our EDS service.

Our cost of providing our Internet and pagingservices consist primarily of paging airtime, postage and delivery expenses and allocatedoverhead costs. Cost of services increased to $157,160 for the nine-month period endedMarch 31, 2001 from $29,742 for the nine-month period of the prior fiscal year. Thisincrease in cost of services was primarily due to an increase in customers, net servicesprovided, increasing cost concerning telecommunications services generally, and costsdirectly related to the sale of one conduit. Cost of service, as a percent of net servicerevenue, increased from 17.7% for the nine-month period ended March 31, 2000 to 43.8% forthe same period during our 2001 fiscal year. As a result, gross profit for the nine- monthperiod ended March 31, 2001 was $201,212 as compared with $138,255 for the nine-monthperiod ended March 31, 2000.

We incurred selling, general and administrativeexpenses of approximately $2,245,174 for the nine-month ended March 31, 2001 compared with$1,009,792 for the nine-month period ended March 31, 2000, an increase of approximately122%. These expenses consisted primarily of the addition of management and technical staff  for our fiber optic business, which resulted in increased payroll, insurance,office and related expenses, as well as increased legal and professional fees associatedto being a public reporting company and filing registration statements under the Act . Weincreased our staff by six employees, a total of 30 employees at March 31, 2001 comparedto March 31, 2000. A significant portion of our general and administrative expenses forthe nine-month period ended March 31, 2001 was incurred in connection with the developmentof our broadband telecommunications network and enterprise data center.

We incurred $525,473 in other expense for thenine-month period ended March 31, 2001 as compared with other income of $6,233 for thenine-month period ended March 31, 2000. Other income (expense) consisted primarily ofinvestment income, interest expense and various miscellaneous expenses during therespective periods. Imputed interest of approximately $540,827 was recorded in thenine-month period ended March 31, 2001 relating to a contract to acquire rights-of-way andfiber conduit which provided for payments over a period of months without stated interest.

For the Three-Month Period Ended March 31,2001 Compared to the Three-Month Period Ended March 31, 2000

For the three-month period ended March 31, 2001,we had net service revenues of $201,999 compared to $69,787 for the comparable period ofthe prior year. This represents an increase of $132,212 or 189%. Our cost of services was$60,434 during the three-month period ended March 31, 2001 compared to $22,420 for thethree-month period ended March 31, 2000. Our gross profit margins were 70% and 68%,respectively, which is an insignificant change. 

We incurred selling, general and administrativeexpenses of $731,720 during the three-month period ended March 31, 2001 compared to$326,568 for the same period of the prior year. This increase was primarily due toincreased number of employees and costs associated with our business expansion. Ouroperating loss increased from $279,201 during the three-month period ended March 31, 2000to $590,155 for the three-month period ended March 31, 2001 or an increase of 110%.

We incurred  other expense of $176,410 forthe three-month period ended March 31, 2001 as compared to other expense of $70 for thethree-month period ended March 31, 2000. Other expenses during the three-month periodended March 31, 2001 consisted primarily of interest expense. 

Liquidity

Our total current assets at March 31, 2001 were$222,066 compared to $164,709 at our fiscal year ended June 30, 2000, or an increase of35%. Our accounts receivable increased by $97,068 from $37,848 at June 30, 2000 to$134,916 at March 31, 2001. This is a result of our increased customer base for ourInternet access service and our billing cycle. In addition, our advances to employees were$2,555 at March 31, 2001 compared to $102,555 at June 30, 2000. At March 31, 2001 the fairmarket value of our available-for-sale securities was 0 compared to $90,000 at June 30,2000. Reference is made to Note 3 to the Notes to Condensed Consolidated FinancialStatements.

Our non-current assets, consisting principally ofproperty and equipment, were $16,260,499 at March 31, 2001 compared to $15,546,439 at June30, 2000 or an increase of $714,060. This increase was primarily due to investment insoftware of $351,124 and communications equipment of $254,481. At March 31, 2001, ourbalance sheet also reflects advances to affiliates in the amount of $200,000, whichadvance is related to our joint venture in Turkey. Our total assets at March 31, 2001 were$17,153,046 compared to $16,250,980 at June 30, 2000.

We had current liabilities of $16,620,072 atMarch 31, 2001 compared to $15,451,759 at June 30, 2000. The principal component of ourcurrent liabilities is a liability due under a bill of sale from Qwest, the terms of whichwe are currently renegotiating. At March 31, 2001 we had accounts payable of $1,104,249compared to $24,034 at June 30, 2000. This increase is primarily due to delays incompleting equity financing due to current capital market conditions. At March 31, 2001 wehad accrued expenses and other liabilities of $364,282 compared to $275,552 at June 30,2000. Our accrued expenses and other liabilities at March 31, 2001 includes approximately$300,000 in certain federal tax liabilities. Reference is made to Note 8 to the Notes toCondensed Consolidated Financial Statements.

For the nine-month period ended March 31, 2001,we used $677,421 for our operating activities compared to $1,164,521 cash used foroperating activities during the same nine-month period of the prior year. This decrease innegative cash flow from operating activities was principally the result of an increase inaccounts payable and accrued expenses. For the nine-month period ended March 31, 2001, weused cash flow for investing activities of $1,001,347 principally for the purchase for$801,347 of property and equipment and we advanced cash of $200,000 to our joint venturein Turkey. We financed our negative cash flow from operating activities and our investingactivities by raising funds from the issuance and sale of restricted shares, proceeds fromthe sale of Series B Convertible Preferred Stock and proceeds from the issuance ofconvertible notes. Negative working capital has also been partially funded by an increasein accounts payable. We had $78,868 of cash at March 31, 2001 compared to cash of $333,226at fiscal year end June 30, 2000.

We have modified our business plan for initialsegment (Segment 1) of our fiber option line as a result of prevailing capital marketconditions and the difficulty in securing adequate financing at acceptable terms. Weestimate that we will require approximately $65,000,000 during the next twelve months tofund our Segment 1 development as follows:  approximately $37,000,000 to acquirenetwork rights-of-way plus the installation of conduit and fiber optic cable; $5,000,000for optical electronics and software; $5,000,000 for operation support systems and networkoperation center software; $7,000,000 for Tier IV enterprise data storage centerconstruction and improvements; and $11,000,000 in operating expenses. Actual costs andestimates may vary from our current expectations, which could materially adversely effectour business and financial conditions.

In addition, our liquidity is adversely effectedby our current liabilities which arose in connection with our purchase from Qwest ofapproximately 500 miles of fiber conduit from New Orleans, LA to Mobile, AL and fromPensacola, FL to Jacksonville, FL. The total purchase price under our bill of sale isapproximately $15,120,000. We are in the process of renegotiating a revised paymentschedule with Qwest and we are dependent upon our ability to achieve an revised paymentschedule, of which there can be no assurance. 

We have also entered into an an agreement withNorfolk Southern Railroad's affiliate, Thoroughbred Technology & Communications(T-CUBED), to lay fiber conduit from Atlanta, GA to Chattanooga, TN and from Chattanoogato Memphis, TN. Under this agreement, we have agreed to pay approximately $29,000,000 buthave not yet commenced payments to T-CUBED. We are presently reviewing this agreement withT-CUBED for the purpose of amending certain terms of the agreement based upon the currentcapital market conditions and our limited liquidity.

It is our present intention to fund our capitalrequirements of $65 million during the next twelve months through the private placement ofapproximately $25 million of new equity, approximately $15 million of equipment leasefinancing and the balance of approximately $25 million through real estate financing ofdata centers and certain fiber optic real properties. We are currently negotiating aconstruction loan for certain interim financing and may also seek to fund certain of ourcapital needs through joint venture arrangements with strategic business partners andvendor financing. However, there can be no assurance that we will be successful innegotiating any such financing at terms satisfactory to us.

In order to fund working capital needs, we soldrestricted securities (See Note 7, Stockholders' Equity, to the Notes to CondensedConsolidated Financial Statements) to Robert Crawford, our president, director andprincipal shareholder as follows: in September 2000 we sold 500 shares of our Series BCumulative Convertible Preferred Stock for a purchase price of $1,000 per share. Eachshare of the Series B Cumulative Convertible Preferred Stock was convertible into 500restricted shares of our common stock commencing July 1, 2001, and provides for acumulative dividend of $60. In December 2000, we sold an additional 326 shares of Series BCumulative Convertible Preferred Stock to a principal shareholder for $325,904. EffectiveDecember 28, 2000, as a result of the change in the market price of our common stock, theconversion ratio applicable to each of our  Series B Cumulative Convertible PreferredStock was amended from 500 restricted shares of common stock to 2000 restricted shares. InMarch 2001, we sold 378 shares of Series B Series B Cumulative Convertible PreferredStock  to a principal shareholder for $377,738.

To provide further funding for our operations, inAugust 2000 we concluded the sale to a third party private investor of  317,500restricted shares of common stock for a total purchase price of $635,000. We incurredcosts related to this transaction or $59,997, which were satisfied by the issuance of30,000 restricted shares of common stock. In addition, in September 2000, we sold toanother private investor 150,000 restricted shares of common stock for a total purchaseprice of $442,125 and agreed to pay certain fees associated with this transaction by theissuance of an additional 3,000 restricted shares and to pay $13,700 in cash. The terms ofthe these transactions required that we prepare and file a registration statement underthe Act on Form S-1 with the SEC for the resale of these restricted shares within by acertain date. We were required to issue additional of 20,225 restricted shares as paymentdue to the delay in our filing of this registrant statement, which was declared effectiveby the SEC on January 31, 2001. A total of 2,302,624 shares of common stock wereregistered for selling shareholders in our Form S-1 registration statement under the Act.Reference is made to Note 7 to our Notes to Condensed Consolidated Financial Statements.

Our continuing capital requirements aresubstantial and we have no firm commitments at present to fund these needs. As reflectedin our financial statements for our fiscal year ended June 30, 2000 which were filed withour Annual Report on Form 10-K, the accountant's opinion included a going-concernqualification. Reference is made to Note 8, Liquidity, to our Notes to CondensedConsolidated Financial Statements and the disclosure that as of March 31, 2001 we hadnegative working capital with current liabilities of $16,620,072. In addition, we havesustained start-up losses of $4,672,295 since inception. The inability of the Company tosecure additional financing at terms acceptable to us shall have a material adverse effecton whether we can continue as a going-concern and be successful in implementing ourproposed business plan.

**Risks Affecting FutureResults**

A number of risk factors exist that may impair orprevent us from accomplishing our proposed business plan in some or all respects. Thoserisk factors include the following matters among others: 

The Company is a Start Up with HistoricalLosses. 

Substantially all of our historical revenues havebeen derived from our Internet access provider services and our digital and alpha pagingservices. We now have customers and project that we will have revenues from our fiberoptic and wireless broadband network during the last quarter of our fiscal year. We haveexperienced operating losses in each fiscal quarter since we were founded and will likelycontinue to experience such losses. Because our operating history is extremely limited,and have just begun to commence operations on our fiber optic and wireless broadbandnetwork and our enterprise data storage (EDS)  facility, it is difficult to evaluateour business operations and prospects.

The Company Needs Substantial AdditionalCapital. 

Our present cash flow from operations is notsufficient to pay certain of our debts as presently structured. At March 31, 2001 we hadnegative working capital of $16,398,012 and we estimate that we will need to secureadditional capital of approximately $65,000,000 to finance our operations and capitalneeds over the next twelve months. See the discussion under "Liquidity" above.The failure of the Company to obtain additional capital will significantly restrict ourproposed operations and may make it impossible for us to fulfill the timing of ourproposed business plan.

Status of  Certain Obligations. 

In March 2000, we entered into an agreement withQwest to purchase 500 miles of fiber conduit from New Orleans to Mobile, Alabama and fromPensacola, FL to Jacksonville, FL. The total purchase price under this agreement wasapproximately $15,000,000 and we are presently negotiating with Qwest the amendment of thepayment schedule under the  bill of sale and agreement. We have not been given anynotice of default under our agreement and bill of sale. Our obligations under thisagreement are personally guaranteed by our president. We also entered into an agreementwith an affiliate of Norfolk Southern to lay fiber conduit between Atlanta, GA andMemphis, TN through Chattanooga, TN at a total cost of approximately $29,000,000. Theagreement provided for payment of $2.9 million on October 15, 2000, which sum has not beenpaid. We are negotiating with contractors to amend the contract and develop new paymentschedules. 

The Company Leases its Facilities. 

On March 7, 2001, we finalized a new 20-yearlease with the State of Mississippi for our primary facility in Iuka, MS, for 25,000square feet of office and equipment space. This facility is essential to our proposedbusiness plan because it already contains many of the features necessary for us toestablish an enterprise data storage (EDS) facility. The State of Mississippi, actingthrough the Mississippi Development Authority (DMA), has also granted the Company a10-year right of first refusal to lease an additional 75,000 square feet at the Iukafacility, to accommodate the Company’s expansive business plan. 

The Company Experiences General RisksAssociated with Business. 

The future success of the Company is heavilydependent on its ability to develop, promote and sustain strong government relationships,reach agreements with certain third parties necessary for the telecommunications needs ofits operations and attract and retain customers at suitable prices. Our business involvescompetition with existing companies many of which have far greater capital resources andlonger operating histories than the Company. There can be no assurance that the businessof the Company will ever be profitable. 

The Company will Likely Experience CustomerConcentration. 

Until and unless the Company secures multiplecustomer relationships, it is likely that the Company will experience periods during whichit will be highly dependent on one or a limited number of customers. Dependence on asingle or a few customers will make it difficult to satisfactorily negotiate attractiveprices for the Company's services and will expose the Company to the risk of substantiallosses if a single dominant customer scenters conducting business with the Company. 

The Company Must Comply withTelecommunications Regulations.

Most of the Company's proposed business servicesand products are subject to regulation at the federal and state levels. These regulationsare in some cases uncertain and are often undergoing change. The failure of the Company tocomply with these regulations could have a materially adverse effect on the Company. 

The Company Must Comply with EnvironmentalRegulations. 

The Company's intended operations, especially theconstruction and operation of a fiber optic network, are subject to various federal, stateand local laws and regulations relating to the protection of the environment. Theseenvironmental laws and regulations, which have become increasingly stringent, areimplemented principally by the Environmental Protection Agency and comparable stateagencies, and govern the management of hazardous wastes, the discharge of pollutants intothe air and into surface and underground waters, and the manufacture and disposal ofcertain substances. There are no material environmental claims currently pending or, tothe Company's knowledge, threatened against the Company. In addition, the Company believesthat its operations are in material compliance with current laws and regulations. TheCompany estimates that any expenses incurred in maintaining compliance with current lawsand regulations will not have a material effect on the Company's earnings or capitalexpenditures. However, there can be no assurance that current regulatory requirements willnot change, that currently unforeseen environmental incidents will not occur, or that pastnon-compliance with environmental laws will not be discovered on the Company's properties.

The Company's Operating Results are Likely toFluctuate Widely. 

The Company expects that its operating resultsfor the foreseeable future are likely to fluctuate widely from quarter to quarter and fromyear to year. This is especially true while the Company is building its fiber optic andwireless broadband network. Fluctuation of results may occur due to a variety of factorsincluding, demand for and market acceptance of the Company's products and services,reliability of service and network availability, the ability to increase bandwidth asnecessary, customer retention, capacity utilization of the Company's enterprise datastorage facility, the timing of customer needs, the timing and magnitude of capitalexpenditures, changes in pricing policies or practices of competitors, and changes ingovernmental regulations. 

The Company will Face Significant Competition.

The Company's market is intensely competitive.There can be no assurance that the Company will have the resources to compete successfullyin the future. Current and potential competitors include national, foreign and regionalInternet service providers, global, regional and local telecommunications companies andthe Regional Bell Operating Companies, providers of server hosting and data storageservices, and other technology services and products companies. Most of these competitorswill have substantially greater resources than the Company. 

The Company is Entering a New Market. 

The market for Internet system and networkmanagement solutions has only recently begun to develop, is evolving rapidly and ischaracterized by an increasing number of market entrants. This market may not prove to beviable 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 Manage Growth.

In order for the Company to accomplish itsproposed business plan, it must experience rapid growth in building its enterprise datastorage facilities and network infrastructure, expand its service offering, expand itsgeographical coverage, expand its customer base and increase the number of employees. Thisgrowth is expected to place a significant strain on the Company's financial, management,operational and other resources, including its ability to ensure customer satisfaction.This expansion will require significant time commitments from senior management andinvolve the efficient management of multiple relationships with a growing number of thirdparties. The Company's ability to manage its growth effectively will require the Companyto continue to expand operating and financial procedures and controls, to upgradeoperational, financial and management information systems and to attract, train, motivateand retain key employees. The ability to attract, hire and retain qualified employees intoday's competitive employment market is another significant challenge which the Companyfaces. If the Company's executives are unable to manage growth effectively, the Company'sbusiness could be materially adversely affected.

System Failures Could Lead to SignificantCosts. 

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 a number ofpublic and private network interconnections to allow its customers to connect to othernetworks. If the networks with which the Company interconnects were to discontinue theirinterconnections, 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 be Subjectto International Risks. 

The Company is pursuing international businessopportunities, especially with respect to the Country of Turkey. Risks inherent ininternational 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.

Safe Harbor Statement under Private SecuritiesLitigation Reform Act of 1995

This Quarterly Report on Form 10-Q and otherreports and statements issued on behalf of the Company may include forward-lookingstatements in reliance on the safe harbor provided by the Private Securities LitigationReform Act of 1995. Forward-looking statements include the use of forward-looking wordssuch as "plans," "estimates," "believes,""expects," "may," "will," "should,""anticipates" and "proposes" and the negative or other variations ofsuch terms or comparable terminology, or by discussion of strategy or business plans thatinvolve risks and uncertainties. These forward-looking statements are subject tosubstantial risks and uncertainties, including those discussed above, and actual resultsmay differ materially from those contained in any such forward-looking statement.Reference is made to Exhibit 99.1, Private Securities Litigation Reform Act of 1995, SafeHarbor Compliance Statement for Forward-Looking Statements, filed with this Form 10-Q.

**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 to Note 9 to the Notes to CondensedConsolidated Financial Statements. 

David Cray, the Company's former vice presidentand treasurer, resigned his positions effective March 5, 2001, which resignation followeda 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. We do not believe that any claims by Mr. Cray, even if successful, will have amaterial adverse effect upon the Company or its financial condition. 

On March 26, 2001, the Company was served with asummons and complaint in an action, 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 Company has been granted anextension, until May 30, 2001, to answer, appear, move or otherwise respond to thelawsuit. The action relates to alleged  damages resulting from an agreement to builda prototype composite fiber shelter by Omega Shelters, which prototype was subject to theCompany's receipt and acceptance. The agreement at issue also contains an arbitrationprovision. In the complaint  plaintiff's state that Omega Shelters' immediatepredecessor, Yellow Creek Lodges, Inc., was forced into bankruptcy in the United StatesBankruptcy Court for the Northern District of Mississippi. The Company believes that ithas meritorious defenses to the action, disputes the allegations, and intends to vigorously defend the lawsuit. While the action seeks damages of $2.2 million, we believethat the claim for damages is wholly without merit and that the Company will not bematerially adversely effected by the outcome of the proceeding. Neither can we determineat the date of this Quarterly Report what impact the bankruptcy proceeding involvingplaintiff corporation's predecessor will have on this action.

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

In July 2000, holders of stock options exercised the options andacquired 11,542 restricted shares of common stock at an aggregate exercise price of$10,000. 

In July 2000, we awarded 1,000 restricted shares of common stock tothree unaffiliated individuals as a non-cash prize in connection with a logo contest heldfor local area students.

In August 2000, holders of stock options exercised the options andacquired 115,423 restricted shares of common stock at an aggregate exercise price of$10,000. 

In August 2000, we closed a private placement of 317,500 restrictedshares of common stock for a total purchase price of $635,000 to a private investor. Costsfor this placement was $59,997 which was satisfied by the issuance of 30,000 restrictedshares of common stock. 

In September 2000, we sold 500 shares of Series B Cumulative ConvertiblePreferred Stock to our president, director and principal shareholder for a purchase priceof $1,000 per share. Each share of the Series B Cumulative Convertible Preferred Stock wasinitially convertible into 500 restricted shares of  common stock commencing July 1,2001, and was entitled to an annual dividend of $60. Effective December 28, 2000 theconversion ratio was amended from 500 restricted shares of common stock to 2000 restrictedshares.

In September 2000, the Company closed the private placement of 150,000restricted shares of common stock for a total purchase price of approximately $442,125.The Company paid certain fees associated with this placement through the issuance of 3,000restricted shares of restricted common stock and the payment of $13,700 in cash. The termsof the transaction provided that the Company file a registration statement under the Actwith SEC for the resale of the 150,000 shares by October 5, 2000. Delays in filing theregistration statement with the SEC after October 5, 2000 required the Company to make apayment in cash or common stock based upon the closing bid price of our shares on theOTC:BB as of the end of each fifteen day period. The Company filed a registrationstatement on Form S-1 and issued 22,225 restricted shares of common stock for said filingdelays. The registration statement was declared effective on January 31, 2001, includingthe shares issued due to the delay in filing. 

In December 2000, the Company sold 326 additional shares of Series BCumulative Convertible Preferred Stock to the Company's president, director and principalshareholder for a purchase price of $1,000 per share. 

In December 2000, holder of stock optionsexercised an option to purchase 15,000 restricted shares of common stock for an anaggregate exercise price of $1,305 pursuant to an amended option agreement dated December2000. 

In March 2001, the Company sold 378 additionalshares of Series B Cumulative Convertible Preferred Stock to the Company's president,director and principal shareholder for a purchase price of $1,000 per share. 

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**

(a) Exhibits:
Exhibit No. Document Description99.1Safe Harbor Compliance Statement    for Forward-Looking Statements99.2Registration Statement on Form    Form S-1, file no. 333-51748, declared effective by the SEC on January 31, 2001, and    incorporated by reference herein.
(b) Form 8-K.

During the quarter ended March 31, 2001, we did not file any Reports onForm 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, President and Chief Executive OfficerDated: June 6, 2001Iuka, MS
 

Exhibit 99.1

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR COMPLIANCESTATEMENT FOR FORWARD-LOOKING STATEMENTS

In passing the Private Securities LitigationReform Act of 1995 (the "Reform Act"), 15 U.S.C.A. Section 77z-2 and 78u-5(Supp. 1996), Congress encouraged public companies to make "forward-lookingstatements" by creating a safe harbor to protect companies from securities lawliability in connection with forward-looking statements. North American DataCom, Inc. (the"Company") intends to qualify both its written and oral forward-lookingstatements for protection under the Reform Act and any other similar safe harborprovisions.

"Forward-looking statements" aredefined by the Reform Act. Generally, forward-looking statements include expressedexpectations of future events and the assumptions on which the expressed expectations arebased. All forward- looking statements are inherently uncertain as they are based onvarious expectations and assumptions concerning future events and they are subject tonumerous known and unknown risks and uncertainties which could cause actual events orresults to differ materially from those projected. Due to those uncertainties and risks,the investment community is urged not to place undue reliance on written or oralforward-looking statements of the Company. The Company undertakes no obligation to updateor revise this Safe Harbor Compliance Statement for Forward-Looking Statements (the"Safe Harbor Statement") to reflect future developments.**** |
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