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 March 31, 1999
Commission File No. 33-55254-39
SKYNET TELEMATICS 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.)
Link House, 259 City Road London, England EC1V 1JE
(Address of principal executive offices)
Issuer's telephone number, including area code: 44 (171)490-7900
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: 22,507,666 shares of $.001 par value
class A common stock outstanding as of March 31, 1999.
Transitional Small Business Disclosure Format (check one): Yes No X
1
<PAGE>
SKYNET TELEMATICS INC.
FORM 10-QSB FOR QUARTER ENDED
March 31, 1999
INDEX
PART I - FINANCIAL INFORMATION Page No.
Item 1 Financial Statements
Balance Sheets as of March 31, 1999 and December 31, 1998 4
Statements of Operations for the three month periods ended
March 31, 1999 and 1998 5
Statements of Cash Flows for the three month periods ended
March 31, 1999 and 1998 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 Skynet Telematics 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 March 31, 1999, the results of operations for the three month
periods ended March 31, 1999 and 1998, and the cash flows for the three month
periods ended March 31, 1999 and 1998.
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.
3
<PAGE>
SKYNET TELEMATICS INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
------------------ ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash in bank $ 27 $ 20
Accounts receivable 11,995 23,473
Inventory 29,104 830
Prepaid expenses 3,007 37,453
------------------ ------------------
TOTAL CURRENT ASSETS 44,133 61,776
OTHER ASSETS
Furniture and equipment 106,594 75,984
Software and intellectual property rights 6,620,180 6,810,446
------------------ ------------------
6,726,774 6,886,430
------------------ ------------------
$ 6,770,907 $ 6,948,206
================== ==================
LIABILITIES & EQUITY
CURRENT LIABILITIES
Bank overdraft $ 77,293 $ 41,742
Accounts payable 284,136 249,765
Accrued expenses 111,772 161,423
Current portion of loans 951,950 886,652
Interest payable 44,997 23,500
------------------ ------------------
TOTAL CURRENT LIABILITIES 1,470,148 1,363,082
Long-term portion of loans 282,709 282,709
------------------ ------------------
TOTAL LIABILITIES 1,752,857 1,645,791
STOCKHOLDERS' EQUITY
Common Stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 22,507,666 shares (21,944,416 in 1998) 22,508 21,944
Additional paid-in capital 8,495,134 8,092,172
Deficit accumulated during the development stage (3,591,402) (2,902,565)
Accumulated other comprehensive income 91,810 90,864
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 5,018,050 5,302,415
------------------ ------------------
$ 6,770,907 $ 6,948,206
================== ==================
</TABLE>
4
<PAGE>
SKYNET TELEMATICS INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
3/14/90
For the three months (Date of
ended March 31, inception) to
1999 1998 3/31/99
----------------- ----------------- ------------------
<S> <C> <C> <C>
Net sales $ 13,050 $ 18,856 $ 167,701
Cost of sales 96,856 62,707 567,091
----------------- ----------------- ------------------
GROSS LOSS (83,806) (43,851) (399,390)
Bad debt - related party 0 0 171,417
Depreciation and amortization 194,602 54,835 825,555
Research & development 8,693 0 130,822
Net interest expense 22,415 14 65,606
General & administrative expenses 379,321 44,638 1,748,072
----------------- ----------------- ------------------
605,031 99,487 2,941,472
----------------- ----------------- ------------------
NET LOSS BEFORE OTHER (688,837) (143,338) (3,340,862)
OTHER (EXPENSE)
Finder's fee related to subsidiary acquisition 0 0 (250,540)
----------------- ----------------- ------------------
0 0 (250,540)
----------------- ----------------- ------------------
NET LOSS (688,837) (143,338) (3,591,402)
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments 946 0 91,810
----------------- ----------------- ------------------
TOTAL COMPREHENSIVE LOSS $ (687,891) $ (143,338) $ (3,499,592)
================= ================= ==================
Net (loss) per weighted average share $ (.03) $ (.01)
================= =================
Weighted average number of common shares used to compute
net (loss) per weighted average share 22,073,916 13,850,000
================= =================
</TABLE>
5
<PAGE>
SKYNET TELEMATICS INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3/14/90
For the three months (Date of
ended March 31, inception) to
OPERATING ACTIVITIES 1999 1998 3/31/99
----------------- ------------------ ------------------
<S> <C> <C> <C>
Net (loss) $ (688,837) $ (143,338) $ (3,591,402)
Adjustments to reconcile net (loss) to cash
used by operating activities
Stock issued for expenses 0 0 541,287
Depreciation and amortization 194,602 54,835 825,555
Foreign currency adjustments 946 0 91,810
Changes in assets and liabilities:
Accounts receivable 11,478 (14,918) (11,995)
Inventory (28,274) 24,076 (29,104)
Prepaid expenses 34,446 (207,268) (3,007)
Bank overdraft 35,551 0 77,293
Accounts payable 34,371 41,147 284,136
Accrued expenses (49,651) 88,230 111,772
Accrued interest payable 21,497 0 44,997
----------------- ------------------ ------------------
NET CASH USED BY OPERATING ACTIVITIES (433,871) (157,236) (1,658,658)
INVESTING ACTIVITIES
Purchase fixed assets (34,946) (364,627) (443,946)
----------------- ------------------ ------------------
NET CASH (USED)
BY INVESTING ACTIVITIES (34,946) (364,627) (443,946)
FINANCING ACTIVITIES
Proceeds from sale of common stock 403,526 0 1,164,164
Proceeds from convertible debentures 0 0 400,000
Loans 0 546,000 434,134
Loan repayments (41,964) 0 (486,890)
Loans - shareholders 107,262 0 788,587
Cash from subsidiaries 0 0 445
Paid-in capital of subsidiary 0 0 2,191
Debenture repayments 0 0 (200,000)
----------------- ------------------ ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 468,824 546,000 2,102,631
----------------- ------------------ ------------------
INCREASE IN CASH & CASH EQUIVALENTS 7 24,137 27
Cash & cash equivalents at beginning of year 20 10,965 0
----------------- ------------------ ------------------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 27 $ 35,102 $ 27
================= ================== ==================
Cash paid for interest $ 918 $ 0 $ 4,776
================= ================== ==================
</TABLE>
SUPPLEMENTAL ACTIVITIES
During 1997, 550,000 shares of restricted common stock were issued for
services of $55,000 and 2,300,000 shares of restricted stock were issued to
cancel debt of $200,000 and accrued interest of $30,000.
During 1998, the Company issued 10,000,000 shares of Regulation S stock to
acquire a subsidiary, Netking. 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 a
loan payable in the same amount. The loan was converted into equity of
$6,600,000.
The Company through a subsidiary 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% of the 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% of sales in
Canada and Hong Kong and .33% of sales in the U.S.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
This quarterly report on Form 10-QSB contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995,
particularly statements regarding opportunities for expansion, growth of sales,
new product sales, revenues from monitoring services, customer acceptance of new
products, and selling, general and administrative expenses. These
forward-looking statements involve risks and uncertainties, and the cautionary
statement set forth below, identifies important risk factors that could cause
actual results to differ materially from those predicted in any such
forward-looking statements. Such factors include, but are not limited to,
adverse changes in general economic conditions, including adverse changes in the
specific markets for the Company's products, adverse business conditions,
decrease or lack of growth in the automotive industry, adverse changes in
customer order patterns, increased competition, lack of acceptance of new
products, pricing pressures, lack of success in technological advancements,
risks associated with foreign operations, risks associated with the Company's
efforts to comply with the Year 2000 requirements, and other factors.
The Company has a short operating history. 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.
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.
7
<PAGE>
The discussions below highlight certain of the more material changes in results
of operations and changes in financial condition for the fiscal three month
period ended March 31, 1999.
Results of Operations.
The Company has generated revenues from operations since March 1998. The quarter
ended March 31, 1999 therefore incorporates the results for three months of
operations compared to only one month for the quarter ended March 31, 1998.
The Company's consolidated sales for the quarter ended March 31, 1999 were
$13,050 compared to $18,856 in 1998. This decrease is the result of the sales of
the Skynet 2001 unit being reduced in order to focus the Company's resources on
selling the new Sk>AMP range of products (ComRoad products) which were launched
at the end of March 1999. With new funding in place from Regulation S stock
sales completed in May 1999, the Company expects sales to increase throughout
the year. Skynet has orders for 87,000 Sk>AMP units that it anticipates will be
provided to customers over the next 18 months. Revenue from related services
such as monitoring fees, airtime connections, airtime usage, and information
services should also add significantly to the Company's revenues.
The Company's consolidated total cost of sales for the quarter ended March 31,
1999 was $96,856 compared to $62,707 in 1998. The largest component of the total
cost of sales was wages, including social security, for Skynet monitoring
personnel, representing 86% of the total. In 1998, the comparative figure was
only 33% although payments to subcontractors for technical support for the
product, of which there are none in the quarter ended March 31, 1999, made up
another 20%. The increase in the cost of personnel is exaggerated in this
comparison as three months of operations and related costs are included this
quarter compared to one month of operations and related costs in the March 1998
quarter. The actual increase in monthly monitoring personnel costs is below 10%.
Skynet has created a full scale operational monitoring facility in order to
expand that portion of its business and the current facility has the capability
of handling a six fold increase in its current monitoring business. Skynet
anticipates that revenue from monitoring services will provide a substantial
portion of the Company's future consolidated revenues.
The Company's consolidated overhead expenses, including selling and
administrative costs for the quarter ended March 31, 1999 were $605,031. The
comparative figure for 1998 was $99,487 which was significantly lower as it only
represented one month's costs, which had been further reduced by one time
savings made during the acquisition of the UK subsidiaries. Comparison of
individual figures is therefore not meaningful. Depreciation of $194,602 was
charged for the quarter to March 31, 1999, a non-cash item that represents 32%
of total overhead. The largest element of this was the depreciation of Skynet's
intellectual property rights in the amount of $168,847. Research and development
expenditure of $8,693 was incurred during the quarter representing costs
associated with developing and testing the new Sk>AMP range of products.
Interest charges were incurred of $22,415, of which $21,497 was payable to
shareholders in respect to loans made to the Company after March 31, 1998.
General and administrative expenses, totalling $379,321 for the quarter ended
March 31, 1999, includes the largest single component of overhead expenses,
which are wages and salaries, including social security. This amounts to
$182,027, or 30% of total overhead, and represents the wages and salaries of all
of Skynet's personnel, excluding monitoring personnel. The Company and its
subsidiaries have created a management team and other personnel that they
believe to be necessary for the expected growth of the business. Other
significant components of the Company and its subsidiaries' overhead expenses
were marketing costs, professional fees, and facility costs such as rent and
utilities.
8
<PAGE>
The Company's consolidated net loss for the quarter ended March 31, 1999 was
$(688,837) and after foreign currency translation gains of $946, the total
comprehensive loss for the quarter was $(687,891). For the March 1998 quarter,
the consolidated net loss was $(143,338) and there was no foreign currency
translation gain or loss. The loss in 1999 is higher mainly because three months
results are incorporated and 1998 included some one time savings arising on
purchase of the UK subsidiaries.
Financial Condition.
There were no significant changes to the net financial condition of the Company
in the three month period ended March 31, 1999. The working capital deficit
increased by about $125,000 mainly as a result of an increase in accounts
payable and loans. The Company continues to believe it has the support of its
major stockholders and that financing is available to meet all requirements. In
May 1999, the Company raised $1,600,000 by issuing Regulation S shares. This
extra working capital will allow the Company to fully exploit the market
potential for the new Sk>AMP range of products, and expand its business in a
controlled but aggressive manner.
Readiness for Year 2000
The Company is in the process of analyzing its Year 2000 risk. The monitoring
equipment for the Skynet 2001 system will be upgraded to meet Year 2000
compliance at a cost estimated at $20,000. ComROAD has confirmed that its
products provided to Skynet will be Year 2000 compliant and the Company believes
that the monitoring equipment to be purchased from ComROAD to monitor the Sk>AMP
products will be Year 2000 compliant. The Company is expected to complete its
evaluation of its and its subsidiaries systems prior to the end of the second
quarter of 1999, however, the Company does not expect any Year 2000 problems to
have a material impact on the Company's business.
PART II
Other Information
Item 1. Legal proceedings: None
Item 2. Changes in Securities: Sale of Regulation S stock to offshore investors
In January 1999, the Company sold 65,000 shares at $2.00 per share for $130,000.
In January, 39,250 shares were sold at $1.50 per share for $58,875. In January,
75,000 shares were sold at $1.00 per share for $75,000. In February, 10,000
shares were sold at $2.00 per share for $20,000. In March, 375,000 shares were
sold at $.33 per share for $123,750. In March, 4,000 shares were sold at $3.50
per share for $14,000. There were capital raising costs of $8,100 associated
with the transactions.
9
<PAGE>
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.
Skynet Telematics, Inc.
Dated: May 20, 1999
Tomas George Wilmot, President
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from Skynet Telematics, Inc. March 31, 1999 financial statements
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000894557
<NAME> Skynet Telematics, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 27
<SECURITIES> 0
<RECEIVABLES> 11,995
<ALLOWANCES> 0
<INVENTORY> 29,104
<CURRENT-ASSETS> 44,133
<PP&E> 7,552,329
<DEPRECIATION> (825,555)
<TOTAL-ASSETS> 6,770,907
<CURRENT-LIABILITIES> 1,470,148
<BONDS> 0
0
0
<COMMON> 22,508
<OTHER-SE> 4,995,542
<TOTAL-LIABILITY-AND-EQUITY> 6,770,907
<SALES> 13,050
<TOTAL-REVENUES> 13,050
<CGS> 96,856
<TOTAL-COSTS> 96,856
<OTHER-EXPENSES> 605,031
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,415
<INCOME-PRETAX> (688,837)
<INCOME-TAX> 0
<INCOME-CONTINUING> (688,837)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (688,837)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
