<PAGE>
As filed with the Securities and Exchange Commission, via EDGAR on May 17, 1999
Registration No. 333 -_________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
____________________
SKYNET HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 65-1480559 4215
-------- ---------- ----
(State or Other Jurisdiction of (IRS Employer Identification No.) (Primary Standard
Incorporation or Organization) Industrial Classification
Code Number)
</TABLE>
343 South Glasgow Avenue
Inglewood, California 90301
(310) 642-7776
---------------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office and principal
place of business)
Mr. Vjekoslav Nizic
343 South Glasgow Avenue
Inglewood, California
(310) 642-7776
---------------------------------------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
with a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103
(215) 665-3873
____________________
Approximate date of proposed sale to the public: As soon as practicable
following effectiveness of this Registration Statement.
____________________
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement in the same offering: [_]_________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
________________________________________________
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
Title of
Each Class
Of Securities Amount Proposed Proposed
To Be To Be Maximum Offering Maximum Aggregate Amount of
Registered Registered Price Per Share(1) Offering Price(1) Registration Fee(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value 7,394,299 $ 8.125 $60,078,679 $16,701.87
===================================================================================================================
</TABLE>
(1) Pursuant to Rule 416 of the Securities Act of 1933, as amended, this
Registration Statement also includes additional shares of common stock
issuable upon stock splits, stock dividends or similar transactions.
(2) Estimated pursuant to Rule 457(c) for the purpose of calculating the
registration fee. Based on the average of the bid and asked prices per
share of Common Stock on May 11, 1999 as reported on the OTC Electronic
Bulletin Board.
--------------------
<PAGE>
- ------------------------------------------------------------------------------
The Information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
- ------------------------------------------------------------------------------
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED MAY 17, 1999
SKYNET HOLDINGS, INC.
--------------------------
7,394,299 Shares of Common Stock
--------------------------
The selling security holders identified as "Selling Security Holders" in
this Prospectus, may offer and sell, from time to time, up to 7,394,299 shares
of Common Stock of Skynet Holdings, Inc. The shares were issued, or are
issuable upon the conversion or exercise of securities which were issued by us
in private placement transactions. The Selling Security Holders may sell all or
a portion of their shares through public or private transactions at prevailing
market prices or at privately negotiated prices. We will not receive any part
of the proceeds from the sale of these shares by the Selling Security Holders.
Our Common Stock is traded on the OTC Electronic Bulletin Board under the
symbol "SKYN". The last reported bid price of our Common Stock on the OTC
Electronic Bulletin Board on May 11, 1999 was $8.125 per share.
--------------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
The date of this Prospectus is May , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary 1
About Skynet Holdings, Inc. 1
The Offering 2
Summary Financial Information 3
Selected Consolidated Financial Data 7
Risk Factors 9
Use of Proceeds 15
Market for the Company's Common Stock 15
Capitalization 17
Management's Discussion and Analysis of Financial Condition and Results of Operations 18
Quantitative and Qualitative Disclosures about Market Risk 23
Business 26
Management 42
Certain Relationships and Related Transactions 48
Security Ownership of Certain Beneficial Owners and Management 50
Description of Securities 53
Selling Security Holders 56
Plan of Distribution 58
Legal Matters 59
Experts 59
Financial Statements F-1
</TABLE>
ABOUT THIS PROSPECTUS
You should only rely on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. The Selling Security Holders are offering to sell,
and seeking offers to buy, shares of common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this or of any sale of common stock.
This preliminary prospectus is subject to completion prior to this
offering. Among other things, this preliminary prospectus describes our company
as we currently expect it to exist at the time of this offering.
i
<PAGE>
PROSPECTUS SUMMARY
The following information is intended to summarize the detailed information
and financial statements (including the notes thereto) appearing elsewhere in
this Prospectus. This Section is not intended to be a complete description of
all aspects of our business or the Common Stock being offered by the Selling
Security Holders. Investors should carefully consider the information set forth
under the caption "RISK FACTORS" beginning at page 9 of this Prospectus.
ABOUT SKYNET HOLDINGS, INC.
Skynet Holdings, Inc. is a full service provider of global transportation
delivery services operating primarily as an international express courier for
time sensitive documents and packages. Our services are formulated on a
customized basis to meet the special needs of a diverse international customer
base and consist of:
. Time certain deliveries within 24-48 hours of pickup
. Next flight out services for same day expedited deliveries
. Local ground transport in select locations
. Freight forwarding services
. Bulk shipment of mass mailing materials for local distribution
. Global logistics services incorporating our computerized tracking
system
We provide these services through our offices in London, Manchester and
Bristol, England; Sydney, Melbourne and Brisbane, Australia; New York; San
Francisco, Los Angeles and Sacramento, California; Las Vegas and Reno, Nevada;
Portland and Salem, Oregon; Seattle, Everett and Tacoma, Washington; and
Phoenix, Arizona. We also provide our services through a global network of over
1,000 offices which are independently owned and operated in over 100 countries.
This Network does business under the name "SkyNet Worldwide Express". Under our
current model of operations, each Network member receives reciprocal delivery
privileges and access to SkyCom, our tracking and billing information
technology. We believe that the Network provides us with the market presence
and operational efficiencies of a global enterprise, without incurring all of
the costs associated with developing and maintaining a worldwide network of our
own offices.
A central element of our strategy is the use of commercial and cargo
aircraft rather than the operation of our own air fleet. This enables us to
offer our customers a wider range of scheduled departures, greater flexibility
in scheduling departure and arrival times and priority with respect to package
check-in and customs clearance procedures. This also eliminates the costs
associated with the acquisition, operation and maintenance of our own air fleet.
We have designed this strategy in order to achieve financial efficiency and
operational flexibility, which we believe, permits us to compete more
effectively with substantially larger and better capitalized competitors.
1
<PAGE>
Although the US domestic express business is dominated by Federal Express
and United Parcel Service, the international and other segments of the courier
business are highly fragmented markets currently experiencing substantial growth
and consolidation. We believe this is the result of several factors including:
. Increased outsourcing and vendor consolidation
. The continuing simplification of the global economy
. The growth of just in time inventory management designed to reduce
inventory carrying costs
. The rapid growth in electronic commerce
Given the size and nature of these industry segments, we believe there is
an opportunity to implement a market roll up program through selective
acquisitions in the United States and overseas. We intend to acquire
transportation service companies that fit into or compliment our current
operations. This will include express and same day courier businesses as well
as more localized intra-state and inner city couriers and global freight
forwarders. In this connection, we recently completed two (2) material
acquisitions. The first involved a domestic courier primarily serving the
banking industry in the Western United States and the second involved a United
Kingdom courier company with principal operations in England and New York.
Through the implementation of this strategy, we are seeking to become a leading
provider of global delivery and transportation services.
The Company is the surviving entity to a merger between EPL Resources
(Delaware) Corp. and Skynet Holdings, Inc., a Nevada corporation, effective as
of October 14, 1998. Prior to the merger, EPLR was an inactive company whose
shares were eligible for trading on the OTC Electronic Bulletin Board. Skynet
Nevada was formed on September 16, 1997 to effectuate the October 1, 1997
consolidation of the London office with Network members in Sydney and Melbourne,
Australia and New York, San Francisco and Los Angeles. This consolidation
resulted in the Company controlling the principal distribution hubs of the
Network and the "SkyCom" computerized tracking system.
Our principal executive offices are located 343 South Glasgow Avenue,
Inglewood, California and our telephone number is (310) 642-7776.
THE OFFERING
Common Stock offered by the Selling Security Holders:...... 7,394,299 shares
Common Stock currently outstanding:........................ 18,935,034 shares(1)
Common Stock outstanding after the Offering 21,739,484 shares(2)
Proceeds:.................................................. The Company will not
receive any of the
proceeds from the
sale of shares by
Selling Security
Holders(3).
Trading Symbol (OTC Electronic Bulletin Board)........... SKYN
2
<PAGE>
- -----------------
(1) The number of outstanding shares does not include:
. 2,003,560 shares of Common Stock reserved for issuance upon conversion
of the Company's Series A Convertible Preferred Stock
. 2,765,000 shares of Common Stock reserved for issuance upon exercise of
outstanding options
. 933,440 shares of Common Stock reserved for issuance upon exercise of
outstanding warrants
(2) This increase in the number of outstanding shares is attributable to shares
of Common Stock issuable upon:
. The conversion of 2,003,560 Shares of Series A Preferred Stock
. The exercise of 800,890 warrants by the selling Security Holders.
These shares are being offered for resale hereunder by the Selling Security
Holders
(3) The Company will, however, receive approximately $4,000,000 upon exercise
of warrants.
SUMMARY FINANCIAL INFORMATION
Pro Forma Condensed Combined Financial Statements
On March 15, 1999, we acquired the operating assets of Nevada Fleet
Management, Inc., a Nevada corporation, dba Fleet Delivery Service ("Fleet"), a
courier delivery service in the states of Nevada, Arizona, California, Oregon
and Washington. We paid $3,059,000 (including approximately $100,000
acquisition costs) by issuing 1,479,415 shares of our Common Stock. The assets
acquired include; receivables, delivery vehicles, equipment, refundable
deposits, licenses, administrative material and equipment, records and
documents, and all personal property used in the operation of the business. We
accounted for the acquisition using the purchase method of accounting with the
assets acquired and liabilities assumed recorded at fair values, and the results
of the acquired business will be included in our consolidated financial
statements from the closing date of the acquisition.
On April 12, 1999, we completed the first tier of a scheduled two-tiered
acquisition of Freight on Board International Limited, a corporation organized
under the laws of the United Kingdom ("FOB"). At the initial closing, we
purchased 51% of the issued and outstanding shares of FOB for cash in the amount
of approximately $680,000; 31,119 shares of Common Stock; and a one (1) year
cash earn-out payment in the amount of up to $144,000 based on quarterly
revenues of FOB for the one year period following the closing. We are scheduled
to purchase the remaining 49% during the third or fourth quarter of 1999 for
approximately $570,000. These funds have been placed in an escrow account
pending such acquisition. We accounted for the acquisition using the purchase
method of accounting with the assets acquired and liabilities assumed recorded
at fair values, and the results of the acquired business will be included in our
consolidated financial statements from the closing date of the acquisition.
3
<PAGE>
During April 1999, we completed a private placement of 2,003,560 shares of
our Series A Convertible Preferred Stock, which generated net proceeds (after
offering costs of approximately $600,000) of approximately $4,000,000.
The unaudited pro forma condensed combined statements of operations and
balance sheet presented below reflect the acquisition of FOB and completion of
the private placement of the Series A Convertible Preferred Stock described
above. The pro forma condensed combined statements of operations are presented
as if these transactions had taken place at July 1, 1998. The pro forma
condensed combined balance sheet is presented as if such transactions had taken
place on March 31, 1999. The pro forma condensed combined financial statements
should be read in conjunction with our historical financial statements and notes
thereto and the historic financial statements of FOB and Fleet and related notes
which appear herein beginning at Page F-1. The unaudited pro forma financial
statements are not necessarily indicative of what the actual results of
operations would have been had such transactions occurred on July 1, 1998, or
what our results of operations will be in the future.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
As of March 31, 1999
Skynet Pro Forma Pro Forma
Holdings FOB Adjustments(A) Combined
----------- ---------- ------------------ -----------
<S> <C> <C> <C> <C>
Assets:
Current assets $ 9,440,298 $2,181,243 $ 4,000,000 (2)
(1,350,000)(1) $14,271,541
Property and equipment, net 1,036,371 141,767 1,178,138
Intangibles and other 758,838 (1)
2,060,696 67,022 570,000 (1) 3,456,556
----------- ---------- -----------
Totals $12,537,365 $2,390,032 $18,906,235
=========== ========== ===========
Liabilities:
Current Liabilities $ 7,427,181 $2,236,411 $ 9,663,592
Long-term debt 531,050 - 531,050
----------- ---------- -----------
Total Liabilities 7,958,231 2,236,411 10,194,642
Minority Interest - - 70,221 (1) 70,221
4,000,000 (2)
Stockholders' Equity 4,579,134 153,621 (91,383)(1) 8,641,372
----------- ---------- -----------
Totals $12,537,365 $2,390,032 $18,906,235
=========== ========== ===========
</TABLE>
4
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine Months Ended March 31, 1999
<TABLE>
<CAPTION>
Skynet Pro forma Pro forma
Holdings Fleet FOB Adjustments(B) Combined
------------ ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $25,609,176 $9,508,667 $7,424,646 $(64,787) (3) $42,477,702
(40,604) (3)
Costs and expenses 26,500,414 9,269,432 7,508,563 132,000 (4) 43,369,805
----------- ---------- ---------- -----------
Income (loss) from operations (891,238) 239,235 (83,917) (892,103)
Other expense, net (569,038) (12,893) - 12,893 (5) (569,038)
----------- ---------- ---------- -----------
Income before income taxes (1,460,276) 226,342 (83,917) (1,461,141)
Income taxes (4,800) - - (4,800)
----------- ---------- ---------- -----------
Net Income (loss) $(1,465,076) $ 226,342 $ (83,917) $(1,465,941)
=========== ========== ========== ===========
Basic net loss per share (6) $ (0.09) $ (0.08)
=========== ===========
Diluted net loss per share (6) $ (0.09) $ (0.08)
=========== ===========
Basic weighted average 16,352,761 18,935,034
shares outstanding(6) =========== ===========
Diluted weighted average 16,352,761 18,935,034
shares outstanding (6) =========== ===========
</TABLE>
Year Ended June 30, 1998
<TABLE>
<CAPTION>
Skynet Pro forma Pro forma
Holdings Fleet FOB Adjustments(B) Combined
------------ ------------ ----------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $31,838,919 $13,406,567 $9,562,305 $ (667,608) (3) $54,140,183
(927,656) (3)
Costs and expenses 31,257,942 14,195,444 9,576,859 186,000 (4) 54,288,589
----------- ----------- ---------- -----------
Income (loss) from operations 580,977 (788,877) (14,554) (148,406)
Other expense, net (229,523) (186,938) - 189,034 (5) (227,427)
----------- ----------- ---------- -----------
Income before income taxes 351,454 (975,815) (14,554) (375,833)
Income taxes (185,404) - - (185,404)
----------- ----------- ---------- -----------
Net Income (loss) $ 166,050 $ (975,815) $ (14,554) $ (561,237)
=========== =========== ========== ===========
Basic net loss per share (6) $ 0.02 $ (0.06)
=========== ===========
Diluted net loss per share (6) $ 0.02 $ (0.06)
=========== ===========
Basic weighted average shares 7,346,500 10,182,534
outstanding(6) =========== ===========
Diluted weighted average shares 9,796,500 10,182,534
outstanding (6) =========== ===========
</TABLE>
5
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note A - Pro forma adjustments to the condensed balance sheet are as follows:
(1) To record: the acquisition of FOB and the allocation of the purchase price
on the basis of the fair values of the assets acquired and liabilities
assumed. In addition $570,000 placed in an escrow account for the purchase
of the remaining 49% of FOB has been reclassified as a non-current asset.
The components of the purchase price and its allocation to the assets and
liabilities acquired are as follows:
<TABLE>
<S> <C>
Components of purchase price:
Common Stock............................................................................ $ 62,238
Cash.................................................................................... 680,000
Acquisition costs....................................................................... 100,000
-----------
Total purchase price............................................................. $ 842,238
===========
Allocation of purchase price:
Current assets acquired................................................................. $ 2,181,243
Property and equipment.................................................................. 141,767
Liabilities assumed..................................................................... (2,236,411)
Minority share of net assets............................................................ (70,221)
Cost in excess of net assets acquired................................................... 825,860
-----------
Total purchase price............................................................. $ 842,238
===========
</TABLE>
(2) To record the net proceeds of $4,000,000 from the sale of 2,003,560 shares
of our Series A Convertible Preferred Stock at $2.25 per share.
Note B - Pro forma adjustments to the condensed statements of operations are as
follows:
(3) To eliminate operations of Fleet locations not acquired.
(4) To record additional depreciation expense based on the revised values of
the depreciable assets acquired and amortization of the excess of the fair
value over net assets acquired as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
June 30, 1998 March 31, 1999
----------------------------- -----------------------------
Fleet FOB Fleet FOB
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Depreciation based on acquisition cost................ $ 96,000 $62,740 $71,000 $31,370
Historical depreciation............................... 76,000 62,740 51,000 31,370
-------- ------- ------- -------
Increase in depreciation.............................. 20,000 - 20,000 -
Amortization of excess of fair value over net assets
acquired............................................. 116,000 50,000 75,000 37,000
-------- ------- ------- -------
Increase in depreciation and amortization............. $136,000 $50,000 $95,000 $37,000
======== ======= ======= =======
</TABLE>
(5) To eliminate interest expense of acquired companies.
(6) The weighted average shares outstanding were adjusted on a pro forma basis
to include the Common Stock shares issued in connection with the FOB
acquisition plus 1,325,500 additional shares issued in the private
placement.
6
<PAGE>
Selected Consolidated Financial Data
The following selected consolidated financial data with respect to our
statements of operations for the years ended June 30, 1996, 1997 and 1998 and
our balance sheets as of June 30, 1997 and 1998 are derived from our
Consolidated Financial Statements which have been audited by BDO Seidman, LLP.
The selected consolidated financial data, with respect to our statements of
operations for the years ended June 30, 1994 and 1995, and our balance sheets as
of June 30, 1994, 1995 and 1996, was derived from unaudited consolidated
financial statements, which in our opinion, present fairly the results of
operations and financial position for such periods. The selected consolidated
financial data for the six month periods ended December 30, 1997 and 1998 are
derived from our unaudited condensed consolidated financial statements, which in
our opinion includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of operations and
financial position for such period. The results of operations for the nine
months ended March 31, 1999 are not necessarily indicative of the results of
operations to be expected for the year. You should read the table below together
with our consolidated financial statements, the related notes and the
independent auditor's report, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
Statement of Operations Data: (1)
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended June 30, March 31,
------------------------------------------------------------------------- -------------------------
1994(2) 1995(2) 1996(3) 1997 1998 1998(2) 1999(2)
------------ ------------ -------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $31,373,057 $33,041,182 $34,404,946 $36,151,763 $31,838,919 $24,105,906 $25,609,176
Gross Profit 10,200,664 9,952,232 11,621,140 11,758,535 12,715,451 9,603,527 9,991,603
Income (loss) before
Income taxes and
extraordinary income (860,308) (1,238,103) 317,909 (125,268) 351,454 96,497 (1,460,276)
Net income (loss) (1,022,933) (1,238,103) 1,297,321(3) (39,668) 166,050 (36,613) (1,465,076)
Basic income (loss) per
share:
Income (loss) before
Extraordinary income (0.15) (0.18) 0.01 (0.01) 0.02 (0.01) (0.09)
Net income (loss) (0.15) (0.18) 0.19 (0.01) 0.02 (0.01) (0.09)
Dilutive income (loss) Per
share:
Income (loss) before
Extraordinary income (0.15) (0.18) 0.01 (0.01) 0.02 (0.01) (0.09)
Net income (loss) (0.15) (0.18) 0.14 (0.01) 0.02 (0.01) (0.09)
Weighted average number of
shares outstanding:
Basic 7,000,000 7,000,000 7,000,000 7,000,000 7,346,500 7,189,897 16,352,761
Diluted 7,000,000 7,000,000 9,450,000 7,000,000 9,796,500 7,189,897 16,352,761
(footnotes appear on next page)
</TABLE>
7
<PAGE>
Balance Sheet Data:
<TABLE>
<CAPTION>
June 30, March 31,
---------------------------------------------------------------- --------------------------
1994(2) 1995(2) 1996 1997 1998 1998(2) 1999(2)
----------- ----------- ---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Assets $6,658,413 $6,052,484 $7,305,317 $8,104,071 $6,885,815 $8,545,070 $12,537,365
Long-term Debt 229,384 711,628 662,056 662,056 877,441 626,472 531,050
Total Liabilities 7,899,951 8,613,902 8,555,011 9,397,540 7,572,040 9,579,560 7,958,231
</TABLE>
(1) The financial data presented above reflects the relevant Statement of
Operations Data of Skynet Holdings, Inc., a Nevada corporation ("Skynet
Nevada"). EPL Resources (Delaware) Corp., a Delaware corporation acquired
Skynet Nevada by virtue of a merger transaction that was completed on
October 14, 1998. Upon completion of the merger, EPLR changed its name to
"Skynet Holdings, Inc." Since the former stockholders of Skynet Nevada
acquired a controlling interest in EPLR, 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.
(2) Reflects unaudited data.
(3) Net income for the year ended June 30, 1996 includes extraordinary income of
$1,263,045 relating to the forgiveness of debt arising out of the former
reorganization of one of the Company's subsidiaries.
(4) Basic income (loss) per common share is based upon the weighted average
number of common shares outstanding for each period presented. Diluted
income (loss) per common share is based upon the weighted average number of
common shares plus the dilutive effect of the convertible securities and
options outstanding for each period presented.
8
<PAGE>
RISK FACTORS
An investment in our Common Stock involves a high degree of risk and should
only be made by purchasers who have gathered and reviewed information about
Skynet Holdings, Inc. Prospective purchasers of our Common Stock should
carefully review the following Risk Factors as well as the other information set
forth in this Prospectus.
Forward Looking Statements
The words "may," "will," "expect," "anticipate," "believe," "continue,"
"estimate," "project," "intend," and similar expressions used in this Prospectus
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.
1. Our Subsidiaries Have Not Operated as a Single Business Until Recently.
----------------------------------------------------------------------
We are the surviving corporation of a merger completed on October 14, 1998
between EPL Resources (Delaware) Corp., a Delaware corporation, and Skynet
Holdings, Inc., a Nevada corporation ("Skynet Nevada"). EPLR had been an
inactive company prior to the Merger and Skynet Nevada was organized in 1997 to
consolidate our operating subsidiaries. Prior to that, each of these
subsidiaries had been operating as independent sepeate businesses. More
recently, we completed the acquisitions of Fleet on March 15, 1999 and FOB on
April 12, 1999. The absence of a longer-term combined operating history may
create uncertainty as to whether our operations may be undertaken profitably on
a consolidated basis. This may subject an investor's evaluation of our long-term
prospects to additional uncertainty.
2. We are Losing Money; We Need to Grow to Make Money. We earned a modest
--------------------------------------------------
net income from operations during fiscal 1996 and fiscal 1998, and experienced a
net loss during fiscal 1997. We also incurred a net loss for the nine months
ended March 31, 1999. We attribute this loss to a number of factors, including
an increase in the level of corporate overhead associated with the EPLR merger,
our anticipated operations as a public company and the development and
implementation of our growth strategy. If operations remain at current levels,
we believe that operating losses will most likely continue. As a result, our
future profitability is likely to depend upon the successful implementation of
our business strategy, which primarily relies upon growth through acquisition.
9
<PAGE>
3. Execution of Our Acquisition Strategy is Subject to a Number of Risks
---------------------------------------------------------------------
and Uncertainties. One of the central elements of our business strategy is to
- -----------------
grow through acquisitions. We may not be able to identify, acquire or profitably
manage additional businesses or successfully integrate acquired businesses
into our current operations without substantial costs, delays or other
operational or financial problems. Since we just recently commenced this
strategy, we do not have a track record in completing such acquisitions or
integrating acquired businesses into our operations. In addition, the current
consolidation of the express courier, same day delivery and freight forwarding
industries will likely result in increased competition for acquisition
candidates. This may result in fewer acquisition opportunities available to us
as well as higher acquisition prices. Acquisitions also involve a number of
risks, including possible adverse effects on our operating results, diversion of
our management resources, failure to retain key personnel, risks associated with
unanticipated liabilities and amortization of acquired intangible assets.
These risks could have a material adverse effect on our business, financial
condition and results of operations. The performance of a single acquired
company could have an adverse effect on our national and international sales and
marketing initiatives. In addition, businesses we acquire may not achieve
anticipated revenues and earnings. Finally, foreign laws, which restrict foreign
investment or impose unduly restrictive regulations, may prevent us from
completing acquisitions outside of the United States, United Kingdom or
Australia.
4. We Need Additional Money and a Liquid Trading Market to Execute our
-------------------------------------------------------------------
Acquisition Strategy. We have used, and intend to continue to use, a substantial
- --------------------
portion of the proceeds raised through recent sales of our common and preferred
stock to finance acquisitions in the short-term. These proceeds may not be
sufficient to finance any additional material acquisitions. As a result, we will
require additional financing in order to pursue our acquisition strategy beyond
the short-term. We intend to obtain this financing through a combination of
traditional debt financing and the placement of debt and equity securities.
Provided a liquid trading market for our Common Stock develops, we hope to
finance some portion of our future acquisitions by using shares of our Common
Stock as payment of the purchase price. If our Common Stock does not maintain a
sufficient market, or potential acquisition candidates are unwilling to accept
our Common Stock as full or partial payment for the sale of their business, we
may be required to utilize more of our cash resources. Accordingly, if we do not
have sufficient cash resources, our growth could be limited.
5. There is a Very Limited Market for Our Stock; Our Stock Price will
------------------------------------------------------------------
Likely be Volatile. The public trading market for shares of our Common Stock has
- ------------------
recently commenced on the OTC Electronic Bulletin Board. However, in view of the
minimal supply of shares eligible for public resale, trading has been extremely
limited. We are uncertain as to whether a regular trading market will develop.
As a result of the limited market, purchasers of our common stock may have
difficulty in selling their shares and/or obtaining a satisfactory price for
such Shares.
As of the date of this Prospectus, there are 18,935,034 outstanding shares
of Common Stock of which approximately 100,000 shares are eligible for public
trading. The trading market for the Common Stock may be adversely effected by
the subsequent influx into the market of:
. The 7,394,299 Shares being registered for resale hereunder
. 1,325,500 shares issued in a private placement transaction plus
132,550 shares issuable upon exercise of outstanding warrants which we
have agreed to register for resale under the Securities Act of 1933,
as amended, no later than on or about February 19, 2000.
. 1,479,415 shares issued in connection with our acquisition of Fleet
which we have agreed to register for resale under the Securities Act
of 1933, as amended, no later than March 15, 2000.
10
<PAGE>
This substantial increase in the number of shares available for public sale
could have a depressive effect on the market. Until a trading market develops,
the market price for our Common Stock is likely to be volatile. In addition,
the stock markets generally have experienced, and continue to experience,
extreme price and volume fluctuations which have affected the market price of
many small capitalization companies. These market fluctuations, as well as
general economic and political conditions, may adversely affect the market price
of our Common Stock.
6. We Will Be Issuing a Substantial Number of Additional Shares. One of
------------------------------------------------------------
the principal elements of our business strategy is to accomplish strategic
acquisitions, principally through the issuance of additional shares of our
Common Stock as purchase price consideration. This will have the effect of
increasing the number of shares of Common Stock outstanding. Under Delaware law,
we can issue additional shares without notice to, or approval of, existing
stockholders.
In addition, during November 1998, we adopted a stock option plan which
permits us to grant options to purchase shares equal to 10% of our then
outstanding shares of Common Stock (currently 1,893,553). As of the date of this
Prospectus, we have issued options, warrants and convertible preferred stock in
the following amounts:
. During January and April 1999, we issued 965,000 options under the Plan
. In connection with the October 1998 Merger, we issued options to
purchase 1,800,000 shares of Common Stock
. During February of 1999, we issued warrants to purchase 132,500 shares
of Common Stock
. During April of 1999, we issued 2,003,560 shares of our Series A
Convertible Preferred Stock which are convertible into 2,003,560 shares
of Common Stock within two (2) years from the date of issuance
. During April of 1999, we issued warrants to purchase 800,890 Shares of
Common Stock
The exercise of the options and warrants identified above and the
conversion of the Series A Convertible Preferred Stock into Common Stock will
result in the issuance of an additional 5,701,950 Shares of Common Stock.
11
<PAGE>
7. We May Acquire a Company Which Has Lost a Substantial Amount of Money
---------------------------------------------------------------------
and Has a Negative Net Worth. We have identified Pony Express Delivery Services,
- ----------------------------
Inc. as a potential acquisition candidate. Pony Express is an Atlanta, Georgia
based express courier with over 100 offices in 22 states. On May 1, 1999, we
entered in a preliminary agreement to purchase Pony Express and advanced $1
million to Pony Express. The closing of the acquisition is contingent upon
negotiating a definitive agreement and the satisfaction of a number of
contingencies. These include our conducting and completing a due diligence
review of the business of Pony Express. We just commenced this process and have
not made any decision regarding whether we will complete this acquisition.
Accordingly, it is uncertain as to whether we will ever complete this
acquisition. We believe that during the past several years Pony Express has
incurred substantial operating losses and presently has a negative net worth of
approximately $8 million. Although we believe we can integrate the operations of
Pony Express into our current operations to reduce costs and achieve an
operating profit, we cannot make any assurances that we will be able to do this.
Unless we can substantially reduce the operating costs of Pony Express, we will
have to provide substantial additional capital to Pony Express over the next
twelve (12) months. We believe we will be required to provide approximately $2.5
to $7 million to Pony Express during this time. We do not have this amount of
money. If we complete this acquisition, we will need to raise additional
financing through a bank facility or the sale of additional equity securities.
8. Recent Bankruptcy of a Subsidiary. DPE International, Inc. ("DPE"), one
---------------------------------
of our wholly-owned subsidiaries which operates the Company's Los Angeles and
San Francisco facilities, emerged from Chapter 11 reorganization proceedings on
or about September 2, 1996. As of May 10, 1999, approximately $300,000 is still
due under the plan. DPE accounted for 11% of our consolidated revenues during
the nine months ended March 31, 1999.
9. The Express Courier Business is Very Competitive. We face intense
------------------------------------------------
competition from multinational, regional and local companies in every market in
which we operate. The principal competitive factors within our industry include
price, frequency and capacity of scheduled service, extent of geographic
coverage and reliability. Many of our competitors have well established
reputations and significantly greater financial, marketing, personnel and other
resources than we do. Our principal competitors are DHL Worldwide Express,
Federal Express, TNT Express Worldwide, UPS and post offices providing express
delivery services, all of which are multinational, highly-visible and well-
regarded enterprises. There can be no assurance that we will be able to compete
effectively against these or any other competitors.
10. We are Controlled by a Small Number of Stockholders. As of the date of
---------------------------------------------------
this Prospectus, our officers, directors and principal stockholders have the
power to vote approximately 57% of our outstanding Common Stock. Consequently,
these stockholders are able to elect directors and control the outcome of other
corporate matters without the approval of our other stockholders. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - Material Voting
Arrangements". In addition, applicable statutory provisions and the ability of
the Board of Directors to issue one or more series of preferred stock without
stockholder approval could deter or delay unsolicited changes in control of our
Company. This may be viewed as a disadvantage to a majority of our stockholders
who may otherwise desire to participate in such a transaction. These
transactions normally provide for the payment of a premium over the existing
market price. See "DESCRIPTION OF SECURITIES - Preferred Stock."
12
<PAGE>
11. We Rely on Independent Businesses to Deliver our Packages Which Have
--------------------------------------------------------------------
No Contractual Obligation to Us. Our operations are dependent upon our Network
- -------------------------------
Members generating packages for delivery through the Network and delivering
packages in their respective regions for other Network Members. The Network is a
worldwide alliance of delivery professionals and most Network Members are not
bound by a formal licensing agreement or other arrangement. Accordingly, most
Network Members have no contractual obligations to us or any other Network
Member. Although we believe that the absence of contractual obligations among
Network Members will not have an adverse effect upon our operations, they are
free to enter into arrangements with competitive networks.
12. We Rely on Commerical Air Carriers to Ship our Packages Which Have No
---------------------------------------------------------------------
Contractual Obligation to Us. We rely on scheduled flights of commercial cargo
- ----------------------------
and passenger aircraft to provide our courier and freight forwarding services.
We could be adversely affected by changes in the pricing and scheduling
practices of air carriers. We purchase cargo space from commercial air cargo and
passenger aircraft on an as-needed basis. We have no contractual relationship
with any carrier for the procurement of such space. Although we have
historically been able to secure such space, we may not continue to be in a
position to do so in the future at rates acceptable to us. The failure to obtain
such space at acceptable rates, if at all, would have a material adverse impact
on our results of operations.
13. We may be Liable for Lost or Damaged Shipments. We are responsible to
----------------------------------------------
our customers for the safe delivery of shipments up to $100 in value. Upon the
customer's request, we insure amounts above $200 with various insurance
companies. We do not carry an umbrella insurance policy. From time to time we
have made payments to our customers for claims related to their shipments which,
to date, have not been material to our results of operations. Should we
experience an increase in the number of such claims, there can be no assurance
that our results of operations will not be adversely affected.
14. Our Contracting with Independent Owner/Operators may Subject us to
------------------------------------------------------------------
Payment of Additional Taxes. Federal and state authorities, including the
- ---------------------------
Internal Revenue Service, have asserted that independent owner/operators in the
transportation industry are employees rather than independent contractors, thus
requiring the payment of payroll and related taxes. We believe that the
independent contractors utilized by us and our Network Members are not employees
under existing interpretations of federal and state laws. However, federal
and/or state authorities could challenge this position, or change these laws or
regulations, including tax laws, or interpretations thereof, will not change. If
these independent contractors are deemed to be employees of the Company, we
would be required to pay for and administer added benefits to them. As a result,
our operating costs would increase. We could also be liable for additional
taxes, penalties and interest, which could have a material adverse effect on the
Company's business.
15. We are Dependent Upon Certain Key Employees. Our operations are
-------------------------------------------
dependent upon the continued services of our Chief Executive Officer, Vjekoslav
Nizic, and upon our ability to hire and retain other qualified management and
personnel. The loss of the services of Mr. Nizic, any of our executive officers
or other management or key personnel, whether as a result of death, disability
or otherwise, would have a material adverse effect upon our business. We do not
maintain a key man life insurance policy on Mr. Nizic.
13
<PAGE>
16. Our Operations may be Adversely Effected by the Year 2000 Issues. We
----------------------------------------------------------------
are currently responding to 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
such two-digit 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, a
temporary inability to process transactions, send invoices or engage in normal
business activities. We expect to have substantially all of the systems
application changes completed within the next 6 months and believe that our
level of preparedness is appropriate. To the extent that any of the commercial
cargo or passenger airlines we utilize rely upon computer programs which are
subject to any Year 2000 issues, our financial condition and results of
operation could be adversely affected.
The total cost of these Year 2000 compliance issues is not anticipated to
be material to our financial position or results of operations in any given
year. These costs and the date on which we plan to complete the Year 2000
modification and testing processes are based on our best estimates.
17. Our Operations may be Adversely Affected by Instability in Foreign
------------------------------------------------------------------
Countries and Local Laws of Foreign Carriers. A majority of our business is
- --------------------------------------------
conducted outside the United States. As a result, the operations of certain
Network Members in less stable developing countries are subject to various risks
such as loss of revenue, property or equipment due to expropriation,
nationalization, war, the instability of foreign economies, currency
fluctuations, adverse tax policies and governmental activities that may limit or
disrupt markets. Additionally, our ability to compete may be adversely affected
by foreign governmental regulations that encourage or mandate the hiring of
local contractors, or by regulations that require foreign contractors to employ
citizens of, or purchase supplies from vendors in, a particular jurisdiction. We
are subject to taxation in a number of jurisdictions. The final determination of
our tax liabilities involves the interpretation of the statutes and requirements
of various domestic and foreign taxing authorities, particularly Australia and
the United Kingdom. Moreover, many of the countries where we operate and plan to
operate have legal systems that differ from the United States legal system and
may provide substantially less protection for foreign investors.
18. Laws Restricting Foreign Investments may Adversely Affect our
-------------------------------------------------------------
Acquisition Strategy. Foreign investment by us in local joint ventures or
- --------------------
business acquisitions (including investments in Network Members) may be limited
or prohibited by foreign laws. Other foreign laws require governmental approval
of investments by foreign persons and limit the extent of any such investment.
The presence of such laws and regulations may prevent us from executing our
acquisition strategy outside of the United States, United Kingdom and Australia.
19. We are Dependent on International Trade to Generate Revenues.
------------------------------------------------------------
International trade is essential to our business and has played an important
role in the economic development of the regions in which we currently operate.
International trade is influenced by many factors, including economic and
political conditions, employment issues, currency fluctuations and laws relating
to tariffs, trade restrictions, foreign investments and taxation. A reduction
in the level of international trade, material restrictions on trade or a
downturn in the economies of the United States of America, United Kingdom or
Australia could have a material adverse effect on our business.
14
<PAGE>
20. Exchange Rate Fluctuations may have an Adverse Effect on our Results
--------------------------------------------------------------------
of Operations. We currently bill in U.S. dollars, Australian dollars and British
- -------------
pounds. Approximately 85% of our revenues are generated outside of the United
States and billed in foreign currencies. Of these foreign currencies,
approximately 81% are in the form of British pounds and the remainder Australian
dollars. Exchange rates for these currencies and other local currencies in
countries where we may operate in the future often fluctuate in relation to the
U.S. dollar. These fluctuations may have an adverse effect on our earnings or
assets when local currencies are exchanged for U.S. dollars. We do not currently
engage in any hedging transactions in international currencies. Accordingly,
weakening of the value of foreign currencies against the U.S. dollar could
result in lower revenues and lower earnings.
21. We are Subject to Substantial Government Regulation. Our operations
---------------------------------------------------
require licenses, permits and approvals in each jurisdiction in which we
operate. Specifically, our domestic interstate and intrastate motor carrier
operations are regulated by the United States Department of Transportation and
various State Departments of Transportation. These authorities prescribe certain
safety requirements which, if not complied with, may result in fines or the
revocation of existing licenses. The loss or revocation of any existing
licenses, permits or approvals or the failure to obtain any necessary licenses,
permits or approvals that may be required in the future would have an adverse
effect on our ability to conduct our business and/or on our ability to expand
into additional jurisdictions. We may not be able to obtain such licenses,
permits or approvals. In addition, countries in which we seek to operate may
have regulatory systems that impose other impediments on our operations which
may prevent us from executing its acquisition strategy outside of the United
States, United Kingdom and Australia.
USE OF PROCEEDS
We will not receive any proceeds from the sale of Common Stock by the
Selling Security Holders. 800,890 of the Shares being offered by the Selling
Security Holders are issuable upon exercise of outstanding warrants owned by the
Selling Security Holders. These Warrants have an exercise price of $5.00 per
share. Accordingly, we will realize proceeds of approximately $4,000,000
(representing payment of the exercise price) upon the exercise of such warrants
by the Selling Security Holders.
MARKET FOR THE COMPANY'S COMMON STOCK
Our Common Stock is listed for quotation on the OTC Electronic Bulletin
Board under the symbol "SKYN" however, the market for such shares is extremely
limited. As of the date of this Prospectus, only 100,000 shares of our Common
Stock are eligible for public trading. No assurance can be given that a
significant trading market for our Common Stock will develop or, if developed,
will be sustained. Our Common Stock has been eligible for such trading since May
15, 1998.
15
<PAGE>
The following table sets forth the range of the high and low closing bid
prices of our Common Stock during each of the calendar quarters identified
below. These bid prices were obtained from the National Quotation Bureau, Inc.
and do not necessarily reflect actual transactions, retail markups, mark downs
or commissions. The transactions include inter-dealer transactions. Based on the
very limited public float and trading in our Common Stock, we believe that such
data is anecdotal and may bear no relation to the true value of our Common Stock
or the range of prices that would prevail in a fluid market.
<TABLE>
<CAPTION>
High Low
---- ---
1998
----
<S> <C> <C>
2nd Quarter * *
3rd Quarter $0.53125 $0.03125
4th Quarter $ 5.50 $0.03125
1999
----
1st Quarter $ 7.25 $ 3.3125
2nd Quarter (through May 11, 1999) $ 8.25 $ 7.50
</TABLE>
*No bids reported
The closing bid price of our Common Stock as of May 11, 1999 was $8.125 per
share.
Shares Issuable upon Exercise or Conversion of Options, Warrants and Preferred
Stock
We have issued options to purchase an aggregate of 2,765,000 shares of our
Common Stock. Options to purchase 1,400,000 shares are subject to vesting
commencing October 14, 2000, 930,000 are subject to vesting over a three (3)
year period commencing June 30, 1999, 400,000 vest in ratable installments over
a three (3) year period commencing October 14, 1999 and 35,000 are subject to
vesting commencing April 12, 2000. We have also issued warrants to purchase an
aggregate of 933,390 shares of Common Stock of which 800,890 are currently
exercisable and 132,500 are exercisable commencing February 20, 2000. We have
also issued an aggregate of 2,003,560 shares of Series A Convertible Preferred
Stock ("Series A Shares") which are convertible into a like number of shares of
Common Stock within two (2) years of the date of issuance of such shares.
Shares Eligible for Public Resale and Registration Rights
As of the date of this Prospectus, no shares of our Common Stock are
eligible for public resale pursuant to Rule 144 promulgated under the Securities
Act of 1933, as amended (the "Securities Act"). On or about June 30, 1999,
approximately 650,000 shares of our Common Stock, all of which are being
registered hereunder, will be eligible for public resale pursuant to Rule 144
under the Securities Act. On or about September 30, 1999, an additional
4,875,000 shares, of which 3,179,849 shares are being registered hereunder, will
be elibible for public resale pursuant to Rule 144 under the Securities Act.
Finally, on or about October 14, 1999, an additional 9,901,500 shares will be
eligible for public resale pursuant to Rule 144 under the Securities Act.
In addition to the shares being registered hereunder, we have also agreed
to register for public resale no later than February 2000, 1,325,500 shares of
Common Stock and an additional 132,550 shares issuable upon exercise of warrants
which we issued in a private placement transaction during February 1999.
16
<PAGE>
In connection with our acquisition of Fleet we issued 1,479,415 shares of
Common Stock. We agreed to register the public resale of these shares no later
than March 15, 2000. We also granted limited registration rights with respect
to the 114,184 shares of Common Stock issuable in connection with our
acquisition of FOB. In the event that we file a registration statement offering
shares of Common Stock for our own account, we agreed to include these shares in
such registration.
Holders
As of May 17, 1999, the number of stockholders of record of our Common
Stock was approximately 135. We believe that there are additional beneficial
owners of our Common Stock who own their shares in "street name."
Dividends
We have not paid any cash dividends to date, and have no intention to pay
any cash dividends on our Common Stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of our Board
of Directors and to certain limitations imposed by the General Corporation Law
of the State of Delaware. The timing, amount and form of dividends, if any, will
depend, among other things, on our results of operations, financial condition,
cash requirements and other factors deemed relevant by our Board of Directors.
CAPITALIZATION
The following table sets forth our long-term debt and capitalization as of
March 31, 1999: (i) on an actual basis; and (ii) on a pro forma as adjusted
basis, giving effect to the Pro Forma Adjustments (see Note A of "Prospectus
Summary--Summary Financial Information").
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------
Pro Forma
Actual As Adjusted
----------- ------------
<S> <C> <C>
Long term liabilities.................................................... $ 531,050 $ 531,050
----------- -----------
Preferred Stock, $.0001 par value, 5,000,000 shares authorized; no
shares issued and outstanding, 2,003,560 issued and outstanding
(pro forma as adjusted)................................................. - 200
Common Stock, $.0001 par value, 50,000,000 shares authorized;
18,903,915 shares issued and outstanding; 18,935,034 shares
issued and outstanding (pro forma as adjusted)........................... 1,890 1,893
Additional Paid-in Capital................................................ 7,178,592 11,240,627
Foreign currency translation adjustment................................... 6,843 6,843
Accumulated deficit....................................................... (2,608,191) (2,608,191)
----------- -----------
Total stockholders' equity................................................ 4,579,134 8,641,372
----------- -----------
Total capitalization...................................................... $ 5,110,184 $ 9,172,422
=========== ===========
</TABLE>
17
<PAGE>
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.
The Company is a full service provider of international transportation
delivery services operating primarily as an express courier for time sensitive
documents and packages. The Company's services consist of:
. Time certain deliveries within 24-48 hours of pickup
. Next flight out services for same day expedited deliveries
. Local ground transport in select locations
. Freight forwarding services
. Bulk shipment of mass mailing materials for local distributions
. Global logistics services incorporating the Company's computerized
tracking system
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 our offices in London, Manchester and Bristol, England; Sydney,
Melbourne and Brisbane, Australia; New York; San Francisco, Los Angeles and
Sacramento, California; Las Vegas and Reno, Nevada; Portland, Oregon; and
Seattle and Everett, Washington, as well as through a global network of over
1,000 offices which are independently owned and operated in over 100 countries.
This Network does business under the name "SkyNet Worldwide Express", "FOB", and
"Fleet Delivery Service".
On October 1, 1997, Skynet Holdings, Inc., a Nevada corporation ("Skynet
Nevada"), a predecessor to the Company, acquired the stock of four companies
whose businesses provided international express courier delivery services and
freight forwarding services for time sensitive documents and packages to
customers throughout the world under the name "SkyNet Express". These
acquisitions were undertaken in order to consolidate the Company's London
offices with Network Members in Sydney, Melbourne and Brisbane, Australia and
New York, San Francisco and Los Angeles. These acquisitions were completed
through an exchange of shares and were accounted for as a reorganization of
entities under common control in a manner similar to a pooling of interest,
whereby the Company's consolidated financial statements have been restated to
include the accounts and operations of the merged companies for all periods
presented prior to the merger.
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.
18
<PAGE>
Due to the size and nature of its particular industry segments, the Company
believes there is an opportunity to implement a market roll-up program through
selected acquisitions in the United States and overseas. Assuming it can
successfully implement this strategy, the Company intends to acquire
transportation service companies that fit into or compliment its current
operations, including express and same day courier businesses, as well as more
localized intra-city couriers, intra-regional couriers and global freight
forwarders. In this regard, during March and April 1999, the Company completed
(i) the acquisition of the principal operating assets of Fleet Delivery Service
("Fleet"); and (ii) the acquisition of Freight On Board International Limited
("FOB"). See "BUSINESS - Acquisition Strategy."
The Company intends to further enhance the Network's competitive
capabilities by focusing on initiatives designed to ensure a high standard of
quality control, global marketing and accelerated development of leading edge
technology, all of which, if successfully implemented, would enable the Company
to achieve greater global market penetration. Through the implementation of this
strategy, the Company believes it can enhance its position as a provider of
global delivery and transportation services.
RESULTS OF OPERATIONS
Nine Months Ended March 31, 1999 Compared To 1998
Revenues. Revenues for the nine months ended March 31, 1999 amounted to
$25,609,176 compared to $24,105,906 for the nine months ended March 31, 1998, an
increase of 6.2%. The increase in revenues was attributable to higher volume
including mix of services selected by customers.
Cost of sales. Cost of sales for the nine months ended March 31, 1999
amounted to $15,617,573 compared to $14,502,379 for the nine months ended March
31, 1998. As a percentage of sales, such costs amounted to 61.0% for the nine
months ended March 31, 1999 compared to 60.2% for the corresponding period of
the prior year. The increase resulted primarily from the acquisition of Fleet
partially offset by the elimination during fiscal 1998 of marginal business and
improved rates received for existing business from carriers utilized by the
Company.
Operating Expenses. Compensation and compensation related costs increased
to $6,077,818 for the nine months ended March 31, 1999 compared to $5,184,312
during the corresponding period of the prior year. As a percentage of sales,
compensation costs increased to 23.7% during the nine months ended March 31,
1999 as compared to 21.5% for the corresponding period of the prior year.
$412,786 of the increase relates to the addition of senior level management
personnel. The remainder of the increase relates to additional staff level
personnel added with the Fleet acquisition.
Occupancy costs increased to $424,105 for the nine months ended March 31,
1999 compared to $414,283 during the prior year. Occupancy costs as a percentage
of sales remained constant during both periods. Communication expense amounted
to $556,176 during the nine months ended March 31, 1999 as compared to $457,283
for the corresponding period of the prior year.
Other operating expenses for the nine months ended March 31, 1999 amounted
to $3,824,742 compared to $3,079,343 for the nine months ended March 31, 1998.
Higher legal and professional costs of approximately $100,000, including $50,000
relating to the Merger that was completed on October 14, 1998, increased audit
fees of $70,000, increased travel and related costs of approximately $253,000
partially offset by reductions in other operating expenses.
19
<PAGE>
Year Ended June 30, 1998 Compared to 1997
Revenues. Revenues for the year ended June 30, 1998 amounted to $31,838,919
compared to $36,151,763 for the year ended June 30, 1997, a decrease of 11.9%.
The decrease in revenues included the loss of a large customer in the United
Kingdom ($900,000) and management's decision to eliminate lower margin business,
which resulted in a decrease in revenue of approximately $1,400,000.
Cost of sales. Cost of sales for the year ended June 30, 1998 amounted to
$19,123,468 compared to $24,393,228 for the year ended June 30, 1997, a decrease
of 21.6%. As a percentage of sales, such costs amounted to 60.1% for the year
ended June 30, 1998 compared to 67.5% for the prior year. The improvement during
fiscal 1998 resulted from the elimination of marginal business and improved
rates received for existing business from carriers utilized by the Company.
Operating expenses. Compensation and compensation related costs increased
to $7,178,941 for the year ended June 30, 1998 compared to $6,948,756 during the
prior year. As a percentage of sales compensation costs increased to 22.5%
during the year ended June 30, 1998 as compared to 19.2% for the prior year. The
increase as a percentage of sales resulted from a combination of lower sales
volume and wage increases as the number of employees during 1998 and 1997 was
approximately the same due to the retention of certain employees in spite of the
elimination of the low margin business described above.
Occupancy costs increased to $660,742 for the year ended June 30, 1998
compared to $529,876 during the prior year. Occupancy costs as a percentage of
sales increased from 1.5% during 1997 to 2.1% during 1998. During 1998 the
Company moved into larger facilities in London and Sydney. Communication expense
amounted to $630,221 during the year ended June 30, 1998 as compared to $615,705
for the prior year. Other operating expenses were approximately the same in both
years and included increased commissions of approximately $195,000.
Year Ended June 30, 1997 Compared to 1996
Revenues. Revenues for the year ended June 30, 1997 amounted to $36,151,763
compared to $34,404,946 for the year ended June 30, 1996, an increase of 5.1%.
The increase in revenue resulted from higher volume.
Cost of sales. Cost of sales for the year ended June 30, 1997 amounted to
$24,393,228 compared to $22,783,806 for the year ended June 30, 1996. As a
percentage of sales, such costs amounted to 67.5% for the year ended June 30,
1997 compared to 66.2% for the prior year.
Operating Expenses. Compensation and compensation related costs increased
to $6,948,756 for the year ended June 30, 1997 compared to $6,460,625 during the
prior year. As a percentage of sales compensation costs increased to 19.2%
during the year ended June 30, 1997 as compared to 18.8% for the prior year. The
increase as a percentage of sales resulted from wage increases plus the addition
of approximately 20 new employees during 1997.
Occupancy costs were approximately the same in both years at 1.5% of sales.
Communication expense amounted to $615,705 during the year ended June 30, 1997
as compared to $553,417 for the prior year. The increase in communication
expenses resulted from the expansion of the Company's business during 1997.
Other operating expenses were approximately the same in both years.
20
<PAGE>
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%
(10.0% at June 30, 1998). Borrowings under the agreement amounted to $1,466,422
and $782,012 at June 30, 1997 and 1998 and $955,488 at March 31, 1999.
Total cash and cash equivalents at March 31, 1999 amounted to $2,101,695.
Net cash provided by (used in) operating activities amounted to $387,511,
$(984,489) and $286,729 during the years ended June 30, 1996, 1997 and 1998. The
changes were primarily caused by fluctuations in receivables of $(1,119,315),
$(657,974) and $1,259,802 and fluctuations in payables and accrued liabilities
of $1,204,153, $(574,321) and $(1,356,475) during the years ended June 30, 1996,
1997 and 1998. Net cash used in operating activities during the nine months
ended March 31, 1998 and 1999 amounted to $(1,055,498) and $(1,555,888). The
increase during the nine months ended March 31, 1999 primarily results from the
increase in net loss for the period.
Net cash used in investing activities, primarily the acquisition of
property and equipment, amounted to $282,381, $315,827 and $244,212 during the
years ended June 30, 1996, 1997 and 1998, and $136,820 and $168,959 during the
nine months ended March 31, 1998 and 1999. Included in investing activities for
the nine months ended March 31, 1999 was $272,551 received in connection with
the Fleet acquisiton.
Net cash provided by (used in) financing activities amounted to $1,416,850
and $(70,867) during the years ended June 30, 1997 and 1998. The Company
received $1,466,422 from bank borrowings during the year ended June 30, 1997 and
repaid $684,410 during the year ended June 30, 1998. During the year ended June
30, 1998, the Company received net proceeds in the amount of $398,000 from the
sale of 258,000 shares of the Company's Common Stock at $2.00 per share. Net
cash provided by financing activities during the nine months ended March 31,
1998 and 1999 amounted to $1,705,277 and $3,535,717. The increase during the
nine months ended March 31, 1999 resulted from net proceeds of $2,873,094 from
the sale of the Company's common stock, increased bank borrowings of $173,476,
and proceeds from short term borrowings of $1,195,538, partially offset by
repayments of long-term debt of $506,391.
At June 30, 1998 and March 31, 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.
On December 1, 1998, the Company enhanced its liquidity through the repayment of
an aggregate of $1,145,000 of outstanding indebtedness through the issuance of
572,500 shares of Common Stock. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Repayment of Indebtedness." The Company further enhanced its
liquidity through two (2) private placements of equity securities resulting in
net proceeds to the Company of approximately $6,210,000. See "Capital
Resources" below.
21
<PAGE>
Capital Resources
During the year ended June 30, 1998, the Company completed a private
placement offering and received net proceeds in the amount of $398,000. In
connection with the Merger transaction, the Company received approximately
$500,000 from the sale of EPLR shares in a private placement transaction prior
to the Merger.
On March 5, 1999, the Company completed a private placement resulting in
the issuance of an aggregate of 1,325,500 shares of Common Stock which generated
net proceeds (after offering costs of approximately $478,000) of approximately
$2,173,000. During April of 1999, the Company further enhanced its liquidity
through the issuance of an aggregate of 422,556 Units consisting of an aggregate
of 2,003,560 Series A Shares and warrants to purchase an aggregate of 422,556
shares of Common Stock at an exercise price of $5.00 per share which generated
net proceeds (after offering costs of approximately $600,000) of approximately
$4,000,000. The Company intends to use the net proceeds of these offerings for
general working capital and general corporate purposes, primarily to finance the
Company's business plan, which includes an acquisition and consolidation
strategy, and to upgrade the Company's information technology.
The Company anticipates incurring capital expenditures in the amount of
between $150,000 and $200,000 during the quarter ending June 30,1999 in
connection with the upgrade of the Company's existing information technology.
This represents the initial software development and installation costs as well
as the additional hardware needed to effectively implement and operate the
proposed new system. The Company anticipates incurring additional capital
expenditures of $570,000 during the quarter ending September 30, 1999 in
connection with the completion of the second tier of the acquisition of the
remaining 49% of the issued and outstanding shares of capital stock of FOB. In
this regard, the Company has placed these funds into escrow to secure this
obligation.
On May 1, 1999 the Company entered into a preliminary agreement to acquire
all of the issued and outstanding shares of capital stock of Pony Express
Delivery Services, Inc. ("Pony Express"), an Atlanta based express courier which
maintains 100 offices in 22 states. In connection with the preliminary
agreement, the Company advanced $1,000,000 (the "Advance") to Pony Express. The
Advance is secured by a second lien on all assets owned by Pony Express.
The potential acquisition is subject to the negotiation and execution of a
binding definitive agreement. Thereafter, closing of the acquisition would be
further conditioned upon a number of factors including (i) the Company's
completion of a satisfactory due diligence review of the business and financial
condition of Pony Express; (ii) restructuring the outstanding indebtedness of
Pony Express; and (iii) the absence of any material contingent liabilities. The
Company has just recently commenced its due diligence of Pony Express and has
not made any judgment as to whether it will be in a position to complete the
acquisition in the short term, if at all. Accordingly, there can be no assurance
that the potential acquisition will be completed. As of the date of this
Prospectus, the Company is uncertain as to whether this acquisition is probable
of occurrence.
22
<PAGE>
In the event the acquisition is not completed, the Advance, together with
accrued interest at a rate of 10% per annum, is due and payable on the earlier
of (i) six (6) months after the termination of the preliminary agreement or
definitive agreement, as applicable; or (ii) December 31, 1999. Based on
unaudited financial information provided to the Company, management believes
that during the past several years Pony Express has incurred substantial
operating losses and presently has a capital deficit of in excess of $8 million.
If the acquisition is completed, the Company anticipates that, during the twelve
(12) month period following closing, it will be caused to provide funding to
Pony Express 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.
Management believes that with the completion of the private placement
transactions described above, the Company's existing capital resources will be
sufficient to fund its operations during the next twelve (12) 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 may seek additional funds from public or
private offerings of debt or equity securities or from bank-financing facilities
to the extent available to the Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's market risk sensitive instruments do not subject it to
material market risk exposures, except for such risks related to interest rate
fluctuations and foreign currency exchange rates. The carrying value of bank
debt and long-term debt approximates fair value at June 30, 1997 and 1998 and
March 31, 1999 since these notes substantially bear interest at floating rates
based upon the lenders' "prime" rate. The fair value of long-term debt in the
amount of $330,000 at March 31, 1998 related to the reorganization of a
subsidiary under bankruptcy cannot be estimated due to the court-mandated nature
of the debt.
Although the Company currently bills only in U.S. and Australian dollars
and British pounds, exchange rates for these and other local currencies in
countries where the Company may operate in the future may fluctuate in relation
to the U.S. dollar and such fluctuations may have an adverse effect on the
Company's earnings or assets when local currencies are exchanged for U.S.
dollars. Any weakening of the value of such local currency against the U.S.
dollar could result in lower revenues and earnings for the Company. To date,
gains and losses related to foreign currency transactions and foreign currency
translation have not been material for the Company.
Included in the Company's consolidated balance sheets at June 30, 1998 and
1997 and March 31, 1999 are the net assets (liabilities) of the Company's United
Kingdom subsidiary of approximately $410,000, $469,000 and $148,000 and the
Company's Australian subsidiary of approximately $212,000 and $(230,000) and
$230,000 for the same periods.
23
<PAGE>
SEASONALITY
Company revenues in certain geographic regions appear to be subject to
certain seasonal fluctuations. These seasonal fluctuations have not, to date,
been apparent in the Company's overall results of operations.
INFLATION
The Company does not believe that inflation has to date had a material
impact on its operations. Significant increases in labor, or other operating
costs could have a material adverse affect on the Company's results if the
Company were for some reason unable to pass along cost increases due to general
inflation by increasing its prices.
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.
Management expects to have substantially all of the systems application changes
completed within the next 5 months and believes that its level of preparedness
is appropriate.
Management is currently replacing the accounting software used throughout
the Company with an updated version which includes accounts payable and accounts
receivable modules that are Year 2000 compliant. Management expects that the
upgrade will be completed by June 30, 1999. In addition, the Company has
received representations from its independent consultant that the current
SkyComs system is Year 2000 compliant. We are in the process of replacing the
current SkyComs system with a "state of the art" Windows 95/98NT manifest
tracking and tracing system with full Internet access capabilities. This new
system will be implemented on or about August 1, 1999.
The Company also relies, both domestically and internationally, upon
airlines, government agencies (particularly the Federal Aviation
Administration), utility companies, telecommunication service companies and
other service providers outside of the Company's control. The Company is
monitoring information provided by several national and international
associations which pursue common Year 2000 objectives and are active in a global
and industry-wide effort, to understand the Year 2000 compliance status of
airports, airlines, air traffic systems, customs clearance and other U.S. and
international government agencies, and common vendors and suppliers. However,
there is no assurance that suppliers, governmental agencies or other third
parties will not suffer a Year 2000 business disruption. Such failures could
have a material adverse affect on the Company's financial condition, liquidity
or results of operations.
The total cost to the Company of these Year 2000 compliance issues is not
anticipated to be material to its financial position or results of operations in
any given year. These costs and the date on which the Company plans to complete
the Year 2000 modification and testing processes are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no assurances that
these estimates will be achieved and actual results could differ from those
plans.
24
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS 129") is effective for financial
statements ending after December 15, 1997. SFAS 129 reinstates various
securities disclosure requirements previously in effect under Accounting
Principles Board Opinion No. 15, which has been superseded by SFAS 128. The
Company adopted SFAS 129 on June 30, 1998, and it did not have any effect on its
consolidated financial position or results of operations.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") is effective for financial statements with
fiscal years beginning after December 15, 1997. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. This standard was adopted during
fiscal 1999.
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segment of an Enterprise and Related Information" ("SFAS 131"), is effective for
financial statements with fiscal years beginning after December 15, 1997. The
new standard requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and condensed financial statements of interim periods issued to
stockholders. It also requires that public business enterprises report certain
information about their products issued to stockholders. It also requires that
public business enterprises report certain information about their products and
services, the geographic areas in which they operate and their major customers.
This standard was adopted during fiscal 1999.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosure
About Pensions and Other Postretirement Benefits" ("SFAS 132") is effective for
financial statements with fiscal years beginning after December 15, 1997. SFAS
132 requires employers' disclosures about pension and other postretirement
benefits plans. This standard was adopted during fiscal 1999.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") is effective for
financial statements with fiscal years ending June 15, 1999 and later. SFAS 133
establishes accounting and reporting standards for derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. This standard was adopted during fiscal 1999.
Statement of Financial Accounting Standards No. 134, "Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale By a Mortgage Banking Enterprise," ("SFAS 134") is effective for
financial statements with fiscal years beginning after December 15, 1998. SFAS
134 amends SFAS No. 65, "Accounting for Certain Mortgage Banking Activities"
which establishes accounting and reporting standards for certain activities of
mortgage banking enterprises and other enterprises that conduct operations which
are substantially similar to the primary operations of a mortgage banking
enterprise. The Company does not expect adoption of SFAS 134 to have a material
effect, if any, on its consolidated financial position or results of operations.
25
<PAGE>
BUSINESS
ADDITIONAL AVAILABLE INFORMATION
The Company is subject to the informational and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission the ("Commission"). Such reports, proxy
statements and other information concerning the Company may be inspected without
charge, and copies of all or any part thereof may be obtained from the
Commission's principal office in Washington, DC at Room 1024, 450 Fifth Street
NW, Washington, DC 20549, and at the Commission's regional offices at 7 World
Trade Center, Suite 1300, New York, New York 10048, and at Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials can be obtained upon written request addressed to the Commission,
Public Reference Section, 450 Fifth Street, NW, Washington, DC 20549, at
prescribed rates. In addition, the Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock being
offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain parts of which have been omitted as permitted by the
rules and regulations of the Commission. For further information with respect to
the Company and the shares of Common Stock offered hereby, reference is made to
the Registration Statement, including the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to herein are not necessarily complete and, where such
contract or other document is an exhibit to the Registration Statement, each
such statement is qualified in all respects by the provisions of such exhibit,
to which reference is hereby made.
GENERAL DEVELOPMENT OF BUSINESS
The Company is a full-service provider of international transportation
delivery services operating primarily as an express courier for time sensitive
documents and packages. The Company's primary operations are conducted in the
United Kingdom and Australia and the United States.
Unlike most nationally and internationally recognized express couriers, the
Company does not carry out all phases of the delivery process. Instead, the
Company utilizes available cargo space on commercial passenger and cargo
aircraft and effectuates most deliveries through a global alliance of
independent couriers with over 1000 offices in over 100 countries throughout
Europe, Asia, North and South America, Africa and Australia. The Company and
these independent couriers comprise the SkyNet Worldwide Express Network (the
"SkyNet Network" or "Network") and operate under the name "SkyNet Worldwide
Express" or "SkyNet". Each member of the SkyNet Network is linked together by
the SkyCom system, the Company's computerized tracking and billing information
system which tracks each package delivered through the SkyNet Network from
initial pick up to final delivery. The Company's long term goal is to become a
leading provider of international express delivery services by pursuing a three-
fold strategy of making select acquisitions both within and outside of the
United States, increasing operating efficiencies and consolidating key members
of the Network.
The Company operates through its wholly owned subsidiaries identified below
as well as through the SkyNet Network:
26
<PAGE>
. Sky International Limited, a United Kingdom corporation ("SIL")
. SkyNet Worldwide Express Pty Ltd., a New South Wales, Australia
corporation ("SWEPL")
. DPE International, Ltd., a Delaware corporation ("DPE")
. Skynet, Inc., a New York corporation
. Freight On Board International Limited, a United Kingdom corporation,
("FOB")
. Fleet Acquisition Corp., a Nevada corporation, ("Fleet")
The Company's revenues are primarily derived from retail customers and not
Network Members. Revenues derived from Network Members relate primarily to
charges for use of the Company's SkyCom system and to a lesser extent on
linehaul charges for packages, generated by Network Members which pass through
the Company's hubs. Other than revenues from the SkyCom system, the Company
does not break out revenues generated by Network Members.
The Company is the surviving entity to the Merger between EPLR and Skynet
Nevada, effective as of October 14, 1998. Prior to the Merger, EPLR was an
inactive company whose shares were listed for quotation on the OTC Electronic
Bulletin Board. EPLR was organized December 15, 1994, under the laws of the
State of Florida. EPLR has no operations and was considered a development stage
company.
Skynet Nevada was formed on September 16, 1997 to effectuate the
consolidation of certain principal members of the Network. Pursuant to a Share
Exchange Agreement dated September 30, 1997 by and among Skynet Nevada and the
shareholders of SIL, SWEPL, and DPE, as subsequently amended, Skynet Nevada
acquired all of the issued and outstanding shares of capital stock of these
entities in exchange for 4,200,000 shares of its common stock. This resulted in
Skynet Nevada owning and operating the principal distribution hubs of the
Network, operating the SkyCom proprietary computerized tracking and billing
system and gaining effective control of the Network. Pursuant to the Merger, all
of the issued and outstanding shares of Common Stock of Skynet Nevada were
exchanged for an aggregate of 9,901,500 shares of Common Stock of the Company.
GEOGRAPHIC INFORMATION
The Company operates in one principal industry segment: the delivery of time
sensitive documents and packages. A summary of the Company's geographic
information is presented below:
<TABLE>
<CAPTION>
United
States Europe Australia Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales to Customers.......... 1998 $5,962,396 $21,250,613 $4,625,910 $31,838,919
1997 7,597,883 24,079,365 4,474,515 36,151,763
1996 7,714,977 22,661,783 4,028,186 34,404,946
- --------------------------------------------------------------------------------------------------------
Operating Income (Loss)......... 1998 (384,849) 630,936) 334,890 580,977
1997 107,664 (381,347) 244,176 (29,507)
1996 (341,921) 701,310 99,333 458,722
- --------------------------------------------------------------------------------------------------------
Identifiable Assets............. 1998 882,250 5,066,925 936,640 6,885,815
1997 918,546 6,199,922 985,603 8,104,071
1996 1,102,830 5,502,766 699,721 7,305,317
- --------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
INDUSTRY OVERVIEW
The Company's principal operations are conducted overseas. In fact, 82% of
the Company's revenues during the fiscal year ended June 30, 1998 were generated
from deliveries outside of the United States. Based on the results of operations
of recently acquired businesses (FOB and Fleet), this percentage is anticipated
to decrease to approximately 66%. According to industry data compiled by
Triangle Management Services Ltd., a UK based consulting company to the global
express and freight industries, the estimated size of the world international
express delivery market (one of the markets in which the Company competes) is
approximately $14 billion, the estimated aggregate size of the world domestic
express markets is approximately $55 billion, and in 1997, the global
international market grew at an estimated annual rate of 12% while the various
domestic markets grew at an average of approximately 6%. In its recently
published 1998-1999 World Air Cargo Forecast, Boeing reported that the
international express delivery market currently accounts for 6% of the world air
cargo market, is experiencing rapid growth and by 2017 is expected to approach
40% of the total market.
Domestic Express Courier Segment
The next-day and two-day express courier industry in the United States is
dominated by much larger competitors such as United Parcel Service, Inc. ("UPS")
and FDX Corp.'s Federal Express Division ("FedEx"). Although the Company offers
these services to its customers in the United States, such services represent a
small percentage of the Company's business and are not the focus of future
growth. This service often consists of picking up packages directly from
customers and unless the destination is in or around one of the Company's
domestic stations (Los Angeles, San Francisco or New York), forwarding them via
other domestic couriers, typically at lower wholesale rates, to their ultimate
domestic destination.
International Express Courier; Same-Day; Regional; and Freight Forwarding
Segments
The same-day, regional, freight forwarding and international segments of the
courier services business are more fragmented and served by thousands of smaller
companies. Although major corporations such as DHL, FedEx and UPS have
substantial worldwide operations, the international express courier business is
also served by many smaller independent operators. These markets are more
fragmented and demand more specialized services than the domestic next day
delivery market. The Company primarily participates and competes in these
markets. Through Company owned stations and the Network, the Company serves
these specialized delivery needs of corporate and small business customers in a
retail environment.
The same-day freight forwarding, regional express courier and international
segments of the industry are currently undergoing substantial growth and
consolidation. Management of the Company believes that several factors are
driving this growth and consolidation. First, commercial and industrial
companies are continuing to follow the trend of concentrating on their core
business by outsourcing non-core activities. Second, the significant growth in
catalogue and at-home shopping, electronic commerce as well as modern inventory
management focused on just-in-time delivery, requires customized and reliable
express delivery services. Management believes that these trends will increase
the demand for specialized time-certain deliveries and provide significant
opportunities for the Company to expand its business both internally and through
strategic acquisitions of same-day, regional and international express delivery
companies.
28
<PAGE>
OVERVIEW OF BUSINESS
The Company is a single-source provider of global transportation delivery
and logistic services to a diverse international customer base. These services
consist of the following:
. Time-certain deliveries of documents and packages within 24-48 hours of
pickup to most parts of the world.
. Next-flight-out services for same day expedited deliveries of the most
time-sensitive documents and packages.
. Local ground transport of hand-deliveries.
. Freight forwarding services for manufacturing and distribution companies
in the United States and overseas.
. Bulk shipment or "remailing" of mass mailing materials produced in one
country for distribution in another country.
. Global logistics services with respect to inventory management for
manufacturing and distribution companies.
Rather than focusing on particular segments of the industry and offering
standardized services based on rigid pickup and delivery times, the Company
designs and markets its services to meet the specific needs of its customers.
ahe variable cost, low overhead structure of the Company's current model of
operations provides the Company with the flexibility to provide such customized
services. For example, the Company utilizes excess cargo space on commercial
aircraft rather than operating its own fleet, and through the Skynet Network,
enjoys a global presence without incurring the cost of maintaining its own
offices in most locations. As a result, the Company has access to a greater
number of aircraft with a wider range of scheduled departures. This allows the
Company to provide services tailored to any number of specific customer
requests.
Operations of Subsidiaries
SIL, formed in 1978, maintains offices in London, Manchester, Bristol and
Birmingham, England, and acts as the European hub of the Network. SIL makes
deliveries on behalf of the Network throughout the United Kingdom and provides
same-day courier services in select regions of the United Kingdom. SIL also
operates the SkyCom proprietary computerized tracking and billing information
system which tracks each package in the Skynet Network from point of pickup to
final destination.
FOB, formed in 1981, provides same-day and overnight express services
throughout the United Kingdom principally to the financial, media and
advertising industries.
SWEPL, formed in 1984, conducts operations in Sydney, Melbourne and
Brisbane, Australia and acts as a hub for the Pacific Rim operations of the
Network.
DPE, formed in 1984, maintains offices in Los Angeles and San Francisco,
California. Los Angeles serves as the hub for deliveries throughout the western
United States, Canada and parts of the Far East.
29
<PAGE>
Fleet is headquartered in Las Vegas, Nevada and serves as the hub for
regional same-day and overnight deliveries throughout the western United States
principally to the banking industry.
Skynet, Inc. formed in 1991, maintains offices in Jamaica, New York and
operates as the hub for the Company's New York operations for deliveries
throughout the eastern United States and Canada.
In 1995, DPE filed for protection under Chapter 11 of the United States
Bankruptcy Code in the Central District of California. On August 1, 1996, an
Order was entered confirming DPE's Plan of Reorganization. On December 2, 1996,
an Order of Final Decree and Discharge was entered with respect to DPE. At May
11, 1999, assets of DPE secure approximately $200,000 of obligations under its
Plan of Reorganization.
The SkyNet Network
Most express delivery companies, including UPS and FedEx, seek to carry out
all phases of the delivery process by using directly owned offices, facilities
and equipment. By contrast, the Company utilizes the SkyNet Network to effect
the delivery of the vast majority of packages delivered under the SkyNet name.
As described above, the Network is comprised of the Company's subsidiaries and
independently owned and operated courier services located in some 1,000 cities
in over 100 countries throughout the world operating generally under the names
"SkyNet" or "SkyNet Worldwide Express."
SkyNet Network members ("Members") provide delivery of packages in their
region which originate from other Network Members. In exchange, each Member
receives delivery of its packages by other Network Members in their respective
regions. Payment, if any, for deliveries by Network Members is dependent upon
the number of packages delivered as compared to the number of packages generated
by each Network Member. Established high volume Network Members have
historically achieved a balance between packages delivered and packages
generated for delivery by other Network Members. Accordingly, no payments are
made by or to such Members or to or from the Company or any other Network Member
for such deliveries. Network Members who experience a significant difference
between packages delivered and packages generated for delivery by other Network
Members participate in a cost recovery system whereby they receive payments from
the Company or other Network Members for providing such delivery services. Any
transfer fee imposed by a hub operator for the transport of packages from one
country to another is borne by the Member who originally generated the shipment.
Each package generated by a Network Member is entered into and tracked from
pick-up to delivery by the SkyCom system which charges Network Members a fee of
approximately $.30 per shipment. In short, through its subsidiaries and the
SkyCom system, the Company forms the core of an extensive group of independent
delivery companies in different parts of the world which operate under a common
brand name and deliver each other's packages from airport-to-door.
30
<PAGE>
The Network is an alliance of delivery professionals. In fact, most Network
Members are bound not by a formal licensing agreement, but rather by mutual
opportunity and need. Although management of the Company is currently
evaluating the merits of creating a more formalized arrangement, it believes
that the absence of contractual obligations between the Company and the vast
majority of the Network Members will not have an adverse effect on the Company's
operations even though there can be no assurance that Network Members will not
enter into exclusive or non-exclusive arrangements with competitive networks
offering greater benefits or lower costs. This belief is based, in part, on the
fact that many of the existing couriers are small businesses which have been
operating as Network Members for many years without a written contract.
Management believes that these entities may resist entering into a more
formalized arrangement. In addition, management continues to believe that
independent couriers receive a number of substantial benefits by being a Network
Member and therefore, have an economic incentive to remain a member of the
Network.
First and foremost, by gaining access to the Network, independent couriers
have the ability to cost-effectively deliver packages to distant locations
throughout the world. For example, if a local courier in Turkey needed to
deliver a package to Los Angeles, it may incur a minimum airline charge as much
as $70 or more for an individual package. However, by sending the package to the
Company's European hub in London where it is consolidated with numerous other
packages which are going to the United States or the Far East, the unit cost of
transporting that particular package decreases dramatically. This allows the
individual Network Member to provide international delivery service to its
customers at a more reasonable cost. Second, each member has access to the
SkyCom system. This not only ensures that the package will be tracked throughout
the delivery process and will not be delivered without a signature, but also
serves as the customs declaration manifest ("Manifest") saving the Member the
administrative fees and expenses of preparing its own paper Manifest. Third, the
package originated by the local Network Member will be delivered at its point of
destination. All of the above reduce administrative and other costs associated
with numerous international transactions in varying currencies and permit
independent couriers to offer worldwide delivery services to their customers at
competitive rates.
The SkyCom System
The SkyCom system is the Company's computerized billing and tracking
information technology. The SkyCom system is an internet based software program
which provides computerized tracking and billing information for each package
delivered through the SkyNet Network. Upon a package being dispatched by a
customer, it is given a tracking number and entered into the SkyCom system by
the Member. Tracking information is monitored and updated at various stages of
the delivery process.
Each Network Member has real time access to the SkyCom system. This allows
all Network Members to track the status of any package being delivered through
the SkyNet Network at any time. In addition, the Company and any Network
Member's customers can access the SkyCom system through the Company's web site.
Larger customers are provided with customized software permitting them to
directly access the SkyCom system. Accordingly, at any point in the delivery
process, the Company, any Network Member and any customer is able to determine
the exact location of any particular shipment within the Network.
31
<PAGE>
Management believes that maintaining a state of the art computerized
tracking system is an essential component of the Company's operations and
provides the framework upon which the Company will attempt to build a larger
global distribution system. Although management believes that the current SkyCom
system is capable of effectively serving the needs of the Company and the
Network Members, it recently commenced the upgrade of the Company's existing
information technology and the outsourcing of the ongoing upgrade and
maintenance of the system. The upgrade has been designed to achieve the
following three objectives:
. Provide enhanced internet applications relying on recent technological
advances;
. Provide additional and enhanced services to better fulfill the needs of
the SkyNet Network and its customers
. Reduce the Company's dependence on its existing third party licensing
arrangements.
In this regard, the Company has retained a qualified technology vendor to:
(i) develop a state-of-the-art Company-owned information technology system which
will achieve the foregoing objectives; (ii) provide the Company with technology
upgrades and new developments; and (iii) manage and operate the system through
dedicated qualified personnel provided by the vendor. The Company believes that
this system will be technologically superior to the existing SkyCom system.
The license agreement regarding the use of the existing SkyCom system is
perpetual, however, the consulting agreement, which covers the maintenance of
the current system, expires on June 1, 1999. Based on the anticipated
development of the new information technology system, the consulting agreement
will not be renewed after June 1, 1999. Since the Company will maintain its
current license to operate the existing SkyCom system, management believes that
any potential delay in the development and implementation of the new system
should not have a material adverse affect on the Company's operations. At this
time, management does not believe the SkyCom system will be impacted by the so
called "Year 2000 Problem". The upgrade to the SkyCom system will be Year 2000
compliant.
Current Operations
The Company is involved in all aspects of the express courier business. In
contrast to most express delivery companies, including UPS and FedEx, the
Company (with the exception of the Fleet business), do not carry out all phases
of the delivery process for each package, but rather relies on Network Members
for pick up or delivery of most packages and available air cargo space for
linehaul. Accordingly, the Company can be categorized as a variable rather than
fixed cost operator. With respect to the Fleet operations, the Company operates
a fleet of vehicles that pick up and deliver time sensitive documents, primarily
for the banking industry, on a routed basis in select locations in the Western
United States.
The other aspects of the Company's business consists of the following three
distinct components:
. Pickup
. Line Haul
. Delivery
32
<PAGE>
Pickup. Documents and packages delivered through the SkyNet Network are
------
typically picked up by a Company owned or Network Member van which transports
the parcel to one of the Member's or Company's stations. Specifically, Company
owned stations pickup approximately 27% of the total number of packages
delivered through the Network. Packages are then sorted by destination and
packed into air bags for transport throughout the world. At the time packages
are sorted, they are entered onto the SkyCom system and assigned a tracking
number. At the same time, an airway bill is generated based primarily on the
weight and to a lesser extent, the destination of the package. For
international deliveries, a Manifest is created describing the various documents
and packages being sent to a particular location. The Manifest is entered into
the SkyCom system and transmitted electronically to the point of destination so
that it can be reviewed and processed prior to the package's arrival. This
saves the Company and Members the expense related to preparing a paper Manifest
and the communication expense of transmitting it via facsimile.
Line Haul. Line Haul refers to the transport of packages from point of
---------
origination by ground or air to its city or country of destination. With
respect to air transport, the Company does not own or operate any aircraft but
rather, utilizes cargo space on commercial passenger and cargo aircraft. In
this regard, the Company has established relationships with a number of major
international airlines and large air freight companies from which the Company
purchases cargo space on an as-needed basis. The rates are typically charged
per pound and, depending upon departure times and space availability, are
frequently subject to negotiation. Although the Company has historically been
able to secure air cargo space as needed and believes its relations with
commercial airlines and cargo carriers are good, it has no contractual rights
with respect to the acquisition of cargo space and no assurance can be given
that it will continue to be in a position to secure such space in the future.
The Company believes this system is superior to the capital intensive
alternative of owning, operating and maintaining its own fleet of aircraft. In
order to most efficiently operate an air fleet, couriers such as FedEx must
ensure that each aircraft is filled to capacity. To best achieve this
objective, FedEx maintains a rigid departure schedule; typically one departure
each evening from each city in which it operates. By utilizing commercial
aircraft, the Company has access to many more destinations and departure times.
This provides the Company with the flexibility to provide next-flight-out
services for the fastest delivery of time sensitive documents and the ability to
more effectively meet special customer needs.
With respect to ground transport, the Company operates ground transportation
services at its hub locations for pickup and consolidation of packages at such
locations. Some of these services are performed on a "routed" basis (i.e.
scheduled route) while others are on an as requested basis.
Delivery. Upon reaching its destination, packages are sorted and released
--------
in accordance with the Manifest. All non-documents must be cleared by a customs
agent. In this regard, the Company utilizes the services of a custom's broker to
manage the release of packages within the Network. Upon packages being released
from the airport, they are sorted at a Company or a Network Member owned
station. Documents and packages are then delivered by truck by the Company or,
more often, a Network Member. Specifically, during the year ended June 30, 1998,
Company's owned stations delivered approximately 20% of the total number of
packages delivered through the Network. Neither the Company nor any Network
Member will deliver a package without the signature of the recipient. This
ensures, to the best extent possible, that packages reach their intended
destination.
33
<PAGE>
Pricing. Due to the highly competitive nature of the express courier
-------
business, competitive pricing is critical to the Company's ability to
effectively compete in the market. The Company believes that its variable cost
structure permits it to provide quality services at reasonable rates. Pricing is
typically based on the weight and the destination of the package. Since the
Company and Network Members aggregate large volumes of packages for air cargo
shipment, the Company enjoys per unit air transportation costs which are less
than some smaller regional couriers. Since it does not maintain its own
aircraft, unit costs do not substantially rise or fall with volume fluctuations.
Customers. The Company maintains a diverse international customer base and
---------
no customer accounts for in excess of 5% of the Company's annual consolidated
revenues. The Company's principal customer base can be divided into two (3)
distinct categories. First, commercial business enterprises with international
offices, customers or distribution centers which utilize the Company's
international services. Second, commercial entities based in the United Kingdom
or Australia, which are primarily engaged in domestic manufacturing or service
businesses with delivery needs to the principal commercial centers of those
countries. Third, Network Members which utilize Company stations to process,
forward or deliver packages which are generated by Network Members. Other than
airbills for individual packages, the Company does not have contracts with any
of its customers. To date, the Company has not marketed its services on a global
basis to any of its customers but is currently considering the benefits of such
an approach.
Seasonality. Due to the international nature of the Company's business, it
-----------
is not subject to any material seasonal fluctuations. For example, although
volume in the United States and Europe decreases in July and August, volume in
Australia is substantially higher during these months.
BUSINESS STRATEGY
The Company's objective is to become a recognized provider of express
delivery and logistics services throughout the world. The Company plans to
achieve its objective through implementation of a three-fold business strategy
involving strategic acquisitions within its industry, consolidation with key
Network Members and focus on internal growth and increased operating
efficiencies.
Acquisition Strategy
The Company intends to aggressively pursue an acquisition strategy to
enhance its position in its current markets and acquire operations in new
markets. The Company will focus its acquisition strategy on candidates that
either fit into or complement the Company's current operations. This will
include the acquisition of independent local and regional express courier
companies in the United States and overseas which can be consolidated into the
Company's current operations. It will also include targeting same-day couriers,
intra city couriers and global freight forwarders which can compliment the
Company's current operations. For example, the Company could acquire an intra
city courier in a major US or European city or a domestic regional express
courier which, although it might not fit precisely within the Company's current
operations, could provide the Company with a more efficient delivery system and
substantial cross-selling opportunities by offering international delivery
services to a new set of customers.
The Company's present strategy is to (i) acquire additional companies that
are intended to supplement the Company's existing market presence as "tuck-in"
acquisitions; and (ii) establish a significant presence in new markets or
geographic areas through the acquisition of established regional competitors as
"platform" acquisitions to be followed by additional "tuck-in" acquisitions.
34
<PAGE>
Platform Acquisitions. A "platform acquisition" is defined by management as
---------------------
one that creates a significant presence for the Company in a new geographic
market or market segment. The Company intends, where possible, to make platform
acquisitions in targeted markets by acquiring established local and regional
express courier companies. In general, the Company intends to retain the
management as well as the operating and sales personnel of a platform
acquisition in order to maintain continuity of operations and customer service.
The Company will seek to increase an acquired company's revenues and improve its
profitability by integrating the acquired company into the SkyNet Network. The
Company believes that these acquisitions could provide significant cross-selling
opportunities by providing international express courier services to existing
customers on a cost-effective basis. These acquisitions are also intended to
provide a significant market presence from which additional "tuck-in"
acquisitions can be undertaken.
Tuck-In Acquisitions. A "tuck-in" acquisition will more likely occur in an
--------------------
existing market, will be smaller than a platform acquisition and will enable the
Company to offer additional services or expand into secondary markets within a
region already served. In most instances, management believes that the
operations acquired by tuck-in acquisition can be integrated into the Company's
existing operations, resulting in the elimination of duplicative overhead and
operating costs and ultimately increasing operating margins and/or price
competitiveness.
The Company's acquisition strategy is intended to compliment rather than
replace the existing SkyNet Network. By focusing on "platform acquisitions" in
new markets, the Company is seeking to increase its global presence in order to
provide additional points of delivery for the Company and all Network Members.
Similarly, "tuck-in" acquisitions are primarily intended to provide additional
services or increased presence in existing markets. Although the Company's
acquisition strategy will require the Company to directly pick-up and deliver
additional packages, the Company will continue to utilize available air cargo
space on commercial aircraft for line haul and rely on Network Members for most
deliveries in order to minimize fixed overhead costs.
Recent Acquisitions. The Company recently completed two material
-------------------
acquisitions.
On March 15, 1999, the Company acquired the operating assets of Fleet
Delivery Service, a courier delivery service in the states of Nevada, Arizona,
California, Oregon and Washington. The Company paid $3,059,000 (including
approximately $100,000 acquisition costs) by issuing 1,479,415 shares of our
Common Stock. The assets acquired include; receivables, delivery vehicles,
equipment, refundable deposits, licenses, administrative material and equipment,
records and documents, and all personal property used in the operation of the
business. The acquisition was accounted for using the purchase method of
accounting with the assets acquired and liabilities assumed recorded at fair
values, and the results of the acquired business will be included in the
Company's consolidated financial statements from the closing date of the
acquisition. The Company views Fleet as a "Platform Acquisition providing the
Company with a presence in new geographic areas and a large customer base to
market the Company's additional services.
35
<PAGE>
On April 12, 1999, the Company completed the first tier of a scheduled two-
tiered acquisition of Freight on Board International Limited, a corporation
organized under the laws of the United Kingdom ("FOB"). At the initial closing,
we purchased 51% of the issued and outstanding shares of FOB for cash in the
amount of approximately $680,000; 31,119 shares of Common Stock; and a one (1)
year cash earn-out payment in the amount of up to $144,000 based on quarterly
revenues of FOB for the one year period following the closing. The remaining
49% of the capital stock of FOB, which is owned by Mr. John Clark, is scheduled
to be acquired during the third or fourth quarter of 1999. This will occur by
virtue of reciprocal put and call features within the acquisition agreement
which permit Mr. Clark to "put" his shares to the Company commencing July 2,
1999 and terminating December 31, 1999; and the Company to "call" such shares
from Mr. Clark commencing August 1, 1999 and terminating September 29, 1999.
The purchase price for the remaining 49% consists of (i) cash in the amount of
approximately $570,000; (ii) 83,067 shares of Common Stock; and (iii) a one year
cash earn-out payment in the amount of up to approximately $265,000 based on
quarterly revenues of FOB for the one year period following the closing. The
cash has been placed in an escrow account pending such acquisition. The Company
accounted for the acquisition using the purchase method of accounting with the
assets acquired and liabilities assumed recorded at fair values, and the results
of the acquired business will be included in our consolidated financial
statements from the closing date of the acquisition.
FOB is headquartered at Heathrow Airport in London, England and maintains
branch offices in the financial district of London, England and New York City,
New York. Since 1981, FOB has provided same-day and overnight express delivery
services throughout the United Kingdom principally to the financial, media and
advertising industries. FOB also provides international express courier, freight
forwarding and specialized mailing services. The Company's New York based
subsidiary forwards packages originated in England to destinations throughout
the United States, South America and Canada on behalf of FOB and other smaller
UK based courier companies. During its last completed fiscal year, FOB realized
revenues of approximately US $10 million and employed approximately 100 persons.
The Company views FOB as a "tuck in" whose operations can be combined with the
Company's existing United Kingdom operations.
Potential Acquisition. On May 1, 1999 the Company entered into a
---------------------
preliminary-agreement to acquire all of the issued and outstanding shares of
capital stock of Pony Express Delivery Services, Inc. ("Pony Express"), an
Atlanta based express courier which maintains 100 offices in 22 states. The
potential acquisition is subject to the negotiation and execution of a
definitive agreement. Thereafter, closing of the acquisition would be further
conditioned upon a number of factors including (i) the Company's completion of a
satisfactory due diligence review of the business and financial condition of
Pony Express; (ii) restructuring the outstanding indebtedness of Pony Express;
and (iii) the absence of any material contingent liabilities. The Company has
just recently commenced its due diligence of Pony Express and has not made any
judgment as to whether it will be in a position to complete the acquisition in
the short term, if at all. As of the date of this Prospectus, the Company is
uncertain as to whether this acquisition is probable of occurrence. Accordingly,
there can be no assurance that the potential acquisition will be completed.
36
<PAGE>
Consolidation of Certain Network Members
The second component of the Company's business strategy is to consolidate,
via acquisition, certain of the Network Members. In this regard, the Company
intends to focus on acquiring Network Members who have a proven record of
generating a large volume of packages for delivery through the SkyNet Network.
Management believes this strategy will lead to increased productivity and
efficiency and substantially increase revenues by effectively converting certain
Network Members into revenue and profit centers for the Company and providing
such Network Members with an equity stake in the Company.
The Company believes it can successfully implement its acquisition and
consolidation strategy due to the following factors:
. The highly fragmented composition of certain segments of the express
courier industry
. The Company's unique position as a global courier which will enable it to
offer acquired companies the ability to substantially expand the services
provided to their existing customers
. The potential for increased profitability by consolidating the
administrative functions and package volume of an acquired company with
those of the Company and the Network
. The extensive industry knowledge and experience of its senior management
both in the United States and overseas
. The nature of the industry which is characterized by mature privately
held small businesses whose owners might be receptive to being acquired
a by a larger corporation.
To date, although the Company has identified a number of potential
acquisition candidates, with the exception of the Fleet and FOB acquisitions
described above, the Company has not consummated any acquisitions and there can
be no assurance that the Company will have the financial or personnel resources
to effectuate this strategy.
Although the Company's capital resources are more limited than certain of
its larger competitors, the Company plans to accomplish acquisitions principally
through the issuance of its securities. The successful implementation of this
strategy depends upon the liquidity of the Company's securities which, in turn,
is facilitated by having a class of securities which are eligible for public
trading. The use of Company securities to facilitate acquisitions will rely to a
great extent upon the development and maintenance of an active trading market
for the Company's securities. The public trading market for the Company's Common
Stock has only recently commenced on a very limited basis. There can be no
assurance that a regular trading market will develop or if developed, will be
sustained on a long-term basis.
37
<PAGE>
Internal Growth and Increased Operating Efficiencies
Although the Network effectively provides the Company with a global presence
and international brand identity without incurring the associated costs of
owning and operating offices throughout the world, historically, it has not been
a significant source of revenue for the Company. Management also believes that
there is an imbalance of packages generated versus those delivered by certain
Network Members which is not fully covered by the Company's existing cost
recovery system and results in unequal monetary benefits and burdens among such
Members. Although management does not believe that this has resulted in any
material number of Members dropping out of the SkyNet Network, it is currently
evaluating this situation in order to provide a more equitable system of
distribution. Specifically, management is in the process of creating a
clearinghouse and net billing system, which would utilize a system of debits and
credits to collect and disburse fees from and to Members in order to equalize
the economic benefits among the Members. The Company's upgrade to the SkyCom
system is being designed to provide such a service. See "The SkyCom System."
Management of the Company believes that accurate billing for each package is
critical to maintaining both fair pricing to its customers and consistent
margins. Since the pricing of an airbill is primarily determined by weight,
underestimating weight results in a loss of revenue. This aspect of the
Company's operation is largely controlled by Company employees and independent
contractors working at stations and hubs. Although management believes that this
has not resulted in a material loss of revenue, it continues to believe that
dedicated attention to detail by these employees is essential to the efficient
operation of the Company. Primarily through the grant of options under the
Company's broad based stock option plan, the Company believes it can now provide
a sense of proprietorship to these employees which management believes will
improve their efficiency and ultimately benefit the Company.
SALES AND MARKETING
The Company and SkyNet Network Members engage in direct sales activities to
existing customers and prospects within their respective regions. This consists
of canvassing targeted markets and intensive follow-up on referrals from
existing customers. All sales and marketing is conducted on a local rather than
a global basis through the following Company owned and independently owned
stations throughout the world:
Company Owned Stations
- ----------------------
United States United Kingdom
Los Angeles, California London, England
Sacramento, California Manchester, England
San Francisco, California Bristol, England
New York, New York
Las Vegas, Nevada Australia
Reno, Nevada Sydney, New South Wales
Seattle, Washington Melbourne, New South Wales
Tacoma, Washington Brisbane, New South Wales
Everett, Washington
Portland, Oregon Malaysia
Salem, Oregon Kuala Lumpur
Sacramento, California
Phoenix, Arizona
38
<PAGE>
Independently Owned Stations
- ----------------------------
Country Country Country
------- ------- -------
Antigua Haiti Peru
Argentina Honduras Philippines
Aruba Hong Kong Portugal
Austria Hungary Puerto Rico
Bahamas India Reunion Island
Bahrain Indonesia Russia
Barbados Iran Rwanda
Belgium Ireland Scotland
Belize Isle of Man Singapore
Bolivia Israel South Africa
Botswana Italy South Korea
Brazil Japan Spain
Brunei Jordan Sri Lanka
Canada Kenya St. Denis
Cayman Islands Kuwait Swaziland
Channel Islands Lebanon Sweden
Czech Republic Malawi Switzerland
Chile Malaysia Syria
China Malta Taiwan
Colombia Mauritius Tanzania
Costa Rica Martinique Thailand
Curazao Mexico Trinidad
Cyprus Mozambique Turkey
Denmark Moresby U.A.E.
Dominican Republic Namibia Uganda
Egypt Nepal United States
El Salvador Netherlands Uruguay
Ecuador New Guinea Vanuatu
Estonia/Lithuania New Zealand Venezuela
Finland Nicaragua Vietnam
France Norway Virgin Islands
Germany Oman Western Samoa
Greece Pakistan Yemen
Guatemala Panama Zambia
Guernsey Paraguay Zimbabwe
Guyana Peking
As management continues to integrate and streamline the operations of the
Company, it will focus on implementing a formalized marketing and sales program.
At this time, the Company intends to expand its direct sales force rather than
engage in any mass marketing or media advertising. The Company believes that
direct sales is the most cost effective way to market the Company's specialized
delivery and logistics services to its current and future customers.
39
<PAGE>
COMPETITION
The market for the Company's delivery services is highly competitive. The
Company believes that the principal competitive factors in the markets in which
it competes are reliability, quality, dependability of service and, most
importantly, price. Since the industry is essentially cost-driven, the Company
is continually seeking to streamline operations to further reduce costs.
Management believes that as it implements its acquisition strategy and
integrates certain Network Members, the Company's per unit costs should
decrease, which should make the Company more competitive in the market place.
Although many of the Company's current competitors, particularly those in
the same-day ground and air delivery market, are small privately held companies,
the industry is currently undergoing substantial consolidation. This will likely
increase competition as the Company's competitors become larger and better
capitalized. In addition, the domestic next-day and second-day express courier
market is dominated by large corporations such as UPS and FedEx who have
substantially greater market power and financial resources. The international
market in which the Company primarily operates is more fragmented. Since the
Company generates in excess of 80% of its revenues from international
deliveries, the impact of direct competition with FedEx and UPS for domestic
time sensitive deliveries is limited.
REGULATION
The Company's operations are subject to various state and local regulations
which require permits and licenses from state authorities. Interstate and
intrastate motor carrier operations are subject to safety requirements
prescribed by the United States Department of Transportation and by state
Departments of Transportation. The Company's failure to comply with applicable
regulations could result in fines or possible revocation of one or more of the
Company's operating licenses, any of which events could have a material adverse
effect on the Company. In addition, the Company is also subject to certain
Federal Aviation Administration regulations which require the Company to
identify the source of all packages placed onto aircraft originating or
terminating in the United States.
INTELLECTUAL PROPERTY
The Company operates under the tradenames "SkyNet" and "SkyNet Worldwide
Express". SkyNet is a registered trademark in Australia, which is owned by
SWEPL. Both SkyNet and SkyNet Worldwide Express are registered as tradenames in
the United Kingdom by SIL. The Company has made trademark applications for
SkyNet and SkyNet Worldwide Express with the United States Patent and Trademark
Office and with each of the fifty (50) states, which applications have been
approved in approximately forty (40) states. With respect to the numerous other
countries in which Network Members operate, the Company does not own the
equivalent of registered trademarks in these countries. In some cases, the
names are owned by Network Members. Management does not believe that failure to
own the name in each country will have a material adverse effect on the
Company's operation.
PROPERTIES
As of March 1, 1999, the Company operated from six leased facilities. These
facilities are principally used for operations and general and administrative
functions. The facilities are located in London, England, Sydney and Melbourne,
Australia and New York, San Francisco and Los Angeles. In addition, the
Company's principal executive office is located in the leased facility in Los
Angeles. The Company's aggregate rental expenses for the fiscal year ended June
30, 1998 amounted to $660,742. See Note 9 to the Company's Consolidated
Financial Statements. Management believes that the Company's facilities are
adequate for its current and reasonably foreseeable operations.
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<PAGE>
EMPLOYEES AND INDEPENDENT CONTRACTORS
As of the date of this Prospectus, the Company employed approximately 684
people; 387 as drivers or messengers, 141 in operations, 121 in sales and
administrative positions, and 35 in management. Approximately 435 are employed
in the United States. With the exception of one Fleet location, the Company is
not a party to any collective bargaining agreements, has not experienced any
work stoppages and believes that its relationship with its employees is good.
As of the date of this Prospectus, the Company also utilized 138 independent
contract drivers, primarily in stations outside of the United States. From time
to time, federal and state authorities assert that independent contractors in
the transportation industry, including those utilized by the Company, are
employees, rather than independent contractors. The Company believes that the
independent contractors utilized by the Company are not employees under existing
interpretations of federal and state laws. However, there can be no assurance
that federal and state authorities will not challenge this position, or that
other laws or regulations, including tax laws, or interpretations thereof, will
not change. If, as a result of any of the foregoing, the Company were held
liable for the acts of its contract drivers or required to pay for and
administer added benefits to them, the Company's operating costs would increase.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings, although it is
involved from time to time in routine litigation incident to its business.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information regarding each of the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Office
- ---- --- ------
<S> <C> <C>
Vjekoslav Nizic 46 President, Chief Executive Officer
and Director
Christian J. Weber 56 Chairman of the Board of Directors
Martin G. Paravato 57 Chief Financial Officer
Treasurer and Secretary
Andrew Lovell 40 Chief Operating Officer of SkyNet
Worldwide Express
John William Murray Clark 49 Managing Director of SIL and FOB
Noel John Holmes 50 Director
</TABLE>
The following is a brief summary of the business experience of each of the
above-named individuals:
Vjekoslav ("Vic") Nizic currently serves as the President, Chief Executive
Officer and Director of the Company. Mr. Nizic has been involved in the courier
business since 1978 when he founded Skyroad Express as a domestic courier
company in Australia, offering overnight and same-day service. Skyroad Express
became the largest privately-owned express courier company in Australia at that
time. In 1983, Mr. Nizic sold Skyroad Express and formed DPE International Pty.
Ltd., an international courier providing service from Australia to the rest of
the world. In 1987, Mr. Nizic sold DPE International Pty. Ltd., retaining DPE
International, Inc., its U.S. subsidiary, which filed for protection under
Chapter 11 of the U.S. Bankruptcy Code in 1995, emerging from the Chapter 11
proceedings in 1996. Mr. Nizic graduated from the University of New South Wales
in Australia.
Christian J. Weber currently serves as the Chairman of the Board of
Directors of the Company. Until the acquisition of FOB, Mr. Weber served as the
Managing Director of SIL. The Company and Mr. Weber are currently negotiating
with respect to modifying his continued position with the Company. Mr. Weber has
been involved in the courier business since 1978, when he co-found Sky Courier
International, a company engaged in international courier services. In 1978, Mr.
Weber was also a founder of SkyNet, and in 1980 he purchased, with partners, a
controlling interest in SIL and its subsidiaries, which currently comprise the
largest of the Company's operating subsidiaries. In 1992, Mr. Weber developed
the SkyCom system used by the Company. Mr. Weber acted as the managing director
of SIL since that time.
42
<PAGE>
Martin G. Paravato has served as Chief Financial Officer, Treasurer and
Secretary of the Company since July 1998. Prior to joining the Company, from
1996 to 1998 Mr. Paravato was Sr. Vice President Finance and Special Projects
with Koo Koo Roo, Inc. a public company that owns and operates restaurants.
Prior to joining Koo Koo Roo, Mr. Paravato was an audit partner with the
international accounting firm of BDO Seidman, LLP specializing in serving
publicly held companies. Mr. Paravato has over 25 years experience in public
accounting. Mr. Paravato is a CPA and a member of the American Institute of
Certified Public Accountants and the California Society of Certified Public
Accountants. He holds a Bachelor of Science - Business degree from California
State University at Northridge, California.
Andrew Lovell joined the Company September 1, 1998 as Chief Operating
Officer of SkyNet Worldwide Express. Prior to joining the Company, he was
founder, managing director and part owner of a South African company, which is
still one of the largest and most successful Members of the SkyNet Network.
Prior to that, he served as regional director of Sky Couriers, another Network
Member. Mr. Lovell has over 18 years experience in the courier delivery and
freight forwarding industries and holds a business management diploma from
Damelin College in Johannesburg, South Africa.
John William Murray Clark joined the Company April 12, 1999 as Managing
Director of SkyNet International Limited. Since 1981, Mr. Clark was Chairman and
Founder of FOB until its acquisition by the Company. Mr. Clark has been involved
in the freight and courier industry since 1970. He started his career with Emery
Airfreight in London. Mr. Clark's background is in sales and marketing. He
completed a two year course in Business at Wolverhampton University.
Noel John Holmes has served as a director of the Company since November 16,
1998. Mr. Holmes is a chartered accountant and has been a partner with Holmes &
Partners Pty Ltd., an accounting firm on the Gold Coast, Australia since 1986.
Mr. Holmes has over 30 years of public and private accounting experience and is
a fellow of the Institute of Chartered Accountants in Australia, the Taxation
Institute of Australia and the Australian Institute of Company Directors, among
others.
Board of Directors
All directors hold office until the next annual meeting of the stockholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
The Board of Director presently consists of three (3) members. However, in
conjunction with the Merger, the Company agreed to maintain a Board of Directors
consisting of five (5) members as follows:
. A designee of Vincent J. Marold, a former EPLR board member and a
principal stockholder of the Company.
. Two (2) designees of Vjekoslav Nizic, Chris Weber, Deansley Limited, Fir
Construction Pty, Ltd. and John Cathcart (the "Historic Principal
Shareholders").
. A designee of Mr. Marold's designee who shall be acceptable to the
Historic Principal Shareholders.
. One additional designee of the Historic Principal Shareholders who is
acceptable to Mr. Marold's designee.
43
<PAGE>
Mr. Nizic and Mr. Weber are the designees of the Historic Principal
Shareholders and Mr. Holmes is the additional designee of the Historical
Principal Shareholders. As of the date of this Prospectus, Mr. Marold has not
designated anyone to serve on the Board.
Matters of Corporate Governance
Until October 13, 2000, the Company's Bylaws require that the following
fundamental corporate transactions require the approval of 80% of the members of
the Company's Board of Directors:
. Any merger, consolidation, sale of all or substantially all of the
assets of the Company or a recapitalization involving the Company.
. Transactions between the Company and any interested party (including all
directors, executive officers or persons holding in excess of 5% of the
Company's outstanding shares).
. Any modification to the terms of the Merger or any other agreements
entered into in connection with the Merger.
. Any issuance of shares of the Company's Common Stock, preferred stock or
securities exercisable or convertible into shares of the Company's
Common Stock or preferred stock equal to or exceeding 10% of the
Company's then outstanding shares of Common Stock or voting power.
. Any amendment to the Company's Bylaws or Certificate of Incorporation.
Pursuant to the Merger, the Historic Principal Shareholders agreed not to
take any action inconsistent with the foregoing, including voting any shares
of the Company's Common Stock to amend the Company's Bylaws or Certificate of
Incorporation in a manner inconsistent with the foregoing.
In connection with the Company's recent private placement of Units
consisting of four (4) Series A Shares and one (1) Common Stock Purchase
Warrant, on March 10, 1999, the Company entered into a placement agent agreement
with Montrose Capital Management, Ltd., a broker-dealer registered under the
Exchange Act and a member in good standing of the National Association of
Securities Dealers, Inc. ("Montrose"). Pursuant to the agreement, during a
"Restrictive Period" commencing March 10, 1999 and terminating on the earlier
of: (i) October 30, 2000; or (ii) the date on which the Company files a periodic
report with the Commission reporting net income for two (2) consecutive
quarters, the Company shall not, without obtaining a prior written consent of
Montrose, engage in certain transactions unless such transaction is approved by
at least two (2) independent members of the Company's Board of Directors. These
transactions include any merger, consolidation or acquisition whereby the
Company acquires a "significant subsidiary" (as that term is defined under
Commission regulations); any reorganization, liquidation, dissolution or winding
up of the Company; any sale or lease or other disposition of substantially all
of the Company's assets or property; or any transaction between the Company and
any officer, director, person holding in excess of 5% of the Company's
outstanding shares or any affiliate of such person. In addition, until the
earlier to occur of (i) the expiration of the Restrictive Period; or (ii) the
date on which the Company's Board of Directors includes at least two (2)
independent members appointed pursuant to the Merger, Montrose shall have the
right to receive notice of and attend all meetings of the Company's Board of
Directors.
44
<PAGE>
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to or accrued by the Company's Chief Executive Officer and all
other executive officers who earned more than $100,000 (salary and bonus) (the
"Named Executive Officers") for all services rendered in all capacities to the
Company during the fiscal years ended June 30, 1998, 1997 and 1996:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation (1) Compensation Awards
----------------------------------------- ------------------------
Restricted
Name and Principal Fiscal Other Annual Stock Options/
Position Year Salary Bonus Compensation Awards SARs (#)
------------------ ------ ------ ----- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Vjekoslav Nizic 1998 $128,863 -- -- -- --(2)
President and Chief 1997 $ 58,692 -- -- -- --
Executive Officer 1996 $ 59,829 -- -- -- --
Christian J. Weber 1998 $199,980 $20,625 -- -- --(3)
Chairman of the Board 1997 $196,350 $48,950 -- -- --
Managing Director of 1996 $130,350 $69,135 -- -- --
SIL
</TABLE>
- ------------------
(1) With respect to each of the executive officers named in the table, if not
separately reported, the aggregate amount of perquisites and other personal
benefits, securities or property received was less than either $50,000 or
10% of the total annual salary and bonus reported for such executive
officer.
(2) Does not reflect 700,000 options granted to Mr. Nizic in conjunction with
the Merger.
(3) Does not reflect 700,000 options granted to Mr. Weber in conjunction with
the Merger, which were subsequently transferred to one of the Company's
principal stockholders.
Employment Arrangements
The Company has employment agreements with each of Messrs. Nizic, Weber,
Paravato and Clark. Messrs. Nizic and Weber are employed for terms of three (3)
years commencing October 14, 1998, at annual base salaries of $175,000 and
$200,000, respectively. Mr. Paravato has been employed for a renewable term of
one (1) year, commencing October 14, 1998, at an annual base salary of $125,000,
subject to a mandatory bonus of $25,000 for fiscal 1999. Each of Messrs. Nizic,
Weber and Paravato are entitled to participate in the Company's fringe benefit,
bonus, profit-sharing and incentive plans adopted by the Company. They are also
entitled to reimbursement for certain Company-related travel expenses, including
use of an automobile and related expenses. The agreements contain standard
confidentiality and non-compete clauses which preclude the officers from
competing directly or indirectly with the Company or soliciting any customer of
the Company for the term of the agreement and, with respect to Messrs. Weber and
Nizic, for a two (2) year period thereafter and with respect to Mr. Paravato, a
one (1) year period thereafter. The Company and Mr. Weber are currently
negotiating with respect to a modification of Mr. Weber's current position with
the Company.
The Company entered into a consulting agreement with a corporation wholly-
owned by Mr. Lovell, pursuant to which such corporation has agreed to provide
Mr. Lovell's services to the Company for a term of one (1) year commencing
September 1, 1998, at an annual rate of $168,000.
45
<PAGE>
In connection with the acquisition of FOB, on April 12, 1999, the Company
entered into a three (3) year employment agreement with Mr. Clark to serve as
the Managing Director of SIL and FOB at an annual base salary of approximately
$240,000 subject to annual review by the Board of Directors of the Company. The
agreement provides for Clark to participate in the Company's 1998 Stock Option
Plan. In this connection, the Company agreed to make an initial grant of
options to purchase 35,000 shares of Common Stock, which vest ratably over a
three (3) year period. The agreement contains standard confidentiality and
noncompete clauses which preclude Mr. Clark from competing directly or
indirectly with the Company, soliciting any customer of the Company or
soliciting any employee of the Company during the term of the agreement and for
a one (1) year period thereafter.
Directors Compensation
Directors who are officers of the Company receive no additional
compensation for serving on the Board of Directors, other than reimbursement of
reasonable expenses incurred in attending meetings. Non-employee directors
receive a maximum annual compensation of $2,500, a fee of $500 for each meeting
attended and reimbursement of reasonable expenses incurred in attending
meetings. All directors are also eligible to participate in the Company's 1998
Stock Incentive Plan.
Stock Incentive Plan; Outstanding Options
The Company's Board of Directors and stockholders adopted the "Skynet
Holdings, Inc. 1998 Stock Incentive Plan" (the "1998 Plan") during November
1998. The 1998 Plan covers the greater of 1,609,900 or 10% of the total number
of shares of the Company's Common Stock outstanding on each December 31,
beginning on December 31, 1998, provided, however, that the foregoing formula
-------- -------
shall never result in a decrease in the maximum number of shares available under
the 1998 Plan. Under its terms, officers, directors, key employees and
consultants of the Company are eligible to participate in the 1998 Plan. The
1998 Plan permits: (i) the grant of incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code");
(ii) the grant of non-qualified stock options; (iii) the issuance or sale of
Common Stock, with or without vesting or other restrictions; (iv) the grant of
Common Stock upon the attainment of specified performance goals; and (v) the
grant of stock appreciation rights ("SARs"). The 1998 Plan contains certain
limitations on the maximum number of Shares of Common Stock that may be awarded
to any one individual in any calendar year for the purposes of Section 162(m) of
the Code.
The 1998 Plan is administered by the Board of Directors or a committee
consisting of no less than three members designated by the Board of Directors
(the "Plan Administrator".) Subject to the provisions of the 1998 Plan, the
Plan Administrator has full power and authority to determine, from among the
persons eligible for grants or awards under the 1998 Plan: (i) the individuals
to whom grants or awards will be made; (ii) the combination of grants or awards
to participants; and (iii) the specific terms of each grant or award. Incentive
stock options may be granted only to officers or other employees of the Company
or its subsidiaries, including members of the Board of Directors who are also
employees of the Company or its subsidiaries.
46
<PAGE>
Incentive stock options granted under the 1998 Plan are exercisable for a
period of up to 10 years from the date of grant and at an exercise price that is
not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive stock option granted under the 1998
Plan to a stockholder owning more than 10% of the outstanding Common Stock may
not exceed five years and the exercise price of an incentive stock option
granted to such a stockholder may not be less than 110% of the fair market value
of the Common Stock on the date of the grant. Non-qualified stock options may be
granted on terms determined by the Plan Administrator. SARs, which give the
holder the privilege of surrendering such rights for the appreciation in the
Company's Common Stock between the time of grant and the surrender, may be
granted on any terms determined by the Plan Administrator.
Incentive stock options granted under the 1998 Plan are non-transferable,
except upon death, by will or by operation of the laws of descent and
distribution, and may be exercised during the employee's lifetime only by the
optionee. Under the terms of the 1998 Plan, the aggregate fair market value
(determined as of the date of grant) of the shares of Common Stock with respect
to which incentive stock options are exercisable for the first time by an
employee during any calendar year (under all such plans of the Company and any
parent and subsidiary corporation of the Company) may not exceed $100,000.
Options granted under the 1998 Plan may be exercised within 12 months after
the date of an optionee's termination of employment by reason of death or
disability, or within three months after the date of termination by reason of
retirement or voluntary termination approved by the Plan Administrator, but only
to the extent the option was otherwise exercisable on the date of termination.
The 1998 Plan will expire on November 1, 2008, unless terminated earlier by
the Board of Directors. The 1998 Plan may be amended by the Board of Directors
without stockholder approval, except that, in general, no amendment that
increases the maximum aggregate number of shares that may be issued under the
1998 Plan, decreases the minimum exercise price of options provided under the
Plan, or changes the class of employees who are eligible to participate in the
1998 Plan, shall be made without the approval of a majority of the stockholders
of the Company. None of the above actions, if taken, may adversely affect any
right or obligation regarding any grants or awards previously made under the
1998 Plan without the written consent of the recipient. In the event of any
changes in the capital structure of the Company, such as a stock dividend or
split-up, the Board of Directors must make equitable adjustments to outstanding
unexercised awards to that the net value of the award is not changed.
As of May 1, 1999 options to purchase 965,000 shares of Common Stock have
been granted under the 1998 Plan.
In connection with the Merger, the Company granted Vjekoslav Nizic and
Christian J. Weber options to purchase 700,000 shares of Common Stock at an
exercise price of $3.00 per share. The options have a term of five years and are
exercisable in full commencing two (2) years from the date of the Merger
(October 14, 2000). Subsequent to the Merger, Mr. Weber transferred his options
to one of the Company's principal stockholders. In connection with the Merger,
the Company also granted Synergy Group International, Inc., a company controlled
by Vincent J. Marold, a principal stockholder of the Company, options to
purchase 400,000 shares of Common Stock at an exercise price of $3.00 per share.
These options have a term of five years and vest in ratable installments over a
three year period commencing October 14, 1999. Subsequent to the Merger, these
options were transferred to Mr. Weber.
47
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
WAIVER OF LOCK-UP, CONSENT TO SALE OF SHARES; AND RELEASE FROM ESCROW
On February 26, 1999 the Company waived the application of the lock-up
provisions of the Merger Agreement in order to permit (i) Christian J. Weber and
his affiliates, Deansley Limited and Moontown Ltd., to sell an aggregate of
3,425,879 shares of Common Stock (the "Weber Shares"); (ii) Mr. Nizic to sell
100,000 shares of Common Stock (the "Nizic Shares"); and (iii) Mr. Cathcart to
sell 500,000 shares of Common Stock to certain institutional investors in
separate privately negotiated transactions. On March 15, 1999, the Company
waived the lock-up provisions of the Merger Agreement in order to permit Mr.
Nizic to sell 400,000 shares of Common Stock (the "Additional Nizic Shares") to
his brother in a private negotiated transaction. The Company also consented to
the transfer of the Weber Shares, Nizic Shares and Additional Nizic Shares in
accordance with the Placement Agent Lock-Up Agreement (as defined below) in
consideration of the purchasers of such shares being bound by the Placement
Agent Lock-Up Agreement which prohibits the transfer or sale of such shares
until no later than on or about May 19, 2001. See "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - Restrictions Upon Resale." Finally,
the Company released 205,996 of the Weber Shares from Escrow.
Extension of Date for Surrender of Shares
On February 26, 1999, the Company agreed to extend the deadline for EPLR to
raise net proceeds of at least $2.5 million until March 31, 1999. This extended
the date on which certain shares of Common Stock held by certain historical
stockholders of EPLR, including Vincent J. Marold, a principal stockholder of
the Company, will be subject to forfeiture and cancellation. EPLR subsequently
raised such proceeds and the shares have been released from escrow.
Issuance of Shares in Cancellation of Indebtedness
On December 1,1998, the Company issued 335,000 shares of its Common Stock
to Pearlgold Pty Ltd, an entity affiliated with Noel Holmes, a director of the
Company, in exchange for the cancellation of $670,000 short-term indebtedness.
On December 1, 1998, the Company issued 162,500 shares of its Common Stock
to Andrew Lovell, an officer, in exchange for the cancellation of $325,000
short-term indebtedness.
48
<PAGE>
Transactions with Principal Stockholder
In October 1998, in connection with the Merger, the Company repaid $100,000
to John Cathcart, a principal stockholder. Mr. Cathcart had advanced these funds
to the Company in September 1997 pursuant to a non-interest bearing promissory
note. In addition, during the period from July 1, 1998 through the date of this
Prospectus, the Company paid Mr. Cathcart consulting fees amounting to $76,000.
Agreements with Officers and Directors
The Company has entered into employment agreements with Messrs. Nizic,
Weber, Paravato and Clark and option agreements with Messrs. Nizic and Weber.
See "EXECUTIVE COMPENSATION - Employment Arrangements" and "Stock Incentive
Plan; Outstanding Options".
Sale of Shares and Options to Principal Stockholder
In September 1998, the Company issued 1,030,151 shares of Common Stock to
Vincent J. Marold, 100,000 shares to Marold Investments LLC, an entity
affiliated with Mr. Marold, and 170,000 shares to immediate family members of
Mr. Marold, in a private placement transaction. This offering was undertaken by
EPLR prior to the execution and closing of the definitive merger agreement with
Skynet Nevada. At that time, Mr. Marold was the sole officer and director of
EPLR. These shares were issued on the same terms and conditions as all other
shares in such private placement. In connection with the Merger, the Company
issued options to purchase 400,000 shares of Common Stock to Synergy Group
International, Inc. of which Mr. Marold is the sole shareholder. See "EXECUTIVE
COMPENSATION - Stock Incentive Plan; Outstanding Options".
49
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 11, 1999, by (i) each person
who, to the knowledge of the Company, beneficially owned more than 5% of the
Company's Common Stock; (ii) each director and executive officer of the Company;
and (iii) all executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
Name and Address of Amount of Percent of
Beneficial Owner(1) Beneficial Ownership(2) Class
- --------------------------------- ------------------------------ ---------------
<S> <C> <C>
Vjekoslav Nizic 6,650,878(3) 35.1%
Christian J. Weber 333,333(4) 1.8%
Martin G. Paravato 50,000(5) *
Andrew Lovell 162,500 *
John William Murray Clark 83,067(7) *
Noel John Holmes 335,000(6) 1.8%
John Cathcart 1,600,000(8) 8.4%
Vincent J. Marold 1,680,151(9) 8.9%
Michael Lauer 1,425,000(10) 7.0%
All Directors, and Executive
Officers as a Group (5 persons) 7,614,778 40.2%
</TABLE>
- ----------------
*Represents less than 1% of the outstanding shares of Common Stock.
(1) The address of Vjekoslav Nizic, Martin G. Paravato, Andrew Lovell is c/o
the Company, 343 South Glasgow Avenue, Inglewood, California 90301, the
address of Christian J. Weber and John William Murray Clark is c/o Skynet
International Limited, Stockley Close, West Drayton, England, UB7 9BL, the
address of Noel John Holmes is PO Box 320, Coolangatta, QLD 4225,
Australia, the address of John Cathcart is 774 Mays Boulevard #10-450,
Incline Village, NV 89451, the address of Vincent J. Marold is c/o
Synergy Group International, Inc. 3725 East Sunrise Drive, Tucson, Arizona
85718 and Michael Lauer's address is c/o Lancer Partners LP, 375 Park
Avenue, Suite 2006, New York, NY 10152.
(2) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
rules and regulations promulgated under the Exchange Act, and accordingly,
may include securities owned by and for among others the spouse and/or
minor children of an individual and any other relative who has the same
home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or which such person
has the right to acquire within 60 days after the date of this filing
pursuant to the exercise of options, or otherwise. Beneficial ownership may
be disclaimed as to certain of the securities. This table has been prepared
based on 18,935,034 shares of Common Stock outstanding as of May 11, 1999.
(3) Includes 2,721,023 shares of Common Stock held by Fir Construction Pty.
Ltd., of which Mr. Nizic is the managing director. Includes 400,000 shares
of Common Stock held by Mr. Nizic's adult brother over which Mr. Nizic has
sole voting power. Also includes 3,425,879 shares which are subject to an
irrevocable proxy in favor of Mr. Nizic which vests Mr. Nizic with the sole
power to vote such shares with respect to the election of directors and any
amendment to the Company's Certificate of Incorporation or By-Laws which
(i) affects the size or composition of the Board of Directors of the
Company; or (ii) affects the supermajority vote provisions required for
board approval of certain transactions. Does not include 700,000 shares
issuable upon the exercise of options subject to vesting commencing October
14, 2000.
50
<PAGE>
(4) Consists of Common Stock owned of record by Deansley Limited an affiliate
of Mr. Weber. Does not include 400,000 shares issuable upon exercise of
options subject to vesting commencing October 14, 1999 which Mr. Weber
acquired from Synergy Group International, Inc. Does not include 700,000
shares issuable upon the exercise of options granted in connection with the
Merger which were subsequently transferred to John Cathcart.
(5) Consists of shares issuable upon exercise of options.
(6) Consists of shares held by Pearlgold Pty Ltd., an entity affiliated with
Mr. Holmes.
(7) Consists of shares issuable upon exercise of a put and call provision in
the acquisition agreement by and between the Company and the former
stockholders of FOB. See "BUSINESS - Acquisition Strategy". Does not
include 35,000 shares issuable upon exercise of options subject to vesting
over a three (3) year period commencing April 12, 2000.
(8) Includes 50,000 shares held of record by Mr. Cathcart which are subject to
options granted by Mr. Cathcart to third parties. Does not include 700,000
shares issuable upon the exercise of options transferred from Mr. Weber
which are subject to vesting commencing October 14, 2000.
(9) Includes 250,000 shares held of record by Synergy Group International, Inc.
of which Mr. Marold is the sole shareholder. Does not include 170,000
shares held of record by adult family members of Mr. Marold and 100,000
shares held by a family trust, of which Mr. Marold has a 20% beneficial
interest.
(10) Consists of 440,000 shares issuable upon conversion of Series A Shares and
325,000 shares issuable upon exercise of warrants owned of record by Lancer
Partners, LP and 660,000 shares issuable upon conversion of Series A Shares
owned of record by Lancer Offshore, Inc. Mr. Lauer acts as investment
manager of each of these entities.
Material Voting Arrangements
Pursuant to the Merger, the Historic Principal Shareholders who held as of
the closing of the Merger, an aggregate of 8,673,128 shares of the Company's
Common Stock, have agreed that until October 14, 2000, they will vote their
shares at every annual meeting of stockholders, at any special meeting of
stockholders called for the purpose of electing directors, or action by written
consent or otherwise take such action as is required, to vote for and elect a
Board of Directors in the manner described below in the section captioned
"DIRECTORS AND EXECUTIVE OFFICERS - Board of Directors." In addition, the
Historic Principal Shareholders have also agreed not to vote their shares to
amend the Company's Bylaws or Certificate of Incorporation in a manner
inconsistent with the provisions described below in the section captioned
"DIRECTORS AND EXECUTIVE OFFICERS - Matters of Corporate Governance." On
February 26, 1999, Christian J. Weber and his affiliates, Deansley Ltd. and
Moontown Ltd., sold an aggregate of 3,425,879 shares of Common Stock to certain
institutional investors. The purchasers of such shares have executed an
irrevocable proxy in favor of Mr. Nizic vesting him with the sole power to vote
such shares in the manner described above until no later than on or about May
19, 2001. See "CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS."
Material Escrow Arrangements
750,000 shares of the Company's outstanding Common Stock are currently
subject to cancellation upon the terms of an Escrow Agreement entered into
between the Historic Principal Shareholders and the Company in connection with
the Merger. Pursuant to the Escrow Agreement, the Historic Principal
Shareholders deposited an aggregate of 3,000,000 shares of Common Stock into
escrow to secure their indemnification obligations under the Merger Agreement
with respect to certain of their representations and warranties. Of these
shares, 1,250,000 were released upon completion of audited financial statements
of Skynet Nevada by BDO Seidman, LLP and 1,000,000 were released on or about
April 13, 1999, six (6) months after the Closing of the Merger. The remaining
750,000 shares are subject to release on October 13, 1999 so long as no claims
for indemnification under the Merger Agreement are pending against the Historic
Principal Shareholders.
51
<PAGE>
Restrictions Upon Resale
Merger Agreement. In addition to any prohibition on transfers or sales
----------------
under applicable federal or state securities laws, the Historic Principal
Shareholders may not sell, transfer, encumber or otherwise dispose of the shares
of the Company's Common Stock issued to them in the Merger until October 14,
2000. However, any sale of such shares prior to October 14, 1999 shall be on
terms and to parties reasonably acceptable to Mr. Marold's designee to the
Company's Board of Directors. See "DIRECTORS AND EXECUTIVE OFFICERS - Board of
Directors." Subject to compliance with applicable federal and state securities
laws and regulations, during the one year period commencing October 14, 1999,
each Historic Principal Shareholder shall be permitted to sell up to 50,000
additional shares of the Company's Common Stock.
Placement Agent Lock-up Agreement. In connection with a private placement
---------------------------------
of 1,325,500 shares of Common Stock (the "Private Placement"), the directors and
executive officers of the Company entered into lock up agreements (the
"Placement Agent Lock-Up Agreement") with Puglisi Howells & Co., Inc. (the
"Placement Agent"). Under the Placement Agent Lock-Up Agreement, such executive
officers and directors have agreed not to directly or indirectly, offer for
public sale, publicly sell, or otherwise publicly dispose of, directly or
indirectly, any shares of Common Stock which they may own legally or
beneficially (including the 160,000 shares registered hereunder) for a lock-up
period commencing February 19, 1999 and terminating on the last to occur of: (i)
August 19, 2000; (ii) the date ninety (90) days after the effectiveness of a
registration statement covering the resale of the shares sold in the Private
Placement; and (iii) the date ninety (90) days after the effectiveness of a
registration statement covering the shares issuable upon exercise of the
warrants issued to the Placement Agent; however, in any event, such lock-up
period shall expire no later than on or about May 19, 2001. Notwithstanding the
above, during such lock-up period, the executive officers and directors are
permitted to: (i) with the consent of a majority of the Company's disinterested
directors, engage in private resales, pledges or gifts of the shares so long as
the purchaser, pledgee or donee acquiring the shares agrees to hold such shares
in accordance with the restrictions identified herein for the remainder of the
lock-up period applicable to such shares; or (ii) engage in private transfers or
gifts of the shares to "affiliates" (as the term is defined under the Exchange
Act) or family members, so long as the transferee or donee acquiring the shares
agrees to hold such shares in accordance with the restrictions identified herein
for the remainder of the lock-up period applicable to such shares.
Additional Lock-up Agreements. In connection with the Private Placement,
-----------------------------
holders of 1,000,000 shares of Common Stock being registered for resale
hereunder, have agreed not to directly or indirectly, offer for public sale,
publicly sell, or otherwise publicly dispose of such shares without the prior
written consent of the Placement Agent for a lock-up period commencing on
February 19, 1999 and terminating sixty (60) days after the later of (i) the
date the shares of Common Stock issued in the Private Placement are first
eligible for public resale under either SEC Rule 144 or pursuant to an effective
registration statement under the Securities Act; or (ii) the effectiveness of a
registration statement under the Securities Act covering the resale of the
shares issuable upon exercise of the warrants issued to the Placement Agent;
however, in any event, such lock-up period shall expire no later than on or
about May 19, 2000. With the consent of a majority of the disinterested members
of the Company's Board of Directors, third-party private resales, pledges or
gifts of these shares will be permitted as long as the purchaser, pledgee or
donee of any such shares agrees to remain bound by the aforesaid restrictions
upon resale for the remainder of the lock-up period applicable to such shares.
Private transfers or gifts to affiliates or family members are also permitted as
long as the transferee or donee of any such shares agrees to remain bound by the
aforesaid restrictions upon resale for the remainder of the lock-up period
applicable to such shares.
52
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock,
$.0001 par value per share, of which 18,935,034 are issued and outstanding as of
May 11, 1999.
Holders of Common Stock have equal rights to receive dividends when, as and
if declared by the Board of Directors, out of funds legally available therefor.
Holders of Common Stock have one vote for each share held of record and do not
have cumulative voting rights.
Holders of Common Stock are entitled upon liquidation of the Company to
share ratably in the net assets available for distribution, subject to the
rights, if any, of holders of any preferred stock then outstanding. Shares of
Common Stock are not redeemable and have no preemptive or similar rights. All
outstanding shares of Common Stock are fully paid and nonassessable.
Preferred Stock
Within the limits and restrictions provided in the Certificate of
Incorporation, the Board of Directors has the authority, without further action
by the stockholders, to issue up to 5,000,000 shares of preferred stock, $.0001
par value per share (the "Preferred Stock"), in one or more series, and to fix,
as to any such series, the dividend rate, redemption prices, preferences on
liquidation or dissolution, sinking fund terms, conversion rights, voting
rights, and any other preference or special rights and qualifications. There are
presently 2,003,560 shares of Preferred Stock outstanding.
Shares of Preferred Stock issued by the Board of Directors could be
utilized, under certain circumstances, to make an attempt to gain control of the
Company by means of a tender offer, proxy contest, merger or otherwise, more
difficult or time consuming and thereby protect the continuity of the Company's
management. For example, shares of Preferred Stock could be issued with certain
rights that might have the effect of diluting the percentage of Common Stock
owned by a significant stockholder or issued to purchasers who might side with
management in opposing a takeover bid that the Board of Directors determines is
not in the best interest of the Company and its stockholders. The existence of
Preferred Stock may, therefore be viewed as having possible anti-takeover
effects. A takeover transaction frequently affords stockholders the opportunity
to sell their shares at a premium over current market prices. In addition, the
issuance of shares of Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect other rights of the holders of
Common Stock. For example, Preferred Stock issued by the Company may rank prior
to the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of Common
Stock. Accordingly, the issuance of shares of Preferred Stock may discourage
bids for the Common Stock or may otherwise adversely affect the market price of
the Common Stock.
Series A Convertible Preferred Stock. The Board of Directors of the Company
------------------------------------
has authorized the designation of 2,500,000 shares of Preferred Stock as "Series
A Convertible Preferred Stock" of which 2,003,560 are outstanding. The following
describes the material features of the Series A Shares which are more fully set
forth in the Company's Certificate of Designation on file with the Delaware
Secretary of State.
53
<PAGE>
The Series A Shares have a liquidation preference equal to $2.25 per share
plus any accrued and unpaid dividends due thereon. Accordingly, in the event of
a liquidation or dissolution of the Company, after payment to all creditors, no
distribution will be made to holders of Common Stock unless prior thereto
holders of the Series A Shares have received full payment of such liquidation
preference. The Series A Shares have no voting rights and are not entitled to
receive dividends unless declared by the Company's Board of Directors out of
funds legally available therefor.
Commencing ninety (90) days after issuance, the Series A Shares are
convertible into Common Stock. Each Series A Share is initially convertible into
one (1) share of Common Stock. Thereafter, the number of shares of Common Stock
into which each Series A Share is convertible is subject to adjustment in the
event the Company declares a stock dividend, makes a distribution on its Common
Stock or subdivides or reclassifies its outstanding shares of Common Stock into
a greater or lesser number of shares. All Series A Shares shall automatically
convert into Common Stock at the conversion rate then in effect two (2) years
after issuance. In addition to the foregoing, in the event that the closing bid
price of the Common Stock on the principal market upon which it is traded equals
or exceeds $3.375 for twenty (20) consecutive trading days, the Company shall
have the right to force the holders of the Series A Shares to convert such
shares into Common Stock at the then effective conversion rate.
Dividend Policy
The Company has not paid any cash dividends to date, and has no intention
to pay any cash dividends on its Common Stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of the Board
of Directors and to certain limitations imposed by the General Corporation Law
of the State of Delaware. The timing, amount and form of dividends, if any, will
depend, among other things, on the Company's results of operations, financial
condition, cash requirements and other factors deemed relevant by Board of
Directors.
Delaware Anti-Takeover Law
The Company is governed by the provisions of Section 203 of the General
Corporation Law of the State of Delaware (the "GCL"), an anti-takeover law. In
general, the law prohibits a public Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with its affiliates and associates, owns (or within
three years, did own) 15% or more of the corporation's voting stock.
The provisions regarding certain business combinations under the GCL could
have the effect of delaying, deferring or preventing a change in control of the
Company or the removal of existing management. A takeover transaction frequently
affords stockholders the opportunity to sell their shares at a premium over
current market prices.
54
<PAGE>
Limitations On Directors' Liabilities, Indemnification And Directors' And
Officers' Insurance
The Company's Certificate of Incorporation and Bylaws reflect the adoption
of the provisions of Section 102(b)(7) of the GCL, which eliminate or limit the
personal liability of a director to the Company or its stockholders for monetary
damages for breach of fiduciary duty under certain circumstances. If the GCL is
amended to authorize corporate action further eliminating or limiting personal
liability of directors, the Certificate of Incorporation provides that the
liability of the director of the Company shall be eliminated or limited to the
fullest extent permitted by the GCL. The Company's Certificate of Incorporation
and Bylaws also provide that the Company shall indemnify any person, who was or
is a party to a proceeding by reason of the fact that he is or was a director,
officer, employer or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with such proceeding if he acted in good faith and in a manner he
reasonably believed to be or not opposed to the best interests of the Company,
in accordance with, and to the full extent permitted by, the GCL. In addition,
the Certificate of Incorporation and Bylaws authorize the Company to maintain
insurance to cover such liabilities and the Company currently maintains a
Directors' and Officers' Liability Insurance Policy.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in a successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issuer.
Transfer Agent
The transfer agent for the Company's securities is Stock Trans, Inc., 7
East Lancaster Avenue, Ardmore, Pennsylvania 19003, (610) 649-7300.
55
<PAGE>
SELLING SECURITY HOLDERS
All of the shares of Common Stock of the Company offered by this Prospectus
are being sold for the account of the selling security holders identified in the
following table (the "Selling Security Holders").
The Selling Security Holders are offering for sale an aggregate of
7,394,299 shares ("the "Shares") of Common Stock which includes (i) 2,003,560
shares issuable upon conversion of outstanding Series A Shares and (ii) 800,890
shares issuable upon exercise of outstanding warrants. 2,275,000 of the Shares
are being offered by the Company's principal stockholders.
The following table sets forth the number of Shares being held of record or
beneficially (to the extent known by the Company) by such Selling Security
Holders and provides (by footnote reference) any material relationship between
the Company and such Selling Security Holder, all of which is based upon
information currently available to the Company.
The Shares offered by the Selling Security Holders may be offered for sale
from time to time at market prices prevailing at the time of sale or at
negotiated prices, and without payment of any underwriting discounts or
commissions except for usual and customary selling commissions paid to brokers
or dealers
<TABLE>
<CAPTION>
SHARES TO BE
SHARES BENEFICIALLY BENEFICIALLY
OWNED OWNED AFTER
PRIOR TO OFFERING OFFERING
- --------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT(2) SHARES BEING NUMBER OF PERCENT(2)
NAME SHARES(1) OFFERED SHARES
- ----------------------------------------- ------------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Kim B. Acorn 10,000 * 5,000 5,000 -0-
Claire Behar, Guardian For Bryce Behar 5,000 * 2,500 2,500 *
Claire Behar, Guardian for Jaclyn Behar 5,000 * 2,500 2,500 *
Chase Trust 25,000 * 12,500 12,500 -0-
Susan Nussbaum Cohen 10,000 * 5,000 5,000 -0-
Delaware Charter Guaranty & Trust FBO Martin 13,890 * 13,890 -0- -0-
H. Meyerson IRA
EBR Investments 100,000 * 50,000 50,000 -0-
Fincord Holding Co., Inc. 695,000 3.7% 695,000 -0- -0-
Founders Equity Group 125,000 * 125,000 -0- -0-
Philip L. Franckel 25,000 * 10,000 15,000 -0-
Marvin Gersten 100,000 * 50,000 50,000 -0-
Martin A. Goldstein 10,000 * 10,000 -0- -0-
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
SHARES TO BE
SHARES BENEFICIALLY BENEFICIALLY
OWNED OWNED AFTER
PRIOR TO OFFERING OFFERING
- --------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT(2) SHARES BEING NUMBER OF PERCENT(2)
NAME SHARES(1) OFFERED SHARES
- ----------------------------------------- ------------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Aimee Gremmo 20,000 * 5,000 15,000 *
Edward Gurrieri 30,000 * 15,000 15,000 *
Mark S. Howells Trust(4) 50,000 * 12,500 37,500 *
Kenneth Kirschenbaum 100,000 * 50,000 50,000 *
Larlan Investors Ltd 416,667 2.2% 416,667 -0- -0-
Lancer Offshore, Inc.(5) 660,000 3.4% 660,000 -0- -0-
Lancer Partners, L.P.(5) 765,000 4.0% 765,000 -0- -0-
Lindzon Capital Partners, LP 75,000 * 35,000 40,000 *
Sandra Lindzon 156,250 * 50,000 106,250 *
Frank Marold 150,000 * 50,000 100,000 *
Franklin Marold 20,000 * 10,000 10,000 *
Vincent J. Marold(6) 1,030,151 5.4% 600,000 430,151 2.3%
Marold Investment LLC(7) 100,000 * 20,000 80,000 *
Jonathan Mazinter 2,500 * 2,500 -0- -0-
M.H. Meyerson & Co., Inc. 13,890 * 13,890 -0- -0-
Anna Maria Mintz 20,000 * 10,000 10,000 *
Montrose Capital Management, Ltd(8) 300,000 1.6% 300,000 -0- -0-
Donald Moorehead, Jr. 125,000 * 125,000 -0- -0-
George Moorehead 125,000 * 125,000 -0- -0-
MCZ Investment Company 632,000 3.3% 632,000 -0- -0-
Casey O'Brien 20,000 * 10,000 10,000 *
The Orbiter Fund Ltd 200,000 1.1% 200,000 -0- -0-
Harold & Beverly Rubinstein Family 60,000 * 60,000 -0- -0-
Stoli Ltd 125,000 * 125,000 -0- -0-
Richard Pawliger 277,780 1.5% 277,780 -0- -0-
Thomas Peterson 73,750 * 20,000 53,750 *
Jeffrey J. Puglisi(9) 250,000 1.3% 12,500 237,500 1.3%
Linda Rufo 20,000 * 20,000 -0- -0-
Rosemary SantaMaria 10,000 * 10,000 -0- -0-
Charles Seavey 100,000 * 20,000 80,000 *
Mike Segal 20,000 * 20,000 -0- -0-
Rob Segal 138,750 * 50,000 88,750 *
Jose Serrano 2,500 * 2,500 -0- -0-
Patricia Trish Trust 20,000 * 20,000 -0- -0-
Arnold Hendrik William van Hilton 10,000 * 10,000 -0- -0-
Philip Jan van Hilton 10,000 * 5,000 5,000 *
Veracruz Group Limited c/o Bentley Agencies 333,182 1.8% 333,182 -0- -0-
Limited
Wexler & Burkhart 35,000 * 25,000 10,000 *
Diane Winston For Benefit of Elizabeth Cohen 15,000 * 15,000 -0- -0-
Diane Winston Custodian For Jarret Cohen 20,000 * 10,000 10,000 *
Diane Gail Winston 150,000 * 70,000 80,000 *
David M. Wrenn 2,500 * 2,500 -0- -0-
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
SHARES TO BE
SHARES BENEFICIALLY BENEFICIALLY
OWNED OWNED AFTER
PRIOR TO OFFERING OFFERING
- --------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT(2) SHARES BEING NUMBER OF PERCENT(2)
NAME SHARES(1) OFFERED SHARES
- ----------------------------------------- ------------ ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Kenneth J. Koock 13,890 * 13,890 -0- -0-
Bel Cal Properties Inc 16,667 * 16,667 -0- -0-
Chris Boyan 40,000 * 40,000 -0- -0-
Michael Havritesko 35,000 * 35,000 -0- -0-
Alan Jacobson 20,000 * 20,000 -0- -0-
Myron Reinhart 50,000 * 50,000 -0- -0-
Melvin Stevens 3,000 * 3,000 -0- -0-
Synergy Group International(10) 650,000 3.4% 250,000 400,000 2.1%
West Tropical Investments 425,000 2.2% 50,000 375,000 2.0%
Michael Marchese 10,000 * 10,000 -0- -0-
Nina Partners 41,666 * 41,666 -0- -0-
Arbor Investment Associates 41,667 * 41,667 -0- -0-
Millworth Investments 600,997 3.2% 300,000 300,997 1.6%
Rozel International Holdings 300,000 1.58% 300,000 -0- -0-
Imperium Capital Inc. 25,000 * 25,000 -0- -0-
---------
Total 7,394,299
=========
</TABLE>
- ----------------------------
(*) Less than 1%
(1) As to each Shareholder, includes outstanding shares of Common Stock as well
as shares of Common Stock issuable upon conversion of the Series A Shares
and Warrants, as applicable.
(2) Calculated in accordance with Rule 13d-3 under the Exchange Act.
(3) Mr. Cathcart is a principal stockholder of the Company and serves as a
consultant to the Company. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTION" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
(4) Shares are deemed to be beneficially owned by Mark Howells. Mr. Howells is
a principal of Puglisi Howells & Co., Inc., a broker-dealer registered
under the Exchange Act which acted as placement agent for the Company in
connection with the private placement of 1,325,500 shares of Common Stock.
(5) Shares are deemed to be beneficially owned by Michael Lauer, a principal
stockholder of the Company. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT."
(6) Mr. Marold is a principal stockholder of the Company and pursuant to the
Merger Agreement, has a right to designate one (1) person to serve on the
Company's Board of Directors and such designee has the right to appoint an
additional person to serve on the Company's Board of Directors. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" and
"MANAGEMENT - Board of Directors."
(7) Marold Investment LLC is a family investment vehicle of which Vincent J.
Marold has a 20% beneficial interest. See Footnote 6 above.
(8) Montrose Capital Management, Ltd., a broker-dealer registered under the
Exchange Act, acted as placement agent to the Company in connection with
the issuance of the Series A Shares and Warrants. Pursuant to the placement
agent agreement between the Company and Montrose, Montrose has the right to
receive notice of and attend all meetings of the Company's Board of
Directors until certain events occur. See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT - Matters of Corporate Governance." In
addition, pursuant to the placement agent agreement, Montrose has a right
of first refusal to underwrite or place any public or private offer of any
equity or debt securities of the Company in which the Company utilizes the
services of an underwriter or placement agent during the "Restrictive
Period". See MANAGEMENT - Maters of Corporate Governance."
(9) Mr. Puglisi is a principal of Puglisi Howells & Company, Inc., a broker-
dealer registered under the Exchange Act, which acted as placement agent
for the Company in connection with the private placement of 1,325,500
shares of Common Stock.
(10) Shares are deemed to be beneficially owned by Vincent J. Marold, a
principal stockholder of the Company. See Footnote 6 above.
PLAN OF DISTRIBUTION
The Selling Security Holders are offering shares of Common Stock for their
own account, and not for the account of the Company. The Company will not
receive any proceeds from the sale of the shares of Common Stock by the Selling
Security Holders.
The Common Stock may be sold from time to time by the Selling Security
Holders or by their pledges, donees, transferees or other successors in
interest. Such sales may be made on the exchange or market upon which the shares
trade at the time, the over-the-counter market or otherwise at prices and at
terms then prevailing or at prices related to the then current market price, or
in negotiated transactions. The Common Stock may be sold by one or more of the
following: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by a broker or
dealer for its account pursuant to this Prospectus; and (c) ordinary brokerage
transactions and transactions in which the broker solicits purchases. In
effecting sales, brokers or dealers engaged by the Selling Security Holders may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from Selling Security Holders in amounts to be
negotiated immediately prior to the sale. Such brokers or
58
<PAGE>
dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In addition, any securities covered by this Prospectus that qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this Prospectus. The Company will not receive any of the proceeds from the sale
of these shares, although it has paid the expenses of preparing this Prospectus
and the related Registration Statement. The Selling Security Holders have been
advised that they are subject to the applicable provisions of the Exchange Act,
including without limitation, Regulation M thereunder.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon for
the Company by Buchanan Ingersoll Professional Corporation, Philadelphia,
Pennsylvania, 19103.
EXPERTS
The financial statements of Skynet Holdings, Inc., included in this
Prospectus, have been audited by BDO Seidman, LLP independent certified public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein and in the Registration Statement and are included in
reliance on such report given on the authority of said firm as experts in
auditing and accounting.
The financial statements of Nevada Fleet Management, Inc. as of December
31, 1997 and 1998 and for each of the two years then ended included in this
Prospectus have been audited by McGladrey & Pullen, LLP, independent auditors,
as stated in their report appearing herein, and have been so included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The financial statements of Freight On Board International, Limited as of
October 31, 1997 and 1998 and for each of the two years then ended included in
this Prospectus, have been audited by Harben Barker, Chartered Accountants, as
stated in their report appearing herein and are included in reliance upon the
report of such firm, given upon their authority as experts in auditing and
accounting in the United Kingdom.
59
<PAGE>
SKYNET HOLDINGS, INC.
Index To Financial Statements
-----------------------------
<TABLE>
<S> <C>
Consolidated Financial Statements of the Company
Skynet Holdings, Inc.
Report of Independent Certified Public Accountants... F-2
Consolidated Financial Statements
Balance Sheets..................................... F-3
Statements of Operations........................... F-4
Statements of Stockholders' Equity (Deficiency).... F-5
Statements of Cash Flows........................... F-6
Notes to Financial Statements...................... F-7
Financial Statements of Acquired Company
Nevada Fleet Management, Inc.
Independent Auditor's Report......................... F-21
Balance Sheets....................................... F-22
Statements of Operations............................. F-23
Statements of Shareholders' Equity................... F-24
Statements of Cash Flows............................. F-25
Notes to Financial Statements........................ F-26
Financial Statements of Acquired Company
Freight On Board International Limited
Directors' Report.................................... F-32
Independent Auditor's Report......................... F-34
Profit and Loss Account.............................. F-35
Balance Sheet........................................ F-36
Notes to Financial Statements........................ F-37
</TABLE>
F-1
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
To the Board of Directors and
Stockholders of
Skynet Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Skynet Holdings,
Inc. and subsidiaries as of June 30, 1997 and 1998 and the related consolidated
statements of operations, changes in stockholders' equity (deficiency) and cash
flows for each of the three years in the period ended June 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Skynet
Holdings, Inc. and subsidiaries as of June 30, 1997 and 1998 and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1998, in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
November 2, 1998
Los Angeles, California
F-2
<PAGE>
SKYNET HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
---------------------------------------- March 31,
1997 1998 1999
---------------------------------------- -----------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 322,628 $ 337,314 $ 2,101,695
Accounts receivable - trade, net of allowance
for doubtful accounts of $1,016,921, $734,257
and $1,184,554 6,824,929 5,646,209 6,695,506
Receivables - other 92,091 11,009 68,370
Prepaid expenses and other 46,760 66,430 574,727
---------------------------------------- -----------------
Total current assets 7,286,408 6,060,962 9,440,298
Property and equipment, net (Note 2) 665,064 704,296 1,036,371
Intangible and other assets, net 152,599 120,557 2,060,696
---------------------------------------- -----------------
$ 8,104,071 $ 6,885,815 $ 12,537,365
======================================== =================
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities
Accounts payable $ 6,095,321 $ 5,560,712 $ 4,376,310
Bank debt (Note 3) 1,466,422 782,012 955,488
Other accrued liabilities 507,484 107,514 1,300,903
Accrued payroll 230,421 209,368 542,589
Accrued income taxes 435,836 34,993 251,891
Current portion of long-term debt (Note 4) 72,615 424,619 146,695
---------------------------------------- -----------------
Total current liabilities 8,808,099 7,119,218 7,573,876
---------------------------------------- -----------------
Long-term debt, net of current portion (Note 4) 589,441 452,822 384,355
---------------------------------------- -----------------
Stockholders' Equity (Deficiency) (Notes 5 and 6)
Convertible preferred stock, $.0001 par value,
5,000,000 shares authorized; 2,450,000,
2,450,000 and 0 shares issued and outstanding
(liquidation preference $7,000,000) 245 245 -
Common stock, $.0001 par value, 50,000,000 shares
authorized; 7,000,000, 7,451,000 and 18,903,915
shares issued and outstanding 700 745 1,890
Additional paid-in capital 4,455 402,568 7,178,592
Foreign currency translation adjustment 10,296 53,332 6,843
Accumulated deficit (1,309,165) (1,143,115) (2,608,191)
---------------------------------------- -----------------
Total stockholders' equity (deficiency) (1,293,469) (686,225) 4,579,134
---------------------------------------- -----------------
$ 8,104,071 $ 6,885,815 $ 12,537,365
======================================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SKYNET HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months ended
Year ended June 30, March 31,
--------------------------------------------------- ---------------------------------
1996 1997 1998 1998 1999
--------------------------------------------------- ---------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $ 34,404,946 $ 36,151,763 $ 31,838,919 $ 24,105,906 $ 25,609,176
Cost of sales 22,783,806 24,393,228 19,123,468 14,502,379 15,617,573
--------------------------------------------------- ---------------------------------
Gross profit 11,621,140 11,758,535 12,715,451 9,603,527 9,991,603
--------------------------------------------------- ---------------------------------
Operating expenses
Compensation 6,460,625 6,948,756 7,178,941 5,184,312 6,077,818
Occupancy costs 522,483 529,876 660,742 414,283 424,105
Communication expense 553,417 615,705 630,221 457,283 556,176
Other operating expenses 3,625,893 3,693,705 3,664,570 3,079,343 3,824,742
--------------------------------------------------- ---------------------------------
Total operating expenses 11,162,418 11,788,042 12,134,474 9,135,221 10,882,841
--------------------------------------------------- ---------------------------------
Income (loss) from operations 458,722 (29,507) 580,977 468,306 (891,238)
Other income (expense)
Interest expense (106,904) (169,817) (199,714) (141,185) (193,804)
Other (33,909) 74,056 (29,809) (230,624) (375,234)
--------------------------------------------------- ---------------------------------
Income (loss) before income taxes
and extraordinary income 317,909 (125,268) 351,454 96,497 (1,460,276)
Income tax (expense) benefit (Note 7) (283,633) 85,600 (185,404) (133,110) (4,800)
--------------------------------------------------- ---------------------------------
Income (loss) before extraordinary income 34,276 (39,668) 166,050 (36,613) (1,465,076)
Extraordinary income (Note 8) 1,263,045 - - - -
--------------------------------------------------- ---------------------------------
Net income (loss) $ 1,297,321 $ (39,668) $ 166,050 $ (33,613) $ (1,465,076)
=================================================== =================================
Basic income (loss) per common share
Income (loss) before extraordinary
income $ 0.01 $ (0.01) $ 0.02 $ (0.01) $ (0.09)
Extraordinary income 0.18 - - - -
--------------------------------------------------- ---------------------------------
Net income (loss) per share $ 0.19 $ (0.01) $ 0.02 $ (0.01) $ (0.09)
=================================================== =================================
Basic weighted average number
of common shares outstanding 7,000,000 7,000,000 7,346,500 7,189,897 16,352,761
=================================================== =================================
Diluted earnings (loss) per common
share
Income (loss) before extraordinary
income $ 0.01 $ (0.01) $ 0.02 $ (0.01) $ (0.09)
Extraordinary income 0.13 - - - -
--------------------------------------------------- ---------------------------------
Net income (loss) per share $ 0.14 $ (0.01) $ 0.02 $ (0.01) $ (0.09)
=================================================== =================================
Diluted weighted average number
of common shares outstanding 9,450,000 7,000,000 9,796,500 7,189,897 16,352,761
=================================================== =================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SKYNET HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Convertible Foreign
Preferred Stock Common Stock Additional Currency
------------------------- -------------------------- Paid-In Translation Accumulated
Description Shares Amount Shares Amount Capital Adjustment Deficit
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995 2,450,000 $ 245 7,000,000 $ 700 $ 4,455 $ - $ (2,566,818)
Foreign currency adjustment - - - - - 14,403 -
Net income - - - - - - 1,297,321
----------------------------------------------------------------------------------------------------
Balance, June 30, 1996 2,450,000 245 7,000,000 700 4,455 14,403 (1,269,497)
Foreign currency adjustment - - - - - (4,107) -
Net loss - - - - - - (39,668)
----------------------------------------------------------------------------------------------------
Balance, June 30, 1997 2,450,000 245 7,000,000 700 4,455 10,296 (1,309,165)
Sale of common stock
(Note 5) - - 451,500 45 398,113 - -
Foreign currency adjustment - - - - - 43,036 -
Net income - - - - - - 166,050
----------------------------------------------------------------------------------------------------
Balance, June 30, 1998 2,450,000 245 7,451,500 745 402,568 53,332 (1,143,115)
Unaudited:
Adjustment - exchange of
stock and recapital-
ization (Note 1) (2,450,000) (245) 8,075,000 807 499,438 - -
Issuance of stock for
debt (Note 6) - - 572,500 57 1,144,943 - -
Issuance of stock for
acquisition of Fleet
(Note 15) - - 1,479,415 148 2,958,682 - -
Sale of common stock
(Note 5) - - 1,325,500 133 2,172,961 - -
Foreign currency
adjustment - - - - - (46,489) -
Net loss - - - - - - (1,465,076)
----------------------------------------------------------------------------------------------------
Balance, March 31, 1999
Unaudited - - 18,903,915 $ 1,890 $7,178,592 $ 6,843 $ (2,608,191)
====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Nine months ended
Years ended June 30, March 31,
------------------------------------------------- ---------------------------------
1996 1997 1998 1998 1999
------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
Cash flows from operating activities
Net income (loss) $ 1,297,321 $ (39,668) $ 166,050 $ (36,613) $(1,465,076)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Extraordinary income (1,263,045) - - - -
Depreciation and amortization 278,479 294,646 237,022 169,636 226,454
Changes in operating assets and
liabilities net of business acquired:
Receivables (1,119,315) (657,974) 1,259,802 313,318 (42,682)
Prepaid expenses and other assets (10,082) (7,172) (19,670) (390,740) (455,726)
Accounts payable 1,092,869 (596,239) (534,609) (2,126,089) (1,336,106)
Accrued expenses and other
liabilities 111,284 21,918 (821,866) 1,014,990 1,517,248
---------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 387,511 (984,489) 286,729 (1,055,498) (1,555,888)
---------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of property and equipment (310,709) (315,827) (244,212) (136,820) (111,385)
Acquisition of business - - - - 272,551
Other 28,328 - - - (330,125)
---------------------------------------------------------------------------------------
Net cash used in investing activities (282,381) (315,827) (244,212) (136,820) (168,959)
-------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from sale of common stock - - 398,158 412,158 2,673,094
Proceeds from issuance of notes - - 288,000 288,000 1,195,538
Bank borrowings (repayments) - 1,466,422 (684,410) 1,059,034 173,476
Debt repayments - (49,572) (72,615) (53,915) (506,391)
---------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities - 1,416,850 (70,867) 1,705,277 3,535,717
---------------------------------------------------------------------------------------
Effect of foreign currency
translation adjustments 14,403 (4,107) 43,036 (116,567) (46,489)
---------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 119,533 112,427 14,686 396,392 1,764,381
Cash and cash equivalents,
beginning of period 90,668 210,201 322,628 322,628 337,314
---------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 210,201 $ 322,628 $ 337,314 $ 719,020 $ 2,101,695
=======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended March 31, 1998 and 1997 is
unaudited)
Note 1. Summary of Significant Accounting Policies
The Company
Skynet Holdings, Inc. (the "Company") was incorporated in Nevada on
September 16, 1997. The Company was incorporated for the purpose of acquiring
the outstanding shares of four companies whose businesses provide international
express courier delivery and freight forwarding services for time sensitive
documents and packages to customers throughout the world under the name SkyNet
Express.
On October 1, 1997, the acquisition described above was completed through
an exchange of 2,800,000 shares of the Company's common stock and 1,400,000
shares of the Company's preferred stock for all shares of each of the companies
acquired. The transaction was accounted for as a reorganization of entities
under common control in a manner similar to a pooling of interest, whereby the
Company's consolidated financial statements have been restated to include the
accounts and operations of the merged companies for all periods presented prior
to the merger.
The Company currently operates (i) through its own courier facilities
located in London, Bristol and Manchester, England, Los Angeles, San Francisco
and Sacramento, California; Las Vegas and Reno, Nevada; Portland and Salem,
Oregon; Seattle, Everett and Tacoma, Washington; Phoenix, Arizona; New York, New
York, and Sydney, Melbourne, Australia and (ii) through the "SkyNet Worldwide
Express" network, a global alliance of independent express courier service
companies that functions as a worldwide delivery network for its members.
Recapitalization
EPL Resources (Delaware) Corp. ("EPLR") was organized December 15, 1994,
under the laws of the State of Florida. EPLR had no operations and was
considered a development stage company. EPLR was formed for the purpose of
raising capital and acquiring a suitable business opportunity through a merger
with, or acquisition of, a private business enterprise seeking to obtain the
perceived benefits of being a publicly owned company. During September 1998,
EPLR issued and sold an aggregate of 4,625,000 shares of Common Stock raising
gross proceeds of $555,000.
On October 14, 1998 EPLR acquired 100% of the outstanding capital stock of
Skynet Holdings, Inc., a Nevada corporation ("Skynet Nevada"), in exchange for
9,901,500 shares of EPLR common stock. Concurrent with this transaction, EPLR
reincorporated in the State of Delaware and changed its name to Skynet Holdings,
Inc., ("Skynet Delaware").
For accounting purposes, the acquisition of Skynet Nevada by Skynet
Delaware has been treated as a reverse acquisition in substance equivalent to
the issuance of stock for the net monetary assets of Skynet Delaware,
accompanied by a recapitalization. The historical operating results reflected
in the accompanying financial statements are those of Skynet Nevada as Skynet
Delaware's operations prior to October 14, 1998 were nominal.
F-7
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended March 31, 1999 and 1998 is
unaudited)
Note 1. Summary of Significant Accounting Policies (Continued)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and balances are
eliminated.
Unaudited Interim Financial Information
The accompanying consolidated balance sheet of the Company as of March 31,
1999 and the related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows for the nine months ended March 31, 1999 and 1998
have been prepared in accordance with generally accepted accounting principles
for interim periods and are unaudited; however, in management's opinion, they
include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of results for such interim periods. Interim
results are not necessarily indicative of results for the full year.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with initial
maturities of three months or less to be cash equivalents.
Concentrations of Credit Risks
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of temporary cash investments and trade
receivables. The Company restricts investment of temporary cash investments to
financial institutions with high credit standing. Credit risk on trade
receivables is minimized as a result of the large number of customers comprising
the Company's customer base and their dispersion across different businesses and
geographic regions.
Included in the Company's consolidated balance sheets at June 30, 1998 and
1997, and March 31, 1999 are the net assets (liabilities) of the Company's
United Kingdom subsidiary of approximately $410,000, $469,000 and $148,000 and
the Company's Australian subsidiary of approximately $212,000, ($230,000) and
$254,000 for the same periods.
F-8
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended March 31, 1999 and 1998 is
unaudited)
Note 1. Summary of Significant Accounting Policies (Continued)
Property and Equipment and Depreciation
Property and equipment are recorded at cost and are being depreciated over
estimated useful lives of 5 to 7 years using the straight-line method. Leasehold
improvements are recorded at cost and are amortized over the lesser of the
estimated useful lives of the property or the lease term using the straight-line
method.
Intangible Assets
The Company owns the rights to certain trademarks. These assets are being
amortized on the straight-line method over 15 years. Amortization expense,
charged to operations for the years ended June 30, 1996, 1997 and 1998, was $0,
$33,721 and $32,042, and $12,000 for each of the nine months ended March 31,
1998 and 1999.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
established guidelines regarding when impairment losses on long-lived assets,
which include property and equipment and certain identifiable intangible assets,
should be recognized and how impairment losses should be measured. The Company
periodically reviews such assets for possible impairment and expected losses, if
any, are recorded currently.
Fair Value of Financial Instruments
The Company has cash, accounts receivable and accounts payable for which
the carrying value approximates fair value due to the short-term nature of these
instruments.
The carrying value of bank debt and long-term debt approximates fair value
at June 30, 1997 and 1998 and December 31, 1998 since these notes substantially
bear interest at floating rates based upon the lenders' "prime" rate. The fair
value of notes related to the reorganization of a subsidiary under bankruptcy
cannot be estimated due to the court-mandated nature of the debt.
Revenue Recognition
Revenue for delivery of packages is recognized upon delivery. Revenue from
the Company's SkyCom system, the Company's package tracking system, is billed
monthly and is recorded when billed. For the nine months ended March 31, 1999,
revenue from SkyCom represented approximately 2.0% of revenue.
Cost of Sales primarily includes charges for Linehaul, Pick-up and Delivery
including driver's salaries and other related costs.
F-9
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended March 31, 1999 and 1998 is
unaudited)
Note 1. Summary of Significant Accounting Policies (Continued)
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated at the
current exchange rate at the balance sheet date. Income and expenses are
translated at the average exchange rate in effect during the year. Resulting
translation adjustments are accumulated as a separate component of stockholders'
equity.
Realized gains and losses related to other foreign currency transactions
are reported as income or expense in the current year. Such gains or losses were
not material for the years ended June 30, 1996, 1997 and 1998, and for the nine
months ended December 31, 1997 and 1998.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." ("SFAS
No. 109"). SFAS No. 109 requires the use of the asset and liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
("SFAS 128") is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. The statement requires
restatement of all prior period earnings per share (EPS) data presented. The new
standard requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS computation.
The Company adopted SPAS 128 for the year-end June 30, 1998 and for prior years
as presented in the accompanying financial statements. Adoption of this standard
did not result in a restatement of prior periods EPS data.
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS 129") is effective for financial
statements ending after December 15, 1997. SFAS 129 reinstates various
securities disclosure requirements previously in effect under Accounting
Principles Board Opinion No. 15, which has been superseded by SFAS 128. The
Company adopted SFAS 129 on June 30, 1998, and it did not have any effect on its
consolidated financial position or results of operations.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") is effective for financial statements with
fiscal years beginning after December 15, 1997. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. This standard was adopted during
fiscal 1999.
F-10
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended March 31, 1999 and 1998 is
unaudited)
Note 1. Summary of Significant Accounting Policies (Continued)
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segment of an Enterprise and Related Information" ("SFAS 131"), is effective for
financial statements with fiscal years beginning after December 15, 1997. The
new standard requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and condensed financial statements of interim periods issued to
stockholders. It also requires that public business enterprises report certain
information about their products issued to stockholders. It also requires that
public business enterprises report certain information about their products and
services, the geographic areas in which they operate and their major customers.
This standard was adopted during fiscal 1999.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosure
About Pensions and Other Postretirement Benefits" ("SFAS 132") is effective for
financial statements with fiscal years beginning after December 15, 1997. SFAS
132 requires employers' disclosures about pension and other postretirement
benefits plans. The Company does not expect adoption of SFAS 132 to have a
material effect, if any, on its consolidated financial position or results of
operations.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") is effective for
financial statements with fiscal years ending June 15, 1999 and later. SFAS 133
establishes accounting and reporting standards for derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. The Company does not expect adoption of SFAS 133 to have a
material effect, if any, on its consolidated financial position or results of
operations.
Statement of Financial Accounting Standards No. 134, "Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale By a Mortgage Banking Enterprise," ("SFAS 134") is effective for
financial statements with fiscal years beginning after December 15, 1998. SFAS
134 amends SFAS No. 65, "Accounting for Certain Mortgage Banking Activities"
which establishes accounting and reporting standards for certain activities of
mortgage banking enterprises and other enterprises that conduct operations which
are substantially similar to the primary operations of a mortgage banking
enterprise. The Company does not expect adoption of SFAS 134 to have a material
effect, if any, on its consolidated financial position or results of operations.
F-11
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended March 31, 1999 and 1998 is
unaudited)
Note 1.-Summary of Significant Accounting Policies (Continued)
Earnings (Loss) Per Share
Basic earnings (loss) per share of common stock is computed by dividing net
earnings (loss) by the weighted average number of common shares. Diluted
earnings per share is computed based on the weighted average number of shares of
common stock and dilutive securities outstanding during the period. Dilutive
securities are options that are freely exercisable into common stock at less
sthan market exercise prices, the convertible debentures (after giving
retroactive effect to the elimination of interest expense, net of tax) and
convertible preferred stock. Dilutive securities are not included in the
weighted average number of shares when the inclusion would increase the earnings
per share or decrease the loss per share.
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------------------------------
1996 1997 1998
--------------------------------------------------
<S> <C> <C> <C>
Basic earnings (loss) per common share:
Numerator
Income (loss) before extraordinary income $ 34,276 $ (39,668) $ 166,050
Extraordinary income 1,263,045 - -
--------------------------------------------------
Net earnings (loss) available to common
shareholders $ 1,297,321 $ (39,668) $ 166,050
==================================================
Denominator
Weighted average common shares outstanding 7,000,000 7,000,000 $ 7,365,500
==================================================
Per share amounts
Basic earnings (loss) before extraordinary income $ 0.01 $ (0.01) $ 0.02
Extraordinary income 0.18 - -
--------------------------------------------------
Basic earnings (loss) $ 0.19 $ (0.01) $ 0.02
==================================================
Diluted earnings (loss) per common share:
Numerator
Income (loss) before extraordinary income $ 34,276 $ (39,668) $ 166,050
Extraordinary income 1,263,045 - -
--------------------------------------------------
Net earnings (loss) available to common shareholders $ 1,297,321 $ (39,668) 166,050
==================================================
Denominator
Weighted average common shares outstanding 7,000,000 7,000,000 7,365,500
Effect of dilutive securities:
Convertible preferred stock outstanding 2,450,000 - 2,450,000
--------------------------------------------------
Weighted average common shares and assumed
conversions outstanding 9,450,000 7,000,000 7,796,500
==================================================
Per share amounts
Diluted earnings (loss) before extraordinary income $ 0.01 $ (0.01) $ 0.02
Extraordinary income 0.13 - -
--------------------------------------------------
Diluted earnings (loss) $ 0.14 $ (0.01) $ 0.02
==================================================
</TABLE>
F-12
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended March 31, 1999
and 1998 is unaudited)
Note 2. Property and Equipment
Property and equipment consists of:
<TABLE>
<CAPTION>
June 30,
------------------------------------- March 31,
1997 1998 1999
------------------------------------- ------------------
<S> <C> <C> <C>
Leasehold improvements $ 212,941 $ 193,494 $ 195,360
Computer equipment 926,780 1,162,905 1,221,946
Furniture, fixtures and equipment 596,572 668,709 716,042
Transportation equipment 170,294 67,723 353,368
------------------------------------- ------------------
1,906,587 2,092,831 2,486,716
Less accumulated depreciation and amortization 1,241,523 1,388,535 1,450,345
------------------------------------- ------------------
Net property and equipment $ 665,064 $ 704,296 $ 1,036,371
===================================== ==================
</TABLE>
Note 3. Bank Debt
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 plus 2.25% (10.0% at June 30, 1998). Borrowings under the agreement
amounted to $1,466,422 and $782,012 at June 30, 1997 and 1998 and $955,488 at
March 31, 1999.
Note 4. Long-Term Debt
Long-term debt consists of:
<TABLE>
<CAPTION>
June 30,
---------------------- March 31,
1997 1998 1999
---------------------- --------------
<S> <C> <C> <C>
Promissory notes, payable in monthly payments
with an interest rate of 18%, due June 2004 $ 250,000 $ 350,000 $ 250,000
Creditors debt, non-interest bearing debt, payable
in annual installments, maturing June 2001 100,000 100,000 100,000
Internal Revenue Service debt, payable in sixty equal
Monthly principal and interest payments of $4,511
with interest charged at 8.0%, due May 2001 179,880 138,649 105,494
California State Employment Development Department debt,
payable in sixty equal monthly principal and interest
payments of $3,402 with interest charged at 8.0%, due 132,176 100,792 75,556
April 2001
Bridge financing, all principal and interest due at
maturity with interest charged at 24%, due September 1998 - 188,000 -
---------------------- -----------------
662,056 877,441 531,050
Amount due within one year (72,615) (424,619) (146,695)
---------------------- -----------------
Total long-term debt $ 589,441 $ 452,822 $ 384,355
====================== =================
</TABLE>
F-13
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended March 31, 1999 and 1998 is
unaudited)
Note 4. Long-Term Debt (Continued)
Annual maturities of long-term obligations as of June 30, 1998 are as
follows:
<TABLE>
<CAPTION>
Years ending June 30, Amount
------------
<S> <C>
1999 $ 424,619
2000 150,575
2001 189,915
2002 64,906
2003 47,426
------------
$ 877,441
============
</TABLE>
Note 5. Private Placements
During December 1997, the Company completed a private placement of 258,000
shares of its common stock at $2.00 per share. The Company received net
proceeds of $398,158 after deducting offering costs of $117,842.
On December 9, 1998, the Company signed a letter of intent with a Placement
Agent for the purpose of offering (the "Offering") up to 2,000,000 shares of
Common Stock, par value $.0001 per share (the "Shares"), at a purchase price of
$2.00 per Share on a "best efforts, 1,000,000 Shares or none" basis. On
February 19 and March 5, 1999, the Company conducted closings with respect to
the Private Placement resulting in the issuance of an aggregate of 1,325,500
shares of Common Stock which generated net proceeds of approximately $2,173,000
(after offering costs of approximately $478,000).
See Note 16.
Note 6. Debt Conversion
During the nine months ended March 31, 1999, the Company received proceeds
from short-term notes of $950,000. In addition, on October 14 and November 30,
1998, the Company received proceeds from short-term borrowings in the amount of
$245,000 from a corporate officer. The proceeds of the above noted borrowings
were used to repay existing outstanding indebtedness of $298,000 with the
balance added to working capital.
On December 1, 1998, the outstanding indebtedness described above of
$1,145,000, including accrued interest was converted by the holders into 572,500
shares of the Company's common stock. Of these shares, 495,000 were issued to
related parties.
F-14
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended March 31, 1999 and 1998 is
unaudited)
Note 7. Income Taxes
The income tax provision (benefit) in the consolidated statement of
operations consists of the following components:
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------
1996 1997 1998
-----------------------------------------------
<S> <C> <C> <C>
Current
Federal $ - $ - $ -
State - - -
Foreign 283,633 (85,600) 185,404
-----------------------------------------------
283,633 (85,600) 185,404
-----------------------------------------------
Deferred
Federal - - -
State - - -
Foreign - - -
-----------------------------------------------
- - -
-----------------------------------------------
Total $283,633 $(85,600) $185,404
===============================================
</TABLE>
Deferred tax assets net included in the consolidated balance sheets are
as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------
1997 1998
-----------------------
<S> <C> <C>
Temporary differences resulting in future deductible amounts $340,534 $184,842
Federal net operating loss carryforwards 352,455 459,407
State net operating loss carryforwards 62,198 83,802
-----------------------
Deferred tax assets 755,187 728,051
Deferred tax liability (3,535) (6,198)
Valuation allowance (751,652) (721,853)
------------------------
Deferred tax assets - net $ - $ -
========================
</TABLE>
At June 30, 1998 and 1997, management provided a 100% valuation allowance
against the net deferred tax asset due to the indeterminate nature of the
Company's ability to realize this deferred asset.
F-15
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended March 31, 1999 and 1998 is
unaudited)
Note 7. Income Taxes (Continued)
Reconciliation of the provisions for income taxes to the expected income
tax based on the statutory rates are as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------
1996 1997 1998
----------------------------------------------------
<S> <C> <C> C>
Provision (benefit) Federal statutory rate $108,089 $(42,713) $119,494
Increase (decrease) in income tax resulting from
Foreign taxes 175,544 (42,887) 65,910
----------------------------------------------------
$283,633 $(85,600) $185,404
====================================================
</TABLE>
At June 30, 1998, the Company has approximately $1.4 million of federal net
operating loss carryovers (expiring through 2013) and approximately $1.3 million
of state net operating loss carryovers (expiring through 2013) which may be
available to reduce future taxable income. Among potential adjustments which may
reduce available loss carryforwards, the Internal Revenue Code of 1986, as
amended ("IRC"), reduces the extent to which net operating loss carryforwards
may be utilized in the event there has been an "ownership change" of a company
as defined by applicable IRC provisions.
The Company believes that such a change may have occurred in 1997 and
intends to analyze the impact of such transfers on the continued availability,
for tax purposes, of the Company's net operating losses incurred through June
30, 1998. Future ownership changes, as defined by the IRC, may reduce the extent
to which any net operating losses may be utilized.
Income taxes have been provided for foreign operations based upon the
various tax laws and rates of the countries in which the Company's operations
are conducted. There is no direct relationship between the Company's overall
foreign income tax provision and foreign pre-tax book income due to the
different methods of taxation used by countries throughout the world.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $48,000 at June 30, 1998. Those earnings are considered to be
indefinitely reinvested and, accordingly, no provision for United States federal
and state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both United States income taxes (subject to an adjustment for foreign tax
credits) and withholding taxes payable to the various foreign countries.
Determination of the amount of unrecognized deferred United States income tax
liability is not practicable because of the complexities associated with its
hypothetical calculation.
F-16
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended March 31, 1999 and 1998 is
unaudited)
Note 8. Extraordinary Income
During 1995, one of the Company's subsidiaries filed for protection under
the bankruptcy laws of the State of California. In connection with the Plan of
Reorganization, approved by the court in August 1996, certain indebtedness of
the subsidiary was discharged by the court. Accordingly, the subsidiary
recognized extraordinary income in the amount of $1,263,045 during the fiscal
year ended June 30, 1996.
Note 9. Commitments and Contingencies
The Company leases its facilities under noncancellable operating leases,
which expire at various dates through July 2016. Future minimum payments, by
year and in the aggregate, under noncancellable operating leases with initial or
remaining terms of one year or more consist of the following at June 30, 1998:
<TABLE>
<CAPTION>
Operating
Year Leases
--- ------
<S> <C>
1999 $ 560,148
2000 500,349
2001 357,480
2002 357,480
2003 354,060
Thereafter 2,480,358
----------
Total minimum lease payments $4,609,875
==========
</TABLE>
Rent expense for the fiscal years ended June 30, 1996, 1997 and 1998
amounted to $522,483, $529,876 and $660,742.
In October 1998, three executive officers signed employment agreements for
periods ranging from one to three years and providing for aggregate annual
compensation of approximately $500,000, plus benefits. In addition, five-year
options to purchase an aggregate of 1,400,000 shares of restricted common stock
at an exercise price of $3.00 per share were issued to two executive officers.
Five-year options to purchase 400,000 shares of restricted common stock at an
exercise price of $3.00 per share were issued to a principal stockholder.
Note 10. - Supplemental Cash Flow Information
Cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
June 30, March 31,
---------------------------------- ---------------------
1996 1997 1998 1998 1999
---------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Interest $105,430 $165,638 $191,112 $143,391 $159,453
Income taxes 184,232 - 230,487 205,375 40,195
================================== =====================
</TABLE>
F-17
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended March 31, 1999 and 1998 is
unaudited)
Note 11.-Related Party Transactions
During September 1997, a major shareholder loaned the Company $100,000 in
the form of a non-interest bearing demand note. The note was repaid from
proceeds in connection with the merger described in Notes 1 and 10. During the
year ended June 30, 1998, the Company paid a major shareholder consulting fees
amounting to $10,000.
Note 12.-Comprehensive Income
The components of comprehensive income (loss), net of tax, are as follows:
<TABLE>
<CAPTION>
June 30, March 31,
------------------------------------------ --------------------------
1996 1997 1998 1998 1999
------------------------------------------ --------------------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 1,297,321 $ (39,668) $ 166,050 $ (36,613) $ (1,465,076)
Foreign currency translation
Adjustments 14,403 (4,107) 43,036 116,567 (46,489)
------------------------------------------ --------------------------
Comprehensive income (loss) $ 1,311,724 $ (43,775) $ 209,086 $ 79,954 $(1,511,565)
------------------------------------------ --------------------------
</TABLE>
Note 13 - Geographic Information
The Company operates in one principal industry segment: the delivery of
time sensitive documents and packages. Net sales to customers are aggregated
based on the geographic area in which the sales originate. A summary of the
Company's geographic information is presented below:
<TABLE>
<CAPTION>
United
States Europe Australia Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales to Customers 1998 $5,962,396 $21,250,613 $4,625,910 $31,838,919
1997 7,597,883 24,079,365 4,474,515 36,151,763
1996 7,714,977 22,661,783 4,028,186 34,404,946
Operating Income (Loss) 1998 (384,849) 630,936 334,890 580,977
1997 107,664 (381,347) 244,176 (29,507)
1996 (341,921) 701,310 99,333 458,722
Identifiable Assets 1998 882,250 5,066,925 936,640 6,885,815
1997 918,546 6,199,922 985,603 8,104,071
1996 1,102,830 5,502,766 699,721 7,305,317
</TABLE>
F-18
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended March 31, 1999 and 1998
is unaudited)
Note 14 - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to Write-offs Balance at
Description beginning of costs and against end of
Allowance for possible losses period expenses reserve period
Year ended June 30, ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 $1,016,921 $400,955 $(683,619) $ 734,257
1997 999,506 329,841 (312,426) 1,016,921
1996 808,447 246,170 (55,111) 999,506
</TABLE>
Note 15 - Acquisition of Fleet (Unaudited)
On March 15, 1999, the Company acquired the operating assets of Nevada
Fleet Management, Inc. dba Fleet Delivery Service, ("Fleet"), a regional courier
company which provides air and ground delivery services in Nevada, Washington
and Oregon, primarily to the banking industry. The Company issued 1,479,415
shares of Common Stock as consideration for the acquisition. Fleet has annual
revenue of approximately $13 million, 450 employees and more than 200 delivery
vehicles. The assets acquired include: receivables, delivery vehicles,
equipment, refundable deposits, licenses, administrative material and equipment,
records and documents, and all personal property used in the operation of the
business. The Company also assumed approximately $300,000 in liabilities
relating to the acquisition. The Company accounted for the acquisition using the
purchase method of accounting with the assets acquired and liabilities assumed
recorded at fair values, and the results of the acquired business included in
the Company's consolidated financial statements from the closing date of the
acquisition.
Note 16 - Subsequent Events (Unaudited)
Acquisition
On April 12, 1999, the Company completed the first tier of a scheduled two-
tiered acquisition of Freight on Board International Limited, a corporation
organized under the laws of the United Kingdom ("FOB"). At the initial closing,
the Company purchased 51% of the issued and outstanding shares of FOB for cash
in the amount of approximately $680,000; 31,119 shares of Common Stock; and a
one (1) year cash earn-out payment in the amount of up to $144,000 based on
quarterly revenues of FOB for the one year period following the closing. The
Company is scheduled to purchase the remaining 49% of the capital stock of FOB
during the third or fourth quarter of 1999. This will occur by virtue of
reciprocal put and call features within the acquisition agreement which permits
the seller to "put" his shares to the Company commencing July 2, 1999 and
terminating December 31, 1999; and the Company to "call" such shares from the
seller commencing August 1, 1999 and terminating September 29, 1999. The
purchase price for the remaining 49% consists of (i) cash in the amount of
approximately $570,000; (ii) 83,067 shares of Common Stock; and (iii) a one year
cash earn-out payment in the amount of up to approximately $265,000 based on
quarterly revenues of FOB for the one year period following the closing. The
cash has been placed in an escrow account pending such acquisition. The Company
accounted for the acquisition using the purchase method of accounting with the
assets acquired and liabilities assumed recorded at fair values, and the results
of the acquired business will be included in the consolidated financial
statements from the closing date of the acquisition.
F-19
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended March 31, 1999 and 1998
is unaudited)
Note 16 - Subsequent Events (Unaudited) (Continued)
Potential Acquisition
On May 1, 1999 the Company entered into a letter of intent to acquire all
of the issued and outstanding shares of capital stock of Pony Express Delivery
Services, Inc. ("Pony Express"), an Atlanta based express courier which
maintains 100 offices in 22 states. The potential acquisition is subject to the
negotiation and execution of a definitive agreement. Thereafter, closing of the
acquisition would be further conditioned upon a number of factors including (i)
the Company's completion of a satisfactory due diligence review of the business
and financial condition of Pony Express; (ii) restructuring the outstanding
indebtedness of Pony Express; and (iii) the absence of any material contingent
liabilities. The Company has just recently commenced its due diligence of Pony
Express and has not made any judgment as to whether it will be in a position to
complete the acquisition in the short term, if at all. Accordingly, there can
be no assurance that the potential acquisition will be completed.
Private Placement
During April of 1999, the Company further completed a private placement
through the issuance of an aggregate of 500,890 Units consisting of an aggregate
of 2,003,560 Series A Convertible Preferred Stock and warrants to purchase an
aggregate of 500,890 shares of Common Stock at an exercise price of $5.00 per
share which generated net proceeds (after offering costs of approximately
$600,000) of approximately $4,000,000. The Series A Shares are convertible into
2,003,560 shares of Common Stock within two (2) years from the date of issuance.
Stock Options and Warrants
During November 1998, the Company adopted the 1998 Incentive Stock Option
Plan (the "Plan") permits the Company to grant options to purchase shares equal
to 10% of the Company's outstanding shares of Common Stock (currently
1,893,553). As of May 11, 1999, the Company has issued options and warrants in
the following amounts:
. The Company has issued to employees, 965,000 options under the Plan.
. In connection with the October 1998 Merger, the Company issued options
to purchase 1,800,000 shares of Common Stock.
. During February of 1999, the Company issued warrants to purchase
132,500 shares of Common Stock in connection with the private
placement of the Company's Common Stock.
. During April of 1999, the Company issued warrants to purchase 800,890
Shares of Common Stock in connection with the private placement of its
Series A Convertible Preferred Stock.
F-20
<PAGE>
[LETTERHEAD OF]
MCGLADREY & PULLEN, LLP
-----------------------
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Nevada Fleet Management, Inc.
Las Vegas, Nevada
We have audited the accompanying balance sheets of Nevada Fleet Management, Inc.
dba Fleet Delivery Service as of December 31, 1998 and 1997 and the related
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nevada Fleet Management, Inc.
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As disclosed in Note 1 to the financial statements, there has been a change in
reporting entity from the prior year.
/s/ McGladrey & Pullen, LLP
Las Vegas, Nevada
January 11, 1999
F-21
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS 1998 1997
- ------------------------------------------------------------------------------
Cash $ 382,446 $ 403,185
Accounts receivable, less allowance for doubtful
accounts 1998 $71,412 and 1997 $76,652 1,095,377 1,021,243
Due from related party (Note 6) 68,625 25,325
Other assets (Note 2) 75,733 87,783
-------------------------
Total current assets 1,622,181 1,537,536
Vehicles and equipment, net (Note 3) 203,110 295,724
Deposits 19,840 28,488
-------------------------
$ 1,845,131 $ 1,861,748
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Accounts payable $ 146,923 $ 462,025
Accrued expenses (Note 4) 545,491 623,219
Accident claim liability (Note 5) 515,000 606,000
Due to related party (Note 6) 344,944 -
-------------------------
Total current liabilities 1,552,358 1,691,244
Commitments and Contingencies (Notes 5 and 9)
Stockholders' Equity
Common stock, no par value, 2,500 shares
authorized, 1,500 shares issued and
outstanding $ 6,000 6,000
Additional Paid-in Capital 10,689,879 10,635,879
Accumulated Deficit (10,403,106) (10,471,375)
---------------------------
292,773 170,504
---------------------------
$ 1,845,131 $ 1,861,748
===========================
See Notes to Financial Statements.
F-22
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
STATEMENTS OF OPERATIONS
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Courier revenue $13,501,266 $13,024,519
Record retention revenue 130,148 104,824
----------------------------------
Total revenue 13,631,414 13,129,343
----------------------------------
Operating expenses
Operating, including $166,179 and $649,550 incurred to a
related party in 1998 and 1997, respectively (Note 6) 11,538,951 12,080,083
General and administrative, including rent paid to
stockholders of $14,400 in 1998 and 1997 1,912,221 2,384,811
Depreciation and amortization 87,191 102,514
Shop and garage 3,855 21,381
----------------------------------
Operating expenses 13,542,218 14,588,789
----------------------------------
Operating income (loss) 89,196 (1,459,446)
Nonoperating income (expense):
Interest income 4,028 269
Loss on disposition of assets (3,862) (23,832)
Interest expense, including $14,000 and $363,658, incurred
to related parties in 1998 and 1997, respectively (Note 6) (21,093) (367,848)
----------------------------------
Net income (loss) $ 68,269 $(1,850,857)
==================================
Proforma net income (unaudited):
Historical income before income taxes $ 68,269
Proforma provision for taxes 26,657
-----------
Proforma net income $ 41,612
===========
Proforma net income per share, basic and diluted $ 27.74
===========
Weighted average shares outstanding, basic and diluted 1,500
===========
</TABLE>
See Notes to Financial Statements.
F-23
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,500 $6,000 $ 5,025,000 $ (8,620,518) $(3,589,518)
Stockholder contributions - - 5,610,879 - 5,610,879
Net loss - - - (1,850,857) (1,850,857)
-------------------------------------------------------------------------------
Balance at December 31, 1997 1,500 6,000 10,635,879 (10,471,375) 170,504
Stockholder contributions - - 54,000 - 54,000
Net income - - - 68,269 68,269
-------------------------------------------------------------------------------
Balance at December 31, 1998 1,500 $6,000 $10,689,879 $(10,403,106) $ 292,773
===============================================================================
</TABLE>
See Notes to Financial Statements.
F-24
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Cash received from courier revenue $ 13,557,280 $ 14,924,989
Cash paid to suppliers and employees (13,562,515) (14,450,927)
Interest received 4,028 269
Interest paid (21,093) (367,848)
-----------------------------------
Net cash provided by (used in) operating
activities (Note 7) (22,300) 106,483
-----------------------------------
Cash Flows from Investing Activities
Proceeds from sale of vehicles and equipment 2,661 300
Purchase of vehicles and equipment (1,100) (39,611)
-----------------------------------
Net cash provided by (used in) investing activities 1,561 (39,311)
-----------------------------------
Cash Flows from Financing Activities,
principal payments on notes payable - (8,981)
-----------------------------------
Net increase (decrease) in cash (20,739) 58,191
Cash
Beginning 403,185 344,994
-----------------------------------
Ending $ 382,446 $ 403,185
===================================
Supplemental Schedule of Noncash Investing and Financing Activities
Due to related party recorded as additional paid-in capital $ 54,000 $ 5,610,879
===================================
</TABLE>
See Notes to Financial Statements.
F-25
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Nature of business
- ------------------
Nevada Fleet Management, Inc. dba Fleet Delivery Services, (the Company), a
Nevada corporation, operates principally as a courier service in Nevada,
California, Oregon, Utah, Arizona and Washington. The Company closed their Utah
operation during 1998. The Company also provides record retention storage
facilities in Nevada. Segment information is not presented since all of the
Company's revenue is attributed to a single reportable segment.
Change in reporting entity
- --------------------------
In the prior year, the Company's financial statements were presented on a
combined basis with Nevada Yellow Cab Corporation, Nevada Checker Cab
Corporation and Nevada Star Cab Corporation. Management has elected to present
the Company's financial statements on a stand-alone basis in the current year.
A summary of the Company's significant accounting policies follows:
Use of estimates in the preparation of financial statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. A
significant estimate which is particularly susceptible to change in a short
period of time includes the determination of the accident claim liability.
Actual results could differ from those estimates.
Cash
- ----
At various times throughout the year, the Company maintained cash balances at
financial institutions that exceeded federally insured limits.
Vehicles and equipment
- ----------------------
Vehicles and equipment are stated at cost. Depreciation and amortization are
provided by the straight-line method over the following estimated useful lives.
Years
-----
Vehicles 5-6
Automotive radios and equipment 7-10
Furniture, fixtures and equipment 7-10
Leasehold improvements 7
Improvements to leased property are amortized over the lesser of the life of the
lease or the life of the improvements.
F-26
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies (continued)
Revenue recognition
- -------------------
Revenue is recognized upon delivery.
Income tax
- ----------
The Company, with the consent of its stockholders, has elected to be taxed under
sections of the federal income tax laws which provide that, in lieu of
corporation income taxes, the stockholders separately account for their pro rata
shares of the Company's items of income, deduction, losses and credits.
Therefore, these financial statements do not include any provision for corporate
income taxes.
Concentration of credit risk
- ----------------------------
The Company has a major customer representing approximately 27% and 22% of
revenue for the years ended December 31, 1998 and 1997, respectively. During
the years December 31, 1998 and 1997 revenues and trade receivables from this
customer amounted to approximately $3,624,000 and $2,828,000 and $178,000 and
$334,000, respectively.
Reclassification of certain expenses
- ------------------------------------
Certain amounts for the year ended December 31, 1997 have been reclassified,
with no effect on net income, to be consistent with the classifications adopted
for the year ended December 31, 1998.
Pro forma income taxes and earnings per share
- ---------------------------------------------
The pro forma statement of operations information included in these financial
statements is to show what the significant effects might have been on the 1998
historical statements of operations had the Company not been treated as an S
corporation for income tax purposes. The pro forma information reflects a
provision for income taxes at an effective rate of 39%. The pro forma net
income per share is based on the weighted average number of shares of common
stock outstanding during the period.
Fair value of financial instruments
- -----------------------------------
The carrying amounts of due to and due from related parties are considered to
approximate fair value because the interest rates either approximate market
interest rates or the estimated fair values using current market rates are not
materially different from their carrying values.
F-27
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 2. Other Assets
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
<S> <C> <C>
Prepaid expenses $ 66,515 $ 76,229
Other receivables 9,218 11,544
---------------------------------
$ 75,733 $ 87,783
=================================
</TABLE>
Note 3. Vehicles And Equipment
Vehicles and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
<S> <C> <C>
Vehicles $ 245,642 $ 245,642
Automotive radios and equipment 350,463 364,030
Furniture, fixtures and equipment 79,462 78,364
Leasehold improvements 48,071 48,071
---------------------------------
723,638 736,107
Less accumulated depreciation and amortization (520,528) (440,383)
---------------------------------
$ 203,110 $ 295,724
=================================
</TABLE>
Note 4. Accrued Expenses
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
<S> <C> <C>
Accrued salaries $210,180 $239,288
Accrued vacation 56,452 90,811
Other 278,859 293,120
--------------------------------
$545,491 $623,219
================================
</TABLE>
F-28
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 5. Accident Claim Liability
The Company is involved in various claims and lawsuits resulting from injuries
and damages arising from vehicle accidents wherein substantial amounts are
claimed. The Company handles and settles smaller claims internally. Claims and
litigation with larger potential losses are referred to outside counsel. The
Company maintains insurance for claims but is generally self-insured for the
first $100,000. The Company has recorded approximately $515,000 and $606,000 at
December 31, 1998 and 1997, respectively, for the aggregate amount of estimated
losses from these known claims. This estimate is based on a range from counsel
on the larger claims and management's assessment and experience with smaller
claims. The upper end of the range of estimated loss is not reasonably
determinable.
Note 6. Related Party Balances and Transactions
The Company has entered into various transactions with the stockholders and a
company which is related by common ownership and management as disclosed below.
Due from related party consists of amounts due from Star Transit (Star), a
company affiliated through common ownership, for various operating expenses.
At December 31, 1998 and 1997, the amount due from Star is $68,625 and
$25,325, respectively.
Due to related party consists of amounts due to Nevada Yellow Cab Corporation
(YCC) for the payment of general operating expenses by YCC on behalf of the
Company. At December 31, 1998 and 1997, the amount due to YCC for these expenses
is $344,944 and $0, respectively. The amount due to related party accrues
interest at 6% per year. Included in interest expense is approximately $14,000
and $43,000 payable to YCC for the years ended December 31, 1998 and 1997,
respectively.
Interest expense also includes $0 and $320,658 for the years ended December 31,
1998 and 1997, respectively, payable to the stockholders.
In addition to YCC paying operating expenses on behalf of the Company, YCC
provides management services to the Company. Additionally, management entered
into an operating lease with YCC on January 7, 1995, whereby the Company leases
225 vehicles from YCC and YCC maintains them. These expenses are included in
operating expense as follows for the years ended December 31:
<TABLE>
<S> <C>
1998 1997
----------------------------------
Management fees $ - $ 49,950
Vehicle lease expense 40,000 510,000
Vehicle maintenance 126,179 50,000
Rent expense - parking lot - 39,600
----------------------------------
$ 166,179 $ 649,550
==================================
</TABLE>
F-29
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 6. Related Party Balances and Transactions (continued)
Approximately $54,000 and $5,600,000 of amounts due YCC was contributed to
additional paid in capital for the years ended December 31, 1998 and 1997,
respectively.
The Company leases office space from the stockholders. Rent expense for the
years ended December 31, 1998 and 1997 is $14,400.
Note 7. Cash Flows Statement
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------
<S> <C> <C>
Reconciliation of net income (loss) to net cash provided by
(used in) operating activities
Net income (loss) $ 68,269 $(1,850,857)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 87,191 102,514
Provisions for bad debts (5,240) (41,393)
Loss on disposition of assets 3,862 23,832
(Increase) decrease in:
Accounts receivable (68,894) 346,655
Other assets 12,050 (4,200)
Due from related party (43,300) -
Deposits 8,648 -
Increase (decrease) in:
Accounts payable (315,102) 85,855
Accrued expenses (77,728) (94,307)
Accident claim liability (91,000) 48,000
Due to related party 398,944 1,490,384
------------------------------------
Net cash provided by (used in) operating activities $ (22,300) $ 106,483
====================================
</TABLE>
Note 8. Employee Benefit Plan
The Company participates in a 401(k) plan established by a related party which
covers all qualified employees. Participants may elect to defer from 5% to 19%
of their annual compensation up to the maximum allowable amount. The Company is
required to match 1% of the participant's compensation if the participant has
made salary reductions for the prior three consecutive years. The Company's
contributions for the years ended December 31, 1998 and 1997 were $590 and
$510, respectively.
F-30
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
Note 9. Lease Commitments
The Company leases certain facilities and equipment under noncancelable
operating leases with terms ranging from four to twenty years. Rental expense
under these leases amounted to $104,695 and $169,729 for the years ended
December 31, 1998 and 1997, respectively.
As of December 31, 1998, approximate future minimum lease payments are as
follows:
<TABLE>
<CAPTION>
Years Ending December 31,
- -------------------------
<S> <C>
1999 $ 136,004
2000 55,541
2001 9,436
------------
$ 200,981
============
</TABLE>
Note 10. Geographic Information
The following table represents information about the Company's revenue and
long-lived assets by geographic area:
<TABLE>
<CAPTION>
Long-Lived
Revenue Assets
------------------------------
<S> <C> <C>
Las Vegas $ 2,468,000 $ 36,000
Reno 1,717,000 11,000
Washington 2,529,000 42,000
Portland 4,184,000 46,000
Other 2,733,000 68,000
------------------------------
$ 13,631,000 $ 203,000
==============================
</TABLE>
Note 11. Letter of Intent
In December 1998, the Company entered into a letter of intent with SkyNet
Holdings, Inc., (SkyNet) pursuant to which all tangible assets and certain other
intangible assets will be purchased. SkyNet will also assume liability on all
accounts payable entered into during the Company's ordinary course of business.
In addition, the key executives of the Company entered into an agreement which
restricts competition with SkyNet for a period of two years following the date
of closing. The financial statements do not include any adjustments which may
occur as a result of this transaction. As of January 11, 1999, the Company has
not entered into a definitive agreement with regards to this pending
transaction.
F-31
<PAGE>
FREIGHT ON BOARD INTERNATIONAL LIMITED
DIRECTORS REPORT
The directors present their report with the financial statements of the company
for the year ended 31 October 1998.
Principal Activities
The principal activities of the company are those of international freight
forwarding and international courier services.
Directors
The directors of the company during the year and their beneficial interests in
the issued share capital of the company at the beginning and end of the year
were as follows:-
<TABLE>
<CAPTION>
Ordinary Shares of (Pounds) 1 each
1998 1997
<S> <C> <C>
J W M Clark 5,539 5,539
D J Soame 695 695
C S Brooker 1,389 1,389
</TABLE>
Directors Responsibilities
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
these financial statements the directors are required to:
(a) select suitable accounting policies and then apply them consistently;
(b) make judgements and estimates that are reasonable and prudent;
(c) follow applicable accounting standards, subject to any material departures
disclosed and explained in the financial statements;
(d) prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure financial statements comply with the
Companies Act 1985. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The report of the directors has been prepared in accordance with the special
provisions of Part VII of the Companies Act 1985 relating to small companies.
BY ORDER OF THE BOARD
/s/ D J Soame
D J Soame
Secretary Date: 25 March 1999
F-32
<PAGE>
FREIGHT ON BOARD INTERNATIONAL LIMITED
REPORT OF THE AUDITORS TO THE MEMBERS
We have audited the financial statements on pages 4 to 12 which have been
prepared under the historical cost convention and the accounting policies set
out on pages 6 and 7.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 1, the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those financial statements and to
report our opinion of you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements by
the directors in the preparation of the financial statements and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 31 October 1998 and of its loss for the year then
ended and have been properly prepared in accordance with the provisions of the
Companies Act 1985.
/s/ Harben Barker
HARBEN BARKER
Registered Auditors
1 Coleshill Street
Sutton Coldfield
West Midlands
B72 1SD Date: 25 March 1999
F-33
<PAGE>
REPORT OF THE AUDITORS
TO THE DIRECTORS OF
FREIGHT ON BOARD INTERNATIONAL LIMITED
PURSUANT TO SECTION 248(3) OF THE COMPANIES ACT 1985
We have examined the financial statements of the company and its subsidiary for
the year ended 31 October 1998.
BASIS OF OPINION
The scope of our work for the purpose of this report was limited to confirming
that the company is entitled to exemption from preparing group financial
statements.
OPINION
In our opinion the company is entitled to the exemption from preparing group
financial statements conferred by section 248 of the Companies Act 1985.
/s/ Harben Barker
- ---------------------
HARBEN BARKER
Registered Auditors
1 Coleshill Street
Sutton Coldfield
West Midlands
B72 1SD Date: 25 March 1999
F-34
<PAGE>
FREIGHT ON BOARD INTERNATIONAL LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 OCTOBER 1998
<TABLE>
<CAPTION>
1998 1997
Notes (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
TURNOVER 2 6,087,444 4,655,145
Cost of sales 4,449,914 3,305,536
--------- ---------
GROSS PROFIT 1,637,530 1,349,609
Distribution costs 178,168 143,888
Administration expenses 1,543,350 1,173,013
--------- ---------
1,721,518 1,316,901
--------- ---------
OPERATING (LOSS)/PROFIT (83,988) 32,708
Other income 3 44,505 12,505
--------- ---------
(39,483) 45,213
Interest payable 3 50,805 37,775
--------- ---------
(LOSS)/PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION (90,288) 7,438
Tax on ordinary activities 4 - 10,862
--------- ---------
(LOSS) ON ORDINARY ACTIVITIES
AFTER TAXATION 13 (90,288) (3,424)
========= =========
Movements in reserves are shown in note 13.
The notes on pages 6 to 12 form part of these financial statements.
F-35
</TABLE>
<PAGE>
FREIGHT ON BOARD INTERNATIONAL LIMITED
BALANCE SHEET
AT 31 OCTOBER 1998
<TABLE>
<CAPTION>
1998 1997
Notes Pounds Pounds Pounds Pounds
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible assets 6 39,792 44,792
Tangible assets 7 86,443 113,012
Investments 8 1,075 1,075
--------- ---------
127,310 158,879
CURRENT ASSETS
Debtors 9 1,327,850 1,129,163
Cash at bank and in hand 2,176 8,470
--------- ---------
1,330,026 1,137,633
CREDITORS: Amounts falling
due within one year 10 1,363,655 1,112,553
--------- ---------
NET CURRENT (LIABILITIES)/ASSETS (33,639) 25,080
--------- ---------
TOTAL ASSETS LESS CURRENT
LIABILITIES 93,671 183,959
========= =========
CAPITAL AND RESERVES
Share capital 12 13,889 13,889
Share premium account 23,611 23,611
Profit and loss account 13 56,171 146,459
---------- ---------
Shareholders funds 93,671 183,959
========== =========
</TABLE>
The financial statements on pages 4 to 12 were approved by the board of
directors on 25 March 1999.
The financial statements have been prepared in accordance with the special
provisions on Part VII of the Companies Act 1985 relating to small companies and
in accordance with the Financial Reporting Standard for Smaller Entities.
On behalf of the Board
/s/ J W Clark
J W Clark
DIRECTOR
The notes on pages 6 to 12 form part of these financial statements.
F-36
<PAGE>
FREIGHT ON BOARD INTERNATIONAL LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 OCTOBER 1998
1. ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of the
financial statements are set out below and have remained unchanged from the
previous year and also have been consistently applied within the same
financial statements.
Basis of Preparation
The financial statements have been prepared under the historical cost
convention rules and in accordance with the Financial Reporting Standard for
Small Entities.
Consolidation
The company and its subsidiary comprise a small group. The company has
therefore not prepared group accounts having taken advantage of the
exemption provided by section 248 of the Companies Act 1985.
Intangible fixed asset
The intangible fixed asset comprises a franchise which is depreciated over a
period of ten years.
Tangible Fixed Assets
Depreciation is provided on tangible fixed assets in equal instalments over
their expected useful life as follows:-
<TABLE>
<S> <C> <C>
Short leasehold property - over the term of the lease
Property improvements - 5% - 10% per annum
Motor vehicles - 10% - 25% per annum
Fixtures, fittings and
equipment - 10% - 25% per annum
</TABLE>
Investments
Investments held as fixed assets are stated at cost less provision for
permanent diminution in value.
Foreign Currencies
Transactions denominated in foreign currencies are translated into sterling
at the dates of the transactions. Amounts receivable and payable in foreign
currencies at the balance sheet date are translated at the rates ruling at
that date. All translation differences are dealt with in the profit and
loss account.
Leased Assets
Where the assets are financed by leasing arrangements ("finance leases")
the assets are included in the balance sheet at cost less depreciation in
accordance with the company's normal accounting policies. The present value
of future rentals is shown as a liability. The interest element of rental
obligations is charged to the profit and loss account over the period of
the lease in proportion to the balance of capital payments outstanding.
Rentals payable under operating leases are charged to the profit and loss
account as incurred.
F-37
<PAGE>
FREIGHT ON BOARD INTERNATIONAL LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 OCTOBER 1998
Pensions
The company operates a defined contribution scheme. Retirement benefits to
certain employees are funded by contributions, from the company, which are
paid to insurance companies and charged against profits of the period in
which they became payable.
2. TURNOVER
Turnover represents the amount derived from the provision of goods and
services which fall within the company's ordinary activities stated net of
value added tax.
3. OPERATING PROFIT
<TABLE>
<CAPTION>
The operating profit is stated after
charging/(crediting): 1998 1997
(Pounds) (Pounds)
<S> <C> <C>
Depreciation of tangible fixed assets:
- Owned assets 38,256 39,022
Amortisation of intangible fixed assets 5,000 5,875
Loss on disposal of fixed assets 4,146 -
Auditors remuneration 5,650 5,650
Rentals under operating leases 314,290 226,467
======= =======
<CAPTION>
OTHER INCOME 1998 1997
(Pounds) (Pounds)
<S> <C> <C>
Interest receivable 755 557
Rental income 33,750 11,948
Management charge 10,000 -
------- -------
44,505 12,505
======= =======
<CAPTION>
INTEREST PAYABLE 1998 1997
(Pounds) (Pounds)
<S> <C> <C>
Bank loans, overdrafts and other loans
repayable within five years 50,805 37,056
Finance charges - finance leases and
hire purchase obligations - 719
-------- -------
50,805 37,775
======== =======
</TABLE>
F-38
<PAGE>
FREIGHT ON BOARD INTERNATIONAL LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 OCTOBER 1998
<TABLE>
<CAPTION>
4. TAXATION 1998 1997
(Pounds) (Pounds)
<S> <C> <C>
Tax on ordinary activities based on the
accounts for the year:
Corporation tax charged at current rates - 10,862
========= =========
<CAPTION>
5. DIRECTORS' EMOLUMENTS 1998 1997
(Pounds) (Pounds)
<S> <C> <C>
Directors' remuneration 219,165 171,805
Other benefits and expenses 81,094 56,902
---------- ---------
300,259 228,707
========= =========
<CAPTION>
6. INTANGIBLE FIXED ASSETS Franchise
(Pounds)
<S> <C>
COST
At 1 November 1997 60,500
Addition in the year -
---------
At 31 October 1998 60,500
---------
AMORTISATION
At 1 November 1997 15,708
Amortisation for the year 5,000
---------
At 31 October 1998 20,708
---------
NET BOOK VALUE
At 31 October 1997 44,792
=========
At 31 October 1998 39,792
=========
</TABLE>
F-39
<PAGE>
FREIGHT ON BOARD INTERNATIONAL LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 OCTOBER 1998
7. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Improve-
ments to Equipment
Motor Leasehold Fixtures & Leasehold
Vehicles Property Fittings Property Total
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
COST
At 1 November 1997 73,065 34,177 276,513 30,000 413,755
Additions in year - - 15,833 - 15,833
Disposals (350) - (5,516) - (5,866)
---------------------------------------------------
At 31 October 1998 72,715 34,177 286,830 30,000 423,722
---------------------------------------------------
DEPRECIATION
At 1 November 1997 60,540 19,438 206,476 14,289 300,743
Charge for the year 8,687 2,111 26,029 1,429 38,256
Elimination on disposals (226) - (1,494) - (1,720)
---------------------------------------------------
At 31 October 1998 69,000 21,549 231,011 15,718 377,279
---------------------------------------------------
NET BOOK VALUE
At 31 October 1997 12,525 14,739 70,037 15,711 113,012
===================================================
3,714 12,628 55,819 14,282 86,443
===================================================
</TABLE>
8. INVESTMENTS HELD AS FIXED ASSETS
<TABLE>
(Pounds)
<S> <C>
Other investments at cost:
At 31 October 1997 and 1998 1,075
=====
</TABLE>
Subsidiary Undertakings
The company's investment in its subsidiaries is as follows:
(1) Global Network Associates Limited
The company acquired 5,500 ordinary (Pounds) 1 shares at par
representing 55% of the issued share capital of Global Network
Associates Limited on 15 September 1998. The company was incorporated
on 11 December 1997. The cost of acquisition was (Pounds) 5,500. The
company provides distribution services.
(2) FOB Distribution Services Inc.
The company owns the whole of the common share capital of FOB
Distribution Services Inc. a company incorporated in the United States
of America which provides freight and distribution services. At 31
October 1998 the aggregate of the share capital and reserves of FOB
Distribution Services Inc. amounted to (Pounds) (28,473) and profit
for the year was (Pounds) 313.
F-40
<PAGE>
FREIGHT ON BOARD INTERNATIONAL LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 OCTOBER 1998
9. DEBTORS
1998 1997
Amounts due within one year: (pounds) (pounds)
Trade debtors 967,373 995,890
Other debtors 138,409 22,031
Amounts due from group undertakings 198,949 77,911
Prepayments 23,119 33,331
----------- ------------
1,327,890 1,129,163
=========== ============
10. CREDITORS
1998 1997
Amounts due within one year: (pounds) (pounds)
Amounts due to group undertakings 27,930 32,636
Loans and overdrafts (note 11) 178,711 128,342
Business development loan - 26,429
Trade creditors 699,694 556,883
Taxation - 10,862
Other taxes and social security costs 132,510 103,879
Accruals and deferred income 25,316 58,023
Advances from Lombard Discounting 299,504 195,499
----------- ------------
1,363,665 1,112,553
=========== ============
F-41
<PAGE>
FREIGHT ON BOARD INTERNATIONAL LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 OCTOBER 1998
11. LOANS AND OVERDRAFTS
<TABLE>
<CAPTION>
1998 1997
(Pounds) (Pounds)
<S> <C> <C>
Bank loans and overdrafts (secured) 73,660 49,720
Other loans (secured) 65,000 65,000
Other loans (unsecured) 40,051 40,051
------- -------
178,711 154,771
======= =======
</TABLE>
The above loans and overdrafts are all repayable either within one year or on
demand.
The bank loans and overdrafts are secured by a first mortgage on the leasehold
premises of the company and a fixed and floating charge on other assets of the
company. Obligations under finance leases and hire purchase contracts are
secured by related lease assets. Other loans are subject to postponement
agreements with National Westminster Bank Plc and Lombard NatWest Discounting
Limited and where security has been given, this represents a second fixed and
floating charge over the assets of the company.
12. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1998 1997
No No
<S> <C> <C>
Ordinary shares of (pounds)1 each:
Authorised 50,000 50,000
====== ======
Allotted, issued and fully paid 13,889 13,889
====== ======
<CAPTION>
13. PROFIT AND LOSS ACCOUNT 1998 1997
(Pounds) (Pounds)
<S> <C> <C>
At 31 October 1997 146,459 149,883
Loss for the year (90,288) (3,424)
------ -------
At 31 October 1998 56,171 146,459
====== =======
</TABLE>
F-42
<PAGE>
FREIGHT ON BOARD INTERNATIONAL LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 OCTOBER 1998
14. OPERATING LEASE COMMITMENTS
At 31 October 1998 the company was committed to making the following
payments during the next year in respect of operating leases:
<TABLE>
<CAPTION>
1998 1997
Land and Land and
Buildings Others Buildings Others
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Leases which expire:
Within one year - 70,242 4,667 28,432
Within two to five years - 58,061 6,240 121,178
After five years 57,200 - 42,200 -
--------- --------- --------- ---------
57,200 128,303 53,107 149,610
========= ========= ========= =========
</TABLE>
15. RELATED PARTY TRANSACTIONS
During the year the company recharged costs incurred on behalf of FOB
Distribution Services Inc in furtherance of the subsidiary's activities.
These amounted to (pounds) 8,420 (1997: (pounds) 39,083).
The company also charged a management fee of (pounds) 10,000 (1997:
(pounds) Nil) in respect of work undertaken on behalf of the subsidiary.
FOB Distribution Services Inc also made sales to the company during the
year totalling (pounds) 116,282 (1997: (pounds) 116,778).
The company also made sales to Global Network Associates Limited totalling
(pounds) 5,297 (1997: (pounds) Nil).
All transactions were carried out on an arm's length market value basis.
F-43
<PAGE>
______________________
7,394,299 Shares
[LOGO OF SKYNET HOLDINGS, INC.]
SKYNET HOLDINGS, INC.
Common Stock
___________________
P R O S P E C T U S
___________________
May , 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the preparation and filing of this Registration
Statement.
SEC Registration Fee........................ $_______
Printing and Engraving...................... _______
Accountants' Fees and Expenses.............. _______
Blue Sky Filing Fees and Expenses........... _______
Legal Fees and Expenses..................... _______
Other Offering Expenses..................... _______
TOTAL....................................... $
=======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation and Bylaws reflect the adoption
of the provisions of Section 102(b)(7) of the Delaware General Corporation Law
(the "GCL"), which eliminate or limit the personal liability of a director to
the Company or its stockholders for monetary damages for breach of fiduciary
duty under certain circumstances. If the GCL is amended to authorize corporate
action further eliminating or limiting personal liability of directors, the
Certificate of Incorporation provides that the liability of the director of the
Company shall be eliminated or limited to the fullest extent permitted by the
GCL. The Company's Certificate of Incorporation and Bylaws also provide that
the Company shall indemnify any person, who was or is a party to a proceeding by
reason of the fact that he is or was a director, officer, employer or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with such proceeding if he acted in
good faith and in a manner he reasonably believed to be or not opposed to the
best interests of the Company, in accordance with, and to the full extent
permitted by, the GCL. The determination of whether indemnification is proper
under the circumstances, unless made by the Court, shall be determined by the
Board of Directors. In addition, the Certificate of Incorporation and Bylaws
authorize the Company to maintain insurance to cover such liabilities and the
Company currently maintains Directors' and Officers' Liability Insurance Policy.
Reference is made to Item 17 for the undertakings of the Registrant with
respect to indemnification of liabilities arising under the Securities Act of
1933, as amended (the "Act").
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
1. On October 14, 1998, in connection with the Merger, the Company issued
9,901,500 shares of Common Stock to the holders of all outstanding shares of
capital stock of Skynet Nevada and options to certain affiliates to purchase
1,800,000 shares of Common Stock. These securities were issued directly by the
Company, without payment of any commissions, in a private placement transaction
exempt from the registration requirements of the Securities Act, pursuant to
Section 4(2) thereof, to the following accredited investors:
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
John Cathcart 2,100,000
Deansley Limited 3,152,841
Fir Construction Pty Ltd 3,121,023
Christian J. Weber 509,397
Earnest N. Schnesel 140,000
Ms. Anne Schnesel 12,733
David Schnesel 12,733
Mrs. Jodi Spector-Klein 12,733
Mrs. Shan Spector-Keats 12,733
Ms. Fran Lefkowitz 12,733
Mrs. Stephanie Bower 31,819
Ms. Jamie Bank 31,819
Melvyn Ian Smith 31,819
Moontown Limited 63,641
Vjekoslav Nizic 203,976
Swiss Bank fbo Kettering Trust 35,000
Dr. Thomas J. Slobig 13,125
Arthur Rockert 8,750
Segal Communication, Inc. 8,750
Mark Scatterday 8,750
Sandra M. Lindzon 26,250
Cathy Graham 17,500
John Scatterday 8,750
Donald S. Lindsay 8,750
Thomas Grant Peterson 8,750
Jeff Silverman SEP IRA 8,750
Vincent R. Williams 8,750
Mike Campbell 8,750
Roger Barrett 8,750
Christopher F. Nelson 43,750
Christopher J. Lang 43,750
James B. Norman 17,500
Stephen A. McConnell 17,500
William H. Fisher 26,250
Vincent & Lois Gann Trust 26,250
Helen Patricia Smith IRA 14,875
George Brooks (MOD Financial Services) 26,250
Nils and Patricia Selden 12,250
Marc Federighi 43,750
---------
Total 9,901,500
=========
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Name Number of Options
- ---- -----------------
<S> <C>
Vjekoslav Nizic 700,000
Christian J. Weber 700,000
Synergy Group International, Inc. 400,000
---------
Total 1,800,000
=========
</TABLE>
2. During September 1998, the Company issued and sold an aggregate of
4,625,000 shares of Common Stock raising gross proceeds of $555,000. This
offering was undertaken by EPLR prior to the execution and closing of the
definitive merger agreement with Skynet Nevada. At that time EPLR was an
inactive Company with no assets or liabilities. Investors in such offering
were, therefore, subject to a number of risks and uncertainties, including the
material contingencies associated with the execution of the merger agreement and
closing of the Merger. These shares were issued directly by the Company,
without payment of any commissions, to the following accredited investors in a
private placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof and Regulation D promulgated
thereunder:
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Mr. Kim B. Acorn 10,000
Claire Behar, Guardian For Bryce Behar 5,000
Claire Behar, Guardian for Jaclyn Behar 5,000
Chase Trust 25,000
Mr. David Cohen 10,000
Jennifer Cohen 20,000
Susan Nussbaum Cohen 10,000
Mr. Rich Davimos 20,000
Mr. Robert Davimos 10,000
EBR Investments 100,000
Fincord Holding Co. 695,000
J. Scott Flasburg 10,000
Mr. Philip L. Franckel 25,000
John Freedom 5,000
Mr. Marvin Gersten 100,000
Mr. Martin A. Goldstein 10,000
Ms. Aimee Gremmo 20,000
Mr. Edward Gurrieri 30,000
Mark S. Howells Trust 50,000
Mr. Kenneth Kirschenbaum 100,000
Larlan Investors Ltd 416,667
Mr. Howard Lindzon 75,000
Ms. Sandra Lindzon 130,000
Mr. Frank Marold 150,000
Mr. Franklin Marold 20,000
Vincent Marold 1,030,151
Marold Investment LLC 100,000
Mr. Jonathan Mazinter 2,500
Anna Maria Mintz 20,000
MCZ Investment Company 405,000
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Mr. Casey O'Brien 20,000
Mr. Tomas Peterson 65,000
Mr. John Scott Polson 2,500
Mr. Jeffrey J. Puglisi 50,000
Ms. Linda Rufo 20,000
Ms. Rosemary SantaMaria 10,000
Mr. Charles Seavey 100,000
Mr. Mike Segal 20,000
Mr. Rob Segal 130,000
Jose Serrano 2,500
Patricia Trish Trust 20,000
Arnold Hendrik William van Hilton 10,000
Philip-Jan van Hilton 10,000
Veracruz Group Limited 333,182
c/o Bentley Agencies Limited
Wexler & Burkhart 35,000
Diane Winston 15,000
For Benefit of Elizabeth Cohen
Diane Winston 20,000
Custodian For Jarret Cohen
Ms. Diane Gail Winston 150,000
Mr. David M. Wrenn 2,500
---------
Total 4,625,000
=========
</TABLE>
3. On December 1, 1998, the Company issued an aggregate 572,500 shares of
Common Stock in exchange for the cancellation of $1,145,000 of short-term
indebtedness (including accrued interest), of which $670,000 had been
collectively advanced to the Company by an entity affiliated with a director.
These shares were issued directly by the Company, without payment of any
commissions, to the following accredited investors in a private placement
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof:
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Pearlgold Pty Ltd (affiliated with Noel Holmes,
a director of the Company) 335,000
Andrew Lovell 162,500
Ceceile Klein 75,000
-------
Total 572,500
=======
</TABLE>
4. On February 19 and March 5, 1999 the Company issued an aggregate of
1,325,500 shares of Common Stock raising gross proceeds of $2,651,000. Puglisi
Howells & Co., a registered/broker dealer, acted as placement agent to the
Company pursuant to which it received sales commissions and non-accountable
expenses equal to $265,100. The securities were issued to the following
accredited investors in a private placement transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
and Regulation D promulgated thereunder.
II-4
<PAGE>
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Todd and Kay Ziplow 25,000
CLS Associates, L.P. 50,000
Michael Ohlhausen 13,000
Irvine Capital Partners, L.P. 100,000
Schottenfeld Associates, L.P. 100,000
Aaron and Cynthia Shenkman 100,000
Puglisi Capital Partners 100,000
Bruce Derrick 125,000
Delaware Charter Guaranty & Trust Co. 12,500
Delaware Charter Guaranty & Trust Co. 12,500
Knut Jensen 25,000
Alan and Susan Shaw 12,500
Joshua and Chanie Manela 12,500
Alan and Jan Kelsey 25,000
Lindzon Capital Partners 70,000
Michael and Fran Mallace 5,000
Brent Richardson 50,000
Delaware Charter Guaranty & Trust Co. 12,500
Ziad M. Sultan Al-Essa 25,000
Philip Van Hilten 15,000
Dr. Leon Zieter 17,500
Mike Campbell and Lorene Hernandez 5,000
Gibralt US, Inc. 125,000
Carolyn Siskin Gordon 17,500
Michael G. Rowe 25,000
Steve and Marion Elbaum 50,000
Bank Julius Baer & Co. Ltd. Zurich 50,000
Sidney Sands (Millworth) 20,000
Jeffrey J. Puglisi 100,000
John Orlando 25,000
---------
Total 1,325,500
=========
</TABLE>
5. On March 15, 1999, the Company issued an aggregate of 1,479,415 shares
of Common Stock in connection with the acquisition of the operating assets of
Fleet Delivery Service. These shares were issued directly by the Company,
without payment of any commissions, to the following investors in a private
placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof:
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Nevada Fleet Management, Inc. 1,358,790
Nevada Yellow Cab Corporation 116,875
Nevada Checker Cab Corporation 2,500
Nevada Star Cab Corporation 1,250
---------
Total 1,479,415
=========
</TABLE>
II-5
<PAGE>
6. On April 12, 1999, the Company issued an aggregate of 31,119 shares of
Common Stock and committed to issue an additional 83,067 shares of Common Stock
in connection with the acquisition of the outstanding capital stock of Freight
On Board International Limited. The shares were issued directly by the Company
without payment of brokerage fees or commissions of any kind to the following
persons in a private placement transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
David Victor Amos 5,714
Kim Amos 5,706
Christopher Shaun Brooker 5,714
Susan Jane Brooker 5,706
John William Murray Clark 83,067(1)
Louisa Jane Clark 8,279
-------
Total 114,186
=======
</TABLE>
__________________
(1) To be issued by no later than December 31, 1999.
7. During April 1999, the Company sold and issued an aggregate of 500,890
Units raising gross proceeds of $4,508,000. Each Unit consisted of four (4)
shares of the Company's Series A Convertible Preferred Stock and one (1) Common
Stock Purchase Warrant. Montrose Management, Ltd., a registered broker-dealer,
acted as placement agent to the Company pursuant to which it received sales
commissions and non-accountable expenses equal to $586,040. The units were
issued to the following accredited investors in a private placement transaction
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof and Regulation D promulgated thereunder.
<TABLE>
<CAPTION>
Name Number of Units
- ---- ---------------
<S> <C>
Delaware Charter Guaranty & Trust
FBO Martin H. Meyerson IRA 2,778
Founders Equity Group 25,000
Donald Moorehead, Jr. 25,000
M.H. Meyerson & Co., Inc. 2,778
George Moorehead 25,000
Lancer Offshore, Inc. 165,000
Lancer Partners, L.P. 110,000
The Orbiter Fund, Ltd. 50,000
Richard Pawliger 55,556
Harold & Beverly Rubenstein Family 12,000
Kenneth J. Koock 2,778
Stoli Ltd. 25,000
-------
Total 500,890
=======
</TABLE>
II-6
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
<TABLE>
<CAPTION>
Method of
No. Exhibit Filing
- --- ------- ------
<S> <C> <C>
2.1 Agreement and Plan of Merger ("Merger Agreement"), dated as of
September 28, 1998, among Skynet Holdings, Inc., EPL Resources
(Delaware) Corp., Christian J. Weber, Deansley Limited, John E.
Cathcart, Vjekoslav Nizic and FIR Construction Pty. Ltd (1)
2.2 First Amendment to Merger Agreement, dated October 8, 1998 (1)
2.3 Agreement for the Sale and Purchase of the entire issued share capital
of Freight on Board International Limited dated April 12, 1999 by and
among SkyNet Holdings, Inc., Mr. J.W.M. Clark and the remaining
shareholders of Freight on Board International Limited. (2)
3.1 Certificate of Incorporation, as amended (1)
3.2 Certificate of Merger (1)
3.3 By-Laws (1)
3.4 Certificate of Designation of Series A Convertible Preferred Stock *
5.1 Opinion and consent of Buchanan Ingersoll Professional Corporation *
10.1 Employment Agreement dated October 14, 1998, between the Company and
Vjekoslav Nizic (1)
10.2 Employment Agreement dated October 14, 1998, between the Company and
Christian J. Weber (1)
10.3 Employment Agreement dated October 14, 1998, between the Company and
Martin Paravato (1)
10.4 Option to Purchase 700,000 Shares of Common Stock of the
Company Granted to Vjekoslav Nizic (1)
10.5 Option to Purchase 700,000 Shares of Common Stock of the
Company Granted to Christian J. Weber (1)
10.6 Option to Purchase 400,000 Shares of Common Stock of the
Company Granted to Synergy Group International, Inc. ("Synergy") (1)
10.7 Escrow Agreement, dated October 14, 1998, among the Company, Synergy,
certain shareholders of Synergy and the Company as Escrow Agent (1)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Method of
No. Exhibit Filing
- --- ------- ------
<S> <C> <C>
10.8 Escrow Agreement, dated October 14, 1998, among the Company, Synergy,
Vjekoslav Nizic, John E. Cathcart, Christian J. Weber, Deansley
Limited, Fir Construction Pty Limited, the principal shareholders of
Skynet Holdings, Inc. and EPL Resources (Delaware) Corp. (1)
10.9 Consulting Agreement dated August 24, 1998 between Tradeserv 94, Inc.
and the Company (1)
10.10 The Company 1998 Stock Incentive Plan (1)
10.11 Asset Purchase Agreement dated March 11, 1999 by and among Skynet
Holdings, Inc., and Fleet Acquisition Corp. as the Buyers and Nevada
Fleet Management, Inc. as Seller (1)
10.12 Vehicle Purchase Agreement dated March 15, 1999 by and among Skynet
Holdings, Inc. and Fleet Acquisition Corp. as the Buyers and Nevada
Yellow Cab Corporation and Nevada Checker Cab Corporation and Nevada
Star Cab Corporation as Sellers. (1)
10.13 Registration Rights Agreement dated April 12, 1999, by and among
SkyNet Holdings, Inc., J.W.M. Clark and certain other shareholders of
Freight on Board International, Limited. (2)
10.14 Escrow Agreement dated April 12, 1999, by and among SkyNet Holdings,
Inc., J.W.M. Clark, D.V. Amos and C.S. Brooker, the principal
shareholders of Freight on Board International Limited, and
StockTrans, Inc., as escrow agent. (2)
10.15 Tax Covenant Agreement dated April 12, 1999, by and among SkyNet
Holdings, Inc. and J.W.M. Clark, D.V. Amos and C.S. Brooker, the
principal shareholders of Fright on Board International Limited. (2)
21.1 Subsidiaries of the Registrant *
23.1 Consent of BDO Seidman, LLP *
23.2 Consent of McGladrey & Pullen, LLP *
23.3 Consent of Harben Barker *
23.4 Consent of Buchanan Ingersoll Professional Corporation (Included
within Exhibit 5.1) *
27.1 Financial Data Schedule *
</TABLE>
* Filed herewith
- -----------------
(1) Previously filed on March 23, 1999 with the Company's Registration
Statement on Form 10.
(2) Previously filed with the Company's Form 8-K dated April 12, 1999.
II-8
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, as
amended (the "Securities Act"); (ii) reflect in the prospectus any facts or
events arising after the effective date of the registration statement (or most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; and (iii) include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material changes to such information in the registration
statement or any material change to such information in the registration
statement.
2. For the purpose of determining liability under the Securities Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in a successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
5. For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
6. For purposes determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be as the
initial bona fide offering thereof.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has authorized this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Inglewood, State of
California on May 14, 1999.
SKYNET HOLDINGS, INC.
By: /s/ Vjekoslav Nizic
------------------------------------
Vjekoslav Nizic
President and Chief Executive Officer
By: /s/ Martin G. Paravato
------------------------------------
Martin G. Paravato
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints VJEKOSLAV NIZIC his true and lawful attorney-in-
fact and agent with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities to sign any or all
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 was signed by the following persons in the
capacities and on the dates stated.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Vjekoslav Nizic Chief Executive Officer, May 14, 1999
--------------------------- President and Director
Vjekoslav Nizic
/s/ Christian J. Weber Chairman of the Board of May 14, 1999
---------------------------- Directors
Christian J. Weber
/s/ Noel John Holmes Director May 14, 1999
----------------------------
Noel John Holmes
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Method
of
No Exhibit Filing
- -- ------- ------
<S> <C> <C>
2.1 Agreement and Plan of Merger ("Merger Agreement"), dated as of
September 28, 1998, among Skynet Holdings, Inc., EPL Resources
(Delaware) Corp., Christian J. Weber, Deansley Limited, John E.
Cathcart, Vjekoslav Nizic and FIR Construction Pty. Ltd (1)
2.2 First Amendment to Merger Agreement, dated October 8, 1998 (1)
2.3 Agreement for the Sale and Purchase of the entire issued share capital
of Freight on Board International Limited dated April 12, 1999 by and
among SkyNet Holdings, Inc., Mr. J.W.M. Clark and the remaining
shareholders of Freight on Board International Limited. (2)
3.1 Certificate of Incorporation, as amended (1)
3.2 Certificate of Merger (1)
3.3 By-Laws (1)
3.4 Certificate of Designation of Series A Convertible Preferred Stock *
5.1 Opinion and consent of Buchanan Ingersoll Professional Corporation *
10.1 Employment Agreement dated October 14, 1998, between the Company and
Vjekoslav Nizic (1)
10.2 Employment Agreement dated October 14, 1998, between the Company and
Christian J. Weber (1)
10.3 Employment Agreement dated October 14, 1998, between the Company and
Martin Paravato (1)
10.4 Option to Purchase 700,000 Shares of Common Stock of the
Company Granted to Vjekoslav Nizic (1)
10.5 Option to Purchase 700,000 Shares of Common Stock of the
Company Granted to Christian J. Weber (1)
10.6 Option to Purchase 400,000 Shares of Common Stock of the
Company Granted to Synergy Group International, Inc. ("Synergy") (1)
10.7 Escrow Agreement, dated October 14, 1998, among the Company, Synergy,
certain shareholders of Synergy and the Company as Escrow Agent (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Method
of
No Exhibit Filing
- -- ------- ------
<S> <C> <C>
10.8 Escrow Agreement, dated October 14, 1998, among the Company, Synergy,
Vjekoslav Nizic, John E. Cathcart, Christian J. Weber, Deansley
Limited, Fir Construction Pty Limited, the principal shareholders of
Skynet Holdings, Inc. and EPL Resources (Delaware) Corp. (1)
10.9 Consulting Agreement dated August 24, 1998 between Tradeserv 94, Inc.
and the Company (1)
10.10 The Company 1998 Stock Incentive Plan (1)
10.11 Asset Purchase Agreement dated March 11, 1999 by and among Skynet
Holdings, Inc., and Fleet Acquisition Corp. as the Buyers and Nevada
Fleet Management, Inc. as Seller (1)
10.12 Vehicle Purchase Agreement dated March 15, 1999 by and among Skynet
Holdings, Inc. and Fleet Acquisition Corp. as the Buyers and Nevada
Yellow Cab Corporation and Nevada Checker Cab Corporation and Nevada
Star Cab Corporation as Sellers. (1)
10.13 Registration Rights Agreement dated April 12, 1999, by and among
SkyNet Holdings, Inc., J.W.M. Clark and certain other shareholders of
Freight on Board International, Limited. (2)
10.14 Escrow Agreement dated April 12, 1999, by and among SkyNet Holdings,
Inc., J.W.M. Clark, D.V. Amos and C.S. Brooker, the principal
shareholders of Freight on Board International Limited, and
StockTrans, Inc., as escrow agent. (2)
10.16 Tax Covenant Agreement dated April 12, 1999, by and among SkyNet
Holdings, Inc. and J.W.M. Clark, D.V. Amos and C.S. Brooker, the
principal shareholders of Fright on Board International Limited. (2)
21.1 Subsidiaries of the Registrant *
23.1 Consent of BDO Seidman, LLP *
23.2 Consent of McGladrey & Pullen, LLP *
23.3 Consent of Harben Barker *
23.4 Consent of Buchanan Ingersoll Professional Corporation (Included in
Exhibit 5.1 above) *
27.1 Financial Data Schedule *
</TABLE>
* Filed herewith
_________________
(1) Previously filed on March 23, 1999 with the Company's Registration
Statement on Form 10.
(2) Previously filed with the Company's Form 8-K dated April 12, 1999.
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
of
SERIES A Convertible Preferred Stock
of
SKYNET HOLDINGS, INC.
Pursuant to Section 151(g) of the General Corporation Law
of the State of Delaware
SkyNet Holdings, Inc., a Delaware corporation (the "Company"), certifies
that pursuant to the authority contained in its Certificate of Incorporation, as
amended, and in accordance with the provisions of Section 151(g) of the General
Corporation Law of the State of Delaware, its Board of Directors (the "Board of
Directors") in an action taken as of March 9, 1999, has duly adopted the
following resolution amending a series of its Preferred Stock, $.0001 par value,
designating a segment thereof as Series A Convertible Preferred Stock:
WHEREAS, the Certificate of Incorporation of the Company presently
authorizes the issuance of up to 5,000,000 shares of Preferred Stock, $.0001 par
value, in one or more series upon terms and conditions that are to be designated
by the Board of Directors, of which no shares are currently issued and
outstanding;
WHEREAS, in order to effectuate a private placement transaction deemed to
be in the Company's best interests by the Board of Directors, the Board of
Directors does hereby seek to provide for the designation of a segment of the
Company's Preferred Stock as "Series A Convertible Preferred Stock"; and
WHEREAS, the terms, conditions, voting rights, preferences, limitations and
special rights of the Series A Convertible Preferred Stock in their entirety are
as provided herein.
NOW, THEREFORE, be it:
RESOLVED, that a series of the class of authorized Preferred Stock, $.0001
par value, of the Company hereinafter designated "Series A Convertible Preferred
Stock," be hereby created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating and other special rights
of the shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:
Section 1. Designation and Amount.
----------------------
The shares of such series shall be designated as the "Series A
Convertible Preferred Stock" (the "Series A Convertible Preferred Stock") and
the number of shares initially
<PAGE>
constituting such series shall be 2,500,000, which may be issued in whole
shares. The Series A Convertible Preferred Stock shall have a stated value (the
"Stated Value") of $2.25 per share.
Section 2. Dividends and Distributions.
---------------------------
The holders of shares of Series A Convertible Preferred Stock shall
not be entitled to receive any dividends or other distributions except as
provided in this Certificate of Designation of Series A Convertible Preferred
Stock, or unless declared by the Company's Board of Directors.
Section 3. Voting Rights.
-------------
Except as expressly required by law or as expressly provided
herein, the holders of the Series A Convertible Preferred Stock shall have no
voting rights and their consent shall not be required for the taking of any
corporate action.
Section 4. Liquidation, Dissolution, Winding Up or Certain Mergers or
----------------------------------------------------------
Consolidations.
- --------------
(a) If the Company shall adopt a plan of liquidation or of
dissolution, or commence a voluntary case under the federal bankruptcy laws or
any other applicable state or federal bankruptcy, insolvency or similar law, or
consent to the entry of an order for relief in any involuntary case under such
law or to the appointment of a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or similar official) of the Company or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due and on account of such event the Company shall liquidate, dissolve or
wind up, or upon any other liquidation, dissolution or winding up of the
Company, or engage in a merger, plan of reorganization or consolidation in which
the Company is not the surviving corporation, then and in that event, no
distribution shall be made to the holders of shares of Common Stock, unless,
prior thereto, the holders of each share of Series A Convertible Preferred Stock
shall have first received an amount in cash or equivalent value in securities or
other consideration equal to the Stated Value of the Series A Convertible
Preferred Stock plus all accrued by unpaid dividends thereon (the "Liquidation
Amount"). If upon any liquidation, dissolution, winding up, merger, plan of
reorganization or consolidation, the amount so payable or distributable is
insufficient to pay the holders of shares of Series A Convertible Preferred
Stock the full Liquidation Amount to which they shall be entitled, then, and in
that event, the amount of cash so payable, and amount of securities or other
consideration so distributable, shall be shared ratably according to the
respective Liquidation Amounts due to each of the holders of the Series A
Convertible Preferred Stock. After payment in full of the Liquidation Amounts
owed to each of the holders of the Series A Convertible Preferred Stock, the
holders of the Common Stock shall be entitled, to the exclusion of the holders
of the Series A Convertible Preferred Stock, to share in all remaining assets of
the Company in accordance with their respective interests.
(b) Except as provided in subparagraph (a) above, neither the
consolidation, merger or other business combination of the Company with or into
any other person or persons in
2
<PAGE>
which the Company is the surviving corporation nor the sale, lease, exchange or
conveyance of all or any part of the property, assets or business of the Company
to a person or persons other than the holders of the Company's Common Stock,
shall be deemed to be a liquidation, dissolution or winding up of the Company.
Section 5. Conversion.
----------
(a) Subject to the provisions for adjustment hereinafter set forth,
the shares of Series A Convertible Preferred Stock shall be convertible into
fully paid and non-assessable shares of Common Stock, on the following terms and
conditions:
(i) Subject to the provisions of the Forced Conversion hereof,
at any time or times after the 90th calendar day after the Issuance Date, any
holder of the Series A Convertible Preferred Stock shall be entitled to convert
any whole number of shares of Series A Convertible Preferred Stock into that
number of fully paid and nonassessable shares of Common Stock, which is
determined (per share of Series A Convertible Preferred Stock) by dividing (x)
the Stated Value times the number of shares of Series A Convertible Preferred
Stock being converted, by (y) the Conversion Price (as defined in Section 12
below).
(b) The number of shares of Common Stock into which each share of
Series A Convertible Preferred Stock is convertible also shall be subject to
adjustment from time to time as follows:
(i) In case the Company shall, at any time or from time to time
while any shares of Series A Convertible Preferred Stock are outstanding,
declare a dividend, or make a distribution, on the outstanding shares of Common
Stock in shares of Common Stock or subdivide or reclassify the outstanding
shares of Common Stock into a greater number of shares or combine or reclassify
the outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then in each case,
(A) the number of shares of Common Stock into which each
share of Series A Convertible Preferred Stock is convertible shall be adjusted
so that the holder of each share thereof shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock which the holder of a
share of Series A Convertible Preferred Stock would have been entitled to
receive after the happening of any of the events described above had such share
been converted immediately prior to the happening of such event or the record
date therefor, whichever is earlier; and
(B) an adjustment made pursuant to this clause (i) shall
become effective (I) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (II) in the case of any such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action becomes effective.
3
<PAGE>
(ii) In case there shall be, at any time or from time to time
while any shares of Series A Convertible Preferred Stock are outstanding, a
capital reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this Section 5) or a merger or consolidation of the Company with or into another
corporation pursuant to which the Company is not the acquiring entity and
pursuant to which the stockholders of the Company are requested to exchange or
convert their securities for securities of an acquiring entity, or the sale of
all or substantially all of the Company's assets, then, as a condition of the
consummation of such transaction, in addition to the requirements of paragraph
4(a), lawful and adequate provision shall be made so that each holder of shares
of Series A Convertible Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Convertible Preferred Stock, the number of
shares of Common Stock or other securities or property of the Company, or of the
successor corporation of such merger or consolidation to which such holder would
have been entitled if such holder had converted its shares immediately prior to
the consummation of such transaction.
(c) If the nature and/or character of the Common Stock issuable
upon the conversion of the Series A Convertible Preferred Stock shall be changed
into the same or different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification or otherwise (except as
provided pursuant to Section 5(b) above), then and in each such event, the
holders of Series A Convertible Preferred Stock shall have the right thereafter
to convert such shares into the kind and amount of shares of stock and other
securities and property receivable upon such capital reorganization,
reclassification or other change which such holders would have received had
their shares of Series A Convertible Preferred Stock been converted immediately
prior to such capital reorganization, reclassification or other change.
(d) The holder of any shares of Series A Convertible Preferred
Stock may exercise his right to convert such shares into shares of Common Stock
by surrendering for such purpose to the Company, at the address set forth below,
or any successor location, a certificate or certificates representing the shares
of Series A Convertible Preferred Stock to be converted with the form of
election to convert (the "Election to Convert") attached hereto as Exhibit A
completed and executed as indicated, thereby stating that such holder elects to
convert all or a specified whole number of such shares in accordance with the
provisions of this Section 5 and specifying the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. The Election to Convert and the stock certificate(s) to be converted
shall be delivered as follows:
SkyNet Holdings, Inc.
343 Glasgow Avenue
Inglewood, California 90301
Attention: Vjekoslav Nizic, Chief Executive Officer
Telephone: (310) 642-7776
Facsimile: (310) 568-9637
4
<PAGE>
with a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, PA 19103
Telephone: (215) 665-3873
Facsimile: (215) 665-8760
In case the Election to Convert shall specify a name or names other
than that of such holder, it shall be accompanied by payment of all transfer or
other taxes payable upon the issuance of shares of Common Stock in such name or
names that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series A Convertible Preferred Stock pursuant
hereto. The Company will have no responsibility to pay any taxes with respect
to the Series A Convertible Preferred Stock. As promptly as practicable, and in
any event within five Business Days after the surrender of such certificate or
certificates and the receipt of the Election to Convert, and, if applicable,
payment of all transfer or other taxes (or the demonstration to the satisfaction
of the Company that such taxes have been paid), the Company shall deliver or
cause to be delivered (i) certificates representing the number of validly
issued, fully paid and nonassessable full shares of Common stock to which the
holder of shares of Series A Convertible Preferred Stock so converted shall be
entitled and (ii) if less than the full number of shares of Series A Convertible
Preferred Stock evidenced by the surrendered certificate or certificates are
being converted, a new certificate or certificates, of like tenor, for the
number of shares evidenced by such surrendered certificate or certificates less
the number of shares converted. Such conversion shall be deemed to have been
made at the close of business on the date of giving of the Election to Convert
and of such surrender of the certificate or certificates representing the shares
of Series A Convertible Preferred Stock to be converted so that the rights of
the holder thereof as to the shares being converted shall cease except for the
right to receive shares of Common Stock in accordance herewith, and the person
entitled to receive the shares of Common Stock shall be treated for all purposes
as having become the record holder of such shares of Common Stock at such time.
The Company shall not be required to convert, and no surrender of shares of
Series A Convertible Preferred Stock shall be effective for that purpose, while
the transfer books of the Company for the Common Stock are closed for any
purpose (but not for any period in excess of 15 calendar days); but the
surrender of shares of Series A Convertible Preferred Stock for conversion
during any period while such books are so closed shall become effective for
conversion immediately upon the reopening of such books, as if the conversion
had been made on the date such shares of Series A Convertible Preferred Stock
were surrendered, and at the conversion rate in effect at the date of such
surrender.
(e) In connection with the conversion of any shares of Series A
Convertible Preferred Stock, no fractions of shares of Common Stock shall be
issued, but in lieu thereof the Company shall pay a cash adjustment in respect
of such fractional interest in an amount equal to such fractional interest
multiplied by the Conversion Price.
5
<PAGE>
Section 6. Reports as to Adjustments.
-------------------------
Whenever the number of shares of Common Stock into which each share of
Series A Convertible Preferred Stock is convertible is adjusted as provided in
Section 5 hereof, the Company shall promptly mail to the holders of record of
the outstanding shares of Series A Convertible Preferred Stock at their
respective addresses as the same shall appear in the Company's stock records a
notice stating that the number of shares of Common Stock into which the shares
of Series A Convertible Preferred Stock are convertible has been adjusted and
setting forth the new number of shares of Common Stock (or describing the new
stock, securities, cash or other property) into which each share of Series A
Convertible Preferred Stock is convertible, as a result of such adjustment, a
brief statement of the facts requiring such adjustment and the computation
thereof, and when such adjustment became effective.
Section 7. Automatic Conversion.
--------------------
Any and all shares of Series A Convertible Preferred Stock held on the date
which is the second (2nd) anniversary of the Issuance Date (the "Automatic
Conversion Date") shall automatically be converted into Common Stock on the
Automatic Conversion Date, provided that there is an effective registration
statement registering the resale of the Common Stock issuable in connection
therewith on such date.
Section 8. Forced Conversion.
-----------------
(a) In the event that the closing bid price of a share of Common
Stock on the Principal Market is not less than $3.375 for twenty (20)
consecutive Trading Days (the "Forced Conversion Period"), and provided that
there is an effective registration statement registering the resale of the
Common Stock issuable upon the conversion of the shares of Series A Convertible
Preferred Stock, the Company shall have the right to force conversion by the
holders of the Series A Convertible Preferred Stock by telecopying written
notice of its election to force conversion (the "Forced Conversion Notice") to
each of the holders' respective facsimile numbers as set forth in the holders'
Securities Purchase Agreements for the Series A Convertible Preferred Stock. The
Forced Conversion Notice must be delivered by the Company within five Business
Days following the expiration of the Forced Conversion Period and shall set
forth the number of shares of Series A Convertible Preferred Stock subject to
such Forced Conversion Notice, and the number of shares of Common Stock issuable
upon the forced conversion.
(b) The Company shall effect forced conversions pro rata amongst
the holders according to the number of shares of Series A Convertible Preferred
Stock then held by each holder of Series A Convertible Preferred Stock.
(c) Upon the Company's delivery of a Forced Conversion Notice, the
shares of Series A Convertible Preferred Stock that are subject to the Forced
Conversion Notice shall be automatically canceled and converted into a right to
receive shares of Common Stock, and all rights of the Series A Convertible
Preferred Stock which are the subject of the Forced Conversion Notice, including
the right to conversion, shall cease without further action.
6
<PAGE>
(d) The number of shares of Common Stock issuable upon the forced
conversion of the Series A Convertible Preferred Stock shall be adjusted in the
manner and under the circumstances as set forth in Section 5.
Section 9. Redemption.
----------
The Company shall not have the right to redeem all or any part of the
Series A Convertible Preferred Stock and the Holder shall not have the right to
cause or request such a redemption.
Section 10. Registration Rights.
-------------------
The holders of the Series A Convertible Preferred Stock shall have the
registration rights as set forth in the Registration Rights Agreements attached
as Exhibit C to the Stock Purchase Agreements dated as of March 9, 1999.
Section 11. Reacquired Shares.
-----------------
Any shares of Series A Convertible Preferred Stock converted, purchased or
otherwise acquired by the Company in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof, and, if necessary to provide
for the lawful purchase of such shares, the capital represented by such shares
shall be reduced in accordance with the General Corporation Law of the State of
Delaware. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock, $.0001 par value, of the Company and may be
reissued as part of another series of Preferred Stock, $.0001 par value, of the
Company.
Section 12. Certain Definitions.
-------------------
For the purposes of the Certificate of Designation of Series A Convertible
Preferred Stock which embodies this resolution:
"Business Day" means any day other than a Saturday, Sunday, or a day on
which banking institutions in the State of Delaware are authorized or obligated
by law or executive order to close.
"Conversion Price" means, as to each share of Series A Convertible
Preferred Stock, $2.25 per share.
"Issuance Date" means, with respect to each share of Series A Convertible
Preferred Stock, the date of issuance of the applicable share of Series A
Convertible Preferred Stock.
"Principal Market" means the OTC Electronic Bulletin Board, the Nasdaq
National Market, the Nasdaq Small Cap Stock Market, the American Stock Exchange
or the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
7
<PAGE>
"Trading Day" means a day on which the Principal Market on which the Common
Stock is listed or admitted to trading is open for the transaction of business
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange, any day other than a Saturday, Sunday, or a day on which
banking institutions in the State of Delaware are authorized or obligated by law
or executive order to close.
RESOLVED FURTHER, that appropriate officers of the Company are hereby
authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, all in
accordance with the requirements of Section 151 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Certificate of Designation
of Series A Convertible Preferred Stock to be duly executed by its Chief
Executive Officer this 10th day of March, 1999.
SKYNET HOLDINGS, INC.
By: /s/ Vjekoslav Nizic
-------------------
Vjekoslav Nizic,
Chief Executive Officer
8
<PAGE>
EXHIBIT A
ELECTION TO CONVERT
(To be Executed by Holder
in order to Convert Shares of Series A Convertible Preferred Stock)
The undersigned, as a holder ("Holder") of shares of Series A Convertible
Preferred Stock ("Preferred Shares") of SkyNet Holdings, Inc. (the "Company"),
hereby irrevocably elects to convert _____________ Preferred Shares for shares
("Common Shares") of common stock, par value $.0001 per share (the "Common
Stock"), of the Company according to the terms and conditions of the Certificate
of Designation for the Preferred Shares as of the date written below. The
undersigned hereby requests that share certificates for the Common Stock to be
issued to the undersigned pursuant to this Election to Convert be issued in the
name of, and delivered to, the undersigned or its designee as indicated below.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed thereto in the Certificate of Designation.
Conversion Date:
--------------------------
Conversion Information: NAME OF HOLDER: ----------------------------
By:
----------------------------
Print Name:
----------------------------
Print Title:
----------------------------
Print Address :
----------------------------
----------------------------
----------------------------
Issue Common Stock to:
-------------------------
at:
-------------------------
-------------------------
If Common Stock is to be issued to a person other than Holder,
Holder's signature must be guaranteed below:
SIGNATURE GUARANTEED BY:
---------------------------------
THE COMPUTATION OF NUMBER OF SHARES OF COMMON STOCK TO BE RECEIVED IS SET FORTH
ON PAGE 2 OF THE CONVERSION NOTICE.
Page 1 of Conversion Notice
9
<PAGE>
Page 2 to Conversion Notice dated_____________ for:_____________________________
(Conversion Date) (Name of Holder)
COMPUTATION OF NUMBER OF SHARES OF COMMON
-----------------------------------------
STOCK TO BE RECEIVED
--------------------
<TABLE>
<S> <C>
Number of shares of Preferred Stock converted: shares $
------------- ----------------
Total dollar amount converted $
----------------
Conversion Price
$2.25 per share
Number of Common Shares = $
----------------
Total Stated Value of shares of Preferred Stock converted =
- --------------------------------------------------------- ----------------
Conversion Price
Number of shares of Common Stock =
-----------------------
</TABLE>
Please issue and deliver _____ certificate(s) for shares of Common Stock in the
following amount(s):
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
If the Holder is receiving certificate(s) for shares of Preferred Stock upon the
conversion, please issue and deliver _____ certificate(s) for shares of
Preferred Stock in the following amounts:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT 5.1
[BUCHANAN INGERSOLL PROFESSIONAL CORPORATION LETTERHEAD]
May 17, 1999
SkyNet Holdings, Inc.
343 South Glasgow Ave.
Inglewood, CA 90301
Gentlemen:
We have acted as counsel to SkyNet Holdings, Inc., a Delaware corporation
(the "Company"), in connection with the filing by the Company of a registration
statement on Form S-1 (the "Registration Statement"), under the Securities Act
of 1933, as amended, relating to the registration of the following shares of the
Company's common stock, $0.0001 par value per share (the "Common Stock"), all of
which are to be offered by certain Selling Security Holders as set forth in the
Registration Statement:
1. 4,589,849 shares of Common Stock (the "Shares");
2. 800,890 shares of Common Stock which may be issued, if at all, upon
the exercise of warrants (the "Warrants"); and
3. 2,003,560 shares of Common Stock, subject to adjustment, which may be
issued, if at all, upon the conversion of the Company's outstanding Series A
Convertible Preferred Stock (the "Series A Shares").
In connection with the Registration Statement, we have examined such
corporate records and documents, other documents, and such questions of law as
we have deemed necessary or appropriate for purposes of this opinion. On the
basis of such examination, it is our opinion that:
1. The issuance of the Shares has been duly and validly authorized, and
the Shares are legally issued, fully paid and non-assessable;
2. The shares of Common Stock to be issued upon the exercise of the
Warrants have been duly and validly authorized and, when issued in accordance
with the terms of the appropriate instrument evidencing the Warrants, including,
without limitation, payment of the applicable exercise price with respect to the
Warrants, will be legally issued, fully paid and non-assessable; and
<PAGE>
May 17, 1999
Page -2-
3. The shares of Common Stock to be issued upon the conversion of the
Series A Shares have been duly authorized and, when issued in accordance with
the terms of the Series A Convertible Preferred Stock Purchase Agreement between
the Company and the purchasers thereof and the Certificate of Designation of the
Series A Shares, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Registration Statement.
Very truly yours,
BUCHANAN INGERSOLL
PROFESSIONAL CORPORATION
By: /s/ Stephen M. Cohen
--------------------------------------
Stephen M. Cohen
<PAGE>
EXHIBIT 21.1
------------
SKYNET HOLDINGS, INC.
Subsidiaries of the Registrant
------------------------------
<TABLE>
<CAPTION>
Name State of Incorporation Ownership
- ---- ---------------------- ----------
<S> <C> <C>
SkyNet Holding, Inc. Deleware (USA) Parent
Sky International Limited United Kingdom 100%
SkyNet Worldwide Express Pty Ltd. New South Wales, Australia 100%
DPE International, Ltd. Delaware (USA) 100%
SkyNet, Inc. New York (USA) 100%
Fleet Acquisition Corp. Nevada (USA) 100%
</TABLE>
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Skynet Holdings, Inc.
Inglewood, California
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated November 2, 1998, relating to the
consolidated financial statements of Skynet Holdings Inc., which is contained in
that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Los Angeles, California
May 12, 1999
<PAGE>
Exhibit 23.2
------------
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 filed on or about May 14, 1999 of our report
dated January 11, 1999, relating to the financial statements of Nevada Fleet
Management, Inc. We also consent to the reference to our Firm under the caption
"Experts" in the Prospectus.
/s/ McGladrey & Pullen
McGLADREY & PULLEN, LLP
Las Vegas, Nevada
May 13, 1999
<PAGE>
Exhibit 23.3
------------
[LETTERHEAD OF HARBEN BARKER]
7 May 1999
The Directors
Skynet Holdings, Inc.
Los Angeles
California
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of our report dated March 25, 1999 relating
to the financial statements of Freight On Board International Limited for the
year 31 October 1998 which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Yours faithfully
HARBEN BARKER
s/s Harben Barker
West Midlands,
England
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1998 AND THE NINE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1999
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> JUN-30-1998 MAR-31-1999
<CASH> 337,314 2,101,695
<SECURITIES> 0 0
<RECEIVABLES> 6,380,466 7,880,060
<ALLOWANCES> 734,257 1,184,554
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,885,815 9,440,298
<PP&E> 2,092,831 2,486,716
<DEPRECIATION> 1,388,535 1,450,345
<TOTAL-ASSETS> 6,885,815 12,537,365
<CURRENT-LIABILITIES> 7,119,218 7,573,876
<BONDS> 0 0
245 0
0 0
<COMMON> 745 1,890
<OTHER-SE> 402,568 7,178,592
<TOTAL-LIABILITY-AND-EQUITY> 6,885,815 12,537,365
<SALES> 31,838,919 25,609,176
<TOTAL-REVENUES> 31,838,919 25,609,176
<CGS> 19,123,468 15,617,573
<TOTAL-COSTS> 12,134,474 10,882,841
<OTHER-EXPENSES> 29,809 569,038
<LOSS-PROVISION> 400,955 189,199
<INTEREST-EXPENSE> 199,714 193,804
<INCOME-PRETAX> 351,454 (1,460,276)
<INCOME-TAX> 185,404 4,800
<INCOME-CONTINUING> 166,050 (1,465,076)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 166,050 (1,465,076)
<EPS-PRIMARY> 0.02 (0.09)
<EPS-DILUTED> 0.02 (0.09)
</TABLE>
