<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-24687
SKYLYNX COMMUNICATIONS, INC.
-------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-1360029
- -------------------------------- ---------------------
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification number
600 South Cherry Street, Suite 305, Denver, Colorado 80222
------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 316-0400
103 Sarasota Quay, Sarasota, Florida 34236
-----------------------------------------------------
(Former Name or Address if Changed Since Last Report)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the Issuer was required to file such reports), and
(2) has been subject to filing requirements for the past 90 days. Yes X
No -----
----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the Registrant has filed all documents and reports
required to be filed by Sections 12, 13, or 15(d) of the Exchange Act after
the distribution of securities under a plan confirmed by a court. Yes ___
No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
As of May 20 , 1999, the Company had 10,941,081 shares of its $0.001
par value common stock outstanding.
Transitional Small Business Disclosure Format (Check one). Yes ___ No X
----
<PAGE>
<PAGE>
INDEX
-----
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of March 31, 1999 2
Condensed Consolidated Statements of Operations for the
three month periods ended March 31, 1999 and March 31,
1998 and the period from inception (July 29, 1997)
to March 31, 1999 3
Condensed Consolidated Statements of Cash Flows for the
three month periods ended March 31, 1999 and March
31, 1998 and the period from inception (July 29,
1997) to March 31, 1999 4
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's discussion and analysis of financial
condition and results of operations
Liquidity and Capital Resources 7
Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET -- MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 843,365
Prepaid expenses and other current assets 269,536
------------
Total current assets 1,112,901
PROPERTY AND EQUIPMENT, net 1,728,989
INTANGIBLE ASSETS, net of accumulated
amortization of $11,790 94,603
OTHER ASSETS, net of accumulated amortization
of $41,238 934,704
------------
Total assets $ 3,871,197
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of note payable $ 25,000
Accounts payable 356,057
Accrued liabilities 184,476
Deposits on unissued shares of common stock and
preferred stock 348,093
------------
Total current liabilities 913,626
------------
COMMITMENTS AND CONTINGENCIES
NOTE PAYABLE, net of current maturities 25,000
STOCKHOLDERS' EQUITY:
Preferred stock 3,978,119
Common stock 10,889
Additional paid-in capital 7,786,972
Deficit accumulated during development stage (8,843,409)
------------
Total stockholders' equity 2,932,571
------------
Total liabilities and stockholders' equity $ 3,871,197
============
</TABLE>
Accompanying notes are an integral part of this consolidated balance sheet
<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
AND THE PERIOD FROM INCEPTION (JULY 29, 1997) TO MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
from Incep-
Three Month Period Ended tion (July
------------------------ 29, 1997)
March 31, March 31, to March
1999 1999 31, 1999
------------ ---------- ------------
<S> <C> <C> <C>
REVENUES $ 67,888 $ - $ 75,786
SELLING, GENERAL AND ADMINIS-
TRATIVE EXPENSES 3,360,606 325,465 8,670,378
------------- ------------ ------------
OPERATING LOSS (3,292,718) (325,465) (8,594,592)
NET INTEREST INCOME 2,895 2,432 20,999
------------- ------------ ------------
NET LOSS BEFORE PROVISION FOR
INCOME TAXES (3,289,823) (323,033) (8,573,593)
PROVISION FOR INCOME TAXES - - -
------------- ------------ ------------
NET LOSS (3,289,823) (323,033) (8,573,593)
PREFERRED STOCK DIVIDENDS (239,642) - (279,401)
ACCRETION OF BENEFICIAL CONVERSION
FEATURE OF PREFERRED STOCK (138,442) - (211,471)
------------- ------------ ------------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS $ (3,667,907) $ (323,033) $(9,064,465)
============= ============ ============
NET LOSS PER SHARE-BASIC $ (0.35) $ (0.04)
NET LOSS PER SHARE-DILUTED $ (0.35) $ (0.04)
SHARES USED IN COMPUTING NET LOSS
PER SHARE-BASIC 10,572,168 8,772,189
SHARES USED IN COMPUTING NET LOSS
PER SHARE-DILUTED 10,572,168 8,772,189
</TABLE>
Accompanying notes are an integral part of these consolidated statements
<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
AND THE PERIOD FROM INCEPTION (JULY 29, 1997) TO MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
from Incep-
Three Month Period Ended tion (July
------------------------ 29, 1997)
March 31, March 31, to March
1999 1999 31, 1999
------------ ---------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,289,823) $ (323,033) $(8,573,593)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities-
Common stock issued for
intellectual property con-
tributed by stockholders - - 8,938
Common stock issued for
services 1,971,209 - 3,742,827
Depreciation and amortization 148,801 20,948 415,007
Changes in operating assets
and liabilities; excluding
effects of purchases of assets-
Prepaid expenses and other
current assets (207,548) - (227,683)
Other assets - - 91,772
Accounts payable (38,105) 27,879 263,265
Accounts payable, related
party - - (391,299)
Accrued liabilities (3,306) - 356,706
Other current liabilities - (18,492) 6,674
------------- ------------ ------------
Net cash used in operating
activities (1,418,772) (292,698) (4,307,386)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (138,302) (84,605) (1,408,391)
Purchases of assets (497,928) - (497,928)
------------- ------------ ------------
Net cash used in investing
activities (636,230) (84,605) (1,906,319)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Recapitalization - - 620,061
Proceeds from the issuance of
preferred stock, net of offering
costs 1,256,271 - 4,996,678
Proceeds from the issuance of
common stock 232,939 - 232,939
Proceeds from the conversion of
Series A warrants 506,232 - 506,232
Deposits on unissued shares 440,000 - 851,160
Reimbursement of deposits on unissued
shares (50,000) - (50,000)
Principal debt payments - - (100,000)
------------- ------------ ------------
Net cash provided by financing
activities 2,385,442 - 7,057,070
------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH 330,440 (377,303) 843,365
CASH, beginning of period 512,925 628,110 -
------------- ------------ ------------
CASH, end of period $ 843,365 $ 250,807 $ 843,365
============= ============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for-
Interest $ - $ 4,043 $ 4,626
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Debt assumed in exchange for
license rights $ - $ - $ 100,000
Debt assumed in acquiring equip-
ment $ - $ - $ 482,299
Issuance of common stock for
property and equipment $ - $ - $ 117,750
Common stock issued for acquired
assets $ 299,547 $ - $ 559,797
Shares issued on deposits $ 503,068 $ - $ 503,068
</TABLE>
Accompanying notes are an integral part of these consolidated statements
<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and note disclosures normally
included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to those rules and regulations, although Skylynx Communications,
Inc. and subsidiaries (collectively, the Company) believes that the
disclosures made are adequate to make the information presented not
misleading. In the opinion of the Company's management, these unaudited
condensed consolidated financial statements contain all adjustments that
are necessary to present fairly the financial position as of March 31,
1999, and the results of operations for the three-month periods ended March
31, 1999 and 1998. All such adjustments are of a normal, recurring nature.
It is suggested that these condensed consolidated financial statements
be read in conjunction with the financial statements and the notes thereto
included in the Company's latest shareholders' annual report (Form 10-KSB).
2. LIQUIDITY:
---------
The Company incurred operating losses for the three-month periods
ended March 31, 1999 and 1998. Management plans to obtain future funding
from outside investors and financial institutions. Management believes
that this funding will allow the Company to increase its expansion efforts,
which in turn, should generate increased revenues and enable the Company to
continue to meet its obligations. The Company has been advised by its
independent certified public accountants that, if this contingency has not
been resolved prior to the completion of their audit of the Company's
financial statements for the year ending December 31, 1999, their auditors'
report on those financial statements may be modified for that contingency.
3. PURCHASES OF ASSETS:
-------------------
On February 2, 1999, the Company purchased certain assets of
Interaccess Corporation (Interaccess). The assets purchased included
property and equipment, a covenant not-to-compete and a customer list.
This acquisition was accounted for as a purchase and has been reflected in
the Company's condensed consolidated financial statements from the date of
acquisition. The consideration paid in this transaction was $195,385 in
cash and 25,607 shares of common stock with a fair value of $195,385.
Intangible assets resulting from the asset purchase are stated net of
accumulated amortization and amortization is provided using the straight-
line method over two years.
On March 23, 1999, the Company purchased certain assets of Continet.
The assets purchased included accounts receivable, inventory, property and
equipment, goodwill and a covenant not to compete. Liabilities assumed
were accounts payable and deferred income. This acquisition was accounted
for as a purchase and has been reflected in the Company's condensed
consolidated financial statements from the date of acquisition. The
consideration paid in this transaction was $343,379 in cash, a promissory
note in the amount of $50,000, and 19,110 shares of common stock with a
fair value of $104,162. Intangible assets resulting from the asset
purchase are stated net of accumulated amortization and amortization is
provided using the straight-line method over three years.
4. COMMON STOCK:
------------
On January 1, 1999, the Board of Directors (the Board) issued 450,000
shares of common stock as signing bonuses for three employees and 125,000
shares of common stock in exchange for services. 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.
On January 7, 1999, the Board issued 121,355 shares of common stock in
exchange for services. 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.
On January 21, 1999, the Board issued 3,919 shares of common stock in
exchange for services. 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.
On January 31, 1999, the Company issued and sold 263,158 units to one
investor at a price of $1.90 per unit, for aggregate consideration of
$500,000. Each unit sold in this offering consisted of one share of the
Company's common stock, one warrant exercisable for three years to purchase
one additional share of common stock at a price of $6.00 per share, and one
warrant exercisable for three years to purchase an additional share of
common stock at an exercise price of $8.00 per share.
5. UNIT OFFERINGS:
--------------
Series A
- --------
In January 1999, the Company, through a private placement offering,
sold 79,591 units to qualified investors for $4.00 per unit. 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 has a par value of
$0.01 per share and a dividend rate of 10 percent. Each share of preferred
stock is convertible into one share of the Company's $.001 par value common
stock at the option of the stockholder. 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, or (2) once the Company's common
stock publicly trades above $6.00 per share for 10 consecutive trading
days. The preferred stock has a liquidation preference of $4.00 per share.
As of March 31, 1999, the Company had accrued but unpaid dividends of
$264,647.
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 30 days written
notice at $.01 per warrant.
During the three-month period ended March 31, 1999, the Company
offered to all investors who purchased units in the 1998 Private Offering,
the opportunity to exercise all Class A warrants to purchase shares of the
Company's common stock at a reduced exercise price of $2.00 per share upon
the surrender to the Company for cancellation all Class B warrants.
As of March 31, 1999, 263,150 shares of common stock were issued for total
consideration of $526,300.
Series B
- --------
In January 1999, the Company completed the sale to one accredited
investor of 600 shares of Series B convertible preferred stock, 15,000
shares of common stock and warrants exercisable to purchase, in the
aggregate, 120,000 shares of common stock at an exercise price of $3.00 per
share. The aggregate purchase price for the securities was $600,000.
The Company's Series B convertible preferred stock has a par value of
$0.01 per share. Each share of preferred stock is convertible into shares
of common stock at a rate of $3.00 per share of common stock. Each Class A
warrant entitles the holder to purchase one share of common stock at $3.00
per share beginning on the date of issuance and the warrants expire three
years from the date of issuance. The preferred stock has a liquidation
preference of $1,000.00 per share. As of March 31, 1999, the Company had
accrued but unpaid dividends of $12,500.
Series C
- --------
During the three-month period ended March 31, 1999, the Company,
through a private placement offering, sold 207,750 units to qualified
investors for $4.00 per unit for proceeds of $831,000. Each unit consisted
of one share of Series C convertible preferred stock.
The Company's Series C convertible preferred stock has a par value of
$0.01 per share and a dividend rate of 10 percent. Each share of preferred
stock is convertible into one share of the Company's $.001 par value common
stock at the option of the stockholder. 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 third anniversary of
the date of issue. The preferred stock has a liquidation preference of
$4.00 per share. As of March 31, 1999, the Company had accrued but unpaid
dividends of $2,254.
6. PRO FORMA RESULTS OF OPERATIONS
-------------------------------
The following pro forma condensed consolidated statements of
operations for the three-month periods ended March 31, 1999 and 1998,
includes the results of the Company and Interaccess as if the acquisition
had occurred as of January 1, 1998. The pro forma condensed consolidated
statements of operations may not be comparable to and may not be indicative
of the Company's post-acquisition results of operations.
<TABLE>
<CAPTION>
Three-Month Period Ended
--------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues $ 99,141 $ 118,912
Net loss $ 3,696,631 $ 382,758
Net loss per share-basic $ 0.35 $ 0.04
Shares used in computing net
loss per share-basic 10,581,557 8,797,796
</TABLE>
7. SUBSEQUENT EVENTS:
-----------------
In April 1999, the Company completed a private offering of 697,500
shares of Series C convertible preferred stock at a private offering price
of $4.00 per share. The aggregate gross proceeds for the foregoing
securities were $2,790,000.
In May 1999, the Company completed a private offering of 10,000 shares
of Series D convertible preferred stock at a private offering price of
$1,000 per share. Each share of Series D convertible preferred stock is
convertible into shares of common stock at a rate of $3.00 per share of
common stock. Series D investors also received 305,880 warrants
exercisable for one year to purchase 305,880 shares of common stock at an
exercise price of $8.17 per share. The aggregate gross proceeds for the
foregoing securities were $10,000,000.
In May 1999, the Company also completed a private offering of 3,000
shares of Series E convertible preferred stock at a private offering price
of $1,000 per share. Each share of Series E convertible preferred stock is
convertible into shares of common stock at a rate of $3.00 per share of
common stock. Series E investors also received 91,764 warrants exercisable
for one year to purchase 91,764 shares of common stock at an exercise price
of $8.17 per share. The aggregate gross proceeds for the foregoing
securities were $3,000,000.
Effective April 28, 1999, the Company acquired substantially all of
the assets of Simply Internet, Inc., an ISP operating in the San Diego,
California area and serving approximately 6,000 customers. The purchase
price for this acquisition was approximately $2,123,775 in cash.
Effective April 29, 1999, the Company acquired substantially all of
the assets of Net Asset, LLC, an ISP operating in the Fresno, California,
area and serving approximately 450 customers, the majority of which are
business customers. The purchase price for this acquisition was
approximately $1,175,000 in cash.
Effective May 7, 1999, the Company acquired substantially all of the
assets of SeaTac. Net, Inc., an ISP operating in the Seattle, Washington
area and serving approximately 900 customers. The purchase price for this
acquisition was approximately $400,000 in cash and stock.
The Company has also entered into Binding Letters of Intent to acquire
substantially all of the assets of two additional ISPs serving
approximately 7,000 customers combined. These Binding Letters of Intent
contemplate the execution and delivery of formal definitive agreements,
the consummation of each of which is subject to numerous conditions,
including the completion of satisfactory due diligence.
As part of the confirmed Plan of Reorganization for Paradise Cable
Corporation, the Company has agreed to acquire substantially all of the
assets of Paradise Cable Corporation in consideration of the issuance of
(i) 220,000 shares of the Company's common stock; and (ii) the assumption
by the Company of approximately $900,000 of indebtedness remaining to be
paid to the Federal Communications Commission (FCC) in connection with the
issuance of various multi-point distribution system licenses (MDS) and
multi-point multi-channel distribution licenses (MMDS).
<PAGE>
<PAGE>
SKYLYNX COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 -- Forward-Looking Statements
- ------------------------------------
In addition to historical information, this Quarterly Report contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and are thus prospective. The
forward-looking statements contained herein are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those reflected in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, competitive
pressures, changing economic conditions, those discussed in the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and other factors, some of which will be outside
the control of the Company. Readers are cautioned not to place undue
reliance on these forward-looking statements to reflect events or
circumstances that arise after the date hereof. Readers should refer to
and carefully review the information in future documents the Company files
with the Securities and Exchange Commission.
<PAGE>
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Since its inception, the Company has relied principally upon the
proceeds of private equity financings to fund its working capital
requirements. The Company has generated only minimal revenues from
operations to date. In January 1999, the Company issued and sold to one
investor 263,158 units at a price of $1.90 per unit, for aggregate
consideration of $500,000. Each unit sold in this offering consisted of
one share of the Company's common stock, one warrant exercisable for three
years to purchase one additional share of common stock at a price of $6.00
per share, and one warrant exercisable for three years to purchase one
additional share of common stock at a price of $8.00 per share.
In January 1999, the Company also completed the sale to one accredited
investor of 600 shares of Series B convertible preferred stock, 15,000
shares of common stock and warrants exercisable to purchase, in the
aggregate, 120,000 shares of common stock at an exercise price of $3.00 per
share. The aggregate purchase price for the foregoing securities was
$600,000.
In April 1999, the Company completed a private offering of 697,500
shares of Series C convertible preferred stock at a private offering price
of $4.00 per share. The aggregate gross proceeds for the foregoing
securities were $2,790,000.
In May 1999, the Company completed a private offering of 10,000 shares
of Series D convertible preferred stock at a private offering price of
$1,000 per share. Each share of Series D convertible preferred stock is
convertible into shares of common stock at a rate of $3.00 per share of
common stock. Series D investors also received 305,880 warrants
exercisable for one year to purchase 305,880 shares of common stock at an
exercise price of $8.17 per share. The aggregate gross proceeds for the
foregoing securities were $10,000,000.
In May 1999, the Company also completed a private offering of 3,000
shares of Series E convertible preferred stock at a private offering price
of $1,000 per share. Each share of Series E convertible preferred stock is
convertible into shares of common stock at a rate of $3.00 per share of
common stock. Series E investors also received 91,764 warrants exercisable
for one year to purchase 91,764 shares of common stock at an exercise price
of $8.17 per share. The aggregate gross proceeds for the foregoing
securities were $3,000,000.
At March 31, 1999, the Company had total assets of $3,871,197. The
assets at March 31, 1999 consisted principally of cash of $843,365, prepaid
expenses and other current assets of $269,536, property and equipment of
$1,728,989, net of accumulated depreciation, intangible assets of 94,603,
net of accumulated amortization, and other assets of $934,704, net of
accumulated amortization.
At March 31, 1999, the Company had total liabilities of $913,626. The
liabilities at March 31, 1999 consisted principally of accounts payable of
$356,057 accrued liabilities of $184,476, and deposits on unissued shares
of common stock and preferred stock of $348,093.
Stockholders' equity at March 31, 1999 was $2,932,571. The Company
will require substantial additional capital for the acquisition of
additional Internet Service Providers ("ISPs") as well as for the continued
deployment of its current ISP networks. The precise timing of the
Company's future capital requirements cannot be accurately predicted at
this time. The Company will require additional financing through the sale
of equity or debt securities in the future. The Company currently has no
commitments for any additional financing and there can be no assurance that
such commitments can be obtained, and, if so, on terms acceptable to the
Company. 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 capital
as needed, the Company may be required to reduce the scope of its
operations, which would have a material adverse impact upon the Company's
business financial condition and results of operations.
Results of Operations
For the three month period ended March 31, 1999, the Company had
revenues of $67,888, consisting primarily of subscriber revenues received
for Internet access services provided. The Company had no revenues from
continuing operations for the three month period ended March 31, 1998.
Selling, general and administrative expenses for the three month
period ended March 31, 1999 increased to $3,360,606 from $325,465 for the
three month period ended March 31, 1998. The increase was due to the
Company's continued activities, which consisted primarily of efforts to
purchase or otherwise acquire ISPs in selected markets, efforts to purchase
or otherwise acquire wireless frequencies for use in the development and
deployment of 2-way wireless data networks, development and
commercialization of the Tampa and Fresno networks and non-cash
compensation expense related to common stock grants to certain directors
and officers of the Company. These activities resulted in a net loss for
the three month period of $3,289,823.
Subsequent Events - Acquisitions
Effective April 28, 1999, the Company consummated an Asset Purchase
Agreement pursuant to which it acquired substantially all of the assets of
Simply Internet, Inc., an ISP operating in the San Diego, California area
and serving approximately 6,000 customers. The purchase price for this
acquisition was approximately $2,123,775 in cash.
Effective April 29, 1999, the Company consummated an Asset Purchase
Agreement pursuant to which it acquired substantially all of the assets of
Net Asset, LLC, an ISP operating in the Fresno, California area and serving
approximately 450 customers, the majority of which are business customers.
The purchase price for this acquisition was approximately $1,175,000 in
cash.
Effective May 7, 1999, the Company consummated an Asset Purchase
Agreement pursuant to which it acquired substantially all of the assets of
SeaTac.Net, Inc., an ISP operating in the Seattle, Washington area and
serving approximately 900 customers. The purchase price for this
acquisition was approximately $400,000 in cash and stock.
The Company has also entered into Binding Letters of Intent to acquire
substantially all of the assets of two additional ISPs serving
approximately 7,000 customers combined. These Binding Letters of Intent
contemplate the execution and delivery of formal definitive agreements, the
consummation of each of which is subject to numerous conditions, including
the completion of satisfactory due diligence.
Year 2000 Issue
The Year 2000 Issue is essentially the result of computer programs
being written using two digits rather than four to define the year. Any of
the Company's information technology ("IT") systems 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
miscalculation causing disruption of operations; including among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. The problem has the
potential to affect "non-IT" systems, that is, operating and control
systems that rely on embedded microprocessors. Embedded microprocessors
have interfaces that are inaccessible to the user and which may contain a
date function that could trigger a malfunction. In addition, like every
other business enterprise, the Company is at risk from Year 2000 Issue
failures on the part of its major business counterparts, including
suppliers, distributors, and customers, as well as potential failures in
public and private infrastructure services, including electricity, water,
gas, communications, and financial services. System failures could
adversely affect operations and financial results throughout the Company.
Management has implemented a multi-phase program to address the Year
2000 Issue. These efforts are coordinated through a senior level task
force and by local task forces at each operating location.
Primary IT Systems - During 1998, the Company assessed its primary IT
systems including its accounting computing system, hardware and software.
The Company determined that its system was and is Year 2000 compliant.
Non-IT Systems - The Company is continuing its inventory and
assessment of systems with embedded technology. Its review of other
systems is being conducted with manufacturers and suppliers of the other
systems. Most of the equipment has been certified by the supplier to be
Year 2000 compliant.
Third Parties - Further, the Company has initiated formal
communications with its significant suppliers, customers, and critical
business partners to determine the extent to which the Company may be
vulnerable in the event those parties fail to properly remediate their own
Year 2000 Issues. While the Company is not presently aware of any such
significant exposure, there can be no guarantee that the systems of third
parties on which the Company relies will be converted in a timely manner,
or that a failure to properly convert by another company would not have a
material adverse effect on the Company.
Costs - The Company has incurred only minimal costs related to its
Year 2000 Issue. The estimated additional costs to complete the project
are expected to be approximately $25,000. All of these costs include both
incremental costs incurred plus internal costs that have been redeployed
from other activities.
The Company also relies, both domestically and internationally, upon
government agencies, utility companies, telecommunications services, and
other service providers outside the Company's control. There is no
assurance that such suppliers, governmental agencies, or other third
parties will not suffer Year 2000 business disruption. Such failures could
have a material adverse effect on the Company's financial conditional and
results of operations.
The Company's program calls for the development of contingency plans
if the results of testing mission-critical systems identify a business
function risk. In addition, as a normal course of business, the Company
maintains and deploys contingency plans to address various other potential
business interruptions. These plans may be applicable to address the
interruption of support provided by third parties resulting from their
failure to be Year 2000 ready.
The Company may periodically revise its Year 2000 plans as interim
steps are completed and as new information is learned. In addition, this
description of the Company's efforts involves estimates and projections of
future events and activities. These estimates and projections are subject
to change as work continues, and such changes could be substantial.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has previously disclosed the various items of litigation
in which it has been involved. In the three month period ended March 31,
1999, there occurred developments in the pending litigation involving
Paradise Cable Corporation and its parent corporation and related civil
actions previously delineated (hereafter collectively the "Paradise Cable
Litigation"). The Bankruptcy Court in the pending Chapter 11 Bankruptcy
Proceeding of Cable Corporation of America confirmed the Plan of
Reorganization (the "Plan") which, when consummated, will result in the
dismissal of all of the related Paradise Cable Litigation. As part of the
confirmed Plan, the Company has agreed to acquire substantially all of the
assets of Paradise Cable Corporation in consideration of the issuance of
(i) $220,000 shares of the Company's Common Stock; and (ii) the assumption
by the Company of approximately $900,000 of indebtedness remaining to be
paid to the Federal Communications Commission ("FCC") in connection with
the issuance of various multi-point distribution system licenses ("MDS")
and multi-point multi-channel distribution licenses ("MMDS"). While there
can be no assurance, the Company expects to consummate the Plan and the
acquisition of the Paradise Cable Corporation assets within 30 days. As
part of the consummation of the Plan, all of the related Paradise Cable
Litigation will be dismissed.
Item 2. Changes in Securities
None.
Item 3. Default Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
--------
None.
Reports on Form 8-K:
-------------------
None.
<PAGE>
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities and Exchange
Act, the Registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SKYLYNX COMMUNICATIONS, INC.
Dated: May 20, 1999 By: /s/ Jeffery A. Mathias
------------ -----------------------------
Jeffery A. Mathias, President
Dated: May 20, 1999 By: /s/ James Maurer
------------ -----------------------------
James Maurer, Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGES 2 AND 3 OF THE COMPANY'S FORM 10-QSB FOR THE THREE MONTHS ENDED MARCH 31,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
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<PERIOD-END> MAR-31-1999
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0
3,978,119
<COMMON> 10,889
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