<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A-1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
SKYLYNX COMMUNICATIONS, INC.
----------------------------------------
(Exact Name of Small Business Issuer in its Charter)
Colorado 84-1360029
- -------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
103 Sarasota Quay, Sarasota, Florida 34236
---------------------------------------------------
(Address of Principal Offices) (Zip Code)
Registrant's telephone number, including area code: (941) 366-4747
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
<PAGE>
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Registration Statement are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are thus prospective. Such statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Such risks and uncertainties include, but are not
limited to, competitive pressures, changing economic conditions and other
factors, some of which will be outside of the control of the Company.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Overview
- --------
SkyLynx Communications, Inc. (the "Company" or "SkyLynx") is a
corporation formed in 1996 under the laws of the State of Colorado. The
objective of SkyLynx is to globally install and operate its high speed
Internet service and its two-way Community Area Networking ("CAN") systems to
interconnect and transport computer data and information within a given city;
connecting Local Area Networks ("LANs") together, between cities; and
connecting each city to other cities by using Wide Area Networks ("WANs").
The SkyLynx Network Programming Service ("City Network") is designed to be a
cost-effective computer communications solution available for businesses
worldwide.
The features of the SkyLynx system include asymmetrical data transmission
with simultaneous downstream speeds of up to 10 Megabits per second (Mbps) and
upstream speeds of 2.0 Mbps, a price-competitive service, security of user
data and information, the ability to utilize existing microwave infrastructure
and technologies for system access and data transfer . Deployment of the
system can be undertaken through leases and/or purchases of microwave
facilities or channels and the formation of joint ventures can take advantage
of local sales affiliates already present in targeted markets.
Management projects that each licensed microwave communication facility
can support a minimum of 2,100 router locations on a full-time basis. Each
router location supports up to 20 workstations. Moreover, technology is
readily accessible which will increase the number of routers served to a level
of 3,500-4,000 routers and the number of network connections by 10,000 to
15,000 per microwave facility.
The Company has completed the development of the first two City Networks
("CAN"): a symmetric system in the Tampa, Florida market using ISM band and an
asymmetric system in the Fresno, California market using a licensed microwave
communications facility. The Fresno Network was completed and began
transmission on August 20, 1998. The Network, operating under the assumed
tradename of "CyberLynx Communications," currently has orders for
approximately 150 beta customers and 10 commercial customers, all of which are
small businesses within the geographical region. The Tampa Network has been
completed and is operational and expects to begin commercial transmission by
the end of September 1998.
History and Background
- ----------------------
The Company was formed and organized under the laws of the State of
Colorado in September 1996 under the name "Allied Wireless, Inc." In 1997 the
Company consummated the acquisition of SkyLynx Express Holdings, Inc.
("SkyLynx Express"), which was then merged with and into the Company.
Subsequently in 1998, the Company changed its name to "SkyLynx Communications,
Inc." SkyLynx Express had been formed and organized by Network System
Technologies, Inc., a California corporation, ("NST") to become a wireless
data network services provider through the use of a proprietary high speed 2-
way wireless router product line. Prior to and subsequent to the acquisition
of SkyLynx Express, the Company has been actively involved in acquiring rights
to utilize FCC licensed spectrum in several metropolitan areas to support the
development and deployment of wireless network systems. Financing for these
activities has been provided through private offerings of the Company's
securities undertaken in reliance upon exemptions from the registration
requirements of the Securities Act of 1933, as amended, (the "Securities
Act"), contained in Regulation D thereunder. The Company is voluntarily
filing this Registration Statement in order to become a reporting company
under Section 13 of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") with the expectation that such status will enhance the
Company's opportunities to expand the deployment of networks into new markets
through the purchase or lease of FCC approved licenses, the formation of a
partnership, joint venture and other arrangements with third parties which
control spectrum and potential transmitter locations in those markets. In
addition, the Company has developed a limited, highly sporadic public trading
market for its common stock, which trades on the OTC Electronic Bulletin Board
("Bulletin Board") under the symbol "SKYK."
Business
- --------
The Company is engaged in providing high-speed Internet access to
businesses through the use of wireless frequencies. Through a non-exclusive
license from Network System Technologies, Inc. ("NST"), the Company has
obtained the use of a unique high-speed 2-way wireless router product line
that has been developed by NST. The Company has supplier relationships with
other wireless data transmission equipment and systems vendors, however, and
is not dependent upon NST as a source of supply. The Company intends to form
strategic relationships with wireless operators to market its "SkyLynx
Network" Internet service initially to non-residential customers in the United
States and internationally.
Industry Overview
- -----------------
Growth Of Internet Usage And Content
The Internet, a network of thousands of interconnected, separately-
administered public and commercial networks, has emerged as a
global communications medium enabling millions of people to share information
and conduct business electronically. During the past few years, the number
of Internet users, advertisers and content developers and businesses online
has grown dramatically. With readily-available, low-cost Internet
access, consumers and businesses are making increased use of Web browsers,
electronic mail, corporate intranets, telecommuting, online advertising and
electronic commerce. According to Jupiter Communications, the number of
Internet households worldwide will grow from an estimated 23.4 million in 1996
to 66.6 million by 2000. The Company believes that this growth in the number
of users will drive more substantial increases in Internet commerce,
which International Data Corporation ("IDC") estimates will grow from $318
million in 1995 to $95 billion in 2000. Increased Internet usage and the
availability of powerful new tools for the development and distribution of
Internet content have led to a proliferation of Internet-based services, such
as advertising, online magazines, specialized news feeds, interactive games
and educational and entertainment applications, that are increasingly
incorporating multimedia information such as video and near-CD- quality audio
clips. The Internet has the potential to become a platform through which
consumers and businesses easily access rich multimedia information and
entertainment, creating new sources of revenue for advertisers, content
providers and businesses. The growth of Internet advertising and commerce
depends, in part, on the ability of advertisers and online merchants to
deliver a compelling multimedia message to attract viewers and potential
customers. However, multimedia content and other data-intensive applications
require wide bandwidth.
The potential of the Internet as a medium for communication,
education, entertainment and commerce remains unfulfilled due to problems with
its performance and reliability. The Internet's performance limitations stem
from its basic architecture, which is not optimized for distribution of data-
intensive multimedia content. A limitation associated with any element in
the system, whether it is the "last-mile" connection to the user (the
"local loop"), the infrastructure of the Internet Service Provider ("ISP") or
the Online Service Provider ("OSP"), the Internet backbone or the content
provider's Web server, can result in performance bottlenecks that slow data
transmission speed to that of the weakest link. For example, dial-up users
frequently encounter busy signals upon attempting to connect to their ISP/OSPs
and are unable to access quality multimedia content readily due to the slow
speed of their analog modems. Performance limitations of the Internet
frustrate and discourage users from fully utilizing it as a convenient and
effective information tool, a compelling educational and entertainment
resource, or a way to purchase goods and services.
Several new technologies attempt to address the performance problems of
the Internet which increase the transmission speed of data across the local
loop.
- Improved Modem Offerings. In early 1997, dial-up modems offering a
peak data transmission speed of 56 kilobytes per second ("Kbps")
were introduced for use with ISP/OSPs over existing telephone lines,
although many ISP/OSPs do not yet support this transmission speed.
The lack of a universal standard has slowed the rate of adoption of
faster modems.
- Telecommunications-Based Offerings. Integrated Services Digital
Network ("ISDN") technology enables a peak data transmission speed
of 128 Kbps between the user and the ISP/OSP over specially
conditioned telephone lines. Although ISDN technology has been
available for several years, it has not been widely deployed due
primarily to its high costs.
- Asymmetric Digital Subscriber Line ("ADSL") is currently the most
prominent implementation of Digital Subscriber Line ("xDSL")
technology, an emerging telecommunications protocol
originally developed to deliver video on demand. ADSL enables peak
data transmission speeds of 8.4 megabytes per second ("Mbps")
downstream from the ISP/OSP to the user and 640 Kbps upstream from
the user to the ISP/OSP; however, typical implementations realize
substantially lower data transmission speeds because of the distance
limitations that exist in this "last mile" connection. ADSL access
is priced significantly above other access services and is not
expected to be widely available in the near term.
- Satellite Offerings. Satellite-delivered approaches such as direct
broadcast satellite ("DBS") currently provide a peak data
transmission speed of approximately 400 Kbps downstream and rely on
dial-up modems and the telephony network for upstream transmission
("telephone return"). These approaches have scaling limitations due
to the necessity of dividing a finite amount of satellite bandwidth
among subscribers in a broad geographic area.
- Cable Offerings. Transmission of two-way signals over cable is
dependent on the availability of high-speed two-way hybrid fiber
coaxial ("HFC") cable. Although large cable system operators have
begun upgrading to HFC cable infrastructure, only a small portion of
existing cable plants in the United States have been upgraded, and
the Company believes that even less are capable of high-speed two-
way transmission. Peak data transmission speeds across HFC cable
approach 27 Mbps downstream and 10 Mbps upstream.
The Wireless Industry
The wireless industry has many facets to it and it has traditionally been
a very segmented industry with many niches such as cellular, paging, data,
private radio and subscription television, just to name a few. In addition,
the wireless industry can be segmented into two very distinct groups, the
mobile wireless industry and the fixed wireless industry. In turn, the fixed
wireless industry is mostly famous for backbone "trunk" links for telephone
networks and for the television networks. The subscription television
industry was begun in the late 1940s to serve the needs of residents of
predominantly rural areas having limited access to local off-air VHF/UHF
channels. The industry subsequently expanded to metropolitan areas because,
among other reasons, its systems were able to offer better reception and more
programming than local off-air VHF/UHF channels. Currently, subscription
television systems typically offer a variety of services including basic
service, enhanced basic service, premium service and, in some instances, pay-
per-view service. Typically, subscription television providers charge
customers an installation fee plus a fixed monthly fee for basic service.
Monthly fees constitute the major source of revenue for subscription
television providers.
Most subscription television systems are hard-wire cable systems which
currently use coaxial cable to transmit television signals, although many
have upgraded or are considering upgrading to fiber optic cable which provides
greater channel capacity than coaxial cable. Traditional hard-wire systems
have headends which receive signals for programming services, which signals
have been transmitted to the headend by local broadcast or satellite
transmissions. A headend consists of signal reception, decryption,
retransmission, encoding and related equipment. The operator then delivers
the signal from the headend to customers via an extensive network of coaxial
or fiber optic cable, amplifiers and related equipment. The use of a network
of coaxial cable inherently results in signal degradation and increases the
possibility of outages. Although fiber optic networks will substantially
reduce the transmission problems of coaxial cable systems and will expand
channel capacity, the installation of such networks will require a substantial
investment by hard-wire cable operators.
Like a traditional hard-wire cable system, a wireless system receives
programming at a headend. Unlike traditional hard-wire cable systems,
however, programming is then retransmitted by microwave transmitters located
on a tower or building to a small receiving antenna located at each
subscriber's premises. At the subscriber's location, the signals are
descrambled, converted to frequencies that can be viewed on a television set
and relayed to a subscriber's television set by coaxial cable. Because the
microwave frequencies used will not pass through trees, hills, buildings or
other obstructions, wireless systems require a clear line of sight ("LOS")
from the headend to a subscriber's receiving antenna. Many LOS obstructions
can be overcome with the use of signal repeaters which retransmit an otherwise
blocked signal over a limited area. Because wireless systems do not require
an extensive network of coaxial cable and amplifiers, wireless operators can
provide subscribers with a reliable signal having few transmission
disruptions, resulting in a television signal of a quality comparable or
superior to traditional hard-wire cable systems, and at a significantly lower
system capital cost per installed subscriber.
Wireless Data
Wireless data is the most recent segment of the wireless industry. There
are many existing wireless data networks that cater to mobile data users, but
there aren't yet many wireless data networks that cater to fixed site
"broadband" data users. Only recently with the advent of the Internet has
there been strong demand for broadband networks. Now, fixed site, wireless
data networks are a viable alternative to high speed telephone lines, cable TV
or fiber optics. The reason "broadband" wireless data networks have been slow
to appear in the marketplace is that most corporate network business users
have relied primarily on high speed telephone lines to build their networks.
This is because, in the past, broadband wireless data links did not have the
availability, reliability and network management sophistication that is needed
to run corporate Intranet data networks.
The Company's Technology
- ------------------------
The Company has a non-exclusive sub-license from NST to utilize a
proprietary high-speed 2-way wireless router product line that has been
developed by NST using technology licensed from Hybrid Networks, Inc. This 2-
way wireless router operates with licensed frequencies in the downstream
direction and unlicensed, point-to-point, spread spectrum wireless links in
the upstream direction. For phase one of this 2-way wireless product, NST is
working with a third party to manufacture hardware for immediate availability.
The Company believes that the second phase of this product line will be
manufactured by Hybrid Networks, among others.
This 2-way wireless router offers advantages over wireless system
operators that do not offer 2-way wireless configurations. The wireless
router provides a shared 10Mbps service in the downstream direction with
shared and/or dedicated 2.0 Mbps wireless links in the upstream direction.
This means that a subscriber to the Company's system, which the Company calls
the "SkyLynx Network," will enjoy high-speed connectivity for many
applications. The high speed downstream channel is ideal for high speed
Internet access and also for high speed access to digital content on
centralized servers, host computers and/or databases. The upstream wireless
channels are fast enough to support the uploading of digital information and
for full-duplex video conferencing applications.
In the future, the Company will look for other manufacturers and
technologies to augment these 2-way wireless products to offer more choices to
its subscribers and to help scale the networks. Additionally, the Company is
reviewing plans to market a point-to-point microwave wireless link that would
be used to interconnect larger information/content providers and larger
corporate office networks to the Company's distribution centers and Internet
points-of-presence ("PoPs"). This product would also be used in the backbone
side of a broadband wireless network to interconnect various cell-sites to the
PoPs. The Company is also reviewing a plan to add certain local multipoint
distribution service ("LMDS") products to some of its high density cells in
regions in which it can gain access to such frequencies. But, in regions
where the Company cannot get access to licensed frequencies (LMDS or other
licensed frequencies), the Company is also considering other higher frequency
symmetric wireless routers that operate only on unlicensed frequencies (e.g. 5
GHZ). Finally, the Company plans to develop products that will help it deploy
these broadband wireless data networks in apartments, hotels, condominiums
and other residential or commercial buildings that have large concentrations
of professional workers.
The Company anticipates that it will receive some revenue from selling
the wireless router products to subscribers. However, the Company believes it
will generate most of its revenue from service fees collected for connection
to the SkyLynx Network. Network fees will depend on the end-user services
being contracted for. These fees will be shared with the Company's strategic
partners on a case-by-case basis as those relationships are formed in various
geographical markets.
Plan of Operation
- -----------------
The Company will offer reliable Internet and Intranet access through
wireless frequencies, using its wireless router, directly to end-users, as
well as through connections to corporate local area networks, which will
provide companies the ability to create virtual private networks. The Company
expects that many of its services will be highly transferable to international
markets, recognizing that some degree of localization of content will be
essential to achieving success. The SkyLynx Network will be scalable,
enabling it to provide sustainable high performance as usage increases. In
order to shorten time to market for wireless operators and other frequency
holder RBU partners, the Company provides a turnkey solution, which includes
or will include not only a technology platform, but also a national
brand, marketing, customer service and billing. This solution will enable
wireless operators and RBU partners to leverage their infrastructures to
deliver high-bandwidth, interactive data services that represent significant
new revenue opportunities.
The Company plans to form strategic relationships with wireless
operators, broadcasters, and wireless frequency holders. As relationships are
developed with these persons, the Company will seek to establish Regional
Business Units ("RBU"s) that will market and sell the SkyLynx wireless data
network "brand name" in their respective territories. Those RBUs, with the
assistance of NST, will be able to deploy turn-key systems to customers
quickly, efficiently, and relatively inexpensively.
The Company will own a significant percentage of the recurring revenues
of each system, depending on who pays for equipment and its initial
installation, local sales, and who owns the spectrum, among other things.
RBUs will be staffed with individuals organized into specialized teams
consisting of an experienced account lead, who will manage varied customers
within the RBU service area and who will be the individual most accountable to
the RBU management for revenue growth and profitability. Each account lead
will be supported by network services specialists, customer premises
management specialists, and content/application specialists, depending on the
size of the service area and the resources available to the RBU management.
The account lead, network services and content/application tooling specialists
will normally be employed by the RBU; whereas the customer premises management
specialist will normally employed by an affiliate organization.
Infrastructure of RBU's
NST has provided system integration services for the asymmetric
network in the Fresno Network. It has also provided system design and
installation, network deployment and testing, and initial end user beta site
installations. Once a system has been fully deployed, the Company's own
staff engineers will provide support on adds, moves and changes to the
subscriber database. The installed systems will be monitored from a Network
Operations Center ("NOC"). The NOC is a network management center that will
primarily be used to monitor, control and troubleshoot the wireless networks
from a centralized location. The NOC will also maintain the integrity of
databases of various network elements (e.g., routers and servers). The
Company may develop its own NOC capability in the future.
Vertical Markets
In addition to the forming of strategic partnerships and RBUs, the
Company will target certain vertical markets at the RBU level to which it
plans to sell its network services and to offer information products which
will be developed by the Company to meet the needs of those markets. The
Company believes that the following types of customers would be able to
utilize a network that the Company could provide. Accordingly, the Company
initially plans to focus its marketing efforts on the following groups of
customers:
- telecommuters - individuals that usually work in an office
environment for a business or an institution and either extend their
working day by continuing to work at home with personal computers,
or completely substitute working at home for going to the office;
e.g. persons employed by high technology firms that wish to provide
their employees with remote computing capabilities similar to those
available to them in their primary workspaces;
- medium size and small businesses - small branch or field offices of
a business or institution which is most productive when the staff
has full access to the computer networks of the headquarters office;
e.g. insurance adjusters wishing to search their company's claims
databases from their sales offices, or a bank researching a credit
history, or an institutional buyer tying in to large product
databases;
- businesses that require frequent and timely updates of large
software modules; e.g., sales offices and major customers of
software companies, where the ability to quickly distribute updates
and to de-bug software has become increasingly important as
businesses become more and more dependent on software supplied and
supported by outside vendors;
- businesses that need to access large amounts of data, quickly and
efficiently, from locations remote to the source; e.g., hospitals,
healthcare providers and managers, universities and other
educational and training facilities, and government agencies.
The Company foresees the demand for better networking of professional
users to increase steadily over the next decade. The growing need for such
"Information Superhighways" is demonstrated by the current US Administration's
National Information Infrastructure (NII) initiatives. Indeed, many large
cities are considering legislation that would force companies to provide
alternatives to the traditional one-car-one-person commuting. Networks and
services that give these companies alternatives to the traditional commute,
while satisfying legislative mandates, are extremely valuable.
Networks under Development
- --------------------------
Tampa Network
The Company has entered into an agreement with an affiliate of a national
broadcast network facilities operator covering the greater Tampa Bay
metropolitan area. Under the terms of the agreement, the Company has leased
all excess capacity and agreed to develop a network system linking all
American Red Cross offices located in the Tampa, Florida metropolitan area
using the shared community broadband network. The initial network linkage to
the American Red Cross will also permit the network to service the
requirements of at least seven major medical facilities in the greater Tampa
Bay area or 500 to 900 business users.
Under the terms of the agreement, the Company has provided all funds,
equipment, engineering, sales, marketing, legal and related expenses to
engineer, install, deploy and operate the network system. The geographical
area which will be covered by the network extends from Brooksville, Florida in
the north to Naples, Florida in the south. This area has a general population
of approximately 3,000,000 persons with 50,000 or more potential business
users. Under the terms of the excess capacity lease, the Company has agreed
to pay the facilities operator a royalty equal to 20% of all network revenues.
To date, the Company has completed the engineering and construction for
the Tampa network which will initially consist of four cell sites being
constructed near the American Red Cross facilities in the Tampa metropolitan
area. The network is expected to be completed and deployed in September 1998.
As currently configured, the Tampa network will be initially an intranet 2-way
wireless symmetric system with two megabyte capability in both the upstream
and downstream modes. This system will operate on unlicensed frequencies
initially.
Fresno Network
The Company has acquired a 96% net revenue lease covering two MDS
channels in the Fresno, California market. The leases cover two FCC licenses
for microwave spectrum in these markets which the Company acquired in
consideration of the issuance of 50,000 shares of common stock and the
agreement to issue in the future an additional 25,000 shares of common stock,
subject to the Fresno network achieving annual net income for a full fiscal
year of at least $835,000. The lease requires payment of approximately
$47,000 per year to maintain in full force and effect.
Utilizing the FCC licenses held under the foregoing lease assignment, the
Company has completed engineering and construction of the Fresno Network,
which was deployed in August 1998. As originally configured, the Fresno
Network consists of a 2-way asymmetric wireless system utilizing both licensed
and unlicensed frequencies. With the unlicensed frequencies, the Company's
system offers two megabyte capability in both the upstream and downstream
modes; while utilizing the licensed frequency of the Company will be able to
upgrade the downstream capability to 30 megabytes per second per channel. The
Company currently has arrangements with approximately 150 beta site users and
10 commercial customers for the Fresno Network.
The Microwave Communications Industry
- -------------------------------------
The microwave communications infrastructure, as it is still utilized
today to provide private backbone services for only a small number of major
customers in our cities, is poised for rapid growth as new technologies from
SkyLynx and others are making the sharing of these very dynamic facilities by
large groups of customers affordable. For example, until the early 1980's,
the U.S. long distance network was carried exclusively over private microwave
facilities. SkyLynx permits the conversion of these facilities to digital
transmission formats that include shared computing network architectures.
In the 50 largest markets of the U.S., 33 shareable analog channels,
among others, are authorized for conversion by the Federal Communications
Commission. In the smaller markets, 32 are available. Each of these channels
is 6 Megahertz ("MHZ") in bandwidth. Persons and entities that control this
spectrum in the larger and medium sized markets do not often have sufficient
resources to operate as a full service provider.
In addition to microwave spectrum lease agreements with existing facility
operators, SkyLynx will also implement two additional strategies that will
allow the Company to achieve rapid deployment of its high-speed data access
services. The first strategy involves the use of both the Industrial,
Scientific and Medical (ISM) bandwidth and the National Information
Infrastructure (NII) bands. The second strategy involves the creation of
other strategic experimental bands, by working with the FCC to expand the
allocation of certain spectrum for high-speed (broadband) Internet access
services.
There are several bands of spectrum that have been allocated by the FCC
to be used for unencumbered data transmission. The most popular of those
bands are in the 900 MHZ, 2.4 GHZ and 5 GHZ bands. Specifically, at 2.4 GHZ,
the FCC allocated 83 MHZ of bandwidth for ISM operation. The modulation
schemes approved for these ISM bands are known as "spread spectrum" modulation
techniques and they include both frequency hopping and direct sequence spread
spectrum techniques.
Given these circumstances, SkyLynx has identified many opportunities for
joint ventures with existing operators to build and operate two-way high-speed
asymmetric data networks using these facilities.
There are many existing low speed data networks that cater to mobile data
users, but few microwave data networks that cater to fixed site "broadband"
computing network users. Only recently with the advent of the Internet has
there been strong demand locally for broadband computing networks. Now, fixed
site, microwave data networks are a viable alternative to high-speed
telephone, CATV cable or fiber optic facilities. The primary reason broadband
wireless data networks have been slow to appear in the marketplace is that
most corporate network business users have so far relied on high speed
telephone lines to build their wide area computing networks. This is due to
the fact that broadband microwave data links did not have the availability,
reliability and network management sophistication that is needed to run most
corporate Intranet data networks.
Direct Microwave Facilities Purchases and Leases
The owners of microwave facilities who decide to rely exclusively on
SkyLynx 's expertise to operate the resulting asymmetric data network, are the
most likely candidates to be strategic business partners of SkyLynx. These
microwave operators become joint owners of the RBUs that are formed to offer
our network services in the various cities. Candidates include existing
owners of commercial MDS, MMDS, ITFS, VHF, UHF or LPTV microwave facilities,
who want to get into the data networking business with SkyLynx. SkyLynx is
currently negotiating with many of these individuals and organizations that
want to participate in building City Networks by SkyLynx.
Competition
As the Company has only a non-exclusive license to use the NST 2-way
asymmetric wireless technology and no agreement or commitment from NST to
limit or restrict the grant to third parties of the same or similar license
rights, the Company must compete not only with NST and other potential NST
licensees, but also with other entities using competitive technologies and
telecommunication media. As a result, the Company must rely upon a "first to
the market" approach to competing successfully, of which there can be no
assurance.
The markets for consumer and business Internet services and on-line
content are extremely competitive, and the Company expects that competition
will intensify in the future. The principal competitive factors in this
market include product performance and features (including speed of
transmission and upstream transmission capabilities), reliability, price, size
and stability of operations, breadth of product and service lines, technical
support and service, strategic relationships and standards compliance and
general industry and economic conditions. Certain of these factors are
outside of the Company's control. The existing conditions in the high speed
network connectivity market could change rapidly and significantly as a result
of technological changes and the development and market acceptance of
alternative technologies could decrease the demand for the Company's networks
or render them obsolete. Similarly, the continued emergence or evolution of
industry standards or specifications may put the Company at a disadvantage in
relation to its competitors.
The Company's most direct competitors are Internet service providers
("ISPs"), national long distance carriers and local exchange carriers
("TelCos"), other wireless service providers, on-line service providers
("OSPs") and operators in the cable-based services market. Many of these
competitors are offering (or may soon offer) technologies that will attempt to
compete with some or all of the Company's high speed data service offerings.
Such technologies include Integrated Services Digital Network ("ISDN") and
Digital Subscriber Line ("xDSL"). The factors affecting competition in these
markets include transmission speed, reliability of service, ease of access,
price/performance, ease of use, content quality, quality of presentation,
timeliness of content, customer support, brand recognition, operating
experience and revenue sharing.
ISPs provide basic Internet access to residential consumers and
businesses, generally using existing telephone network infrastructures. This
method is widely available and inexpensive. Barriers to entry are low,
resulting in a highly competitive and fragmented market.
Long distance inter-exchange carriers have deployed large-scale Internet
access networks and sell connectivity to business and residential customers.
The regional Bell operating companies ("RBOCs") and other local exchange
carriers have also entered this field and are providing price competitive
services. Many of such carriers are offering diversified packages of
telecommunications services, including Internet access service, to residential
customers and could bundle such services together, which could place the
Company at a competitive disadvantage.
Other wireless service providers, including AT&T and Hughes Network
Systems, are developing wireless Internet connectivity, such as multi-channel,
multi-point distribution service, local multi-point distribution service and
digital broadcast satellite.
OSPs that provide, over the Internet and on proprietary online services,
content and applications ranging from news and sports to consumer video
conferencing. These services are designed for broad consumer access over
telecommunications-based transmission media, which enables the provision of
data services to the large group of consumers who have personal computers with
modems.
The Company's competitors in the cable-based services market are those
cable companies that have developed their own cable-based services and market
those services to unaffiliated cable system operators that are planning to
deploy data services. Several cable system operators, including
Telecommunications, Inc. ("TCI"), Time Warner, Inc. ("Time Warner") and the
Continental Cablevision subsidiary of US West, Inc. ("US West") have deployed
high speed Internet access services over their existing local HFC cable
networks.
Many of the Company's competitors and potential competitors have
substantially greater financial, technical and marketing resources, larger
subscriber bases, longer operating histories, greater name recognition and
more established relationships with advertisers and content and application
providers than the Company. Such competitors may be able to undertake more
extensive marketing campaigns, adopt more aggressive pricing policies and
devote substantially more resources to developing Internet services than the
Company. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive
pressures faced by the Company will not materially adverse effect the
Company's business, operating results or financial condition. In particular,
it is possible that the perceived high speed access advantage provided by
cable may be undermined by the need to share bandwidth, which results in the
reduction in individual throughput speeds. In addition, the emergence or
evolution of industry standards, through either adoption by official standards
committees or widespread use by cable system operators, other broadband
wireless system operators or TelCos, could require the Company to redesign its
products, resulting in delays in the introduction of products and services.
Product Development and Engineering
The Company's product development and engineering efforts focus on the
design and development of new technologies and products to increase the speed
and efficiency of the network and to facilitate the development and
distribution of broadband communications. The principal areas of current
product development and engineering include:
- enhancing techniques to improve network performance and efficiency;
- advancing multi-casting technologies to provide efficient transport
of "one-to-many" content;
- developing advertisement targeting and content personalization
systems to fit desired subscriber profiles;
- developing virtual private network technology solutions to enable
secure and scalable end-to-end telecommuting and commercial services
over the network;
- enhancing the Company's advanced network management capabilities to
identify and address network performance issues before they affect
user experience.
Under the Company's General Operating Agreements with NST, the Company
plans to be the beneficiary of much of the product development and enhancement
undertaken by NST to improve performance. The Company also plans to retain
engineers and other computer experts to further enhance and develop its
technologies internally, although to date the Company has engaged in no
internal product development.
Intellectual Property
The Company regards its licensed technology, while non-exclusive, as
proprietary and attempts to protect it with copyrights, trademarks, trade
secret laws, restrictions on disclosure and other methods. The Company also
generally enters into confidentiality or license agreements with its employees
and consultants, and generally controls access to and distribution of its
documentation and other proprietary information. Despite these precautions,
as the Company has only a non-exclusive right to use the NST technology and
has no commitment or agreement from NST to limit or restrict the grant of
similar rights to third parties, it is probable that the Company will be
forced to compete directly with other potential NST licensees as well as those
offering competitive technologies. In addition, effective copyright,
trademark and trade secret protection may be unavailable or limited in certain
foreign countries, and the global nature of the Internet makes it virtually
impossible to control the ultimate destination of the Company's content
offerings. Policing unauthorized use of the Company's content offerings is
difficult. There can be no assurance that the steps taken by the Company will
prevent misappropriation or infringement of its technology. In addition,
litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results and financial condition.
The Company may receive in the future, notice of claims of infringement
of other parties' proprietary rights, including claims for infringement
resulting from the downloading of materials by the online or Internet services
operated or facilitated by the Company. There can be no assurance that
infringement or invalidity claims (or claims for indemnification resulting
from infringement claims) will not be asserted or prosecuted against the
Company or that any assertions or prosecutions will not materially adversely
affect the Company's business, operating results and financial condition.
Irrespective of the validity or the successful assertion of such claims, the
Company would incur significant costs and diversion of resources with respect
to the defense thereof, which could have a material adverse effect on the
Company's business, operating results and financial condition. If any claims
or actions are asserted against the Company, the Company may seek to obtain a
license under a third party's intellectual property rights. There can be no
assurance, however, that under such circumstances a license would be available
on commercially reasonable terms, or at all.
Employees
As of September 8, 1998, the Company had 15 employees, consisting of its
Chief Executive Officer, President, Executive Vice President, Executive Vice
President of Sales and Marketing, Chief Financial Officer, General Counsel,
four employees involved in operating the Fresno Network, and one
administrative assistant. The Company considers its relations with its
employees to be good. The Company's ability to achieve its financial and
operational objectives depends in large part upon the continued service of its
senior management and key technical personnel and its continuing ability to
attract and retain highly qualified technical and managerial personnel.
Competition for such qualified personnel in the Company's industry is intense.
Facilities
The Company is headquartered in facilities consisting of approximately
1,250 square feet in Sarasota, Florida, which the Company occupies under a
five year lease. The Company also maintains two offices in the Silicon
Valley, California, one satellite office in San Jose, California consisting of
500 square feet which it occupies under a one year lease, and the other in
Fresno, California. The Company anticipates that its existing facilities are
adequate for the foreseeable future. The Tampa facility has a multi-year
lease and occupies 3,000+ square feet of office space.
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this report.
Reverse Split
- -------------
Unless otherwise stated, all share and per share information contained in
this Registration Statement gives retroactive effect to a 1-for-13 reverse
split of all outstanding shares of common stock which was effected on January
23, 1998.
Liquidity and Capital Resources
- -------------------------------
Since its inception, the Company has relied principally upon the proceeds
of private equity financings to provide working capital. The Company has not
generated any revenues from operations to date. During the year ended
December 31, 1997, the Company sold an aggregate of 781,805 shares of its
Common Stock in private offerings realizing proceeds, net of offering
expenses, of $963,227. The Company is currently undertaking a private
offering of units ("Units"), each Unit consisting of one share of the
Company's Series A Convertible Preferred Stock and two Common Stock Purchase
Warrants (the "1998 Private Offering"). The Company has received and accepted
subscriptions to purchase an aggregate of 698,500 Units representing proceeds
of $2,589,115, net of offering costs. The Company intends to continue the
1998 Private Offering up to a maximum of 3,750,000 Units or maximum gross
proceeds of $15,000,000. However, there can be no assurance that the Company
will be successful in its efforts to sell additional Units in the 1998 Private
Offering.
At June 30, 1998, the Company had total assets of $2,675,457. The assets
consisted principally of cash of $1,433,196, communications and related
equipment of $514,169, net of depreciation, and construction in process of
$535,051.
Total liabilities at June 30, 1998 were $110,216, consisting primarily of
accounts payable in the aggregate amount of $85,498, or 77.6%.
Stockholders' equity at June 30, 1998 was $2,557,034. The Company will
require working capital for the acquisition of licensed or leased wireless
spectrum as well as the deployment of more wireless data networks. The
precise timing of the Company's future capital requirements cannot accurately
be predicted. The Company will require additional financing through the sale
of equity or debt securities in the future. The Company has no commitments
for any additional financing in the 1998 Private Offering or otherwise and
there can be no assurance that such commitments can be obtained. Any
additional equity financing may be dilutive to the Company's existing
stockholders and debt financing, if available, may involve pledging some or
all of the Company's assets and may contain restrictive covenants with respect
to raising future capital and other financial and operational matters. If the
Company is unable to obtain additional financing as needed, the Company may be
required to reduce the scope of its operations, which would have a material
adverse effect upon the Company's business, financial condition and results of
operation.
Results of Operations
- ---------------------
The Company has realized no revenues from continuing operations.
For the six months ending June 30, 1998, the Company's activities were
limited to completing the acquisition of SkyLynx Express, efforts to purchase
or otherwise acquire wireless frequencies for use in connection with the
development and deployment of 2-way wireless data networks, and development of
the Tampa and Fresno networks. These activities resulted in a net loss for
the period of $842,248 for the consolidated entities.
Subject to the Company being successful in its efforts to raise
additional working capital of which there can be no assurance, future revenues
will depend upon its ability to acquire wireless frequencies and construct,
deploy and profitably operate high-speed two-way wireless networks. There can
be no assurance that these efforts will be successful.
Net Operating Loss Carryforwards
- --------------------------------
At December 31, 1997, the Company had a net operating loss carryforward
for income tax purposes of approximately $2,200, which expires beginning in
2012. Under the Tax Reform Act of 1986, the amounts of and the benefits from
net operating loss carryforwards are subject to certain limitations in the
amount of net operating losses that the Company may utilize to offset future
taxable income.
Earnings Per Share
- ------------------
In February 1997, the Financial Accounting Standards Board issued SFAS
128, "Earnings Per Share." SFAS 128 establishes new standards for computing
and presenting earnings per share ("EPS"). Specifically, SFAS 128 replaces the
currently required presentation of primary EPS with a presentation of basic
EPS, requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures, and
requires a reconciliation of the numerator and denominator of the basic and
diluted EPS computations to the financial statements issued for periods ending
after December 15, 1997, and early application is not permitted. Upon
adoption, SFAS 128 requires restatement of prior period EPS presented to
conform to the requirements of SFAS 128. Management believes the adoption of
SFAS 128 will not have a material effect on the Company's previously-issued
financial statements.
Comprehensive Income
- --------------------
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income." SFAS 130 establishes standards for reporting
and display of comprehensive income and its components (revenues, expense,
gains, and losses) in a full set of general purpose financial statements.
Specifically, SFAS 130 requires that all items that meet the definition of
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. However,
SFAS 130 does not specify when to recognize or how to measure the items that
make up comprehensive income. SFAS 130 is effective for fiscal years beginning
after December 15, 1997, and early application is permitted. SFAS 130 requires
reclassification of financial statements for all periods presented for
comparative purposes. Management believes the adoption of SFAS 130 will not
have a material effect on the Company's future financial statements.
Reporting For Segments
- ----------------------
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
supersedes the "industry segment" concept of SFAS 14 with a "management
approach" concept as the basis for identifying reportable segments. SFAS 131
is effective for fiscal years beginning after December 15, 1997, and early
application is permitted. Management believes the adoption of SFAS 131 will
not have a material effect on the Company's future financial statements.
The Year 2000 Issue
- -------------------
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date 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 miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. Based upon a
recent assessment, the Company has made a preliminary determination that it
may be required to upgrade or replace certain portions of its software so that
its computer systems will properly utilize dates beyond December 31, 1999.
The Company presently believes that with upgrades of existing software and
conversions to new software, the Year 2000 Issue can be mitigated. However,
if such upgrades and conversions are not made, or are not completed or
available timely, the Year 2000 Issue could have a material impact on the
operations of the Company. Furthermore, the Company has yet to initiate
formal communications with its significant suppliers and large customers to
determine the extent to which the Company is vulnerable to those third
parties' failure to remediate their own Year 2000 Issue. As a result, there
can be no guarantee that the systems of other companies on which the Company's
business relies will be timely converted, or that a failure to convert by
another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company. In view of
the foregoing, there can be no assurance that the Year 2000 Issue will not
have a material adverse effect upon the Company.
ITEM 3. DESCRIPTION OF PROPERTY
The Company has no ownership interest in any real or personal property.
The Company currently maintains its corporate offices at 103 Sarasota Quay,
Sarasota, Florida 34236. This facility consists of approximately 1,250 square
feet and is occupied under a five year lease, subject to the Company's right
to enter into a five year lease convering the same premises. The Company also
maintains two satellite offices, one in San Jose, California consisting of 500
square feet which it occupies under a one year lease, and the other in Fresno,
California consisting of 3,793 square feet which it occupies under a three
year lease. The Company anticipates that its existing facilities are adequate
for the foreseeable future.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of the date of this Registration
Statement, the number of shares of the Company's Common Stock owned by (i)
each person who owned of record, or was known to own beneficially, more than
five percent (5%) of the Company's outstanding shares of Common Stock,
(ii) each of the Company's current directors and executive officers and (iii)
all of the Company's current directors and executive officers as a group:
<TABLE>
<CAPTION>
Shares
Beneficially Percentage
Name & Address of Owner(4)(5) Owned Ownership(1)(2)
- ----------------------- ------------ ---------------
<S> <C> <C>
Gary L. Brown 2,594,231 28.8%
Joseph F. Morgan 1,009,615 11.2%
Eduardo J. Moura(3) 1,923,077 21.3%
William J. Chastain 480,769 5.3%
Frank P. Ragano 60,128 0.7%
Kenneth L. Marshall 230,769 2.6%
Network System Technologies, 1,923,077 21.3%
Inc.(3)
55 South Market Street
San Jose, California 96112
All Directors and Officers as a
Group (6 Persons) 6,298,589 71.8%
</TABLE>
- ---------------------
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them within sixty (60) days of the date of
this Registration Statement are treated as outstanding when determining
the percent of the class owned by such individual and when determining
the percent owned by the group.
(2) Assumes the conversion of all Preferred Stock sold in the 1998 Private
Offering into an equal number of shares of Common Stock.
(3) Network System Technologies, Inc. ("NST"), a California corporation, is
the record owner of the subject shares. Voting and investment power with
respect to such shares is exercised by the NST Board of Directors which
is comprised solely of Eduardo J. Moura, Tony Colheo and J.R. Gallucci.
Mr. Moura disclaims beneficial ownership of such shares for purposes of
Section 16 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(4) Unless otherwise noted, each person's address is c/o SkyLynx
Communications, Inc., 103 Sarasota Quay, Sarasota, Florida 34236.
(5) Each shareholder exercises the sole investment and voting power with
respect to their shares.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Directors and Executive Officers
- --------------------------------
The name, position with the Company, age of each Director and
executive officer of the Company is as follows:
<TABLE>
<CAPTION>
Name Age Position (1)
- ---- --- ------------
<S> <C> <C>
Jeffery A. Mathias 38 President (2)
Gary L. Brown 50 Chief Executive Officer and Director
Joseph F. Morgan 51 Executive Vice President and Director
Eduardo J. Moura 39 Director
Frank P. Ragano 69 Director
Kenneth L. Marshall 58 Secretary and General Counsel
</TABLE>
- ---------------------
(1) There exists no family relationship between any officer or director.
(2) The Company has an agreement in principle with Mr. Mathias to serve as
President, which agreement is subject to ratification by the Company's Board
of Directors, which is scheduled to occur on September 26, 1998.
Jeffery A. Mathias has 14 years of experience in both technical and
business related start-up and early stage companies specifically in the fields
of software, finance and wireless communications. Mr. Mathias has been
President of SkyLynx Communications, Inc. since August, 1998 and was formerly
the Vice President of Business Development at Network System Technologies,
Inc. Prior to that, he was the founder, majority stockholder and Chairman of
WHI Europe, N.V. WHI Europe is active in acquiring the spectrum rights to
transmit wireless telephony and multichannel pay TV in Spain and Poland. Mr.
Mathias has developed business partnerships with both Antenna 3, the largest
TV broadcast network in Spain, and France Telecom while pursuing wireless
communications in Europe.
Mr. Mathias was also formerly the Director of International
Development for American Telecasting, Inc. (ATEL), a leading wireless cable
provider in the U.S. Prior to ATEL, Mr. Mathias co-founded The Choice TV
Group, Inc., which included 11 wireless cable companies in the United States
providing service to customers in the Midwest, Colorado and California.
Additionally during this time, Mr. Mathias also formed New Zealand Wireless
Cable, Inc. and acquired the rights to broadcast multichannel pay television
in Auckland, Wellington and Christchurch.
Mr. Mathias founded First Midwest Financial Group, a capital assets
management company servicing the investment needs of high net worth
individuals. In addition, Mr. Mathias also co-founded SYMTEQ, Inc., a company
which developed and marketed sophisticated trading software for equity and
debt trading desks of regional brokerage companies.
Mr. Mathias has been an invited speaker and panelist in many
international wireless and pay TV industry conferences in Europe and South
America. He is a graduate of Indiana University with an MBA and holds a BSEE
from Rose-Hulman.
Gary L. Brown is Chief Executive Officer and Chairman of the Board
and original founder of Allied Wireless, Inc. Mr. Brown has been in the
securities industry since 1973 as a registered securities principal. Mr.
Brown attended Central Missouri State University from 1967 to 1972 and
currently resides in Sarasota, Florida.
Joseph F. Morgan is Executive Vice President, Director and serves as
Chief Financial Officer. Mr. Morgan received his B.S. degree in Accounting
from Kings' College in 1968 and an M.B.A. degree in Finance from Temple
University in 1976. Mr. Morgan started his business career in 1968 with the
international public accounting firm of Arthur Andersen & Company and
subsequently served as a senior level financial officer for several publicly
listed companies. Mr. Morgan has been a CPA since 1972 and for ten years
served as an Associate Professor of Finance and Management at Temple
University, Monmouth University and several other northeastern universities.
For the past twelve years, Mr. Morgan has managed his own CPA firm and has
specialized in assisting development stage companies become operational.
Eduardo J. Moura, Director, is the founder of Network System
Technologies, Inc. and a founder of Hybrid Networks, Inc. He began his career
in communications networking at Racal Vadic as well as at BNR. While employed
with Sytek Corporation, he was a leader in the evolution of digital
transmission over cable TV networks. While employed at Excelan Corporation,
he led many projects in local area networking which were directly related to
the evolution of TCP/IP and the Internet into the commercial sector.
Following his employment with Excelan and prior to founding Hybrid Networks,
Inc., Mr. Moura was a principal and founder of Halley Systems and Network
Application Technologies, two start-up Silicon Valley companies. During this
period of time his primary focus was in the internet working field. As
founder of Hybrid Networks, Inc. and NST, Mr. Moura has been involved in the
technological formation of the new Metropolitan Area Networking industry. He
holds a patent for the "asymmetric networking-remote link adapters" as well as
a patent on the "Hybrid Access System." He has published numerous articles in
networking industry magazines. Mr. Moura is a graduate of Santa Clara
University with a BSEE-CS degree, which he received in 1980.
Frank P. Ragano, Director; Major General, U. S. Army (Ret.); Mr.
Ragano is President and CEO of CMS, Inc., a wholly owned subsidiary of
Daimler-Benz GmbH. He graduated with a B. S. degree from Duquense University
in 1950 and later graduated with a Master of Business Administration (MBA),
Syracuse University, New York. After his well-decorated career in the
military, Mr. Ragano retired from active Army service and became Vice
President of the American Defense Preparedness Association; Chairman and CEO
of BEI Defense Systems Company.
Kenneth L. Marshall is Secretary and General Counsel; member of the
Florida Bar, he has practiced law in Sarasota, FL since April, 1972. Mr.
Marshall was the President and Director of a microwave communications company
for the last 4 1/2 years.
Each director is elected to serve for a term of one year until a
successor is duly elected and qualified.
The executive officers of the Company are elected annually at the
first meeting of the Company's Board of Directors held after each annual
meeting of stockholders. Each executive officer will hold office until his
successor is duly elected and qualified, until his resignation or until he
shall be removed in the manner provided by the Company's By-Laws.
During the fiscal year ended December 31, 1997, the Company had no
standing Audit Committee. The Company plans to form an Audit Committee during
the current fiscal year. No member of the Audit Committee receives any
additional compensation for his service as a member of that Committee. The
Audit Committee is responsible for providing assurance that financial
disclosures made by management reasonably portray the Company's financial
condition, results of operations, plan and long-term commitments. To
accomplish this, the Audit Committee oversees the external audit coverage,
including the annual nomination of the independent public accountants, reviews
accounting policies and policy decisions, reviews the financial statements,
including interim financial statements and annual financial statements,
together with auditor's opinions, inquires about the existence and substance
of any significant accounting accruals, reserves or estimates made by
management, reviews with management the Management's Discussion and Analysis
section of the Annual Report, reviews the letter of management Representations
given to the independent public accountants, meets privately with the
independent public accountants to discuss all pertinent matters, and reports
regularly to the Board of Directors regarding its activities.
The Company plans to form a Compensation Committee during fiscal
1998. No member of the Compensation Committee will receive any additional
compensation for his service as a member of that Committee. The Compensation
Committee will be responsible for reviewing pertinent data and making
recommendations with respect to compensation standards for the executive
officers, including the President and Chief Executive Officer, establishing
guidelines and making recommendations for the implementation of management
incentive compensation plans, reviewing the performance of the President and
CEO, establishing guidelines and standards for the grant of incentive Stock
options to key employees under the Company's Stock Incentive Plan, and
reporting regularly to the Board of Directors with respect to its
recommendations.
There are no family relationships among Directors or persons
nominated or chosen by the Company to become a Director, nor any arrangements
or understandings between any Director and any other person pursuant to which
any Director was elected as such. The present term of office of each Director
will expire at the next annual meeting of stockholders.
During the fiscal year ended December 31, 1997, outside Directors
received no cash compensation or other remuneration for their services as
such, however they were reimbursed their expenses associated with attendance
at meetings or otherwise incurred in connection with the discharge of their
duties as Directors of the Company.
Directors who are also executive officers of the Company receive no
additional compensation for their services as Directors.
There are no material proceedings to which any director, officer or
affiliate of the Company, or any owner of record or beneficiary of more than
five percent (5%) of any class of voting securities of the Company, or any
associate of any such director, officer, affiliate of the Company, or
securityholder is a party adverse to the Company or any of its subsidiaries or
has a material interest adverse to the Company or any of its subsidiaries.
During the past five years, no director or officer of the Company
has:
(1) Filed or has had filed against him a petition under the federal
bankruptcy laws or any state insolvency law, nor has a receiver, fiscal agent
or similar officer been appointed by a, court for the business or property of
such person, or any partnership in which he was a general partner, or any
corporation or business association of which he was an Executive Officer at or
within two years before such filings;
(2) Been convicted in a criminal proceeding or is a named subject
of a pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) Been the subject of any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining such person from, or
otherwise limiting his involvement in any type of business, securities or
banking activities.
(4) Been found by a court of competent jurisdiction in a civil
action, the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated any federal or state securities or
commodities law, which judgment has not been reversed, suspended, or vacated.
ITEM 6. EXECUTIVE COMPENSATION.
The following table and discussion set forth information with
respect to all compensation earned by or paid to the Company's Chief Executive
Officer ("CEO"), and its most highly compensated executive officers other than
the CEO, for all services rendered in all capacities to the Company and its
subsidiaries for each of the Company's last three fiscal years; provided,
however, that no disclosure has been made for any executive officer, other
than the CEO, whose total annual salary and bonus does not exceed $100,000.
<TABLE>
TABLE 1
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
--------------------------
Annual Compensation(1) Awards Payouts
------------------------------ ----------------- -------
Other All
Annual Restricted Other
Name and Compen- Stock LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($)(2) ($) SARs ($) ($)
- --------- ---- ------ ----- -------- ---------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary Brown, 1997 $47,346 -0- -0- -0- -0- -0- -0-
President
and CEO
- ------------------------------
</TABLE>
Employment Agreements
- ----------------------
The Company has undertaken and agreed to enter into, although to
date has no, written employment agreements for a term of one year expiring
December 31, 1998 with each of its executive officers. Gary Brown, as CEO of
the Company, receives a base salary of $96,000 for the year; Mr. Jeffery A.
Mathias, as President, receives a base salary of $144,000 per year and a
housing allowance of $1,500 per month; Mr. Joseph Morgan, as Executive Vice
President, receives a base salary of $60,000 for the year; and Kenneth
Marshall, as General Counsel, will receive a base salary of $52,000 for the
year. Each employee will also be eligible to participate in the Company's
Stock Incentive Plan which the Board of Directors and shareholders have
adopted.
The Company has also entered into one year employment agreements
with three individuals who were affiliates of the entity from which the
Company acquired the lease covering the MDS channels for the Fresno,
California market. Under the terms of these agreements which expire in April
1999, Til Fritzsching, Daniel Marshall and Michael Corcoran are responsible
for the development, deployment and operation of the Fresno network which is
currently under construction.
Stock Incentive Plan
- --------------------
The Company's Board of Directors and Shareholders have adopted and
approved the Company's 1998 Stock Incentive Plan (the "Plan"). Pursuant to
the Plan, Stock options granted to eligible participants may take the form of
Incentive Stock Options ("ISO's") under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") or options which do not qualify as ISO's
(Non-Qualified Stock Options or "NQSO's"). As required by Section 422 of the
Code, the aggregate fair market value of the Company's Common Stock with
respect to its ISO's granted to an employee exercisable for the first time in
any calendar year may not exceed $100,000. The foregoing limitation does not
apply to NQSO's. The exercise price of an ISO may not be less than 100% of
the fair market value of the shares of the Company's Common Stock on the date
of grant. The exercise price of an NQSO may be set by the administrator. An
option is not transferable, except by will or the laws of descent and
distribution. If the employment of an optionee terminates for any reason
(other than for cause, or by reason of death, disability, or retirement), the
optionee may exercise his options within a ninety day period following such
termination to the extent he was entitled to exercise such options at the date
of termination. Either the Board of Directors (provided that a majority of
directors are "disinterested") can administer the Plan, or the Board of
Directors may designate a committee comprised of directors meeting certain
requirements to administer the Plan. The Administrator will decide when and
to whom to make grants, the number of shares to be covered by the grants, the
vesting schedule, the type of award and the terms and provisions relating to
the exercise of the awards. An aggregate of 1,750,000 shares of the Company's
Common Stock is reserved for issuance under the Plan.
At September 15, 1998 , the Company had granted no stock options
under the Plan.
The following tables set forth certain information concerning the
granting and exercise of incentive Stock options during the last completed
fiscal year by each of the named executive officers and the fiscal year-end
value of unexercised options on an aggregated basis:
<TABLE>
TABLE 2
Option/SAR Grants for Last
Fiscal Year - Individual Grants
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---------------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Gary Brown -0- 0% -0-
- ---------------------
</TABLE>
<TABLE>
TABLE 3
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
----------------------------------------------------
<CAPTION>
Value of
Unexercised
Number of In-the Money
Shares Unexercised Options/SARS
Acquired Value Options/SARS at FY-End
Name on Exercise Realized (1) at FY-End (#) ($) (2)
(#) ($) Exercisable Exercisable
- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Gary Brown -0- -0- -0- -0-
- ------------------------------
</TABLE>
(1) Value Realized is determined by calculating the difference between the
aggregate exercise price of the options and the aggregate fair market
value of the Common Stock on the date the options are exercised.
(2) The value of unexercised options is determined by calculating the
difference between the fair market value of the securities underlying the
options at fiscal year end and the exercise price of the options. The
fair market value of the securities underlying the options, based on the
closing bid price of the Company's Common Stock at December 31, 1997.
Indemnification and Limitation on Liability of Directors
- --------------------------------------------------------
The Company's Articles of Incorporation provide that the Company
shall indemnify, to the fullest extent permitted by Colorado law, any
director, officer, employee or agent of the corporation made or threatened to
be made a party to a proceeding, by reason of the former or present official
of the person, against judgments, penalties, fines, settlements and reasonable
expenses incurred by the person in connection with the proceeding if certain
standards are met. At present, there is no pending litigation or proceeding
involving any director, officer, employee or agent of the Company where
indemnification will be required or permitted. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 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 Act and is, therefore, unenforceable.
The Company's Articles of Incorporation limit the liability of its
directors to the fullest extent permitted by the Colorado Business Corporation
Act. Specifically, directors of the Company will not be personally liable for
monetary damages for breach of fiduciary duty as directors, except for (i) any
breach of the duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or that involved intentional misconduct or a
knowing violation of law, (iii) dividends or other distributions of corporate
assets that are in contravention of certain statutory or contractual
restrictions, (iv) violations of certain laws, or (v) any transaction from
which the director derives an improper personal benefit. Liability under
federal securities law is not limited by the Articles. There are no written
employment agreements between the Company and any of its officers or
Directors. The officers of the Company will dedicate sufficient time to
fulfill their fiduciary obligations to the Company's affairs. The Company has
no retirement, pension, profit sharing or insurance or medical reimbursement
plans, or stock incentive or other option plans for its officers and
Directors, and does not contemplate implementing any such plans at this time.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Founders' Stock
- ---------------
Upon formation of the Company in September 1996, the Board of
Directors of the Company authorized the issuance of a total of 8,500,000
shares of Common Stock to the Company's initial officers and directors, for
services provided the Company by such persons. The services were valued at
$0.001 per share, and the shares were issued for that consideration.
Consultants' Shares
- -------------------
In 1997 the Company issued an aggregate of 492,307 shares of Common
Stock to six consultants in consideration of services. Among such
consultants, Joseph F. Morgan, the Company's Executive Vice President and
Director, received 192,308 shares and Kenneth Marshall, the Company's General
Counsel, received 230,769 shares.
Acquisition of SkyLynx Express Holdings, Inc.
- ---------------------------------------------
In 1997 the Company consummated the acquisition of 100% of the
outstanding Common Stock of SkyLynx Express Holdings, Inc. (the "SkyLynx
Express"). In the transaction, the Company issued to the shareholders of
SkyLynx Express, pro rata, an aggregate of 6,875,000 shares of the Company's
Common Stock. Those shareholders of SkyLynx Express, and the number of shares
received by each, is set forth below:
<TABLE>
<CAPTION>
SkyLynx Express Shareholder # of Shares
--------------------------- -----------
<S> <C>
Network System Technologies, Inc. 1,923,077
Gary Brown 2,163,462
William Chastain 480,769
Rovel Finance, Ltd. 673,077
Joseph F. Morgan 817,308
A.V.G. Enterprises, Inc. 817,308
</TABLE>
SkyLynx Express had been formed and organized by NST networking the
purpose of developing and serving markets utilizing NST's asymmetric wireless
technology. As part of the acquisition, the Company obtained from NST a
nonexclusive, worldwide, royalty-free sublicensable right to utilize or
otherwise commercially exploit the NST technology, including its two-way
wireless asymmetric digital high speed data technology. In addition, NST
committed to become engaged by the Company under general operating agreements
("GOAs") to deploy and operate the Company's wireless networks utilizing NST
technology.
As further consideration of the foregoing, and in addition to the
issuance of the 6,875,000 shares of the Company's Common Stock, the Company
(i) purchased a dishonored check issued by Paradise Cable Corporation to NST
in the amount of $71,570.91, (ii) paid NST fees and expenses in the amount of
$37,500, (iii) assumed NST's obligations under a $100,000 promissory note and
(iv) assumed and agreed to pay an NST account payable to Hybrid Network, Inc.
in the approximate amount of $480,000.
ITEM 8. LEGAL PROCEEDINGS.
Neither the Company nor any of its management in their capacities as
such is the subject of any pending material legal proceedings. While the
Company is not involved in any pending legal proceedings, it has received
notice of several claims which, if not resolved through current negotiation,
may lead to the initiation of legal proceedings in the future.
One such claim arises from a subscription tendered in the Company's
1997 Private Offering which was rejected by the Company due to the failure of
the subscriber to tender the necessary consideration. If the claim is
asserted and upheld, it could result in the Company having to issue
approximately 180,000 shares of its Common Stock. The Company believes that
there is absolutely no basis in fact or law to support such a claim and that
it is wholly without merit and, if necessary, it will vigorously defend
against a claim if it is brought. While the Company intends to attempt to
avoid litigation, there can be no assurance that these efforts will be
successful.
Another claim has been made by a former officer and director of the
Company arising out of the Company's acquisition of SkyLynx Express in 1997.
The claim is based upon an alleged verbal agreement, which the Company denies,
that the claimant is entitled to an additional 400,000 shares of the Company's
Common Stock arising from the transaction, notwithstanding the fact that this
Claimant executed express written agreements that clearly and unambiguously
define and delimit his entitlement, all of which has been delivered. As a
result, the Company believes that there is no basis in law and fact for any
legally cognizable claim and that it is wholly without merit. While the
Company is negotiating a resolution of this matter prior to the initiation of
any litigation, should a proceeding be commenced it is the Company's intention
to vigorously defend against such a claim. There can be no assurance that the
Company's efforts to amicably resolve the matter will be successful.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
Market Price
- ------------
The common stock of the Company is traded over the counter and
quoted on the Bulletin Board on a limited and sporadic basis under the symbol
"SKYK." The reported high and low bid and ask prices are shown below for the
period through September 9, 1998. The prices presented are bid and ask prices
which represent prices between broker-dealers and do not include retail mark-
ups or mark-downs or any commission to the broker-dealer. The prices do not
necessarily reflect actual transactions:
<TABLE>
<CAPTION>
BID ASK
--------------- ----------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1998:
Third Quarter (through
September 16, 1998) $5.25 $2.50 $6.00 $3.00
</TABLE>
The bid and ask prices of the common stock on September 16, 1998
were $4.00 and $4.125, respectively, as quoted on the Bulletin Board. As of
September 9, 1998, there were approximately 156 stockholders of record of the
common stock.
The Securities Enforcement and Penny Stock Reform Act of 1990
- -------------------------------------------------------------
The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure, relating to the market for penny stocks, in
connection with trades in any stock defined as a penny stock. The Commission
recently adopted regulations that generally define a penny stock to be any
equity security that has a market price of less than $5.00 per share, subject
to certain exceptions. Such exceptions include any equity security listed on
NASDAQ and any equity security issued by an issuer that has (I) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such
issuer has been in continuous operation for less than three years, or
(iii) average annual revenue of at least $6,000,000, if such issuer has been
in continuous operation for less than three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith.
The securities of the Company are subject to rules adopted by the
Commission regulating broker-dealer practices in connection with transactions
in "penny stocks." Those disclosure rules applicable to penny stocks require
a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized list disclosure document prepared by
the Commission. That disclosure document advises an investor that investments
in penny stocks can be very risky and that the investor's salesperson or
broker is not an impartial advisor but rather paid to sell the shares. It
contains an explanation and disclosure of the bid and offer prices of the
security, any retail charges added by the dealer to those prices ("markup" or
"markdown"), and the amount of compensation or profit to be paid to or
received by the salesperson in connection with the transaction. The
disclosure contains further admonitions for the investor to exercise caution
in connection with an investment in penny stocks, to independently investigate
the security as well as the salesperson with whom the investor is working, and
to understand the risky nature of an investment in the security. Further, the
disclosure includes information regarding the market for penny stocks,
explanations regarding the influence that market makers may have upon the
market for penny stocks and the risk that one or two dealers may exercise
domination over the market for such security and therefore control and set
prices for the security not based upon competitive forces. The broker-dealer
must also provide the customer with certain other information and must make a
special written determination that the penny stock is a suitable investment
for the purchaser and receive the purchaser's written agreement to the
transaction. Further, the rules require that following the proposed
transaction the broker provide the customer with monthly account statements
containing market information about the prices of the securities. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. Many brokers may be unwilling to engage in transactions in the
Common Stock because of the added disclosure requirements, thereby making it
more difficult for security holders to dispose of their securities.
Dividends
- ---------
Since inception, the Company has not paid or declared any cash
dividends on its securities. The Company's Board of Directors does not
currently intend to pay any such cash dividends in the future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
1. In 1996, the Company issued an aggregate of 8,500,000 shares of
common stock valued at $.001 per share to the Company's initial officers and
directors for services provided the Company by such persons. The securities
which were taken for investment and were subject to appropriate transfer
restrictions were issued without registration under the Securities Act in
reliance upon the exemption provided in Section 4(2) of the Securities Act.
2. In 1997, the Company issued an aggregate of 492,307 shares of
common stock to six consultants in consideration of services. The shares were
valued at $.013 per share. The securities, which were taken for investment
and were subject to appropriate transfer restrictions, were issued without
registration under the Securities Act in reliance upon the exemption provided
in Section 4(2) of the Securities Act.
3. In 1997, the Company sold an aggregate of 781,805 shares of
common stock for gross proceeds of $999,501. The shares were issued without
registration under the Securities Act in reliance upon the exemption provided
in Rule 504 of Regulation D under the Securities Act.
4. In 1997, the Company issued an aggregate of 6,875,000 shares of
common stock in exchange for 100% of the issued and outstanding shares of
common stock of SkyLynx Express Holdings, Inc. The securities, which were
taken for investment and were subject to appropriate transfer restrictions,
were issued without registration under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act.
5. In 1998, the Company issued 50,000 shares of common stock in
consideration of the assignment of a 96% net revenue lease covering two MDS
channels in the Fresno, California market. The securities, which were subject
to transfer restrictions, were issued without registration under the
Securities Act in reliance upon Section 4(2) of the Securities Act.
6. In 1998, the Company has sold an aggregate of 698,500 Units,
each Unit consisting of one share of Series A Convertible Preferred Stock and
two Common Stock Purchase Warrants for a total consideration of $2,794,000, or
$4.00 per unit. The securities, which were acquired for investment purposes
and subject to appropriate transfer restrictions, were issued without
registration under the Securities Act in reliance upon Section 4(2) thereof
and Rule 506 of Regulation D thereunder.
7. In July 1998, the Company issued an aggregate of 638,997 shares
of common stock in consideration of services rendered by consultants and
others between April and July 1998. The shares were issued to non-affiliated
persons valued at $1.00 per share. The securities, which were taken for
investment and were subject to the appropriate transfer restrictions, were
issued without registration under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act.
ITEM 11. DESCRIPTION OF SECURITIES
The Company is authorized to issue up to 150,000,000 shares of $.001
par value Common Stock and 50,000,000 shares of $.01 par value Preferred
Stock. As of September 9, 1998, 9,476,186 shares of Common Stock and 698,500
shares of Preferred Stock were issued and outstanding.
Common Stock
- ------------
Each holder of Common Stock of the Company is entitled to one (1)
vote for each share held of record. There is no right to cumulative voting of
shares for the election of directors. The shares of Common Stock are not
entitled to pre-emptive rights and are not subject to redemption or
assessment. Each share of Common Stock is entitled to share ratably in
distributions to shareholders and to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
Upon liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive, pro-rata, the assets of the Company
which are legally available for distribution to shareholders. The issued and
outstanding shares of Common Stock are validly issued, fully paid and non-
assessable.
Preferred Stock
- ---------------
The Company is authorized to issue up to 50,000,000 shares of $.01
par value Preferred Stock, of which 5,000,000 shares have been designated
Series A Convertible Preferred Stock. The preferred Stock of the corporation
can be issued in one or more series as may be determined from time-to-time by
the Board of Directors. In establishing a series the Board of Directors shall
give to it a distinctive designation so as to distinguish it from the shares
of all other series and classes, shall fix the number of shares in such
series, and the preferences, rights and restrictions thereof. All shares of
any one series shall be alike in every particular. All series shall be alike
except that there may be variation as to the following: (1) the rate of
distribution, (2) the price at and the terms and conditions on which shares
shall be redeemed, (3) the amount payable upon shares for distributions of any
kind, (4) sinking fund provisions for the redemption of shares, and (5) the
terms and conditions on which shares may be converted if the shares of any
series are issued with the privilege of conversion, and (6) voting rights
except as limited by law.
Although the Company currently does not have any plans to designate
any additional series of Preferred Stock, there can be no assurance that the
Company will not do so in the future. As a result, the Company could
authorize the issuance of a series of Preferred Stock which would grant to
holders preferred rights to the assets of the Company upon liquidation, the
right to receive dividend coupons before dividends would be declared to common
stockholders, and the right to the redemption of such shares, together with a
premium, prior to the redemption to Common Stock. The common stockholders of
the Company have no redemption rights. In addition, the Board could issue
large blocks of voting Stock to fend off unwanted tender offers or hostile
takeovers without further shareholder approval.
Series A Convertible Preferred Stock
- ------------------------------------
The Company has authorized the issuance of up to 5,000,000 shares of
Series A Convertible Preferred Stock (the "Preferred Stock"), of which
3,750,000 shares of Preferred Stock are included in the Units being offered in
the 1998 Private Offering. The relative rights and preferences of holders of
shares of Preferred Stock are controlled by a Certificate of Designation of
Rights and Preferences of Series A Convertible Preferred Stock (the
"Certificate"). The following is a brief summary of the provisions of the
Certificate, does not purport to be a complete statement of all of the
relative rights and preferences of holders of Preferred Stock and is qualified
in its entirety by reference to the Certificate.
Holders of Preferred Stock shall hold and exercise the right to one
(1) vote for every share of Preferred Stock owned at any meeting of the
shareholders of the Company. Holders of Preferred Stock are entitled to
receive payment of dividends on the Preferred Stock at the annual rate of 10%
per share of Preferred Stock, accruing in arrears from the date of first
issuance, payable quarterly in arrears when, as and if declared by the
Company's Board of Directors. The Company anticipates that dividends will be
paid quarterly as accrued, although no assurance can be given that dividends
will always be declared. Cumulative dividends which are not paid shall be
carried forward as an accrued obligation without interest. Holders of
Preferred Stock are not entitled to receive payment of any additional
dividends on the Preferred Stock, but rather are entitled to participate pro
rata in dividends paid on outstanding shares of Common Stock when and if
declared and paid by the Company.
The Preferred Stock is not redeemable by the Company and holders of
Preferred Stock have no right to compel the redemption by the Company of any
shares of the Preferred Stock.
Holders of outstanding shares of convertible Stock have an option to
convert each share of Preferred Stock into one (1) share of the Company's
Common Stock (the "Conversion Stock"). The conversion value is subject to
certain anti-dilution adjustments, including adjustments in the event of stock
splits, dividends, reclassifications and the like. Such optional conversion
may be exercised at any time commencing the earlier of (i) one year from the
date of issue or (ii) the effective date of a registration statement
(the"Registration Statement"), registering for sale under the Securities Act
the issuance of the Conversion Stock. In addition, each share of Preferred
Stock will convert, automatically, into one share of Common Stock upon the
earlier of (i) the third anniversary of the date of issue or (ii) in the event
(a) there has developed a public trading market for the Company's Common
Stock, (b) the Registration Statement registering for sale the Conversion
Stock has been filed and declared effective by the Commission and (iii) the
closing bid price of the Company's Common Stock has been at least $6.00 per
share (150% of the then effective conversion value) for at least ten (10)
consecutive trading days.
Upon liquidation, dissolution or winding up of the Company, holders
of Preferred Stock shall be entitled to receive, pro rata, cash or assets of
the Company which are legally available for distribution to shareholders equal
to $4.00 per share of Preferred Stock prior to any distributions to the common
stockholders. The issued and outstanding shares of Preferred Stock shall be,
when subscribed and paid for as provided for herein, validly issued, fully
paid and non-assessable.
Class A and Class B Redeemable Common Stock Purchase Warrants
- -------------------------------------------------------------
The Company has issued as part of the Units sold in the 1998 Private
Offering Class A and Class B Warrants exercisable to purchase shares of Common
Stock for the period commencing the earlier of (i) the effective date of the
Registration Statement or (ii) one year from the date of issue, and expiring
on the third anniversary of the date of issue (the "Exercise Period").
During the Exercise Period, each Class A Warrant is exercisable to
purchase one share of the Company's Common Stock at an exercise price of $7.50
per share; and each Class B Warrant is exercisable to purchase one share of
the Company's Common Stock at an exercise price of $10.00 per share. The
Company has authorized and reserved for issuance the Common Stock issuable
upon exercise of the A and B Warrants offered hereby.
The Company has the right to extend the Expiration Date of the
Warrants by resolution of the Board of Directors. There currently exists no
plan or intention to extend the expiration date of the Warrants.
The Warrants are redeemable by the Company at any time after
issuance at a price of $0.01 per Warrant (the "Redemption Price") upon thirty
(30) days' written notice in the event (i) the Registration Statement has been
filed and has been declared effective by the Commission covering the issuance
of shares of Common Stock upon exercise of the Warrants, (ii) there has been
developed and exists a public trading market for the Company's Common Stock,
and (iii) the public trading price of the Company's Common Stock has equaled
or exceeded one hundred fifty percent (150%) of the then current respective
exercise prices of the A and/or B Warrant ($11.25 per share for the A Warrant
and $15.00 per share for the B Warrant) for ten (10) or more consecutive
trading days. The holders of Warrants called for redemption have exercise
rights until the close of business on the date next preceding the date fixed
for redemption.
The Company has agreed to register for sale under the Securities Act
in the Registration Statement (i) the Warrant Stock and (ii) Conversion Stock.
However, the Warrant Stock and Conversion Stock will be subject to a six (6)
month lockup following the effective date of the Registration Statement
pursuant to which those shares may not be sold during the six (6) month lockup
period without the consent of the Company.
The Company has not agreed and is under no obligation to register
for resale under the Securities Act the Warrants. As a result, the Warrants
may not be resold except pursuant to an exemption from the registration
requirements of the Securities Act. Further, it is unlikely that a public
trading market for the Warrants will develop or exist at any time during their
respective exercise periods. In the event the outstanding Warrants are not
exercised on or before the Expiration Date, all unexercised Warrants will,
thereafter, become void and be of no further force and effect.
The Warrants do not contain anti-dilution provisions that prevent
dilution of the equity interest represented by the underlying Common Stock
upon the occurrence of certain events such as share dividends. Moreover, no
anti-dilution provisions will apply in the event a merger or acquisition is
undertaken by the Company. In the event that the Company adopts a resolution
to merge, consolidate or sell percentages in all of its assets, prior to the
expiration of the Common Stock Purchase Warrants, each Warrantholder upon the
exercise of his/her Warrants would be entitled to receive the same treatment
as a holder of any share of Common Stock. In the event the Company adopts the
resolution for the liquidation, dissolution or winding up of the Company's
business, the Company will give written notice of the adoption of such
resolution to the registered holders of the Common Stock Purchase Warrants.
Thereupon, all liquidation and dissolution rights under the Common Stock
Purchase Warrants will terminate at the end of thirty (30) days from the date
of the notice to the extent not exercised within those thirty (30) days.
Holders of the Warrants will have no voting, preemptive, liquidation or other
rights of a shareholder, and no dividends will be declared on the Warrants.
Warrant Solicitation Fees
- -------------------------
The Company has no agreement nor any arrangement whereby any fees or
other compensation will be paid to any person or entity upon exercise of any
or all of the Warrants.
Transfer Agent and Registrar
- ----------------------------
The transfer agent for the Company's common stock is Corporate Stock
Transfer, Inc., 370 17th Street, Suite 2350, Denver, Colorado 80202.
Reports to Stockholders
- -----------------------
The Company intends to furnish annual reports to shareholders which
will include certified financial statements reported on by its certified
public accountants. In addition, the Company may issue unaudited quarterly or
other interim reports to shareholders as it deems appropriate.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other
arrangement under which any controlling person, director or officers of the
Company is insured or indemnified in any manner against any liability which he
may incur in his capacity as such, is as follows:
Article IX of the Company's Articles of Incorporation provides as follows:
The Corporation may and shall indemnify each director,
officer and any employee or agent of the Corporation, his
heirs, executors and administrators, against any and all
expenses or liability reasonably incurred by him in
connection with any action, suit or proceeding to which he
may be a party by reason of his being or having been a
director, officer, employee or agent of the Corporation to
the full extent required or permitted by the Colorado
Business Code.
Article XII of the Company's Articles of Incorporation provides as follows:
DIRECTORS' LIABILITY
a. A director of this corporation shall not be liable to
the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except to the
extent that such exemption from liability or limitation
thereof is not permitted under the General Corporation Law
of the State of Colorado as the same exists or may
hereafter be amended.
b. Any repeal or modification of the foregoing paragraph
A by the stockholders of the corporation shall not
adversely affect any right or protection of a director of
the corporation existing at the time of such repeal or
modification.
The By-Laws of the Company, as amended, provide for the
indemnification of officers and Directors to the maximum extent allowable
under Colorado law. Insofar as the indemnification for liabilities arising
under the Securities Act of 1933, as amended, may be permitted to Directors,
officers or persons controlling the Company pursuant to such provisions, the
Company has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
ITEM 13. FINANCIAL STATEMENTS AND EXHIBITS.
Financial Statements
- --------------------
See Indices to Financial Statements following the list of exhibits.
Exhibits
- --------
Exhibit No. Title
- ---------- -----
2.1 Agreement and Plan of Reorganization dated August 5, 1997
2.2 Amendment No. 1 to Agreement and Plan of Reorganization dated
December 16, 1997
3.1 Articles of Incorporation
3.2 Articles of Amendment to Articles of Incorporation dated August
1997
3.3 Articles of Amendment to Articles of Incorporation dated
February 1998
3.4 Articles of Amendment to Articles of Incorporation dated March
1998
3.5 Bylaws
4.1 Certificate of Designations of Rights and Preferences of Series
A Convertible Preferred Stock
4.2 Specimen Common Stock Certificate
4.3 Specimen Preferred Stock Certificate
4.4 Specimen Class A Warrant Certificate
4.5 Specimen Class B Warrant Certificate
10.1 1998 Stock Incentive Plan
10.2* Asset Purchase and Sale Agreement dated May 11, 1998 between
the Company and Nadex West, Inc.
- --------------------------
* Filed with this amendment
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SKYLYNX COMMUNICATION, INC.
(formerly Allied Wireless, Inc.)
1. Independent Auditors' Report
2. Balance Sheets, December 30, 1997 and December 31, 1996
3. Statements of Operation from January 1 through December 30, 1997, from
September 23, 1996 (inception) through December 31, 1996, and from
September 23, 1996 (inception) through December 30, 1997
4. Statement of Shareholders' Equity from September 23, 1996 (inception)
through December 30, 1997
5. Statements of Cash Flows from January 1 through December 30, 1997, from
September 23, 1996 (inception) through December 31, 1996, and from
September 23, 1996 (inception) through December 30, 1997
6. Notes to Financial Statements
<PAGE>
<PAGE>
March 4, 1998
To the Board of Directors and Shareholders
SkyLynx Communications, Inc.
Independent Auditors' Report
We have audited the balance sheet of SkyLynx Communications, Inc. (formerly
Allied Wireless, Inc.) as of December 30, 1997 and December 31, 1996, and the
related statements of operations and cash flows for the period from January 1
through December 30, 1997, September 23, 1996 (inception) through December 31,
1996, and for the period from September 23, 1996 (inception) through December
30, 1997, and the statement of shareholders' equity (deficit) for the period
from September 23, 1996 (inception) through December 30, 1997. 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 audit.
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 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 in the first paragraph
present fairly, in all material respects, the financial position of SkyLynx
Communications, Inc. as of December 30,1997 and December 31, 1996, and the
related statements of operations and cash flows for the period from January 1,
through December 30, 1997, September 23, 1996 (inception) through December 31,
1996, and for the period from September 23, 1996 (inception) through December
30, 1997, and the statement of shareholders' equity (deficit) for the period
from September 23, 1996 (inception) through December 30, 1997, in conformity
with generally accepted accounting principles.
As discussed in Note F to the financial statements, certain license rights
acquired from an affiliate have been valued by management at fair value. We
have reviewed the procedures applied by management in valuing such license
rights and have inspected underlying documentation, and in the circumstances,
we believe the procedures applied are reasonable and the documentation
appropriate. However, because of inherent uncertainty of valuation,
management's estimate of fair value may differ significantly from the value
that would have been used if the rights had been acquired from an unrelated
third party or if a ready market existed for such rights, and the difference
could be material.
Cordovano and Harvey, P.C.
Denver, Colorado
<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC.
(formerly Allied Wireless, Inc.)
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
December 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 628,110 $ -0-
License rights (Note F) 100,000 -0-
Deposit 91,000 -0-
Intangible assets, less accumulated
amortization of $250 and $0 2,250 500
------------ ------------
$ 821,360 $ 500
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 4,923 $ 500
Note payable (Note C) 100,000 -0-
Accrued interest payable 3,126 -0-
Other current liabilities 1,375 -0-
------------ ------------
TOTAL LIABILITIES 109,424 500
------------ ------------
SHAREHOLDERS' EQUITY (Note D)
Preferred stock, $.01 par value;
50,000,000 shares authorized, -0-
issued and outstanding -0- -0-
Common stock, $.001 par value;
150,000,000 shares authorized,
1,897,189 and -0- shares
issued and outstanding 1,897 -0-
Additional paid-in capital 979,855 -0-
Deficit accumulated during
development stage (269,816) -0-
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 711,936 -0-
------------ ------------
$ 821,360 $ 500
============= =============
</TABLE>
See accompanying notes to financial statements
<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC.
(formerly Allied Wireless, Inc.)
(A Development Stage Company)
Statements of Operation
<TABLE>
<CAPTION>
Sept 23, Sept 23,
Jan 1, 1996 1996
1997 (inception) (inception)
through through through
Dec 30, Dec 31, Dec 30,
1997 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
COSTS AND EXPENSES
Consulting, related parties (Note B) $ 73,261 $ -0- $ 73,261
Compensation 16,330 -0- 16,330
Professional fees 50,894 -0- 50,894
Write-off of advances in connection
with merger Note G) 95,263 -0- 95,263
Amortization 250 -0- 250
Other 34,386 -0- 34,386
---------- ---------- -----------
(270,384) -0- (270,384)
---------- ---------- -----------
OTHER INCOME (EXPENSE)
Interest income 4,278 -0- 4,278
Interest expense (3,710) -0- (3,710)
---------- ---------- -----------
LOSS BEFORE INCOME TAXES (269,816) -0- (269,816)
INCOME TAX BENEFIT (EXPENSE) (NOTE E)
Current 71,652 -0- 71,652
Deferred (71,652) -0- (71,652)
---------- ---------- -----------
NET LOSS $(269,816) $ -0- $ (269,816)
========== ========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC.
(formerly Allied Wireless, Inc.)
(A Development Stage Company)
Statement of Shareholder's Equity
September 23, 1996 (Inception) through December 30, 1997
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Addit'l During the Share-
Preferred Stock Common Stock Paid-in Development holders'
Shares Amount Shares Amount Capital Stage Deficit
-------- -------- -------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sept 23, 1996
(Inception) -0- $ -0- -0- $ -0- $ -0- $ -0- $ -0-
-------- -------- -------- -------- --------- ---------- ----------
Balance Dec 31, 1996 -0- -0- -0- -0- -0- -0- -0-
Issuance of common stock
for services, valued at
cost (Note B) -0- -0- 7,250,000 7,250 5,000 -0- 12,250
Sale of common stock to
founders -0- -0- 1,250,000 1,250 -0- -0- 1,250
Sale of common stock,
pursuant to a private
placement memorandum,
net of offering costs
of $3,650 (Note D) -0- -0- 4,000,000 4,000 67,351 -0- 71,351
Sale of common stock, pur-
suant to a private place-
ment memorandum, net of
offering costs of $34,000
(Note D) -0- -0- 6,163,342 6,163 884,338 -0- 890,501
Issuance of common stock for
services, valued at cost as
determined by management
(Note B) -0- -0- 6,400,000 6,400 -0- -0- 6,400
One for 13 reverse stock
split (Note D) -0- -0-(23,166,153) (23,166) 23,166 -0- -0-
Net loss for the period from
Jan 1 through Dec 30, 19 -0- -0- -0- -0- -0- (269,816) (269,816)
-------- -------- -------- -------- --------- ---------- ----------
Balance Dec 30, 1997 -0- $ -0- 1,897,189 $ 1,897 $979,855 $(269,816) $ 711,936
======== ======= ========== ========= ========= ========== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC.
(formerly Allied Wireless, Inc.)
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Sept 23, Sept 23,
Jan 1, 1996 1996
1997 (inception) (inception)
through through through
Dec 30, Dec 31, Dec 30,
1997 1996 1997
----------- ---------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (269,816) $ -0- $ (269,816)
Transactions not requiring cash:
Common stock issued in exchange for
consulting services provided by
shareholders (Note B) 16,150 -0- 16,150
Write-off of cash advances in
connection with merger (Note G) 23,500 -0- 23,500
Amortization 250 -0- 250
----------- ---------- ------------
(229,916) -0- (229,916)
Changes in current liabilities:
Increase in accounts payable 4,923 500 5,423
Increase in accrued interest payable 3,126 -0- 3,126
----------- ---------- ------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (221,867) 500 (221,367)
INVESTING ACTIVITIES
Deposit on equipment paid to related
party (Note B) (91,000) -0- (91,000)
Organization costs incurred -0- (500) (500)
Cash advanced to merger candidate
(Note G) (23,500) -0- (23,500)
----------- ---------- ------------
NET CASH (USED IN) INVESTING
ACTIVITIES (114,500) (500) (115,000)
FINANCING ACTIVITIES
Proceeds from the issuance of common
stock 1,002,127 -0- 1,002,127
Offering costs incurred (37,650) -0- (37,650)
----------- ---------- ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 964,477 -0- 964,477
NET INCREASE IN CASH AND CASH
EQUIVALENTS 628,110 -0- 628,110
Cash and cash equivalents, beginning
of period -0- -0- -0-
----------- ---------- ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 628,110 $ -0- $ 628,110
=========== ========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 583 $ -0- $ 583
=========== ========== ============
Cash paid for income taxes $ -0- $ -0- $ -0-
=========== ========== ============
Noncash investing and financing
activities:
Common stock issued for consulting
services capitalized as organi-
zation costs (Note B) $ 2,500 $ -0- $ 2,500
=========== ========== ============
Debt assumed in exchange for
license rights (Note C) $ 100,000 $ -0- $ 100,000
=========== ========== ============
</TABLE>
See accompanying notes to financial statements<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC.
(formerly Allied Wireless, Inc.)
(A Development Stage Company)
Notes to Financial Statements
December 30, 1997
NOTE A: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
SkyLynx Communications, Inc. (the "Company") is a development stage company in
accordance with Statements of Financial Accounting Standard No. 7.
Organization
- ------------
The Company was incorporated under the laws of Colorado on September 23, 1996
as Allied Wireless, Inc. (AWI). The Company changed its name on February 12,
1998. The Company intends to become involved in the wireless communications
industry through the purchase of one or more licenses or franchises or through
the acquisition of entities that are in control of such licenses or
franchises.
The principal activities since inception have been organizational matters, the
sale and issuance of shares of its $.001 par value common stock, and the
acquisition of certain technology. The Company has adopted a calendar year
end.
Cash Equivalents
- ----------------
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Intangible Assets and Amortization
- ----------------------------------
Organization costs are recorded at cost. Amortization is calculated by the
straight-line method over a period of sixty months, once operations commence.
Income Taxes
- ------------
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and tax basis
of assets and liabilities for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. Deferred taxes are
also recognized for operating losses that are available to offset future
taxable income and tax credits that are available to offset future federal
income taxes.
Shares Issued for Noncash Consideration
- ---------------------------------------
Common stock issued for services is valued at the regular billing rates
charged for that service.
Offering Costs
- --------------
In connection with a private offering of its common shares, the Company
incurred certain offering costs consisting of legal and accounting fees. These
costs are deducted from the offering proceeds upon completion of the offering,
and reflected in the accompanying financial statements as a reduction of
additional-paid-in capital.
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
NOTE B: RELATED PARTY TRANSACTIONS
During the period ended December 30, 1997, the Company issued approximately
7,250,000 shares of its common stock to shareholders in lieu of cash payment
for services provided by the Company. The services were valued at their cost
of $12,250, as determined by management. $2,500 of the services were
capitalized as organization costs and $9,750 were charged as consulting costs
in the accompanying financial statements.
Effective December 16, 1997, the Company issued 6,400,000 (pre-split) shares
of common stock to affiliates in exchange for services. The services were
valued by management at $6,400, or $.013 per share.
During the period ended December 30, 1997, the Company paid a shareholder
$20,000 for consulting fees, an affiliate $27,346 for consulting fees, office
expenses, travel reimbursements, and another affiliate $9,765 for consulting
fees.
NOTE C: NOTE PAYABLE
On December 16, 1997, the Company assumed an affiliate's promissory note
payable in the amount of $100,000, plus accrued interest, to an individual.
The note is unsecured and is convertible into 33,333 (pre-split) shares of the
SkyLynx Express Holdings, Inc. $.0001 par value common stock, at the option of
the holder. The note matures on July 31, 1998 and the principal plus any
unpaid interest is due at that time. Accrued interest as of December 30, 1997
was $3,126.
NOTE D: SHAREHOLDERS' EQUITY
Common Stock Offering
- ---------------------
During the period ended December 30, 1997, the Company sold at $.01875 per
share, an aggregate of 4,000,000 shares of its $.001 par value per share
common stock and received $71,351, after related costs. In addition, the
Company sold, at $.15 per share, an aggregate of 6,163,342 shares of its $.001
par value per share common stock and received $890,501, after related costs.
The shares were offered and sold without registration under the federal
securities laws in reliance upon an exemption from registration requirements
contained in Rule 504 of Regulation D of the Securities Act of 1933, as
amended.
Preferred Stock
- ---------------
The Company's preferred stock, authorized 50,000,000 shares, has a par value
of $.01 per share. The preferred stock is issuable in series by the Board of
Directors who establish the terms and preferences in the series.
Reverse Stock Split
- -------------------
On January 23, 1998, the shareholders of the Company approved a 1 for 13
reverse stock split. The accompanying financial statements, however give
effect to this reverse stock split as if it had occurred as of December 30,
1997.
NOTE E: INCOME TAXES
A reconciliation of U.S. statutory federal income tax rate follows for the
period from January 1, through December 30, 1997 and for the period from
September 23, 1996 through December 31,1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
U.S. statutory federal rate on amounts
less than $50,000 15% 15%
State income tax rate 5% 5%
----- -----
20% 20%
NOL for which no tax benefit is currently
available -20% -20%
----- -----
0% 0%
===== =====
</TABLE>
The benefit for income taxes from operations consisted of the following
components: current tax benefit of $71,652 resulting from a net loss before
income taxes, and deferred tax expense of $71,652 resulting from the valuation
allowance recorded against the deferred tax asset resulting from net operating
losses. The change in the valuation allowance from January 1 through December
30, 1997 and from September 23, 1996 (inception) through December 31,1996 was
$7,652 and $-0-, respectively. Net operating loss carry forwards for 1997
will expire in 2012. The valuation allowance will be evaluated at the end of
each year, considering positive and negative evidence about whether the asset
will be realized. At that time, the allowance will either be increased or
reduced; reduction could result in the complete elimination of the allowance
if positive evidence indicates that the value of the deferred tax asset is no
longer impaired and the allowance is no longer required.
NOTE F: AGREEMENT AND PLAN OF REORGANIZATION
Effective December 16, 1997, AWI entered into an Agreement and plan of
Reorganization (the "Agreement") with SkyLynx Express Holdings, Inc. (SEHI)
and Network System Technologies, Inc. (NST). Under the Agreement, AWI was
acquired, in a reverse acquisition by SEHI. In addition, AWI acquired certain
license rights, and made an earnest money deposit on equipment to be acquired
from NST by SEHI. The Agreement was ratified by the Company's shareholders on
January 23, 1998.
Reverse Acquisition
- -------------------
Effective December 16, 1997, SEHI exchanged 100 percent of its outstanding
shares of common stock for 6,875,000 (post-split) shares of the Company's
common stock. This transaction has been treated as a reverse acquisition
whereby SEHI is considered the surviving entity. Costs of the transaction
have been charged to the period. The reverse acquisition took place on
December 16, 1997; however, the accompanying financial statements have been
prepared as if the acquisition took place on December 31, 1997.
Acquisition of License Rights
- -----------------------------
In addition to the above capitalization, the Company acquired certain license
rights from NST covering technology (consisting of computer software, know-
how, trade secrets, and licensed patent rights) used to deploy a wireless data
network.
Deposit on Equipment
- --------------------
In addition, the Company made an earnest money deposit on special
communications equipment, valued at $482,299, to be acquired from NST.
NOTE G: MERGER NEGOTIATIONS
On December 17, 1997 and again on December 31, 1997, the Company executed a
letter of intent to purchase certain assets of Cable Corporation of America,
Inc. (CCA). Pursuant to the letters of intent, the Company paid payroll and
certain operating expenses on behalf of CCA totaling $23,500 through December
30, 1997.
During 1998, acquisition negotiations between the two companies broke off.
Accordingly, the advances totaling $23,500, as of December 30, 1997, have been
written off in the accompanying financial statements.
Additional advances in 1998, prior to negotiation termination, totaling
$36,000 have also been written off.
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SKYLYNX COMMUNICATION, INC.
(formerly SkyLynx Express Holdings, Inc.)
1. Independent Auditors' Report
2. Consolidated Balance Sheets, December 31, 1997 and June 30, 1998
(unaudited)
3. Consolidated Statements of Operation from July 29, 1997 (inception)
through December 31, 1997, for the six months ended June 30, 1998
(unaudited), and from July 29, 1997 (inception) through June 30, 1998
(unaudited)
4. Consolidated Statement of Shareholders' Equity, July 29, 1997 (inception)
through June 30, 1998 (unaudited)
5. Consolidated Statements of Cash Flows from July 29, 1997 (inception)
through December 31, 1997, for the six months ended June 30, 1998
(unaudited), and from July 29, 1997 (inception) through June 30, 1998
(unaudited)
6. Notes to Consolidated Financial Statements
<PAGE>
<PAGE>
June 30, 1998
To the Board of Directors and Shareholders
SkyLynx Communications, Inc. and Subsidiary
Independent Auditors' Report
We have audited the balance sheet of SkyLynx Communications, Inc. (formerly
SkyLynx Express Holdings, Inc.) and subsidiaries as of December 31, 1997 and
the related consolidated statements of operations, shareholders' equity and
cash flows for the period from July 29, 1997 (inception) through December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
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 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 in the first paragraph
present fairly, in all material respects, the financial position of SkyLynx
Communications, Inc. as of December 31,1997 and the results of its operations
and its cash flows for the period from July 29, 1997 (inception) through
December 31, 1997 in conformity with generally accepted accounting principles.
As discussed in Note G to the financial statements, certain license rights
acquired from an affiliate have been valued by management at fair value. We
have reviewed the procedures applied by management in valuing such license
rights and have inspected underlying documentation, and in the circumstances,
we believe the procedures applied are reasonable and the documentation
appropriate. However, because of inherent uncertainty of valuation,
management's estimate of fair value may differ significantly from the value
that would have been used if the rights had been acquired from an unrelated
third party or if a ready market existed for such rights, and the difference
could be material.
The information for the three months ended June 30, 1998 and from July 29,
1997 (inception) through June 30, 1998 has been included on an unaudited
basis. Accordingly, we do not express an opinion or any other form of
assurance on it.
Cordovano and Harvey, P.C.
Denver, Colorado
<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC.
(formerly SkyLynx Express Holdings, Inc.)
(A Development Stage Company)
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash $ 628,110 $ 1,433,196
Due from employees (Note B) -0- 18,492
Inventories -0- 77,435
Construction work in progress (Note C) -0- 535,051
Property and equipment, less accumulated
depreciation of $0 and $24,980,
respectively (Note C) 482,299 514,169
License rights, less accumulated amortization
of $0 and $16,667, respectively (Note G) 100,000 83,333
Deposits -0- 11,781
Organizational costs, less accumulated
amortization of $250 and $500, respectively 2,250 2,000
----------- ------------
$ 1,212,659 $ 2,675,457
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES (Notes B and D)
Accounts and notes payable
Accounts payable 4,923 84,498
Accounts payable, related party (Note G) 391,299 -0-
Note payable 100,000 -0-
Accrued interest payable 3,126 -0-
Accrued payroll taxes payable -0- 24,718
Other current liabilities 1,375 -0-
----------- ------------
TOTAL LIABILITIES 500,723 110,216
----------- ------------
SHAREHOLDERS' EQUITY (Note E)
Preferred stock, $.01 par value; 50,000,000
shares authorized, -0- and 698,500 shares
issued and outstanding, respectively -0- 6,983
Common stock, $.001 par value; 150,000,000
shares authorized, 8,772,189 and 8,822,189
shares issued and outstanding, respectively 8,772 8,822
Additional paid-in capital 981,918 3,661,500
Deficit accumulated during development stage (278,754) (1,120,271)
----------- ------------
TOTAL SHAREHOLDERS' EQUITY 711,936 2,557,034
----------- ------------
$ 1,212,659 $ 2,667,250
=========== ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC.
(formerly SkyLynx Express Holdings, Inc.)
(A Development Stage Company)
Consolidated Statements of Operation
<TABLE>
<CAPTION>
Jul 29, 1997 For the Jul 29, 1997
(inception)Six Months (inception)
through Ended through
Dec 31, Jun 30, Jun 30,
1997 1998 1998
---------- ---------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
COSTS AND EXPENSES
Consulting, related parties (Note B) $ 8,938 $ -0- $ 8,938
Consulting, other -0- 88,569 88,569
Selling expenses -0- 12,302 12,302
Salaries and payroll taxes -0- 278,823 278,823
Travel -0- 212,379 212,379
Legal and accounting -0- 71,182 71,182
Rent and utilities -0- 59,917 59,917
Depreciation -0- 24,980 24,980
Amortization -0- 16,917 16,917
Insurance -0- 15,401 15,401
Printing -0- 12,612 12,612
Write-off of advances in connection
with merger (Note G) -0- 36,500 36,500
Other -0- 11,938 11,938
---------- ---------- ------------
OPERATING LOSS (8,938) (841,520) (850,458)
---------- ---------- ------------
OTHER INCOME (EXPENSE)
Interest income -0- 12,152 12,152
Interest expense -0- (3,942) (3,942)
---------- ---------- ------------
LOSS BEFORE INCOME TAXES (8,938) (833,310) (842,248)
INCOME TAX BENEFIT (EXPENSE) (NOTE E)
Current 71,652 324,991 396,643
Deferred (71,652) (324,991) (396,643)
---------- ---------- ------------
NET LOSS $ (8,938) $(833,310) $ (842,248)
========== ========== ============
Loss per common share $ * $ (0.09) $ (0.11)
========== ========== ============
Basic weighted average common shares
outstanding 6,187,500 8,786,277 7,605,015
========== ========== ============
Loss per common share available to
common shareholders $ * $ (0.10) $ (0.11)
========== ========== ============
* less than $.01 per share
</TABLE>
See accompanying notes to financial statements
<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC.
(formerly SkyLynx Express Holdings, Inc.)
(A Development Stage Company)
Consolidated Statement of Shareholders' Equity
July 29, 1997 (inception) through June 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Preferred Stock Common Stock Paid-in Development
Shares Amount Shares Amount Capital Stage Total
-------- -------- ------ ------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Jul 29, 1997
(inception) -0- $ -0- -0- $-0- $ -0- $ -0- $ -0-
Net loss for the period
ended Dec 31, 1997 -0- -0- -0- -0- -0- (8,938) (8,938)
Common stock issued for
intellectual property at
estimated fair value
(Note B) -0- -0- *6,875,000 6,875 2,063 -0- 8,938
Recapitalization (Note F) -0- -0- 1,897,189 1,897 979,855 (269,816) 711,936
-------- -------- --------- ------- --------- ------------ -----------
Balance Dec 31, 1997 -0- -0- 8772,189 8,772 981,918 (278,754) 711,936
Net loss for the period
ended Jun 30, 1998 -0- -0- -0- -0- -0- (833,310) (833,310)
Cash dividends on preferred
stock at $40 per share -0- -0- -0- -0- -0- (8,207) (8,207)
Preferred stock issued for
cash, net of offering
costs totaling $204,855
(unaudited) 698,500 6,983 -0- -0- 2,582,132 -0- 2,589,115
Common stock issued for
property, at cost, as
determined by management
(unaudited) -0- -0- 50,000 50 97,450 -0- 97,500
-------- -------- ------- ------ --------- ------------ -----------
Balance June 30, 1998
(unaudited) 698,500 $ 6,983 8,822,189 $ 8,822 $3,661,500$(1,120,271) $2,557,034
======= ======= ========== ======= ====================== ===========
* Restated for one for 13 reverse stock split
</TABLE>
See accompanying notes to financial statements
<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC.
(formerly SkyLynx Express Holdings, Inc.)
(A Development Stage Company)
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
July 29, 1997 For the Jul 29, 1997
(inception)Six Months (inception)
through Ended through
Dec 31, Jun 30, Jun 30,
1997 1998 1998
---------- ---------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (8,938) $(841,517) $ (850,455)
Transactions not requiring cash:
Common stock issued for intellectual
property contributed by
shareholders (Note B) 8,938 -0- 8,938
Depreciation and amortization -0- 41,897 41,897
---------- ---------- -----------
-0- (799,620) (799,620)
Changes in operating assets and
liabilities:
Due from employees -0- (18,492) (18,492)
Inventories (77,435) (77,435)
Accounts payable related party -0- (391,299) (391,299)
Accounts payable and other current
liabilities 8,049 100,792 108,841
---------- ---------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING
ACTIVITIES (8,049)(1,186,054) (1,178,005)
---------- ---------- -----------
INVESTING ACTIVITIES
Construction of transmission plant -0- (535,051) (535,051)
Deposits made -0- (11,781) (11,781)
Purchases of property and equipment -0- (56,850) (56,850)
---------- ---------- -----------
NET CASH (USED IN) INVESTING
ACTIVITIES -0- (603,682) (603,682)
---------- ---------- -----------
FINANCING ACTIVITIES
Issuance of preferred stock net of
offering costs -0- 2,686,615 2,686,615
Debt reduction -0- (100,000) (100,000)
Recapitalization (Note F) 620,061 -0- 620,061
---------- ---------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 620,061 2,586,615 3,206,676
---------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 628,110 $ 796,879 $ 1,424,989
---------- ---------- -----------
Cash at beginning of period -0- 628,110 -0-
---------- ---------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 628,110 $ 250,807 $ 250,807
---------- ---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 583 $ -0- $ 583
Cash paid for income taxes $ -0- $ -0- $ -0-
---------- ---------- -----------
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Debt assumed in exchange for license
rights $ 100,000 $ -0- $ 100,000
---------- ---------- -----------
Common stock issued for property and
equipment
Debt assumed in acquiring equipment $ 482,299 $ -0- $ 482,299
---------- ---------- -----------
</TABLE>
See accompanying notes to financial statements
<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC.
(formerly SkyLynx Express Holdings, Inc.)
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
NOTE A: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
- --------------------------------------
Effective December 31, 1997, SkyLynx Express Holdings, Inc. (SEHI) merged with
Allied Wireless, Inc. (AWI). Subsequent to the merger, AWI changed its name
to SkyLynx Communications, Inc. (the "Company") (see Note F). AWI was
incorporated under the laws of Colorado on September 23, 1996 and was formed
for the purpose of engaging in the wireless communication industry. In 1997,
AWI sold 6,163,342 shares of its common stock at a price of $.15 per share and
4,000,000 at $.01875 per share. AWI closed the offering on December 15, 1997
and realized approximately $961,852 from the offerings, after related expenses
(see Note E). SEHI was initially capitalized with certain intellectual
property useful in the wireless industry. It was incorporated under the laws
of Delaware on July 29, 1997.
The Company is a development stage company and its consolidated financial
statements are prepared in accordance with Statement of Financial Accounting
Standards (SFAS) No. 7. Its consolidated financial statements include the
accounts of the SkyLynx Communications, Inc. and its wholly owned subsidiary,
SEHI. All material intercompany accounts and transactions have been
eliminated in consolidation.
Unaudited Financial Information
- -------------------------------
The accompanying financial information for the periods from July 29, 1997
through June 30, 1998 and for the six months ended June 30, 1998 is unaudited.
In management's opinion, such information includes all normal recurring
entries necessary to make the financial information not misleading.
Cash Equivalents
- ----------------
For financial accounting purposes and the statement of cash flows, cash
equivalents include all highly liquid debt instruments with original
maturities of three months or less.
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities;
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. Accordingly, actual results could differ from those
estimates.
Equipment and Depreciation
- --------------------------
Equipment is stated at cost. Expenditures for maintenance and repairs are
charged to expense as incurred. Additions and improvements are capitalized.
The cost and related accumulated depreciation of equipment sold or otherwise
disposed of are removed from the accounts and any gain or loss is reported in
the year's revenue or expense. Depreciation expense is calculated based on
the straight-line method over the estimated useful lives of the assets.
Transmission Plant
- ------------------
Transmitter equipment is stated at cost. Since the property has not yet been
placed in service, no depreciation expense has been recorded.
Intangible Assets and Amortization
- ----------------------------------
Intangible assets, consisting of organization costs, are stated at cost and
amortized over five years.
License Rights
- --------------
The Company acquired license rights in connection with its business
combination on December 16, 1997. These rights have been capitalized and are
amortized over three years using the straight-line method commencing January
1, 1998. Amortization expense for the period ended December 31, 1997 and the
six months ended June 30, 1988 totaled $0 and $16,667, respectively.
Income Taxes
- ------------
The Company reports income taxes in accordance with SFAS No. 109 "Accounting
for Income Taxes" which requires the liability method in accounting for income
taxes. Deferred tax assets and liabilities arise from the difference between
the tax basis of an asset or liability and its reported amount on the
financial statements. Deferred tax amounts are determined by using the tax
rates expected to be in effect when the taxes will be actually paid or refunds
received, as provided under currently enacted law. Valuation allowances are
established when necessary to reduce the deferred tax assets to the amounts
expected to be realized. Income tax expense or benefit is the tax payable or
refundable, respectively, for the period plus or minus the change during the
period in the deferred tax assets and liabilities.
Loss Per Common Share
- ---------------------
The Company reports loss per share using a dual presentation of basic and
diluted loss per share. Basic loss per share excludes the impact of common
stock equivalents. Diluted loss per share utilizes the average market price
per share when applying the treasury stock method in determining common stock
equivalents.
The amount of preferred dividend deducted in arriving at the amount of loss
available to common shareholders was $-0-, $8,207 (unaudited), and $8,207
(unaudited) for the period from July 29, 1997 through December 31, 1997, the
six months ended June 30, 1998, and from July 29, 1997 through June 30, 1998,
respectively.
Because the effect of contingently issuable shares, Class A warrants, and
Class B warrants was antidilutive for all periods presented, fully diluted
loss per share was not presented in the accompanying financial statements.
NOTE B: RELATED PARTY TRANSACTIONS
During the six months ended June 30, 1998, an affiliate, NST, billed the
Company $535,051 (unaudited) for the construction of a wireless data
transmission plant in Fresno, California and a wireless data transmission
plant in Tampa, Florida. Both transmission plans were under construction as
of June 30, 1998. This amount was subsequently paid on June 29, 1998.
As of June 30, 1998, employees were indebted to the Company a total of $18,492
(unaudited) for payroll taxes not withheld. The $18,492 is included in the
accompanying financial statements as due from employees.
Effective December 16, 1997, the Company entered into the following
transactions:
1. Issued 2,307,692 shares of common stock to affiliates in exchange for
intellectual property. The property was valued by management at $3,438
or ($.0013 per share);
2. Issued 2,644,230 shares of common stock to officers and directors in
exchange for intellectual property. The property was valued by
management at $3,438 (or $.0013 per share); and
3. Issued 1,923,078 shares of common stock to NST in exchange for
technology. The technology was valued by management at $2,500 (or $.0013
per share).
NOTE C: EQUIPMENT
Construction in Progress
- ------------------------
As of June 30, 1998, the Company's transmission plants in Fresno, California
and Tampa, Florida were under construction. The Fresno plant is expected to
support five wireless asymmetrical areas of coverage providing service to a
40-mile area. The Tampa plant will support a two-way wireless symmetrical
network in the Tampa, St. Petersburg and Clearwater area. The Fresno plant
came on line in August 1998 and the Tampa plant is expected to be completed in
September 1998.
Property and Equipment
- ----------------------
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ ----------
(unaudited)
<S> <C> <C>
Communications equipment (Note G) $ 482,299 $ 482,299
Office equipment -0- 41,850
Leasehold improvements -0- 15,000
----------- ----------
482,299 539,149
Less accumulated depreciation -0- (24,980)
----------- ----------
$ 482,299 $ 514,169
=========== ==========
</TABLE>
NOTE D: NOTE PAYABLE
Effective December 16, 1997, the Company assumed an affiliate's promissory
note payable totaling $100,000, and accrued interest of $3,126, to an
individual. The note bears interest at 7.5%, is unsecured and is convertible
into 2,564 shares of the Company's $.001 par value common stock, at the option
of the holder. The note and related accrued interest was paid in full during
the three months ended June 30, 1998.
NOTE E: SHAREHOLDERS' EQUITY
Unit Offering (Unaudited)
- -------------------------
During May 1998, the Company, through a private placement, offering 3,750,000
units to qualified investors for $4.00 per unit, through its officers and
directors on a "best efforts" basis. Each unit consisted of one share of
Series A convertible preferred stock, one Class A warrant and one Class B
warrant.
The Company's Series A convertible, preferred stock, authorized 50,000,000
shares, has a par value of $.01 per share and a dividend rate of 10%. Each
share of preferred stock is convertible into one share of the Company's $.001
par value per share common stock at the option of the shareholder. The option
may be exercised after one year from the date of issue, upon effective
registration of the underlying common shares, or automatically upon the
earlier of (1) the third anniversary of the date of issue, (2) the Company's
common stock trades above $6.00 per share for ten consecutive trading days.
Each Class A warrant entitles the holder to purchase one share of common stock
at $7.50 per share beginning one year from the date of issuance or beginning
on the effective date of registration of the underlying common shares,
whichever comes first. Each Class B warrant entitles the holder to purchase
one share of common stock at $10.00 per share beginning one year from the date
of issuance or beginning on the effective date of registration of the
underlying common shares, whichever comes first. Both the Class A and Class B
warrants expire three years from the date of issuance. The Company may, under
certain circumstances, redeem all of the outstanding Class A and Class B
warrants upon thirty days' written notice at $.01 per warrant.
As of June 30, 1998, 698,500 (unaudited) units had been sold. The Company
realized approximately $2,589,115 (unaudited), after deducting offering costs,
from the proceeds.
Common Stock Issuance
- ---------------------
On August 10, 1997, the Board of Directors approved the issuance of 6,875,000
shares of the common stock, after giving effect to the reverse split of 1 for
13 shares, in exchange for intellectual property consisting of expertise and
trade secrets. The shares were issued without registration under the federal
securities laws in reliance upon an exemption from registration requirements
contained in the Securities Act of 1933, as amended. Management expensed the
intellectual property in the period ended December 31, 1997.
1 for 13 Reverse Stock Split
- ----------------------------
On January 23, 1998, the shareholders of the Company approved a 1 for 13
reverse stock split. The accompanying financial statements have been
retroactively restated to give effect to the reverse stock split.
NOTE F: INCOME TAXES
A reconciliation of U.S. statutory federal income tax rate follows for the
period from July 29, 1997 (inception) through December 31,1997, the six months
ended June 30, 1998, and the period from July 29, 1997 (inception) through
June 30, 1998:
<TABLE>
<CAPTION>
Jul 29, 1997 Jul 29, 1997
(inception) For the Six (inception)
through Months Ended through
Dec 31, Jun 30, 1998 Jun 30, 1998
1997 (Unaudited) (Unaudited)
----------- ----------- ------------
<S> <C> <C> <C>
U.S. statutory federal rate 34.0% 34.0% 34.0%
State income tax rate 5.0% 5.0% 5.0%
Net operating loss for which no
tax benefit is currently
available (39.0)% (39.0)% (39.0)%
----------- ----------- ------------
0% 0% 0%
=========== =========== ============
</TABLE>
The benefit for income taxes from operations consisted of the following
components at December 31, 1997: current tax benefit of $73,905 resulting from
a net loss before income taxes, and deferred tax expense of $73,905 resulting
from the valuation allowance recorded against the deferred tax asset resulting
from net operating losses. The change in the valuation allowance from July
29, 1997 (inception) through December 31, 1997 and from December 31, 1997 to
June 30, 1998 was $73,905 and $251,086 (unaudited), respectively. Net
operating loss carryforwards at December 31, 1997 will expire in 2012. The
valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At
that time, the allowance will either be increased or reduced; reduction could
result in the complete elimination of the allowance if positive evidence
indicates that the value of the deferred tax asset is no longer impaired and
the allowance is no longer required.
NOTE G: AGREEMENT AND PLAN OF REORGANIZATION
Effective December 15, 1997, AWI entered into an Agreement and Plan of
Reorganization (the "Agreement") with SEHI and Network System Technologies,
Inc. (NST) in order to acquire certain equipment and rights to the technology
necessary to use such equipment. The Company acquired the equipment and
rights to support the development and implementation of wireless networks,
which became the business of the Company as a result of the transaction.
Under the Agreement, SEHI became a subsidiary of the Company through a reverse
acquisition and NST became an affiliate by virtue of the issuance of common
shares to the developer of the technology. Specifically, the Agreement called
for:
1. The issuance of 6,875,000 (post-split) shares of common stock
representing approximately 78% of the then total issued and outstanding
shares. Management assigned a value of $0.0013 per share to the shares
issued and expensed this cost in the accompanying financial statements;
2. The payment of $71,571 to NST as part of the assumption by the Company of
NST's activities to deploy a system in the Sarasota area. This amount
was expensed in the accompanying financial statements;
3. The Company to assume NST's obligations under a $100,000 promissory note.
This amount was assigned to the License Rights and capitalized in the
accompanying financial statements;
4. The Company to pay NST's transaction fees and expenses in the amount of
$37,500 which were expenses in the accompanying financial statements; and
5. The Company to pay or assume an NST liability of $482,299 to a vendor for
the equipment purchased in the transaction.
Nature of the License Rights
- ----------------------------
The license gives the Company the non-exclusive rights to use the equipment
acquired from NST as well as to develop and implement wireless networks using
the technology underlying the rights as well as future upgrades to the
technology. It also gives the Company the exclusive rights to the technology,
provided the Company is first to deploy them in a basic trading area. The
rights are amortized over their estimated useful life of three years as
determined by management beginning January 1, 1998.
Recapitalization
- ----------------
This acquisition has been treated as a recapitalization of SEHI with AWI the
legal surviving entity. The historical financial statements prior to the
merger are those of SEHI. The recapitalization has been accounted for as the
exchange of SEHI common stock for the net assets of AWI. Costs of the
transaction have been charged to the period. The recapitalization took place
on December 16, 1997; however, the financial statements have been prepared as
if the recapitalization took place on December 31, 1997. Subsequently, AWI
changed its name to SkyLynx Communications, Inc.
Deposit on Equipment
- --------------------
The Company made an earnest money deposit of $91,000 as an advance on a future
development that was subsequently abandoned and by agreement the advance was
to be credited towards the purchase of special communications equipment,
valued at $482,299 purchased from a vendor to NST. On June 29, 1998, the
balance of $391,299 (unaudited) was paid to the vendor.
NOTE H: MERGER ATTEMPT
On December 17, 1997 and again on December 31, 1997, the Company executed a
letter of intent to purchase certain assets of Cable Corporation of America,
Inc. (CCA). Pursuant to the letters of intent, the Company paid certain
operating expenses on behalf of CCA totaling $23,500 through December 30,
1997. In addition, the Company paid an obligation on behalf of CCA to NST
totaling $71,763.
During 1998, acquisition negotiations between the two companies broke off.
Accordingly, the advances totaling $95,263, as of December 30, 1997, have been
written off in the accompanying financial statements.
Additional advances paid during the six months ended June 30, 1998, prior to
negotiation termination, totaling $36,500 have also been written off.
NOTE I: COMMITMENTS AND CONTINGENCIES
Commitments
- -----------
The Company is a party to various operating leases for office space, office
equipment, rooftop space for its transmitters and airspace. Future minimum
payments required under the leases, as of June 30, 1998, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 98,495
2000 $ 1,513
2001 $ 1,350
2002 $ 1,132
2003 $ 55,047
</TABLE>
Contingently Issuable Shares
- ----------------------------
On May 11, 1998, the Company completed an asset purchase. The assets included
property and equipment, including leases covering two MDS channels granted
under licenses issued by the Federal Communications Commission within the
Fresno, California geographical area. The purpose price included 25,000
shares of the Company's common stock issuable upon the Fresno operations
achieving operating profit of $850,000 in one year.
<PAGE>
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
SKYLYNX COMMUNICATIONS, INC.
Date: September 17, 1998 By: /s/ Gary L. Brown
----------------------- -----------------------------------
Gary L. Brown, President
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
Dated as of
May 11, 1998
between
SKYLYNX COMMUNICATIONS, INC.
and
NADEX WEST, INC.
<PAGE>
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is made and entered into effective this 11th day of May,
1998, by and among SKYLYNX COMMUNICATIONS, INC. , a Colorado corporation, or a
wholly owned subsidiary to be formed for the purpose of performing this
Agreement, ("Skylynx," the "Company" or "Buyer") and NADEX WEST, INC., a
Nevada corporation ("Nadex" or "Seller").
WITNESSETH
WHEREAS, Seller is the owner of certain tangible and intangible
properties and assets used in connection with certain wireless communications
operations (the "Business"); and
WHEREAS, Buyer desires to purchase and Seller desires to sell the assets
used in connection with such Business, subject to the terms and conditions
hereinbelow set forth.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, and other good and
valuable consideration, the receipt and adequacy whereof is hereby
acknowledged, the parties agree as follows:
SECTION 1: PURCHASE AND SALE OF ASSETS
On the terms and subject to the conditions of this Agreement, and in
reliance upon the representations and warranties of Seller and Buyer contained
in this Agreement:
1.1 DESCRIPTION OF ASSETS. Subject to such regulatory approvals and
legal requirements as may be necessary to consummate same, Seller hereby
sells, transfers and assigns to Buyer the following properties and assets,
both tangible and intangible, owned by Seller and used by it in connection
with the operation of its Business, as described and listed in Exhibit 1.1 to
this Agreement (hereafter the "Assets").
(a) Leases covering two (2) MDS channels granted under
licenses issued by the Federal Communications Commission
("FCC") within the Fresno, California geographical area
("Leases").
(b) All FCC approvals, licenses and permits of Seller to
provide digital services utilizing the MDS channels under
the Leases.
(c) All of Seller's furniture, fixtures, office machinery and
equipment.
(d) All engineering designs, drawings, reports and other
intellectual property associated with the development of
the MDS channels under the Leases.
(e) All raw materials, work in process and other tangible
assets of Seller.
(f) All other tangible and intangible assets of Seller not
specifically identified in the foregoing associated with
or related to the development and provision of digital
services utilizing the two MDS channels covered under the
Leases.
1.2 EXCLUDED ASSETS. The Assets to be acquired by Buyer from Seller
shall not include the following assets and property of Seller:
(a) All business and accounting records of Seller pertaining
to the business, except as specified above; provided,
however, that the Buyer shall have reasonable access and
opportunity to make copies of any such records which may
be necessary for the continuing conduct of a business by
Buyer.
1.3 ALLOCATION OF PURCHASE PRICE. The Purchase Price as defined in
Section 2 hereof shall be allocated among the Assets purchased as set forth on
Exhibit 1.3. The allocation shall be binding on the parties for all purposes,
including without limitation, the appropriate tax treatment under Section 1060
of the Code to be accorded to the transactions contemplated by this Agreement.
1.4 NO ASSUMPTION OF LIABILITIES. Except as expressly provided for
in this Agreement, Buyer is acquiring the Assets free and clear of all claims,
liens or liabilities of Seller and shall have no obligation to pay or
otherwise discharge any obligation or liability of Seller incurred in
connection with Seller's operation of the Business prior to the Closing Date;
and Seller agrees to indemnify, defend and hold harmless Buyer with respect to
any claim, damage or liability for such obligations. Notwithstanding the
forgoing provisions, Buyer assumes and agrees to pay and discharge all
covenants, stipulations, agreements and obligations of Buyer under the Leases
accruing on or after the date of this Agreement or otherwise attributable to
the period commencing on the date of this Agreement and continuing thereafter
for so long as the Leases remain in full force and effect.
1.5 EMPLOYMENT MATTERS. It is understood and agreed Buyer is not
assuming any union contracts, pension liabilities, workman's compensation
commitments or employee obligations of Seller, and all such matters shall be
and remain Seller's sole responsibility and obligation.
1.6 TAXES AND OTHER COSTS. All transfer, sales and conveyance taxes
related to the sale shall be payable by Seller.
1.7 REGULATORY APPROVALS. To the extent the transfer and sale of the
Assets requires the approval or consent of the FCC or other regulatory or
governmental approvals, Seller, and its officers and directors, agree to
exercise best efforts to apply for and obtain such regulatory approvals as
expeditiously as possible and to cooperate with all reasonable requests of
Buyer and its representatives in connection with obtaining such approvals.
SECTION 2: PURCHASE PRICE
2.1 The Purchase Price for the Assets shall consist of (i) fifty
thousand (50,000) shares of the Common Stock, $.001 par value, (the "Common
Stock") of Buyer (the "Fixed Shares"), and (ii) an additional twenty-five
thousand (25,000) shares of Buyer's Common Stock (the "Contingent Shares"),
subject to the provisions of Section 2.2 below.
2.2 Buyer shall cause certificates representing the Contingent Shares
to be delivered to Buyer's acting secretary, as escrow agent, to be held in
accordance with the terms and conditions of this Section 2.2. The Contingent
Shares shall not be deemed issued and outstanding until and less earned and
distributed to Seller in accordance with this Section 2.2. The Contingent
Shares shall be released from escrow and distributed and delivered to Seller
upon the Fresno, California network system (the "Fresno System") generating
and reporting, on a stand alone basis, annual net income for a full fiscal
year of at least Eight Hundred Thirty-Five Thousand Dollars ($835,000). The
vesting, distribution and delivery of the Contingent Shares shall further be
contingent upon the Fresno System satisfying the annual Eight Hundred Thirty-
Five Thousand Dollar ($835,000) net income milestone while under the direct
management, supervision and control of Till Fritzsching ("Fritzsching"), Dan
Marshall, Jr. ("Marshall") and Michael Corcoran ("Corcoran"), or any
combination of Seller's officers, or any other individuals that may be
appointed and managed by Seller's officers.
SECTION 3: PURCHASE OPTION
3.1 Seller and its executive officers agree to exercise best efforts
to obtain, on behalf of Buyer, an option to purchase (the "Purchase Option")
the FCC licenses for the MDS channels included in the Leases. Such Purchase
Option must be upon terms and subject to conditions acceptable to Buyer in its
absolute discretion. In the event Seller is able to obtain on behalf of Buyer
a Purchase Option acceptable to Buyer, Buyer agrees to issue to Seller an
additional fifty thousand (50,000) shares of Buyer's Common Stock (the "Option
Shares").
3.2 In connection with Seller's efforts to solicit and obtain the
Purchase Option, Seller shall have no authority to represent or bind the Buyer
as to any matter whatsoever, it being understood that all agreements or
arrangements shall be subject to acceptance by Buyer. In connection with such
efforts, Seller shall make no representation or warranty of whatsoever kind or
description to any third person or party with respect to Buyer or purportedly
on behalf of Buyer and agrees to indemnify, defend and hold harmless the Buyer
from any liability which may arise or be claimed against the Buyer by virtue
of Seller's acts or omissions in connection with obtaining such Purchase
Option.
SECTION 4: REPRESENTATIONS AND WARRANTIES OF SELLER
As a material inducement to Buyer to enter into this Agreement and with
the understanding and expectations that Buyer will be relying thereon in
consummating the transactions contemplated hereunder, Seller hereby represents
and warrants as follows:
4.1 UNREGISTERED STOCK. Seller represents that it understands that
the Skylynx Common Stock comprising the Fixed Shares, Contingent Shares and
Option Shares has not been registered for sale under federal or state
securities laws and that said securities are being issued to Seller pursuant
to a claimed exemption from the registration requirements of such laws.
Seller understands that in order to maintain such exemption it must be
acquiring the stock with no view to making a public distribution of said
securities, and the representations and warranties contained in this Section
4.1 are given with the intention that Skylynx may rely thereon for purposes of
claiming such exemption; and that it understands that they must bear the
economic risk of their investment in the Skylynx Common Stock for a
substantial period of time, because the Skylynx Common Stock has not been
registered under the federal or state securities laws and cannot be sold
unless subsequently registered under such laws or unless an exemption from
such registration is available.
4.2 STOCK ACQUIRED FOR INVESTMENT; LIMITATIONS ON DISPOSITIONS.
Seller represents that it is acquiring the Skylynx Common Stock for its
principal's account and for investment and not with a view to, or for the sale
in connection with, any distribution thereof in violation of the Securities
Act of 1933, as amended. Seller agrees that, other than distribution of
SkyLynx Common Stock to its own principals, the stock will not be offered for
sale, sold or otherwise transferred for value and that no transfer thereof
will be made by it unless (i) a registration statement with respect thereto
has become effective under the Securities Act of 1933, as amended, or (ii)
there is presented to SkyLynx an opinion of counsel for Seller reasonably
satisfactory to SkyLynx that such registration is not required, or (iii) there
is presented to SkyLynx a letter from the Securities and Exchange Commission
(said Commission having been informed of all relevant circumstances) to the
effect that in the event the stock is transferred by Seller without such
registration, the Commission or the staff will not recommend any action.
Seller consents that any transfer agent of SkyLynx may be instructed not to
transfer any of the stock unless it receives satisfactory evidence of
compliance with the foregoing provisions and that there may be endorsed upon
any certificates (or instruments issued in substitution therefor), SkyLynx'
regular legend regarding the sale of restricted securities.
4.3 CORPORATE AUTHORITY. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby, after
satisfaction of the conditions to close, nor compliance by Seller with any on
the provisions hereof will:
(a) conflict with or result in a breach of any provision of
its articles of incorporation or bylaws;
(b) other than as disclosed on Exhibit 4.3 hereto, result in a
default (or give rise to any right of termination,
cancellation, or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage,
indenture, license, agreement or other instrument or
obligation to which Seller is a party, or by which any of
its properties or assets may be bound except for such
default (or right of termination, cancellation, or
acceleration) as to which requisite waivers or consents
shall either have been obtained by Seller prior to the
Closing Date or the obtaining of which shall have been
waived by Buyer; or
(c) violate any order, writ, injunction, decree of a court of
competent jurisdiction or, to Seller's Best Knowledge, any
statute, rule or regulation applicable to Seller or any of
its properties or assets. To Seller's Best Knowledge, no
consent or approval by any governmental authority is
required in connection with the execution and delivery by
Seller of this Agreement or the consummation by Seller of
the transactions contemplated hereby, except for possible
notice under plant closing laws.
4.4 NO DEFAULTS. Each of the leases, including the Leases governing
the MDS channels, contracts and agreements to which Seller is a party, and
which will be assigned to and assumed by Buyer, is in full force and effect as
of the date hereof with no defaults existing thereunder.
4.5 NO BREACHES. Seller is not in violation of and the consummation
of the transactions contemplated hereby do not and will not result in any
material breach of, any of the terms or conditions of the Leases or any
agreement, contract, license or other instrument or obligation to which Seller
is a party or by which its Assets are bound; nor will the consummation of the
transactions contemplated hereby cause Seller to violate any statute,
regulation, judgment, writ, injunction or decree of any court, threatened or
entered in a proceeding or action in which Seller is, was or may be bound or
to which any of Seller's assets are subject.
4.6 CONDITION OF THE CORPORATION'S ASSETS. Seller's Assets are
currently in good and usable condition, normal wear and tear excepted, and
there are no defects or other conditions which, in the aggregate, materially
and adversely affect the operation or values of such assets. No third party
(including any officer or employee of Seller) has any proprietary interest in
any know-how or other intangible assets used by the Corporation in the conduct
of its business.
4.7 CORPORATE ACTS AND PROCEEDINGS. This Agreement has been duly
authorized by all necessary corporate action on behalf of Seller, has been
duly executed and delivered by authorized officers of Seller, and is a valid
and binding Agreement on the part of Seller that is enforceable against Seller
in accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and to judicial
limitations on the enforcement of the remedy of specific performance and other
equitable remedies.
4.8 NO LIENS OR ENCUMBRANCES. Seller has good and marketable title
to all of the Assets, tangible and intangible, free of any mortgages, security
interests or pledges of any kind whatsoever, except for such property and
assets as may be leased by Seller.
4.9 OBLIGATIONS AND LIABILITIES. Except as otherwise disclosed in
this Agreement or the Exhibits hereto, all of the Assets to be transferred and
conveyed to Buyer pursuant to this Agreement are free and clear of any claim,
lien, encumbrance or any liability of Seller. Other than overdue Channel
Lease payments owed by Seller and to be paid by Buyer in conjunction with the
assignment of the MDS Lease Contracts, Buyer shall not be liable or obligated
to pay, discharge or otherwise satisfy any indebtedness, liability or
obligation of Seller, whether incurred in connection with the operation of the
Business or otherwise; and Seller, for itself, successors and assigns, agrees
to indemnify and hold harmless Buyer, its successors and assigns, from any
such liability or obligation.
4.10 LEGAL PROCEEDINGS AND COMPLIANCE WITH LAW. There is no legal,
administrative, arbitration or other proceeding or governmental investigation
pending or threatened pertaining to Seller which might have a material adverse
effect on the Assets following the Closing Date.
4.11 SELLER'S REPRESENTATIONS TO BUYER ON FRESNO SYSTEM MANAGEMENT.
Seller and its officers agree to perform their duties in a manner that
represents the Buyer's best interests in the development and management of the
Fresno System.
SECTION 5: COVENANTS OF BUYER
As a material inducement to Seller to enter into this Agreement and with
the understanding and expectations that Seller will be relying thereon in
consummating the transactions contemplated hereunder, Buyer hereby represents
and warrants as follows:
5.1 EMPLOYMENT AGREEMENTS. Concurrently with the execution of this
Agreement, Buyer shall execute and deliver written employment agreements with
Fritzsching, Marshall and Corcoran in the exact form of Exhibits 5.1(a), (b)
and (c) hereto.
5.2 CASH CAPITAL CONTRIBUTION. Buyer agrees to develop a Segregated
Bank Account and deposit One Million Two Hundred Thousand Dollars ($1,200,000)
to be used exclusively for the development, construction, completion and
initial operations of the Fresno System. In order to complete the
development, construction and deployment of the Fresno System in an
expeditious manner, Buyer agrees to disburse such Cash Capital Contributions
in the following increments: (1) Three Hundred Thousand Dollars ($300,000)
within seven (7) days of the date of this Agreement as first written above;
(2) an additional Five Hundred Thousand Dollars ($500,000) within sixty (60)
days of the date of this Agreement; payments under items (1) and (2) of this
Section 5.2 and can be made in the form of payments made directly to Network
Systems Technologies, Inc. for engineering services and POP Equipment
specifically designated for the Fresno System; additionally, payments into the
impressed account as specified below will become part of the contribution
requirements outlined in Items (1) and (2) of this Section 5.2; and (3) the
remaining balance due of Four Hundred Thousand Dollars ($400,000) within one
hundred twenty (120) days of the date of this Agreement. Buyer agrees to
establish an Impressed Account in a Fresno area bank within fifteen (15) days
of the date of this contract and to simultaneously deposit the sum of Sixty
Thousand Dollars ($60,000) into such account that is to be used for the
express purpose of ongoing operating expenses for the Fresno System. Buyer
also agrees that upon receipt of monthly itemized expenses by the fifth (5th)
day of each month for the previous month's expenses, to replenish that amount
into the Impressed Account by the tenth (10th) day. Buyer agrees that for the
first six months after the date of this Agreement any checks written from the
Impressed Account that exceed an amount of Ten Thousand Dollars ($10,000)
shall require signatures from both Buyer and Seller. Buyer also agrees that
Buyer's CFO will have signatory authority on the account for the first six
months from the date of this Agreement only for the purpose of signing checks
requiring two signatures as specified above. Buyer also agrees that after the
first six months from the date of this Agreement that signatory authority of
Buyer's CFO will be removed from the Impressed Account and that checks for an
amount greater than Ten Thousand Dollars ($10,000) will require signatures
from Seller's President and Secretary. In the event that the Buyer does not
make the Cash Capital Contributions in the increments as specified in this
Section 5.2, or in the event that any monies are withdrawn from the
aforementioned Segregated Account by Buyer without the express written
approval of Seller's President, Secretary and Treasurer, then Buyer will be
considered in breach of this Agreement. In the event of a Breach of Contract
by violation of the provisions and understandings developed in this Section
5.2, Buyer agrees that the following will AUTOMATICALLY result: (a) all
Transmission Equipment, Antenna Equipment (valued at not more than Fifteen
Thousand Dollars ($15,000), Point of Presence Equipment and Office
Furnishings/Equipment that have been purchased and/or delivered for the Fresno
System will remain in place and Seller will have the option to purchase
Transmission Equipment, Point of Presence Equipment and Office
Furnishings/Equipment at a price determined by a straight line, five year
depreciation schedule and Buyer shall provide five year financing terms at
current market interest rates and the Antenna System Equipment shall remain in
place and become the property of Lessor in accordance with the provisions in
the Channel Lease agreement; (b) the MDS Channel Lease assignments made in
correlation to this Agreement become void and nullified; (c) the office lease
at Fresno is assigned to Seller; (d) the sublease to Buyer for the tower space
and equipment room space at Fresno becomes void and nullified; and (e) all
assets being purchased in this Agreement to Buyer are transferred back to
Seller. In addition to the AUTOMATIC results for Breach of Contract by
violation of the provisions and understandings developed in this Section 5.2,
Buyer also agrees in such event to provide Seller from the Impressed Account
three (3) months operating expenses that consist of the normal monthly
expenses such as tower, equipment room and office space rent, MDS channel
lease payments, utilities, insurance and other miscellaneous monthly expenses
for the period of ninety days from the date of such breach. Buyer
acknowledges that all SkyLynx common stock shares issued to Seller will remain
the property of Seller or its principals.
5.3 POINT OF PRESENCE EQUIPMENT. In addition to the cash capital
contributions to the Fresno System, Buyer agrees to make available to the
Fresno System certain Point of Presence Equipment at such times and in such
quantities and configurations as Buyer shall determine may be reasonable and
necessary for the deployment of such system.
5.4 ADDITIONAL CAPITAL CONTRIBUTIONS. Buyer shall use reasonable
efforts to provide the capital necessary to develop, construct and deploy the
Fresno System in accordance with the provisions of this Section 5; provided,
however, that Buyer shall have the sole and exclusive right to determine the
timing, quantity and form of all capital contribution made to the Fresno
System. Under no circumstance shall Buyer have any liability whatsoever to
Seller, Seller's officers, directors or shareholders, arising from any
agreements contained in this Section 5 or arising from Buyer's determination
of the timing, quantity, form and manner of any capital contributions to the
Fresno System.
5.5 BUYER ASSUMES LEASE OBLIGATIONS OF SELLER. In conjunction with
the assignment of MDS Leases, Buyer agrees to assume all of the Seller's
obligations as Lessee that are established in the Lease Agreements. Buyer
also agrees to make payment within ten (10) days of the date of this Agreement
the lease fees owed by Seller through May 31, 1998. Said fees total Thirteen
Thousand Three Hundred Thirty Three Dollars ($13,333) for the MDS1 lease and
Seven Thousand Two Hundred Dollars ($7,200) for the MDS2A lease.
5.6 BUYER'S OBLIGATION TO SELLER OF OPERATING CONTROL AND MANAGEMENT
OF FRESNO SYSTEM. Buyer agrees that Seller's officers will be directly
responsible for the development and management of the Fresno system,
including, but not limited to hiring and firing staff members, local
advertising and promotional events, marketing and sales of services and
allocation of funds. Buyer also agrees that Seller's officers will report
directly to and coordinate with Buyer's CEO, CFO and COO in the development of
the Fresno System. Any variation from the corporate organization as specified
in this Section 5.6 shall require written approval of both parties to become
effective.
5.7 BUYER'S OBLIGATION TO SELLER OF NETWORK CONTROL. Buyer agrees
that in addition to the Cash Capital Contribution and the delivery and
installation of certain Point of Presence Equipment as specified above in
Sections 5.2 and 5.3 respectively, Buyer will deliver and install the
equipment necessary to develop a Network Operations Center (NOC) in order to
accomplish the network management of the Fresno System. Such NOC equipment
shall not exceed a cost of Ten Thousand Dollars ($10,000). Other systems that
Buyer develops may be managed by the Fresno NOC at Buyer's discretion. Buyer
agrees that Seller's officers will manage the NOC consistent with the
corporate organization as defined above in Section 5.6.
SECTION 6: MISCELLANEOUS
6.1 ATTORNEYS' FEES. In the event there is any litigation or
arbitration between the parties concerning this Agreement, the successful
party shall be awarded reasonable attorneys' fees and litigation or
arbitration costs, including the attorneys' fees and costs incurred in the
collection of any judgment.
6.2 NOTICES. All notices required or permitted hereunder shall be
sufficient if delivered personally or mailed to the parties at the address set
forth below or at such other address as either party may designate in writing
from time to time. Any notice by mailing shall be effective forty-eight (48)
hours after it has been deposited in the United States certified mail, return
receipt requested, duly addressed and with postage prepaid.
6.3 PARTIAL INVALIDITY. If any provisions of this Agreement are in
violation of any statute or rule of law of any state or district in which it
may be sought to be enforced, then such provisions shall be deemed null and
void only to the extent that they may be in violation thereof, but without
invalidating the remaining provisions.
6.4 BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the respective parties hereto, their heirs, personal
representatives, successors and assigns and shall be binding on all persons
appointed to vote as proxies on any of the shares of common stock or voting
securities dedicated to this Agreement.
6.5 WAIVER. No waiver of any breach of any one of the agreements,
terms, conditions or covenants of this Agreement by either party shall be
deemed to imply or constitute a waiver of any other agreement, term, condition
or covenants of this Agreement. The failure of either party to insist on
strict performance of any agreement, term, condition or covenant, herein set
forth, shall not constitute or become construed as a waiver of the rights of
either or the other thereafter to enforce any other default of such agreement,
term, condition or covenant; neither shall such failure to insist upon strict
performance be deemed sufficient grounds to enable either party hereto to
forego or subvert or otherwise disregard any other agreement, term, condition
or covenants of this Agreement.
6.6 GOVERNING LAW. This Agreement and the rights and duties of the
parties shall be construed enforced in accordance with the laws of the State
of California.
6.7 FAX/COUNTERPARTS. This Agreement may be executed by telex,
telecopy or other facsimile transmission, and may be executed in counter
parts, each of which shall be deemed an original, but all of which shall
together constitute one agreement.
6.8 ENTIRE AGREEMENT. This Agreement with the attached exhibits
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof. There are no representations, warranties, conditions
or obligations except as herein specifically provided. Any amendment or
modification hereof shall require written approval of both parties to become
effective.
6.9 TIME. Time is of the essence of this Agreement and each of its
provisions.
IN WITNESS WHEREOF, the parties have signed the Agreement the date and
year first above written.
SKYLYNX COMMUNICATIONS, INC.,
a Colorado corporation,
By: /s/ Joe Morgan
----------------------------------
Joe Morgan, Chief Financial Officer
ATTEST: NADEX WEST, INC.,
a California corporation
/s/ Daniel Marshall, Jr. By: /s/ Till Fritzsching
- ------------------------------- -----------------------------------
Daniel Marshall, Jr., Secretary Till Fritzsching, President
