UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report(Date of Earliest Event
Reported): March 23, 2000
FON DIGITIAL NETWORK, INC. FORMERLY DOING
BUSINESS
As "MERCURY CAPITAL CORP."
COLORADO 0-25519 84-0644739
(State or other (Commission File IRS Employer
jurisdiction of Number) I.D. No.)
incorporation)
2290 Lee Rd.
Winter Park, FL 32789
(Address of principal (Zip Code)
executive offices)
(407) 702.2000
Registrant's telephone number, including
area code:
Mercury Capital Corporation
5770 South Beech Ct.
Greenwood Village, CO 80121
(303) 221. 7376
(Former name, address and telephone number)
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
(a) Pursuant to an Exchange Agreement (the "Exchange Agreement")
dated as of March 23, 2000 between Mercury Capital Corp.
("Mercury"), a Colorado corporation, and FON Digital
Network, Inc., a Colorado corporation ("FDNI" or the "Company")
all of the outstanding shares of common stock of Mercury were
exchanged for 1,250,000 shares of common stock of FDNI in a
transaction in which FDNI became the parent corporation of Mercury.
The Exchange Agreement was adopted by the unanimous
consent of the Board of Directors of Mercury and approved
by the consent of the shareholders of Mercury on
March 15, 2000. The Exchange Agreement was adopted
by the unanimous consent of the Board of Directors of
FDNI on March 11, 2000. No approval of the
shareholders of FDNI is required under applicable state
corporate law.
Prior to the exchange, Mercury had 4,000,000 shares of
common stock outstanding which shares were exchanged
for 1,250,000 shares of common stock of FDNI. By
virtue of the exchange, FDNI acquired 100% of the issued
and outstanding common stock of Mercury.
Prior to the effectiveness of the Exchange Agreement,
FDNI had an aggregate of 44,781,005 shares of common
stock, par value $.001 issued.
Upon effectiveness of the merger, FDNI had an aggregate of
46,031,005 shares of common stock outstanding.
The officers of FDNI continue as officers of FDNI subsequent
to the Exchange Agreement. See "Management" below. The
officers, directors, and by-laws of FDNI will continue without
change.
A copy of the Exchange Agreement is attached hereto as an
exhibit. The foregoing description is modified by such
reference.
(b) The following table sets forth certain information regarding
beneficial ownership of the common stock of FDNI as of
March 23, 2000, (prior to the issuance of 1,250,000 shares
pursuant to the Exchange Agreement) by:
- - each person or entity known to own beneficially more than
5% of the common stock or 5% of the preferred stock;
- - each of FDNI's directors;
- - each of FDNI's named executive officers; and
- - all executive officers and directors of FDNI as a group.
Name and address of Amount & Nature of
Title of Class Beneficial Owner (1) % Beneficial Ownership
______________ ____________________ ____ ____________________
COMMON STOCK JAMES STANLEY
CEO, CHAIRMAN OF BOARD 3.3% 1,500,000
FRANKLIN MOORE
VP, DIRECTOR 3.3% 1,500,000
WAYNE BOOTH
DIRECTOR 2.6% 1,200,000
ROBERT HANRAHAN
DIRECTOR .054% 25,000
MARK SILJANDER
DIRECTOR .054% 25,000
JIM MORRELL
PRESIDENT 3.3% 1,500,000
COLIN CAVE
CFO 1.3% 600,000
Total 14% Ownership 6,325,000
MARY ANN EVANS 14.12% Ownership 6,500,000
1. Except as otherwise set forth, the address for each of
these shareholders is c/o FON Digital Network, Inc.,
2290 Lee Rd., Winterpark, FL 32789.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The consideration exchanged pursuant to the Exchange
Agreement was negotiated between Mercury and FDNI.
In evaluating FDNI as a candidate for the proposed acquisition,
Mercury used criteria such as the value of the assets of FDNI,
its present stock price as set forth on the over the counter
bulletin board, its internet e-commerce business and other
anticipated operations, and FDNI's business name and reputation.
Mercury determined that the consideration for the merger was
reasonable.
FDNI intends to continue its historical businesses and proposed
businesses as set forth more fully immediately below.
BUSINESS
SUMMARY
FON Digital Network, Inc. is an emerging provider of
advanced, integrated telecommunications services primarily
to residential and small business customers. The Company offers
local, long distance, prepaid and operated assisted
telephone services integrated with enhanced communications
features.
The Company business strategy takes advantage of the rapidly changing
telecommunications regulatory environment. With the
passage of the Telecommunications Act of 1996 along with
recent regulatory and court decisions, The Company has gained
access to unbundled network elements of the incumbent
local telephone service providers, which, taken together,
are known as the "unbundled network element platform" or
"UNE-P." Access to these unbundled network elements, in
combination with The Company's industry standard technology and advanced
communications network, enables it to provide cost-effective
local and long distance telephone services with enhanced features.
FDNI's business strategy also reflects a migration or transformation
from a CLEC into an Integrated Communications Provider (ICP)
offering broadband data, voice and video telecommunications
services primarily to small and medium-sized businesses as well
as residential customers in third and fourth tier markets in the
United States. Additionally, The Company offers
Voice over Internet (VoIP), high-speed data and Internet
service, principally utilizing Digital Subscriber Line (DSL)
technology. The Company strives to serve effectively its
primary markets by offering a single source for competitively
priced, high quality, customized telecommunications services.
FDNI Digital Network, Inc. was incorporated on
August 5, 1999, in the State of Florida and is a wholly
owned subsidiary of FDNI. FDNI Digital is a facility
based carrier that provides highly automated network
facilities for wholesale and retail telecommunications
services in the USA and all other international markets.
FDNI Digital holds an Federal Communication
Commission 214 License, has been issued CIC code
10-10-813 and has regulatory approval to operate in all
fifty (50) states.
FDNI Digital envisions a near term plan offering a world
wide competitive long distance rate plan using internet
and wireless technology. This plan will offer a "flat rate,"
unlimited usage contract.
FDNI Digital employs a partially owned and partially
leased ensemble of switches and facilities. FDNI Digital
uses applications and specialized services such as (a) Switched
Network Facilities; (b) Switched Services, including Prepaid,
"1+" and "0+" services; and (c) Applications including
interactive voice response, voice over IP, and virtual office
products and services.
American Telecom, Inc. ("American") was founded
in 1992 and purchased by FDNI in April 1999.
American provides interstate and international service
and is certified as an intrastate carrier in 47 states and
Washington, D.C. American provides long distance,
operator assisted and "1+" services to both Bell
Systems and privately held pay phone companies, as
well as direct dial and toll free services to residential
customers and businesses, such as those specializing
in condominiums, hotel and health care industries.
American's web site address is "www.Americantele.com"
COMPETITION
The United States is one of the most competitive
de-regulated long distance markets in the world.
Competition is based upon pricing, customer service,
network quality, and the ability to provide value-added
services. AT&T is the largest supplier of long distance
services, with MCI WorldCom and Sprint being the
next largest providers. Currently, there are numerous
competitors and limited barriers to entry into this market.
Prior to 1985, AT&T was the monopolistic provider
of long distance telephone service for U.S. customers.
In 1984, a successful anti-trust suit brought about by
the United States initiated the break-up of AT&T. Since
1985 new firms have entered the international long distance
business, reducing AT&T's share of this market. According
to Federal Communications Commission reports, in 1997,
AT&T's long distance telephone revenues were two and
one-half times their 1985 values. International telephone market
revenues for the entire industry have grown even faster
during this time. Consequently, AT&T's share of the market
has fallen to 44%. At the same time, MCI has gathered a
22% share of this market followed by Sprint with 8%.
WorldCom had no international revenues as recently as
1985, but since its merger with MCI, the combined international
market share it controls is now 26%. The proposed MCI
WorldCom - Sprint merger would result in 37% of the U.S.
telecommunication market attributed to these combined
companies and generate $50 billion in revenue.
In mid 1998, market analysts forecasted growth in
international competition. According to Atlantic ACM's
fifth annual study of the U.S. long distance services market,
the international business segment of the retail switched
long distance services market will grow at 12 percent through
2000, twice the rate of any other segment of this industry.
The factors driving international telecom use by businesses
are two fold: (1) the current alignment of opportunities in
deregulating foreign markets, and (2) the need for
businesses to operate and compete in increasingly global markets.
Insight Research Corp., a respected source for
telecommunications market research reports, and
competitive analysis, collaborates forecast assumptions.
It reported that long distance revenue will grow at a
compound rate of over 13% through 2002. By then,
revenue from resale services will still be growing at
9.5% annually, spurred by lowered access charges,
international deregulation and reduced consumer prices.
GOVERNMENT REGULATION
The Company's provision of communications services
is subject to government regulation. Federal law regulates
interstate and international telecommunications, while states
have jurisdiction over telecommunications that originate
and terminate within the same state. Changes in existing
policies or regulations in any state or by the FCC could
materially adversely affect the Company's financial
condition or results of operations, particularly if those policies
make it more difficult for the Company to obtain service from
long distance companies at competitive rates, or otherwise
increase the cost and regulatory burdens of marketing
and providing service. There can be no assurance that the
regulatory authorities in one or more states or the FCC will not
take action having an adverse effect on the business or financial
condition or results of operations of the Company.
Federal
The Company is classified by the FCC as a
nondominant carrier. After the recent reclassification
of AT&T as nondominant, only the LECs are classified
as dominant carriers among domestic carriers. Because
AT&T is no longer classified as a dominant carrier, certain
pricing restrictions that formerly applied to AT&T have been
eliminated, which could make it easier for AT&T to compete
with the Company for low volume long distance subscribers.
The FCC generally does not exercise direct oversight over
charges for service of nondominant carriers, although it
has the statutory power to do so. Nondominant carriers
are required by statute to offer interstate services under
rates, terms, and conditions that are just, reasonable
and not unreasonably discriminatory. The FCC has the
jurisdiction to act upon complaints filed by third parties,
or brought on the FCC's own motion, against any common
carrier, including nondominant carriers, for failure to
comply with its statutory obligations. Nondominant
carriers are required to file tariffs listing the rates, terms
and conditions of service, which are filed pursuant to
streamlined tariffing procedures. The FCC also has the
authority to impose more stringent regulatory requirements
on the Company and change its regulatory classification
from nondominant to dominant. In the current regulatory
atmosphere, the Company believes, however, that the
FCC is unlikely to do so.
The FCC imposes only minimal reporting requirements
on nondominant resellers, although the Company is subject
to certain reporting, accounting and record-keeping obligations.
Both domestic and international nondominant carriers,
including the Company, must maintain tariffs on file with
the FCC.
At present, the FCC exercises its regulatory authority to set rates
primarily with respect to the rates of dominant carriers, and it has
increasingly relaxed its control in this area. Even when AT&T was
classified as a dominant carrier, the FCC most recently employed a
"price cap" system, which essentially exempted most of AT&T's
services, including virtually all of its commercial and 800
services, from traditional rate of return regulation because the FCC
believes that these services were subject to adequate competition.
State
The Company is subject to varying levels of regulation in the states
in which it currently anticipates providing intrastate
telecommunications services. The vast majority of the states
require the Company to apply for certification to provide intrastate
telecommunications services, or at least to register or to be found
exempt from regulation, before commencing intrastate service. The
vast majority of states also require the Company to file and
maintain detailed tariffs listing its rates for intrastate service.
Many states also impose various reporting requirements and/or
require prior approval for transfers of control of certified
carriers, corporate reorganizations, acquisitions of
telecommunications operations, assignments of carrier assets,
including subscriber bases, carrier stock offerings and incurrence
by carriers of significant debt obligations. Certificates of
authority can generally be conditioned, modified, canceled,
terminated or revoked by state regulatory authorities for failure to
comply with state law and the rules, regulations and policies of the
state regulatory authorities. Fines and other penalties, including
the return of all monies received for intrastate traffic from
residents of a state, may be imposed for such violations. In
certain states, prior regulatory approval may be required for
acquisitions of telecommunications operations.
As the Company expands its efforts to resell long distance services,
the Company will have to remain attentive to relevant federal and
state regulations. FCC rules prohibit switching a customer from one
long distance carrier to another without the customer's consent and
specify how that consent can be obtained. Most states have consumer
protection laws that further define the framework within which the
Company's marketing activities must be conducted. The Company
intends to comply fully with all laws and regulations, and the
constraints of federal and state restrictions could impact the
success of direct marketing efforts.
The Company is not currently subject to any State or Federal
regulation with respect to its Internet related services. However,
there can be no assurances that the Company will not be subject to
such regulations in the future. Additionally, the Company is not
aware of any pending legislation that would have a material adverse
effect on the Company's operations.
SALES AND MARKETING
The U.S. market for international outbound minutes has
grown at a greater rate than the rest of the long distance
market. U.s. outbound traffic was estimated at 19 billion
minutes in 1996. In 1997, U.S. carriers billed $15 billion
(U.S.) for 23 billion minutes. Forecasters predict that the
international business segment of the retail switched long
distance services market will grow at 12 percent through
2000, twice the growth rate of any other segment of this
industry. The current North American environment offers a lucrative
opportunity for the provision of telecommunication services
to discrete ethnic communities. With the changing regulatory
environment and the existence of fast growing markets, an
excellent opportunity exists to move quickly and capture a
significant share of the market. For example, during the 1990s,
the number of documented and un-documented aliens residing in the
United States dramatically increased. This increased the volume of
international calling originating from the U.S. From 1994
to 1996 calls to international destinations grew at a rate
of approximately 18%. In 1996, international calls
originating within the U.S were estimated at 19 billion
minutes. Margins on international telecommunications services
remain high. Although prices will drop for international
services, FDNI's ability to obtain the low overseas network
prices will keep margins for these services higher than for
services provided in the domestic long distance marketplace.
FDNI'S BACKGROUND
On May 27, 1987, FDNI was incorporated by the Secretary
of State for the State of Colorado as Ultrafit Centers, Inc.
The Company was administratively dissolved on November 1, 1997,
by the Secretary of State. On January 6, 1999, the Company
was reinstated after an Application for Reinstatement was
filed with the Secretary of State. That office filed issued
a Certificate of Good Standing for the Company on
February 18, 1999. Also on February 18, 1999, the Company
changed its name from Ultrafit Centers, Inc. to FDN, Inc.
On or about November 18, 1998, the Company undertook to
issue securities in a private placement exempt from the
registration provisions of the Securities Act of 1933 in
reliance upon Sections 3(a) and 4(2) and Rule 504 of
Regulation D. Under this offering, on February 8, 1999,
approximately 84,000 shares of the Company's common stock
was issued to two investors. As part of this offering, on
November 18, 1998, the Company issued approximately 150,000 shares of its
common stock to three investors. On or about July 17, 1998, the
Company undertook to issue securities in a private placement exempt from
the registration provisions of the Securities Act of 1933 in reliance upon
Sections 3(a) and 4(2) and Rule 504 of Regulation D. Under
this offering, on November 1, 1998, approximately 450,000
shares of the Company's common stock was issued to one
investor. This offering was terminated by the adoption of a
Resolution of Board of Directors on November 16, 1998. On
September 22, 1998, the Company's Board of Directors
authorized by its unanimous consent a 10 for 1 reverse stock
split. This reduced the number of issued shares outstanding
by ninety percent in that for every ten shares outstanding,
new certificates representing one share would be issued.
On February 23rd 1999 FON Digital Network Inc.
became a wholly owned subsidiary of FDN, Inc. (formerly
Ultrafit Centers, Inc.).
On March 24 1999 the shareholders that were on record
for Ultrafit Centers, Inc. as at March 22 1999 received a
2 for 1 stock split which increased their share holdings
from 1,386,307 shares to 4,586,322 shares.
RESEARCH AND DEVELOPMENT
The Company has not spent any measurable time on research and
development activities. EMPLOYEES FDNI has 21 persons working for it
who are either full time employees or contract workers.
FACILITIES
Effective August 5, 1998, the Company began
leasing approximately 3,900 square feet of administrative
office space in Winter Park, Florida at a rate of
$5,500 per month. This facility serves as the Company's
headquarters and primary place of business. The lease
expires on July 1, 2002.
On January 21st, 2000, the Company entered into a
3 year lease at 8th Ave. in New York, NY for a co-location
center to house their Excel Tandem Switching Platform at
a rate of $1,600 per month.
On November 15, 1999, the Company entered into a
five year lease for its call center operations in Liverpool, NY
at a rate of $3,500 for 6 months. After six months the monthly
rate increases to $5,133 per month. On year two, the yearly
lease rate is $63,800, year three, $66,000, year four $68,200
and the final year the total lease rate is $75,400.
MARKET FOR FDNI'S SECURITIES
The Company's common stock is listed for trading on
the Over the Counter Electronic Bulletin Board with a
trading symbol of "FDNI." The Company Articles of
Incorporation authorized it to issue one class of 100,000,000
shares of no par equity securities. On February 20, 1999,
the Company's management authorized and thereafter effected
a two for one stock split, thereby doubling the number of
issued shares outstanding.
MANAGEMENT
James Stanley, Chairman and Chief Executive
Officer of FON Digital Network, Inc.
He joined FDNI in early 1999 and led it through a merger with
UltraFit, a publicly traded company. Mr. Stanley entered the
telecommunications industry with AT&T Corp after graduation from the
University of Virginia. He served on several high
level advisory committees including the Architectural
Network Committee and chaired the Quality of Services
Committee. Most recently, Mr. Stanley was the founder of
Concord Communications, a telecommunications company that began
operations in 1993.
Robert P. Hanrahan, Director. Mr. Hanrahan was elected
To the U.S. House of Representatives in 1972. He represented
The Illinois 3rd Congressional District which encompassed parts
of Chicago and the south suburban area. During his congressional
career Congressman Hanrahan served on the subcommittees of:
Energy, Surface Transportation, Water Resources, Public
Buildings and Grounds, Government Operations, Activities and
Investigations and Review and Oversight.
Dr. Mark Siljander, Director. Mr. Siljander served 15 years
in public office, including three temrs as a Member of the
U.S. Congress. He was appointed by President Reagan as a
U.S. Ambassador (Delegate) to the United Nations. Siljander
has been president of Global Strategies, Inc. since 1986 a
strategic planning, marketing and public relations company.
James (Jim) Morrell President/C.O.O. of
FON Digital Network since December 1999.
As a Master Franchisee for MaxCARE in the State of Florida he built
a residential and commercial service
organization of 80 employees. Mr. Morrell was an Investment
Banker with E.F. Hutton/Shearson Lehman, Paine Webber, Raymond James and
was a Principal in the Capital Markets Group of CoreStates Bank,
now First Union. Mr. Morrell holds Series 7 and 8 (Registered Principal)
NASD Securities Licenses. Jim was a Founding Investor in
FON Digital Network and while engaged in a comprehensive
study of the telecommunications industry acted as a
consultant to the company for 18 months.
Colin C. A. Cave. Chief Financial Officer.
Mr. Cave, a Canadian Chartered Accountant joined the
Company in March of 1999 as Chief Financial Officer.
From 1986 to 1989 Mr. Cave was Vice President Finance
and joint founder of Bydatel Corporation a
US telecommunications company specializing in the
design, manufacturing and marketing of data communication
equipment capable of transmitting data over radio
frequencies. From 1983 to 1986 Mr. Cave was Vice
President Finance/CFO for Greater Gulf Developments
Ltd. a residential and commercial developer. Prior to joining
FDNI, Mr. Cave was President of WaterLief Management Inc.
and Eurofusion International Inc., a group of companies
specializing in international business ventures. From 1990 to 1992,
Mr. Cave was on special assignment as Senior Manager
for Corporate Finance, Europe (Germany) and the Caribbean
(Barbados) for Price Waterhouse.
Franklin Moore, Director.
Mr. Moore currently serves on the board of
Directors of FDNI and has served previously as board member or
Managing Partner of Progressive Technology, Inc.; Progressive
Computer Service and Progressive Paper Products, Inc.
Gary S. Adwar. General Counsel.
In April 1999, Mr. Adwar joined FDNI as General Counsel.
Prior to joining FDNI Mr. Adwar maintained a private
legal practice in Los Angeles. Mr. Adwar received a
Bachelor of Arts degree from the University of Miami in 1984,
and a Juris Doctorate from the Cardozo School of Law in 1987.
He is a member of the New York and California Bars.
Mr. Wayne B. Booth, Director.
Mr. Booth is a graduate of E.C. Glass High School and the Chicago Technical
Institute of Construction and Engineering. He currently owns and acts as
President and CEO of two local businesses: Bat Masonry Company, Inc., a
construction company specializing in masonry construction and Waytec
Electronics Corp., a manufacturer of high tech printed circuit boards for
the electronics and communications industries. Mr. Booth also owns and serves
as the Chairman of the Board of Cummins-Eagle, Inc. (Richmond, VA), which is
a manufacturer of state of the art equipment for wholesale bakeries. He is
Chairman of the board of American Whirlpool Corp. (Hollywood, FL); a
manufacturer of high end Jacuzzis and soaking bath tubs for the hotel and
construction industries. He is a former (1986-1994) member of the
Commonwealth of Virginia Aviation Board. Mr. Booth has served on the
board of First Virginia Bank-Piedmont and Farmers & Merchants Bank
of Amherst and also as incorporator of Jefferson National Bank in
Lynchburg (predecessor via Virginia National Bank & Sovran Bank to Nations
Bank)
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the current directors
and executive officers of FDNI who will remain so with the combined entity,
their principal offices and positions and the date each such person became
a director or executive officer. Our directors and executive officers are
as follows:
Name Age Positions
James Stanley 55 Chairman, Chief Executive Officer Director
James Morrell 46 President
Colin Cave 51 Chief Financial Officer
Franklin Moore 68 Vice President Director
Wayne Booth 64 Director
Robert Hanrahan 63 Director
Mark Siljander 46 Director
EXECUTIVE COMPENSATION Table
JAMES STANLEY CEO, CHAIRMAN OF BOARD $125,000YR
JIM MORRELL PRESIDENT $100,000YR
COLIN CAVE CFO $100,000YR
(a) Option/SAR Grants in Last Fiscal Year (Individual Grants)
The Company currently has no stock option plan in place
and no options have been granted to date.
(b) Aggregated Option/ SAR Exercises and Option/ SAR
Values for last fiscal year:
(c) Long-Term Incentive Plans- Awards in last fiscal year: None
The Company has not otherwise awarded any stock options, stock appreciation
rights or other form of derivative security or common stock or cash bonuses
to its executive officers and directors.
(d) Compensation of Directors
1. Standard Arrangements: The members of the Company's
Board of Directors are reimbursed for actual expenses incurred in
attending Board meetings.
2. Other arrangements: there are no other arrangements.
(e) Employment Contracts, Termination of Employment, and
Change-in-Control Arrangements
The Company's executive officers do not work pursuant to written
employment agreements and draw salaries which were determined by
the Board of Directors and are reviewed annually
CERTAIN TRANSACTIONS
There are no related party transactions to report.
RISK FACTORS
Limited Operating History
The evaluation of FDN is based on a limited operating
history are subject to the risks, expenses and uncertainties
frequently encountered by companies in the early stage of
development in new and rapidly evolving markets. Although The
Company has have experienced revenue growth in recent months,
there can be no assurance that our revenues will continue to
increase. FDNI has not achieved profitability to date, and
anticipates that it will continue to incur net losses for the
foreseeable future. FDNI expects to increase its operating
expenses significantly, expand sales and marketing operations
and continue to develop and extend Telecommunications
and Internet related services. If these expenses exceed revenues,
results of operations and financial condition could be
materially and adversely affected.
The limited operating history of FDNI and the uncertain
nature of the markets addressed by FDNI make the
prediction of future results of operations difficult
or impossible. Therefore, recent revenue growth
should not be taken as indicative of the rate of revenue
growth, if any, that can be expected in the future.
Period-to-period comparisons of results of operations are
not meaningful and should not be relied on for any period
as an indication of future performance. Dependence Upon a Limited
Number Of Suppliers. FDNI currently uses and will continue to use billing
services provided by Telemetrix. Telemetrix is in the
business of providing billing services to the LEC.
There can be no assurance that Telemetrix will continue
to offer billing services on terms acceptable to Management.
Telemetrix may decrease the extent to which its name may
be used on bills for which it provides billing
services. The loss of Telemetrix billing services
could have a material adverse effect on marketing
strategy and retention of existing customers.
Future Capital Needs.
To date, The Company has relied mostly on private funding from
the sale of restricted shares of its Common Stock, conversion
of notes to common stock and short term borrowing to fund our
operations. To date, FDNI has generated little revenue
and has extremely limited cash liquidity and capital resources.
FDNI's future capital requirements will depend on many factors,
including ability to market services successfully,
cash flow from operations, and competing market
developments. Its business plan requires additional
funding beyond the proceeds previously generated from
the sale of our restricted Common Stock. Consequently,
although there are no specific plans or arrangements
for financing, the Company intends to raise additional
funds through private placements, public offerings or
other financings. Any equity financings would result in dilution
to then-existing shareholders. Additionally, sources of debt
financing may result in higher interest expense. Any financing,
if available, may be on unfavorable terms. If adequate funds are
not obtained, FDNI may be required to reduce
or curtail operations. Existing capital resources will not be
adequate to satisfy current operating expenses and capital requirements
for the next full fiscal year. Consequently, Management believes it may
have to secure additional financing in order to develop
FDNI's business plan. There Is a Limited Public Trading Market For
FDNI's Common Stock.
FDNI's Common Stock presently trades on the Over-The-Counter
Electronic Bulletin Board under the symbol FDNI. There can be no
assurance, however, that such market will continue or that
investors will be able to liquidate their shares acquired for the
consideration tendered. There can be no assurance that any other
market will be established in the future. There can
be no assurance that an investor will be able to
liquidate his or her investment without considerable delay,
if at all. The price of Common Stock may be highly volatile.
Additionally, the factors discussed in this Risk Factors section
may have a significant impact on the market price of the shares
received in this exchange. Competition. The long distance
telecommunications industry is highly competitive and affected by
the introduction of new services by, and the market activities of, major
industry participants, including AT&T Corp., MCI/WorldCom,
Sprint Corporation, local exchange carriers such as Bell
Atlantic, and other national and regional inter-exchange
carriers. Competition in the long distance business is
based upon pricing, customer service, billing services
and perceived quality. FDNI competes against various
national and regional long distance carriers that are
composed of both facilities-based providers (those that carry long
distance traffic on their own equipment) and
switchless resellers (those that resale long distance
carried by facilities-based providers) offering essentially the same
services. Several competitors are substantially larger and have
greater financial, technical and marketing resources. Although
Management believes that FDNI has the human and technical Resources
to pursue strategies and compete effectively in this competitive
environment, success will depend upon continued ability to profitably
provide high quality, high value services at prices generally
competitive with, or lower than, those charged by competitors.
FDNI expects to encounter continued competition from major
domestic and international communications companies. In addition,
additional competition may arise due to the enactment of the
Telecommunications Act, the development of new technologies and
increased availability of domestic and international transmission
capacity. A continuing trend toward business combinations and alliances
in the telecommunications industry may create significant new
competitors, which may have financial, personnel and other resources
significantly greater than those of FDNI. Other potential competitors
include cable television companies, wireless telephone
companies, internet service providers, electric utilities,
microwave carriers and private networks of large end
users. The telecommunications industry is in a period of rapid
technological evolution, marked by the introduction of
new product and service offerings and increasing transmission
capacity for services similar to those provided by FDNI. Future
product and service development will be important to maintain a
competitive position there is no assurance that The Company will be
able to serve funding to meet necessary expenditures to
develop and provide such products and services. Concentration
Of Stock Ownership.
As of December 31, 1999, the present
directors and executive officers, and their respective
affiliates beneficially owned approximately 14% of
FDNI's outstanding common stock. As a result of their ownership,
the directors and executive officers and their respective
affiliates collectively are able to significantly influence
all matters requiring shareholder approval, including the
election of directors and approval of significant corporate
transactions. This concentration of ownership may also
have the effect of delaying or preventing a change
in control of FDNI.
Dependence On Management.
FDNI's success depends, to a significant extent, upon
certain key employees and directors. The loss of
services of one or more of these employees or director
could have a material adverse effect on its business.
In addition, there exists a substantial need for additional
qualified management and marketing personnel. FDNI's
future success will also depend in part upon its ability to
attract, retain and motivate qualified personnel.
There can be no assurance that The Company will attract and
retain such personnel. Competition for such personnel is intense.
FDNI currently does not maintain a policy of key man life insurance on
any employees. Maintenance Of Customer Database. FDNI customers are not
obligated to purchase any minimum usage amount and can discontinue
service, without penalty, at any time. There can be no assurance
that customers will continue to buy their long distance telephone
service through FDNI. In the event that a significant portion of
the customers decide to purchase long distance service from another
long distance service provider, there can be no assurance that FDNI
will be able to replace its customer base from other sources. Loss
of a significant portion of customers would have a material
adverse effect on our results of operations and financial condition.
A high level of customer attrition is inherent in the long
distance industry, and revenues are affected by such
attrition. Attrition is attributable to a variety of factors,
including termination of customers for nonpayment and
the initiatives of existing and new competitors as they engage
in, among other things, national advertising campaigns,
telemarketing programs and the issuance of cash or
other forms of incentives. Lack Of Control Over Marketing Activities.
Certain marketing practices, including the methods
and means to convert a customer's long distance telephone
service from one carrier to another, have recently
been subject to increased regulatory review at both the
federal and state levels. This increased regulatory
review could affect adversely the possible future acquisition
of new business from other resellers. FDNI's marketing activities
mandate compliance with applicable state and federal
regulations. FDNI is unable to predict the effect of such increased
regulatory review. Government Regulation. FDNI's provision of
communications services is subject to government regulation. Federal
law regulates interstate and international telecommunications,
while states have jurisdiction over telecommunications that originate
and terminate within the same state. Changes in existing policies
or regulations in any state or by the Federal Communications Commission
("FCC") could have a material adverse effect on financial
conditions or results of operations, particularly if those
policies make it more difficult for The Company to obtain service
from long distance companies at competitive rates, or otherwise
increase the cost and regulatory burdens of marketing and providing service.
There can be no assurance that the regulatory
authorities in one or more states or the FCC will not take
action having an adverse effect on the business or financial
condition or results of operations.
FDNI is subject to regulation by the FCC and by various
state public service and public utility commissions as a
non-dominant provider of long distance services. FDNI is
required to file tariffs for interstate and international
service with the FCC, which tariffs are presumed
lawful and become effective on one day's notice. FDNI is
also required to file tariffs or obtain approval for intrastate
service provided in most of the states in which
markets long distance services. By engaging in direct
marketing to end users, FDNI will be subject to applicable
regulatory standards for marketing activities and the
increased FCC and state attention to certain marketing
practices may become more significant.
Adverse Effect Of Rapid Technological Change And Service.
The telecommunications industry has been characterized
by rapid technological change, frequent new service
introductions and evolving industry standards. FDNI's
future success will depend on its ability to
anticipate such changes, and to offer services on
a timely basis that meet these evolving standards.
There can be no assurance that FDNI will have sufficient
resources to make necessary investments or to introduce
new services that would satisfy an expanded range of
end user needs.
Expansion Into New Business Activities.
FDNI will market our long distance services directly
to end users. Such direct marketing will increase costs
as new employees are hired, provide increased customer
support and collection services, and acquire additional
equipment. FDNI is required to comply with additional
regulatory standards for direct marketing of
telecommunications services.
Protection Of Proprietary Information.
Currently, FDNI does not hold patents or trademarks on any
names, products or processes under development. FDNI
treats technical data as confidential and rely on
internal nondisclosure safeguards, as well as on laws
protecting trade secrets, to protect our proprietary information.
There can be no assurance that these measures will adequately protect
the confidentiality of our proprietary information or that
others will not independently develop products or technology
that are equivalent or superior. FDNI may receive in the future,
communications from third parties asserting that our products
infringe the proprietary rights of third parties.
There can be no assurance that any such claims would not result
in protracted and costly litigation, having a materially adverse
and negative effect on financial results.
Difficulty Of Planned Expansion; Management Of Growth.
FDNI plans to expand its level of operations. Operating
results will be adversely affected if net sales do not
increase sufficiently to compensate for the increase in
operating expenses caused by this expansion. In addition,
planned expansion of operations may cause significant strain
on management, technical, financial and other resources.
To manage growth effectively, FDNI must continue to improve and expand
existing resources and management information systems and
must attract, train and motivate qualified managers and employees.
There can be no assurance, however, that will successfully
be able to achieve these goals. If The Company manages its planned
growth effectively, operating results will be adversely
affected.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not Applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not Applicable
ITEM 5. OTHER EVENTS
Successor Issuer Election.
Upon execution of the Exchange Agreement and delivery
of the FDNI shares to the shareholders of Mercury, pursuant
to Rule 12g-3 (a) of the General Rules and Regulations of
the Securities and Exchange Commission, FDNI became the
successor issuer to Mercury for reporting purposes under
the Securities Exchange Act of 1934 and elected to report
under the Act effective March 29, 2000.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
As part of the consummation of the transaction described above,
John E. Dhonau, the sole officer and director of Mercury Capital
Corporation, tendered his resignation from all positions held
effective March 29, 2000.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of FDNI for the fiscal year ending
December 31, 1998 and for the nine months ended December 31,
1999, are not included herein. In addition, pro forma financial
statements reflecting the combined financial statements of
Mercury and FDNI at September 30, 1999, are not included herein.
The Registrant intends to amend this Form 8-K within sixty (60)
days of the date of this filing to include the financial statements
identified above.
SIGNATURESPursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned
hereunto duly authorized.
/s/ James Stanley /s/James Stanely
President
Date:
March 29, 2000