<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---------
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
---------
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to __________
Commission file number 000-25229
---------
SKYNET HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 65-1480559
------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6165 Barfield Road, Suite 200, Atlanta, GA 30328
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 847-3120
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
-------
As of December 13, 1999, the Registrant had issued and outstanding
20,224,857 shares of Common Stock, $.0001 par value per share.
================================================================================
<PAGE>
SKYNET HOLDINGS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
June 30, 1999 and September 30, 1999 3
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1998 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1998 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
Page 2
<PAGE>
PART 1 - FINANCIAL INFORMATION
------------------------------
Item 1 - Financial Statements
SKYNET HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1999* 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 1,568,529 $ 532,547
Receivables, net 15,491,457 16,419,503
Prepaid expenses and other 1,300,738 1,580,506
----------------- -----------------
Total current assets 18,360,724 18,532,556
Property and equipment, net 8,294,361 6,603,781
Intangible and other assets, net 17,860,076 18,819,826
----------------- -----------------
$ 44,515,161 $ 43,956,163
================= =================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 16,994,751 $ 17,225,312
Short-term debt (Note 3) 9,280,153 9,914,722
Other accrued liabilities 8,860,391 8,560,995
Current portion of long-term debt 530,509 387,347
----------------- -----------------
Total current liabilities 35,665,804 36,088,376
----------------- -----------------
Long-term debt, net of current portion 859,723 1,821,541
----------------- -----------------
Stockholders' Equity
Convertible preferred stock, $.0001 par value,
5,000,000 shares authorized; 2,852,368,
shares issued and outstanding
(liquidation preference $11,298,000) 285 285
Common stock, $.0001 par value, 50,000,000 shares
authorized; 19,504,618 and 19,774,857 shares issued and
outstanding. 1,950 1,978
Additional paid-in capital 14,326,215 14,777,078
Foreign currency translation adjustment 123,577 29,738
Accumulated deficit (6,462,393) (8,762,833)
----------------- -----------------
Total stockholders' equity 7,989,634 6,046,246
----------------- -----------------
$ 44,515,161 $ 43,956,163
================= =================
</TABLE>
* Derived from audited financial statements.
Page 3
<PAGE>
SKYNET HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
September 30,
--------------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Revenues $ 8,069,945 $ 36,223,012
Cost of sales 5,042,712 27,259,252
-------------- --------------
Gross profit 3,027,233 8,963,760
-------------- --------------
Operating expenses
Compensation 1,863,960 3,008,596
Occupancy costs 134,551 247,713
Communication expense 223,271 316,917
Other operating expenses 1,116,944 6,881,609
-------------- --------------
Total operating expenses 3,338,726 10,454,835
-------------- --------------
Loss from operations (311,493) (1,491,075)
Other expense (46,732) (810,913)
-------------- --------------
Loss before income taxes (358,225) (2,301,988)
Income (taxes) benefit (3,080) 1,548
-------------- --------------
Net loss $ (361,305) $ (2,300,440)
============== ==============
Basic loss per common share $ (0.05) $ (0.12)
============== ==============
Diluted loss per common share $ (0.05) $ (0.12)
============== ==============
Basic weighted average number
of common shares outstanding 7,451,500 19,646,544
============== ==============
Diluted weighted average number
of common shares outstanding 7,451,500 19,646,544
============== ==============
</TABLE>
Page 4
<PAGE>
SKYNET HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------------------------
1998 1999
(Increase (decrease) in cash and
cash equivalents)
--------------------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (361,305) $(2,300,440)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 62,393 476,987
Changes in operating assets and liabilities,
net of business acquired:
Receivables 600,371 (928,046)
Prepaid expenses and other assets (325,348) (279,768)
Accounts payable (1,423,431) 230,561
Accrued expenses and other liabilities 414,877 (299,396)
----------- -----------
Net cash used in operating activities (1,032,443) (3,100,102)
----------- -----------
Cash flows from investing activities
Purchase of property and equipment (91,575) (278,734)
Increase in intangibles and other (40,965) (1,030,523)
Proceeds from sale of land and building 0 1,660,865
----------- -----------
Net cash provided by (used in) investing activities (132,540) 351,608
----------- -----------
Cash flows from financing activities
Proceeds from issuance of notes 950,538 818,656
Bank borrowings 360,555 1,553,163
Debt repayments (237,077) (918,594)
Capital stock issued for financing cost 0 353,126
Net cash provided by financing activities 1,074,016 1,806,351
----------- -----------
Effect of foreign currency
translation adjustments (60,704) (93,839)
----------- -----------
Net decrease in
cash and cash equivalents (151,671) (1,035,982)
Cash and cash equivalents,
beginning of period 337,314 1,568,529
----------- -----------
Cash and cash equivalents, end of period $ 185,644 $ 532,547
=========== ===========
</TABLE>
Page 5
<PAGE>
SKYNET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General
The consolidated financial statements include the accounts of Skynet
Holdings, Inc. (the "Company") and its majority-owned subsidiaries. All
significant inter-company transactions and balances have been eliminated. The
accompanying unaudited condensed consolidated financial statements were prepared
on the accrual basis of accounting. In the opinion of management, all
adjustments (consisting only of normal, recurring accruals) which are necessary
for a fair presentation of the financial results for the periods presented have
been made.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, were condensed or omitted. Accordingly, these condensed
consolidated financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended June 30, 1999.
Statements included herein, which are not historical facts, are forward-
looking statements. These statements are based upon information available to
the Company on the date hereof. Inherent in these statements are a variety of
risks and other factors, both known and unknown, and which are described more
fully under the caption "RISK FACTORS" included in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1999, and which may cause the
Company's actual results to differ materially from those in forward-looking
statements. Accordingly, the realization of forward-looking statements is not
certain, and all such statements should be evaluated based upon the applicable
risks and uncertainties affecting the Company. Consequently, the results of
operations for the three months ended September 30, 1999 are not necessarily
indicative of operations expected for the full year ending June 30, 2000.
Note 2. Acquisitions
In July 1999, the Company was informed that an administrative receiver was
appointed for FOB's largest customer. The receivable from this customer as of
June 30, 1999 amounted to approximately $1.25 million. As a result, FOB was
unable to meet its own obligations and a liquidator was appointed and took
control of FOB. Accordingly, the acquisition of FOB was accounted for under the
equity method of accounting, since control of FOB was temporary and the Company
fully reserved its investment in and advances to FOB in the amount of
$1,598,210.
Note 3. Short-Term Debt
Pony Debt
In May and October 1998, PONY and Courier Express, Inc., a subsidiary of
PONY, respectively, entered into loan and security agreements (the "Credit
Agreements") with NationsCredit Commercial Corporation through its NationsCredit
Commercial Funding Division, predecessor in interest to Bank of America
Commercial Finance Corporation, through its Commercial Funding Division ("Bank
of America") which provide for borrowings up to $9 million under senior
revolving credit facilities (the "Credit Facilities"), subject to certain
borrowing limits, as defined in the Credit Agreements. Amounts outstanding
under the Credit Facilities mature May 28, 2002 and bear interest at the prime
rate (8.0% at June 30, 1999) plus 1% with interest payable monthly. The Credit
Facilities specify a commitment fee of .25% per annum to be applied to the
unused portion of the Credit Facilities, payable monthly in arrears. As of
September 30, 1999, approximately $4.4 million was outstanding under the Credit
Facilities.
Page 6
<PAGE>
Borrowings under the Credit Agreements are secured by substantially all of
PONY's and Courier Express' assets, whether tangible or intangible, now owned or
in existence or hereafter acquired or arising. The Credit Agreements set forth a
number of covenants, which among other things limit the Company's ability,
without prior written consent, to enter into a merger or any other consolidation
transaction, acquire any assets except in the ordinary course of business, incur
debt, incur liens, make investments, repurchase stock, or make dividend or other
distributions. In consideration for Bank of America giving its consent to the
acquisition of PONY, (i) Fleet Acquisition Corp., Inc., a subsidiary of the
Company, became a party to the Credit Agreements and pledged certain of its
assets as additional collateral for the obligations under the Loan Agreement,
and (ii) the Company entered into a guaranty agreement with Bank of America
whereby the Company absolutely and unconditionally guarantees to Bank of America
the payment and performance of all now existing and hereafter arising
obligations, liabilities and indebtedness to Bank of America.
On September 29, 1999, Bank of America notified PONY that certain events of
default were committed by PONY under the Credit Agreements relating to failure
to deposit all checks into the blocked bank account and failure to pay certain
payroll taxes on a timely basis and accordingly, will charge interest at the
default rate as permitted by the Agreements. On October 6, 1999, Bank of
America notified PONY that the bank would not enforce its rights under the
Agreements through December 4, 1999, which forbearance was subsequently extended
to December 10, 1999. On December 8, 1999, PONY and Bank of America reached an
agreement whereby the lender agreed to (i) continue to forbear from exercising
any remedies available to it on account of the previously-declared defaults
under the Credit Agreements until March 8, 2000, and (ii) waive all previously-
declared defaults upon Bank of America's receipt of a payment by PONY of
$1,000,000 (the "Paydown") on the amount outstanding under the Credit
Agreements. The Paydown must be made by March 8, 1999. Until PONY makes the
Paydown, PONY will be required to make periodic payments of a forbearance fee
which could total $100,000 depending on when the Paydown is ultimately made.
Once the Paydown is made, PONY will have no further liability for the
forbearance fee. Also, upon the payment by PONY of the Paydown, the Credit
Agreements will be amended to (x) reduce the credit line available to PONY to
$3,000,000; (y) reset the interest rate for loans and advances under the Credit
Agreements to the prime rate of interest plus 3.0% per annum; and (z) revise the
calculation of any early termination fee payable by PONY upon the early
termination of the Credit Agreements to provide for the calculation of any such
fee on the basis of the maximum loan facility under the Credit Agreements on the
date of such termination.
Short-Term Debt - Foreign
A foreign subsidiary of the Company has a financing agreement with a bank
in London. The agreement provides borrowing for the subsidiary based on 75% of
customer receivables less than 90 days old up to a maximum of $1,700,000. The
subsidiary pays an administrative charge of .2% plus interest at the bank's base
rate (5.25% at June 30, 1999) plus 2.25%. Borrowings under the agreement
amounted to $870,352 and $1,096,865 at June 30, 1999 and September 30, 1999.
On August 2, 1999, Pearlgold Pty. Ltd. (an entity affiliated with a
director of the Company) loaned the Company $687,675 pursuant to the terms of
unsecured promissory note from the Company. The loan bears interest at the rate
of 10% per annum and is payable on demand. In conjunction with this loan, the
Company issued to the Lender 49,013 shares of its Common Stock and paid a
financing fee of $32,675.
Founders Loan
On June 3, 1999, the Company completed a loan agreement with Founders
Equity Group, Inc. providing for a loan in the original principal amount of
$3,000,000 that was originally due and payable on October 1, 1999 unless
extended (the "Founders Loan"). The Founders Loan bears interest at the rate of
Page 7
<PAGE>
10% per annum. The Founders Loan can be converted into 600,000 shares of the
Company's common stock plus warrants to purchase 375,000 shares of common stock
at an exercise price of $5.00 per share.
In conjunction with the Founders Loan, the Company issued to the lenders
three-year warrants to purchase 375,000 shares of the Company common stock at an
exercise price of $5.00 per share. In conjunction with the placement of the
financing, the Company paid to a financial advisor a facilitation fee of
$150,000 and three-year warrants to purchase 75,000 shares of the Company's
Common Stock at an exercise price of $5.00 per share. As security for its
repayment obligations under the Founders Loan, the Company granted a security
interest on certain of its assets, including without limitation, the assets of
any current subsidiaries and any subsidiaries which are acquired subsequent to
the completion of the financing, provided, however, that such interest is junior
to the interests of certain other creditors of the Company.
On November 2, 1999 the Company entered into an amendment to the Founders
Loan, the terms of which are described in Note 5 - Subsequent Events.
Bridge Loan
On August 13, 1999, the Company completed a $1,000,000 short-term bridge
financing (the "Bridge Loan"). The Bridge Loan called for interest at 10% per
annum and is due and payable on November 11, 1999. In conjunction with the
Bridge Loan, the Company issued 75,000 shares of its Common Stock to the lender
in further consideration for the extension of the Bridge Loan. See Note 5
"Subsequent Events - Additional Bridge Financing," regarding the refinancing of
the Bridge Loan.
Note 4. Shares Eligible For Resale
A significant number of the 20,224,857 shares of the Company's common stock
currently outstanding are subject to certain restrictions upon resale.
Note 5. Subsequent Events
Amendment to Founders Loan
On November 2, 1999, the Company and the lenders in the Founders Loan
transaction described in Note 3 above entered into an amendment of the loan
agreement primarily to extend the maturity date of the indebtedness to July 1,
2001. In addition, the Company agreed to pay interest on the Founders Loan at
the rate of 18% from October 1, 1999 to November 2, 1999 and issue to the
lenders, as additional consideration, 150,000 shares of the Company's Common
Stock.
In connection with the amendment to the Letter Agreement, the Company
issued to the agent for the Lenders three-year warrants to purchase up to
300,000 shares of Common Stock at an exercise price of $5.00 per share, subject
to vesting provisions based on the repayment by the Company of the outstanding
principal of and interest on the Founders Loan. Warrants to purchase 100,000
shares of Common Stock will vest in the event that on each of the following
dates the Company has not made aggregate repayments of principal of (i) $500,000
on or before November 9, 1999, (ii) $1,500,000 on or before November 30, 1999
and (iii) $3,000,000 on or before December 15, 1999. As of the date of this
report, the Company has repaid $500,000 of the Founders Loan. Because the
Company had not made aggregate repayments to the Founders lenders of $1,500,000
by November 30, 1999, 100,000 of the warrants issued to the Founders lenders
vested on December 1, 1999 and are exercisable in accordance with their terms.
Because the Company had not made aggregate repayments to the Founders Lenders of
$3,000,000 by December 15, 1999, an additional 100,000 of the warrants issued to
the Founders lenders vested on December 16, and are exercisable in accordance
with their terms.
Page 8
<PAGE>
The amended Founders Loan requires the Company to prepay $1,000,000 in the
event the Company receives net proceeds of at least $5,000,000 from any debt
transaction (other than refinancing of the Company's senior line of credit) or
subsequent equity financings, and an additional $1,500,000 if the net proceeds
from such financings is at least $6,000,000.
The Company also agreed in connection with the Founders Loan to register
for resale the Common Stock into which the principal amount of the loan may be
converted and the shares which are issuable upon the exercise of warrants
granted to the Lenders. As a result of the amendment to loan agreement, the
Company is now required to use its best efforts to have such a registration
statement declared effective on or before January 17, 2000. If the registration
statement has not been declared effective by such time, the lenders have the
option to require the Company to (i) pay the Lenders $25,000 for each 30-day
period during which the registration statement has not been declared effective,
or (ii) issue to the lenders additional warrants to purchase up to 150,000
shares of Common Stock at an exercise price of $5.00 per share.
Additional Bridge Financing
On November 9, 1999, the Company and Lancer Offshore, Inc., Lancer
Partners, L.P. and Michael Lauer (collectively, the "Lancer Lenders") entered
into a Loan Agreement pursuant to which the Company borrowed $9,000,000 (the
"Lancer Loan"). The maturity date for the Lancer Loan is February 9, 2001 and
interest is payable on the Lancer Loan at a rate of 10% per annum. The Lancer
Loan may be prepaid at any time by the Company, and mandatory prepayments are
required in the amount of 50% of the net proceeds realized by the Company from
any debt or equity financing transaction completed after December 20, 1999. A
portion of the Lancer Loan represents the refinancing of the Bridge Loan entered
into on August 13, 1999.
As security for the Company's repayment obligations under the Lancer Loan,
the Company granted to the Lancer Lenders a third position security interest in
all of PONY's assets.
The Lancer Loan is convertible into Common Stock at any time prior to
December 20, 1999 at a rate of $5.00 per share. On and after December 20, 1999,
any outstanding principal amount of and interest on the Lancer Loan may be
converted into common stock of the Company at a rate of $1.00 per share. See
Item 2, Management's Discussion and Analysis of Financial Condition and Results
of Operations, for a further discussion of the Convertibility of the Lancer
Loan. In consideration for the Lancer Loan, the Company also issued to the
Lancer Lenders 375,000 shares of common stock and five-year warrants to purchase
500,000 shares of common stock at $5.00 per share.
The Company agreed to register for resale with the Securities and Exchange
Commission the shares of stock issued to the Lancer Lenders at the closing, the
common stock issuable upon the exercise of the warrants issued to the Lancer
Lenders at closing and the shares of stock into which the Lancer Loan itself may
be converted on the next registration statement on which the Company files. In
connection with the funding of the Lancer Loan, the Company paid $450,000 to a
financial advisor which assisted the Company in arranging for the financing and
will be required to pay an additional placement fee of 3.0% of the principal
amount of the portion of the Lancer Loan converted into Common Stock. The
Company also granted to the placement agent the right to nominate two members of
the Company's Board of Directors.
Page 9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
Unless the context otherwise requires, the "Company" refers to Skynet
Holdings, Inc. and its wholly owned subsidiaries.
Forward Looking Statements
The words "may," "will," "expect," "anticipate," "believe," "continue,"
"estimate," "project," "intend," and similar expressions used in this report are
intended to identify forward-looking statements. You should not place undue
reliance on these forward-looking statements, which speak only as of the date
made. We undertake no obligation to publicly release the result of any revision
of these forward-looking statements to reflect events or circumstances after the
date they are made or to reflect the occurrence of unanticipated events. You
should also know that such statements are not guarantees of future performance
and are subject to risks, uncertainties and assumptions. Should any of these
risks or uncertainties materialize, or should any of our assumptions prove
incorrect, actual results may differ materially from those included within the
forward-looking statements.
The Company is a full service provider of international transportation
delivery services operating primarily as an express courier for time sensitive
documents and packages. These services are formulated on a customized basis to
meet the special needs of a diverse international customer base. The Company
provides these services through Company owned offices as well as through a
global network of over 1,000 offices, which are independently owned and operated
in over 100 countries.
On October 14, 1998, Skynet Nevada merged (the "Merger") with and into EPL
Resources (Delaware) Corp., a Delaware corporation ("EPLR"), in a share exchange
transaction. Upon completion of the Merger, the combined companies changed
their name to "Skynet Holdings, Inc.", a Delaware corporation. Prior to the
Merger, EPLR was an inactive company whose shares were eligible for quotation on
the OTC Electronic Bulletin Board. Since the former stockholders of Skynet
Nevada acquired a controlling interest in EPLR in the Merger, the Merger has
been accounted for as a "reverse acquisition." Accordingly, for financial
statement presentation purposes, Skynet Nevada is viewed as the continuing
entity and the related business combination is viewed as a recapitalization of
Skynet Nevada, rather than an acquisition by EPLR.
Results of Operations
Revenues. Revenues for the three months ended September 30, 1999 amounted
to $36,223,012 compared to $8,069,945 for the three months ended September 30,
1998, an increase of $28,153,067. The increase in revenues primarily resulted
from higher volume, including the mix of services selected by customers, and
$27,604,821 resulting from the acquisition of Fleet and PONY, which occurred on
March 15, 1999 and June 17, 1999 respectively.
Cost of sales. Cost of sales for the three months ended September 30, 1999
amounted to $27,259,252 compared to $5,042,712 for the three months ended
September 30, 1998. As a percentage of sales, such costs amounted to 75.3% for
the three months ended September 30, 1999 compared to 62.5% for the
corresponding period of the prior year. The increase for the three months ended
September 30, 1999, resulted primarily from the acquisitions of Fleet and PONY
and higher rates paid to other carriers.
Operating Expenses. Compensation and compensation related costs increased
from $1,863,960 to $3,008,596 or by 61.4 % for the three months ended September
30, 1999 compared to the corresponding period of the prior year. As a
percentage of sales, compensation costs decreased to 8.3% as compared to 23.1%
for the three months ended September 30, 1998. The decrease relates primarily to
the reduction in the
Page 10
<PAGE>
ratio of compensation of senior level management personnel to revenue increases
resulting from the Fleet and PONY acquisitions.
Occupancy costs increased to $ 247,713 for the three months ended September
30, 1999 compared to $134,551 for the same period during the prior year.
Occupancy cost as a percentage of sales decreased to 0.7% for the three months
ended September 30, 1999 as compared to 1.7% of sales for the three months ended
September 30, 1998, primarily as a result of the consolidation of certain
offices and the closing of selected facilities. Communication expense amounted
to $316,917 during the three months ended September 30, 1999 as compared to
$223,271 corresponding period of the prior year. The increase in communication
expense was primarily due to the acquisition of Fleet Delivery Services and
PONY.
Other operating expenses for the three months ended September 30, 1999
amounted to $6,881,609 compared to $1,116,944 for the three months ended
September 30, 1998. The increase for the three months ended September 30, 1999
was primarily due to the addition of Fleet and PONY.
Liquidity and Capital Resources
Liquidity
A foreign subsidiary of the Company has a financing agreement with a bank
in London. The agreement provides borrowing for the subsidiary based on 75% of
customer receivables generated from accounts in the United Kingdom, which are
less than 90 days old up to a maximum of $1,700,000. The subsidiary pays an
administrative charge of .2% plus interest at the bank's base rate plus 2.25%
(5.0% at September 30, 1999). Borrowings under the agreement amounted to
$870,352 at June 30, 1999 and $1,096,865 at September 30, 1999.
Total cash and cash equivalents at September 30, 1999 amounted to $532,547.
Net cash used in operating activities during the three months ended September
30, 1998 and 1999 amounted to $1,032,443 and $3,100,102. The increase during
the three months ended September 30, 1999 primarily results from the increase in
net loss for the period.
Net cash used in investing activities during the three months ended
September 30, 1998, amounted to $132,540 and resulted primarily from the
acquisition of property and equipment. Net cash provided by investing activities
during the three months ended September 30, 1999, amounted to $253,843 and
resulted from the sale of land and building offset by and increase in
intangibles during the three months ended September 30, 1999.
Net cash provided by financing activities during the three months ended
September 30, 1998 and 1999 amounted to $1,074,016 and $1,806,351. The increase
during the three months ended September 30, 1999 resulted from net proceeds
from short term borrowings of $2,371,819 partially offset by repayments of short
and long-term debt of $918,594.
At June 30, 1999 and September 30, 1999, management provided 100% valuation
allowances amounting to approximately $722,000 against the net deferred tax
asset represented by its net operating loss carry forwards due to the
indeterminate nature of the Company's ability to realize this deferred asset
See Capital Resources below.
As discussed earlier in this report, on November 9, 1999, the Company
completed the Lancer Loan. The Lancer Loan has provided substantially all of the
Company's recent liquidity and cash resources. The terms of the Lancer Loan
provide that the principal of and interest on the loan is convertible into
Common Stock at a rate of $5.00 per share at any time on or before December 20,
1999. If the Lancer Loan is not repaid by December 20, 1999, any outstanding
principal of or interest on the loan is convertible into
Page 11
<PAGE>
Common Stock at a rate of $1.00 per share commencing December 21, 1999. If the
full principal amount of the Lancer Loan remains outstanding on December 21,
1999, such loan would be convertible into 9,000,000 shares of Common Stock,
which would represent approximately 30.8% of the Company's outstanding stock,
resulting in significant dilution of the positions of the current holders of the
Company's Common Stock.
The Company is not currently, and does not expect to be, in a position to
repay fully the Lancer Loan on or before December 20, 1999, and it is therefore
likely that the Lancer Lenders will be able to convert the Lancer Loan to Common
Stock at a rate of $1.00 per share as of December 21, 1999 should they wish to
do so. A conversion of the Lancer Loan at $1.00 per share may result in
adjustments to the conversion features of other convertible instruments
previously issued by the Company, which adjustments could result in additional
common stock being issued upon the exercise of such instruments and the possible
further dilution of the positions of existing holders of Common Stock. The
Company has also entered into an agreement limiting the Company's ability to
issue Common Stock below specified per share prices without the prior written
consent of the other party to the agreement. Issuing Common Stock to the Lancer
Lenders at $1.00 per share would require the consent of the other party, the
availability of which consent cannot be ascertained at this time.
Capital Resources
The Company anticipates that, during the next nine (9) months it will need
to provide funding to PONY to cover working capital requirements, fund operating
losses and reduce existing bank indebtedness. Based upon current estimates, the
Company believes that it will be caused to advance between $2.5 and $7.5
million. The Company's present capital resources are not sufficient to meet
these needs on a short-term or longer-term basis. Accordingly, the Company will
be required to secure additional funding either through incurring indebtedness
or through the sale of equity securities. If such additional funding cannot be
obtained, the operations of the Company could be curtailed significantly.
Management believes that, aside from the cash requirements of PONY
described above, the Company's existing cash balances and capital resources will
be sufficient to fund its operations during the next twelve months. The Company
intends to pursue an aggressive acquisition strategy. This may involve
acquiring target companies for cash, indebtedness, newly issued securities, or a
combination thereof. The Company will likely require additional operating
capital in order to finance any acquisitions that involve material cash
components. In addition, the Company will likely require additional capital to
finance the continued growth of the Company, to the extent its acquisition
strategy is successful. The Company intends to investigate the availability of
alternate bank or institutional financing sources to replace its current
borrowing arrangements, although no assurance can be given that alternate
financing sources will be available to the Company on acceptable terms. The
Company may also seek additional funds from public or private offerings of debt
or equity securities to the extent available to the Company.
Included in the Company's consolidated balance sheets at June 30, 1999 and
September 30, 1999 are the net assets of the Company's United Kingdom subsidiary
of approximately $125,000, and $619,000 and the Company's Australian subsidiary
of approximately $623,000 and $287,000 for the same periods.
Year 2000 Issues
The Company is currently addressing Year 2000 issues. Year 2000 issues are
the result of computer programs being written using two digits rather than four
to define the applicable year associated with the program or an associated
computation. Any of the Company's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculation causing
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices or engage in normal business activities.
Page 12
<PAGE>
Management believes that it has substantially completed all necessary systems
application changes and believes that the Company's level of preparedness is
appropriate.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has become subject to various lawsuits, claims and other legal
matters in the ordinary course of conducting its business. As of the date of
this Report, management believes that there are no legal proceedings pending,
the adverse resolution of which is expected to have a material adverse financial
impact on the Company's consolidated financial position.
Item 2. Changes in Securities
On August 13, 1999, the Company completed a $1.0 million short-term bridge
financing with a private lender. Pursuant to an engagement letter entered into
by the Company in conjunction with the financing, the Company issued 75,000
shares of its Common Stock to the placement agent in the offering for its
services in arranging for the financing.
During the months of September and October 1999, the Company entered into
agreements for approximately $1.56 million in unsecured loans payable to the
Lender on short-term bases. In consideration for such loans, the Company paid
to the lenders financing fees of 5.0% of the principal amount borrowed and
issued to the lenders 75,750 shares of Common Stock.
Item 3. Defaults 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 -
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None
Page 13
<PAGE>
SIGNATURES
----------
Pursuant 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 thereunto duly authorized.
SKYNET HOLDINGS, INC.
Date: December 16, 1999 /s/ Byron Hogue
------------------------
Byron Hogue
Chief Executive Officer
Date: December 16, 1999 /s/ William H. Bethell
------------------------
William H. Bethell
Chief Financial Officer
Page 14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 532,547
<SECURITIES> 0
<RECEIVABLES> 19,140,459
<ALLOWANCES> 2,720,956
<INVENTORY> 23,921
<CURRENT-ASSETS> 18,532,556
<PP&E> 8,578,244
<DEPRECIATION> 1,974,463
<TOTAL-ASSETS> 43,956,163
<CURRENT-LIABILITIES> 36,088,376
<BONDS> 0
285
0
<COMMON> 1,978
<OTHER-SE> 14,777,078
<TOTAL-LIABILITY-AND-EQUITY> 43,956,163
<SALES> 36,223,012
<TOTAL-REVENUES> 36,223,012
<CGS> 27,259,252
<TOTAL-COSTS> 27,259,252
<OTHER-EXPENSES> 810,913
<LOSS-PROVISION> 44,556
<INTEREST-EXPENSE> 271,004
<INCOME-PRETAX> (2,301,988)
<INCOME-TAX> 1,548
<INCOME-CONTINUING> (2,300,440)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,300,440)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
