U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission File No. 33-55254-39
PERIPHERAL CONNECTIONS, INC.
(Exact name of Small Business Issuer as specified in its charter)
NEVADA 87-0485315
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
176 John Street
Toronto, Ontario, Canada M5T1X5
(Address of principal executive offices)
Issuer's telephone number, including area code (416) 593-0859
Check whether the issuer: (1) has 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 registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 14,600,000 shares of $.001 par value
class A common stock outstanding as of September 30, 1998.
Transitional Small Business Disclosure Format (check one): Yes No X
1
<PAGE>
PERIPHERAL CONNECTIONS, INC.
FORM 10-QSB FOR QUARTER ENDED
September 30, 1998
INDEX
PART I - FINANCIAL INFORMATION Page No.
Item 1 Financial Statements
Balance Sheets as of
September 30, 1998 and December 31, 1997 4
Statements of Operations for the
nine month periods ended
September 30, 1998 and 1997 5
Statements of Cash Flows for the
nine month periods ended
September 30, 1998 and 1997 6
Item 2 Management's Discussion and Analysis
and Plan of Operations 7
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 9
------
Item 2 Changes in Securities 9
------
Item 3 Defaults Upon Senior Securities 9
------
Item 4 Submission of Matters to a Vote of
Security Holders 9
Item 5 Other Information 9
------
Item 6 Exhibits and Reports on Form 8-K 9
------
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
In the opinion of the management of Peripheral Connections, Inc. (the
Company) the accompanying unaudited financial statements contain all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial position as of September 30, 1998, the results of operations for
the nine month periods ended September 30, 1998 and 1997, and the cash flows for
the nine month periods ended September 30, 1998 and 1997.
While the Company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these condensed
financial statements be read in conjunction with the financial statements and
the notes included in the Company's latest annual report on Form 10-KSB.
The statement of operations includes the activities of NetKing Limited
for all of 1998. NetKing Limited was acquired as a wholly-owned subsidiary on
April 9, 1998. NetKing is continuing the operations of Skynet 2001 Limited, a
subsidiary of NetKing which was acquired on February 27, 1998.
The balance sheet includes the assets of Skynet Satellite Communication
Corporation ("SSCC") which was acquired as a subsidiary on June 5, 1998. The
transaction has been recorded as a purchase transaction. The Company also has
another subsidiary, Peripheral Canada, Inc. which was formed to assist SSCC in
its Canadian operations.
3
<PAGE>
PERIPHERAL CONNECTIONS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, Dec. 31,
1998 1997
(Unaudited) (Audited)
----------------- -----------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash (overdraft) $ (99,932) $ 10,965
Accounts receivable 41,845 0
Inventory 1,710 0
Prepaid expenses 70,917 0
----------------- -----------------
Total Current Assets 14,540 10,965
OTHER ASSETS
Equipment 65,285 0
Licenses and brand names 7,036,583 0
----------------- -----------------
7,101,868 0
----------------- -----------------
TOTAL ASSETS $ 7,116,408 $ 10,965
================= =================
LIABILITIES & EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 178,678 $ 0
Accrued expenses 302,809 0
Loans payable 326,507 0
----------------- -----------------
Total Current Liabilities 807,994 0
Loans payable* 7,305,805 0
Payable for subsidiary** 424,063 0
----------------- -----------------
7,729,868 0
----------------- -----------------
Total Liabilities 8,537,862 0
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock $0.001 par value
Authorized - 25,000,000 shares
Issued and outstanding 14,600,000 shares
(3,850,000 in 1997) 14,600 3,850
Additional paid-in capital 423,594 282,150
Deficit accumulated during the development stage (1,839,910) (275,035)
Foreign currency adjustment (19,738) 0
----------------- -----------------
Total Stockholders' Equity (Deficit) (1,421,454) 10,965
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 7,116,408 $ 10,965
================= =================
</TABLE>
*Company is in processing of issuing 5,000,000 shares of stock to retire
$6,680,000 of this.
**This liability will be satisfied by issuing 500,000 shares of Regulation S
stock on December 31, 1999, 2000, and 2001. (1,500,000 shares total)
4
<PAGE>
PERIPHERAL CONNECTIONS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 56,950 $ 0 $ 121,481 $ 0
Cost of sales 27,035 0 107,136 0
------------- -------------- ------------- -------------
GROSS PROFIT 29,915 0 14,345 0
Interest income 0 0 174 0
Expenses
Administrative 522,853 81,652 1,027,553 92,205
Depreciation and amortization 187,738 0 401,841 0
Net Interest Expense 0 11,526 0 16,197
------------- -------------- ------------- -------------
710,591 93,178 1,429,394 108,402
------------- -------------- ------------- -------------
Net loss before other (680,676) (93,178) (1,414,875) (108,402)
Finder's fee related to subsidiary
acquisition 0 0 (150,000) 0
------------- -------------- ------------- -------------
Net Loss for Period (680,676) (93,178) (1,564,875) (108,402)
Deficit - beginning of Period (1,159,234) (27,996) (275,035) (12,772)
------------- -------------- ------------- -------------
Deficit - end of Period (1,839,910) (121,174) (1,839,910) (121,174)
Net Loss per Share (.05) (.09) (.14) (.11)
Average shares outstanding used to
calculate net loss per share 14,600,000 1,033,889 11,016,667 1,011,172
</TABLE>
5
<PAGE>
PERIPHERAL CONNECTIONS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the
Nine Months Ended
September 30,
1998 1997
----------------- -----------------
<S> <C> <C>
Cash flows from Operating Activities $ (1,564,875) $ (108,402)
Adjustments to reconcile net loss to cash used by operating activities:
Foreign currency adjustment (19,738) 0
Depreciation 401,841 0
Stock issued for expenses 150,000 105,000
Changes in assets and liabilities:
Accounts receivable (41,845) 0
Inventory (1,710) 0
Prepaid expenses (70,917) 0
Accounts payable and accrued expenses 476,722 1,519
----------------- -----------------
Net cash used by operating activities (670,522) (1,883)
Investing Activities
Loans to related party and accrued interest 0 (143,332)
Purchase of fixed assets (355,326) 0
----------------- -----------------
Net cash used by investing activities (355,326) (143,332)
Financing Activities
Stock and paid-in capital from subsidiary 2,194 0
Cash from subsidiary 445 0
Loan proceeds 1,261,609 0
Loan repayments (349,297) 0
----------------- -----------------
Net cash provided by financing activities 914,951 0
----------------- -----------------
Decrease in cash (110,897) (145,215)
Cash - beginning of period 10,965 163,476
----------------- -----------------
Cash - end of period $ (99,932) $ 18,261
================= =================
</TABLE>
SUPPLEMENTAL INFORMATION
During the nine months ended September 30, 1998, the Company issued
10,000,000 shares of Regulation S stock to acquire a subsidiary. The Company
also issued 750,000 shares of Regulation S stock as a finder's fee valued at
$150,000. The Company's subsidiary acquired assets of $6,720,000 during the
period by incurring loans payable in the same amount.
The Company purchased a subsidiary (SSCC) with net assets of $424,063 by
incurring a liability in the same amount. The liability will be satisfied by
issuing 500,000 shares of the Company's Regulation S stock on December 31,
1999, 2000, and 2001. (1,500,000 shares total)
The Company will pay to the former owners of SSCC 10% of the consolidated
gross sales made in Canada and Hong Kong and 1% of the gross U.S. sales
related to SSCC's product from the closing date through December 31, 1999
with payments due within 30 days of December 31, 1999. For sales in the year
2000, the percent is 6 2/3% for sales in Canada and Hong Kong and .66% of
sales in the U.S. For sales in the year 2001, the percent is 3 1/3% for sales
in Canada and Hong Kong and .33% of sales in the U.S.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
The Company has no operational history and has yet to engage in
business of any kind other than through its subsidiaries. All risks inherent in
a new and inexperienced enterprise are inherent in the Company's business. The
Company is continuing the operations of a subsidiary which was acquired on April
9, 1998 and a subsidiary acquired in June 1998.
On April 9, 1998, the Company beneficially acquired all of the stock of
Netking Limited, an English private limited company ("Netking") from Tomas
George Wilmot ("Seller"), who beneficially owned all of the stock of Netking.
The title holders of Netking were Local Protectors Limited and SNH Cooper, who
held the shares as nominees for Seller. The purchase price paid for the
purchased stock was 10,000,000 newly issued shares of the common stock of the
Company, which is approximately 68.5% of all of the outstanding stock of the
Company after such issuance. Tomas George Wilmot, individually, is the title
holder of all of the 10,000,000 newly issued shares of the Company. There are no
arrangements or understandings among members of both the former and new control
person or their associates with respect to election of directors or other
matters.
On April 9, 1998, the Company beneficially acquired all of the stock of
Netking from Seller, who beneficially owned all of the stock of Netking. There
are two shares of Netking outstanding. Because English law requires two
shareholders, the Company holds title to one share of stock of Netking and the
Company and Tomas Wilmot, as nominee for the Company, jointly hold title to the
other share. Netking is the beneficial owner of Skynet 2001 Limited (formerly
Keymore Limited), an English private limited company ("Skynet"). Skynet owns
intellectual property pertaining to all aspects of the Skynet 2000 in-vehicle
system. The Skynet 2000 system uses communications and security technology
coupled with proprietary software that provides in- vehicle protection, security
and information services using mobile cellular telecommunications. The Skynet
2000 system provides 24 hour monitoring of vehicle security, personal distress
alarm, and impact sensor and information services, as well as normal cellular
telephone capability. The purchase price paid for the purchased stock was
10,000,000 shares of newly issued common stock of the Company, which is
approximately 68.5% of all of the outstanding stock of the Company after such
issuance. The consideration was determined by arm's length negotiations between
the Company and Seller. Prior to the acquisition, there was no material
relationship between the Seller and the Company or any of its affiliates, any
director or officer of the Company, or any associate of any such director or
officer.
A portion of the business of Skynet and Netking acquired by the Company
constitutes equipment and other physical property previously used in the
business of the Seller. The Company intends to continue to use such equipment
and physical property for the same purposes.
During June, the Company purchased a subsidiary, SSCC. The transaction
has been treated as a purchase. SSCC had a loss from operations for 1998 in the
amount of $6,794 and a loss from inception of $37,587. All losses occured prior
to the purchase. SSCC has licensing rights to security tracking boxes for motor
vehicles in Canada and Hong Kong.
AMP Inc., a New York Stock Exchange listed company, and the Company
have signed a letter of intent (Aug. 12, 1998) to effect a strategic alliance
between Skynet 2001 Ltd. (a subsidiary of the Company) and AMP involving the
Skynet 2001 satellite navigation system used for in-car communications,
information, vehicle anti-theft security, vehicle locating and recovery, and
personal protection.
Skynet's existing proprietary software couples GSM (cellular) GPS
(Global Positioning System), SMS (short message service) and a remotely
activated immobilising system. In combination these technologies uniquely `wrap'
a vehicle in an invisible net of radio, electrical,
7
<PAGE>
electronic, mechanical, ultrasonic, telematics, and ever watching satellite
protection that spans national boundaries and continents.
AMP's vast research, development and manufacturing capability in the
diversity of areas combined with its leadership position in the
electrical/electronic interconnections markets puts the Alliance at the cutting
edge of advanced technologies in this field.
Skynet/AMP will add satellite and mobile technologies to a vehicle
manufacturer fitted security system and then permanently watch over it 24 hours
a day 365 days per year.
New developments include: Hands-free vehicle driver interface, Internet
access, Sophisticated mapping, Improved car security, and Medical alerts for
accident victims.
Several vehicle producers are exploring on-board electronic diagnostics
that can be remotely interrogated by telematics. This would enhance their
response to the new EU Environmental Directive demanding a standard engine
management exhaust efficiency diagnosis point in all new cars sold in Europe
from January 2000.
AMP advanced technology is being considered because in addition to
providing satellite tracking with remote activation of a vehicle's security, it
will -
o Permanently monitor all, or any, of a vehicle's electronic and
electrical systems including potential causes of excess emissions and
even mechanical component failure. If a fault occurs the 'green box'
can report it automatically to a central computer.
The computer will download on request to manufacturers or their dealers so
that quickly car owners can be identified and told: 'Your vehicle requires
essential attention. Do not ignore a warning dashboard light.'
The AMP system, designed to last the life of the vehicle will: -
o Enable a manufacturer to remotely interrogate any number of its cars
and receive a computer printout identifying individual vehicles and
their faults.
o Enable interrogation of future developments entering vehicle design and
enhance generic systems with a potential to rectify problems as they
occur.
o Enable some electronic faults to be corrected remotely, like
re-programming an engine management system while the car driver sleeps.
Skynet 2001's Sk>AMP technology is the 'key' because its telematics
link logically to AMP's advanced new trend setting year 2000 vehicle electrical
and electronic systems.
Under the Alliance Slough based AMP Services Ltd Europe, Middle East,
Africa will produce Sk>AMP technology to meet vehicle makers' original equipment
requirements and to supply existing vehicles through Skynet 2001.
Skynet 2001 is to market Sk>AMP worldwide starting in Britain
immediately. And the Alliance is to develop its unique system to protection in
other areas, including hospital, farming, and industrial equipment, sheep and
cattle round-ups, skiing, climbing, 'tagging' prisoners / enforcing curfew
orders, and child safety-security.
The discussions below highlight certain of the more material changes in
results of operations and changes in financial condition for the fiscal nine
month period ended September 30, 1998.
8
<PAGE>
Results of Operations.
During the first three quarters of fiscal 1998 the Company incurred
expenses related to general expense as well as normal operating expenses. The
Company had a loss from operations of $1,414,875. A finder's fee in the amount
of $150,000 in connection with the acquisition of Netking Limited was paid with
Regulation S stock, which was later registered on Form S-8 which was filed on
May 12, 1998.
Financial Condition.
There were no significant changes to the net financial condition of the
Company in the nine month period ended September 30, 1998. Cash decreased by
$110,897 mainly as a result of operating expenses. The Company continues to
believe it has the support of its major stockholders and that financing is
available to meet all requirements.
PART II
Other Information
Item 1. Legal proceedings: None
Item 2. Changes in Securities: None
Item 3. Defaults Upon Senior
Securities: None
Item 4. Submission of Matters to
a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K
None
SIGNATURES
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.
PERIPHERAL CONNECTIONS, INC.
Dated: November 20, 1998
-------------------------------
Tomas George Wilmot, President
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from Peripheral Connections, Inc. September 30, 1998 financial
statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000894557
<NAME> Peripheral Connections, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> (99,932)
<SECURITIES> 0
<RECEIVABLES> 41,845
<ALLOWANCES> 0
<INVENTORY> 1,710
<CURRENT-ASSETS> 14,540
<PP&E> 7,503,709
<DEPRECIATION> (401,841)
<TOTAL-ASSETS> 7,116,408
<CURRENT-LIABILITIES> 807,994
<BONDS> 0
0
0
<COMMON> 14,600
<OTHER-SE> (1,436,054)
<TOTAL-LIABILITY-AND-EQUITY> 7,116,408
<SALES> 121,481
<TOTAL-REVENUES> 121,481
<CGS> 107,136
<TOTAL-COSTS> 107,136
<OTHER-EXPENSES> 1,429,394
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,564,875)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,414,875)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,564,875)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
