U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
Annual Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year Commission File No. 33-55254-39
ended December 31, 1998
SKYNET TELEMATICS INC.
(Name of Small Business Issuer in Its Charter)
Nevada 87-0485315
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
Link House, 259 City Road, London, England EC1V 1JE
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 44 (171) 490-7900
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
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 .
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year: $154,651
Aggregate market value of voting stock held by non-affiliates of registrant
(based on the last sale price on April 14, 1999) : $25,558,062
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date: 22,060,500 shares of $.001
par value Class A common stock outstanding as of April 10, 1999.
Transitional Small Business Disclosure Format: Yes No X
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The symbol (#) indicates British Pound Sterling.
PART I
Item 1. Business
Skynet Telematics Inc., formerly known as Peripheral Connections, Inc.
(the "Company") was incorporated under the laws of Nevada on March 14, 1990. The
Company beneficially owns all of the stock of Netking Limited, an English
private company ("Netking") and all of the stock of Peripheral Canada, Inc., a
Delaware corporation ("PCI"). Prior to the acquisition of Netking the Company
had no significant operations or assets. The Company has no significant
operations nor does it hold any significant assets other than the stock of
Netking and PCI. Netking has no significant operations other than beneficial
ownership of all of the stock of Skynet 2001 Limited, an English private company
("Skynet").
Skynet is in the business of the development, marketing, and
distribution of integrated modular automotive telematic systems and the
providing of monitoring services to users of those products. Automotive
telematic systems combine the technologies for mobile phones (GSM) and global
positioning satellite systems (GPS) to enable customers to identify the exact
location and status information about vehicles, to receive certain theft
protection measures through the monitoring station, and to receive a variety of
information through communication with the monitoring station. These devices can
be used by businesses to locate and manage fleets of vehicles of various kinds
and by individuals for their automobiles for security purposes, emergencies and
access to other information available through the monitoring station. For a
further description of Skynet's business and other information regarding Skynet,
see "Skynet 2001 Limited" below.
Recent Developments
Acquisition
On March 19, 1998, the Company entered into a Stock Purchase and Sale
Agreement whereby the Company agreed to issue 10,000,000 shares of the Company
in consideration for all of the stock of Netking from Tomas George Wilmot
("Seller"), who beneficially owned all of the stock of Netking. The
consideration was determined by arm's length negotiations between the Company
and Seller. On April 9, 1998, the Company beneficially acquired all of the stock
of Netking from Seller.
Netking is the beneficial owner of Skynet 2001 Limited, an English
private limited company, formerly known as Keymore Limited ("Skynet"). Skynet
owns intellectual property comprised of all and any patents, trade marks,
copyright, know-how, computer know-how and technical documentation pertaining to
all aspects of a product known as the Skynet 2001 in-vehicle system, as
described below under "Products and Services," including all enhancements (the
"IPR"). The intellectual property owned by Keymore was originally conceived by
Mr. Mogens Birkelund, the sole beneficial owner of Comware APS, a Danish
corporation. Mr. Birkelund and Comware APS jointly assigned certain intellectual
property to Skynet Services Limited ("SSL") on May 13, 1996. The IPR was
purchased by Skynet, which was formed on January 21, 1998, in a liquidation
proceeding concluded February 2, 1998 from SSL. The stock of Skynet was
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subsequently purchased by Netking, which was formed on February 5, 1998. Netking
purchased the stock of Skynet for a #4,000,000 unsecured promissory note. The
prior owner of Skynet was not affiliated with Seller or the Company.
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 G. Wilmot, as nominee for the Company, jointly
hold title to the other share. There are also two shares of Skynet outstanding.
Netking holds title to one share of stock of Skynet and NetKing and SNH Cooper,
as nominee for Netking, jointly hold title to the other share.
The number of shares held by all of the Company's shareholders prior to
the transaction was less than 33% of the total shares outstanding upon
completion of the transaction. Consequently, substantial dilution of percentage
equity ownership of the then present shareholders resulted from the acquisition
of Netking.
The 10,000,000 shares issued in the transaction were issued pursuant to
Regulation S under the Securities Act of 1933 ("1933 Act"), and were not
available for resale in the United States for a period of one year. In addition,
these securities are "restricted" securities under the 1933 Act and may only be
resold after the one year period, if registered under the 1933 Act, or in
accordance with Rule 144 promulgated under the 1933 Act, or another exemption
from registration thereunder.
Netking desired to establish a public trading market for its
securities and therefore consolidated its operations with the Company in order
to avoid possible adverse consequences of undertaking its own public offering.
(Such consequences might include expense, time delays or loss of voting
control.) As part of the transaction, the Company was required to issue a
significant number of additional shares, and control of the Company was
transferred to Mr. Wilmot.
Skynet Satellite Communications Corporation Acquisition
The Company on May 29, 1998, formed PCI for the purpose of acquiring
all of the stock of Skynet Satellite Communications Corporation, an Alberta
registered company ("SSCC"). PCI acquired the stock of SSCC on June 5, 1998.
SSCC has the exclusive license to manufacture and sell the Skynet 2001 system, a
product of Skynet, in Canada and Hong Kong. The Company has agreed to pay the
following to the prior owners of SSCC in consideration for the SSCC stock: (i)
1,500,000 shares of the Company, which shares will be issued pursuant to
Regulation S, and which shares will be issued in equal installments of 500,000
on December 31, 1999, 2000, and 2001, (ii) ten percent (10%) of the consolidated
gross sales made in Canada and Hong Kong and one percent (1%) of the gross
United States' sales from the Skynet 2001 product from June 5, 1998 through
December 31, 1999, (iii) six and two-thirds percent (6 2/3%) of the consolidated
gross sales made in Canada and Hong Kong and two-thirds of one percent (.66%) of
the gross United States' sales from the Skynet 2001 product in the year 2000,
and (iv) three and one-thirds percent (3 1/3%) of the consolidated gross sales
made in Canada and Hong Kong and one-third of one percent (.33%) of the gross
United States' sales from the Skynet 2001 product in the year 2001.
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ComROAD Distribution Agreement
On March 24, 1999, Skynet entered into a Strategic Alliance,
Distribution, License and Cooperation Agreement with ComROAD AG ("ComROAD"),
which gives Skynet the exclusive rights, subject to meeting certain sales goals,
to distribute certain products in the United Kingdom, Ireland, California,
Oregon, Washington, and British Columbia. The range of products to be produced
through this agreement are specifically designed for vehicle fleet management.
Skynet will reconfigure the ComROAD products to include car security and vehicle
information management, and sell them under the Sk>AMP trademark. The agreement
also provides for the exclusive licensing of the know-how that will permit
Skynet to facilitate the manufacture of the Sk>AMP products to Original
Equipment Manufacturers ("OEM") in the United Kingdom, allowing vehicles to be
outfitted with the Sk>AMP products as a factory fitted standard.
The agreement has a ten year term, however, ComROAD may terminate the
exclusivity of the distributorship grant and/or the license grant or terminate
the distributorship grant in its entirety if Skynet does not meet certain sales
goals.
Skynet 2001 Limited
Netking, the parent company of Skynet, has no significant operations
nor does it hold any significant assets other than Skynet stock. Skynet is
currently marketing and selling integrated modular advanced automotive telematic
systems ("AAT") for the automotive business in the United Kingdom and Europe
under the brand names Sk>AMP and Skynet 2001. The products sold are essentially
a box containing a GPS engine, a GSM chipset or module, micro processor and
software. These items are assembled in the box and mounted on printed circuit
boards.
Through a service station in London, England, Skynet also provides
monitoring and information services. The products sold by Skynet may only be
monitored by a Skynet monitoring service center or a service provider who has
entered into a monitoring agreement with Skynet. Skynet charges a fee for the
product and also charges additional monthly or annual monitoring fees, which fee
will vary depending upon the services the customer selects.
In 1999, Skynet will be focusing on the marketing and distribution of
the Sk>AMP line of products and does not anticipate sales of the Skynet 2001 to
exceed 500 units in the current year. In particular, Skynet will be pursuing OEM
manufacturing and marketing of the Sk>AMP products, which will allow the
products to be fitted as standard equipment on cars and trucks. The Skynet 2001
product is not currently being manufactured; any sales of units have been and
the Company expects will continue to be sold out of inventory. Skynet sold 123
Skynet 2001 units in 1998 and approximately 20 units in 1999 as of March 31,
1999. Skynet is currently monitoring approximately 300 Skynet 2001 systems.
Products and Services
Sk>AMP
The ComROAD products have a global transport telematic system ("GTTS")
that combines the known technologies of GPS and GSM with an internet protocol.
These products are aimed at the fleet management market. The GTTS system
consists of in-vehicle computers (CAR-PCs)
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based on an open telematic platform compatible with the operating systems of
EUROS, Windows 98/Windows CE (auto PC), Linux and QNX. Skynet reconfigures the
ComROAD products to include car security and vehicle information management and
sells the resulting products under the Sk>AMP names.
Skynet currently has two lines of Sk>AMP products available to
customers: Sk>AMP Gateway and Sk>AMP Pro-Active Tracking. A third line, Sk>AMP
EVA is anticipated to be ready for sale by the second or third quarter of 1999.
The Sk>AMP products offer a range of user choice options. The basic module can
be built at any level and later adapted to add additional features. All Sk>AMP
products use the common open technology platform. Skynet as of March 31, 1999
has fitted and is monitoring 20 Sk>AMP Gateway units. Skynet as of April 12,
1999 had orders for 87,000 Sk>AMP Gateway units.
Sk>AMP Gateway
Sk>AMP Gateway is designed as a fleet management tracking device. In
its original factory setting the Sk>AMP Gateway allows the vehicles owner to
track the vehicles by requesting a position on any or all of the fleet vehicles.
Additional optional features include (i) geofencing, by which an imaginary
perimeter is established and if passed by a vehicle will provide a vehicle
position and status report ("VPSR"), (ii) random or timed VPSR, (iii) sensor
in-puts that will activate the system to alert the monitoring station if the
vehicle is moved or entered into, and (iv) hands-free phone system.
Sk>AMP Pro-Active Tracking
Sk>AMP Pro-Active Tracking is a fleet management pro-active tracking
safety and security device with telecommunication capability. In addition to the
Sk>AMP Gateway functions, Sk>AMP Pro-Active Tracking will report an alarm status
to the appropriate monitoring station which will be able to remotely immobilize
the vehicle and activate any of the connected vehicle outputs, such as the
hazard lights and horn. Sk>AMP Pro-Active Tracking has the same options offered
as the Sk>AMP Gateway product.
Sk>AMP Executive Vehicle Assistant (EVA)
Sk>AMP EVA will integrate Palm Digital Assistant ("PDA") technology
using Windows CE with the Sk>AMP system. By inserting a PDA into the in-vehicle
docking interface, the vehicle driver will be able to realize capabilities such
as pro-active tracking, two-way telecommunications, two-way email with audio
feedback, two-way fax, electronic diary, dictaphone, calculator, personal
organizer, bar code reader and printing facility, and route planning.
Skynet 2001
Skynet 2001 is a sophisticated vehicle security system and integrated
telecommunications product that is marketed and sold to vehicle-owners. The
Skynet 2001 system operates using GSM (a global system for mobile
communications, international standard for digital cellular telephone
transmissions) or PCN digital cellular telephone networks. The Skynet 2001 is
available in the United Kingdom using the Vodafone GSM digital cellular network.
Separate monthly or annual
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monitoring fees are charged to each customer of a Skynet 2001 for the monitoring
service Skynet provides. Skynet is currently upgrading the product specification
and description in order to target the top end of the automotive market.
The Skynet 2001 system uses advanced communications and security
technology coupled with proprietary software that seamlessly integrates into a
single product that provides protection, security, and information services
using mobile cellular telecommunications via the Skynet 2001 system. The Skynet
2001 system incorporates a GSM (a global system for mobile communications,
international standard for digital cellular telephone transmissions) cellular
car telephone, which provides normal cellular telephone capability, together
with a Security Monitoring System service ("SMS"), and a remote product status
monitoring facility, with a global positioning system.
By interfacing its Vecta system, which is a vehicle security system
with crash and unauthorized entry sensors linked to the vehicle's anti-theft
control system, the Skynet 2001 system is able to provide an in-vehicle remote
monitoring/anti-theft tracking control system. The Skynet 2001 system is further
capable of providing an integrated voice and SMS link between a customer's
vehicle and 24 hour a day monitoring for vehicle security, personal distress
alarm, and impact sensor and information services.
The Skynet 2001 system's unit, concealed in the customer's vehicle, is
capable of communicating automatically with the central security-monitoring
bureau independent of the car handset.
The IPR owned by Skynet pertains to and includes a product containing
four components: (i) a GSM cellular car telephone and remote
monitoring/anti-theft control system; (ii) a global positioning system allowing
vehicle location within 30 feet using satellites; (iii) the gateway from the
remote unit to the monitoring service center; and (iv) the interface to the
monitoring service center. The system provides 24 hour monitoring of vehicle
security, personal distress alarm, and impact alarm sensor and information
service, as well as normal cellular telephone capability.
The IPR also includes the copyright to the software which is the
gateway from the GSM system employed to the mapping and tracking systems, and
remote control software enabling the central security-monitoring center to have
complete and full two-way communications with the telephone module. The IPR also
includes know-how relating to technical experience, skills, secret processes and
technical information regarding the module and software and their production, as
well as enhancements appertaining to the IPR.
Monitoring Service Center
A monitoring service center acts as a central information and service
bureau to handle the customers' needs such as vehicle and fleet monitoring,
emergency service liaison, satellite mapping and navigation, traffic condition
information, tracking, remote immobilization, and emergency assistance. There is
currently one service center located in London, England. Skynet anticipates
opening additional service centers as it grows, either directly or in
cooperation with local monitoring stations or through international monitoring
roaming agreements. Skynet's management estimates that the existing service
center staff could currently handle at least 2,000 units and that in the current
facility Skynet has the ability to monitor up to 500,000 units without
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moving facilities. The monitoring service center is open and available 24 hours
a day, 365 days a year. Following are further examples of the services that the
monitoring service center may provide, depending upon the model of the Skynet
product the vehicle owner has.
In the event of an attempted theft that is sufficient to trigger the
alarm sensor, information concerning the location of the vehicle and its owner
is automatically transmitted to the service center while within the GSM cellular
coverage. A trained operator using a computer based vehicle mapping system with
a database of relevant information may, if necessary, pass details on to the
police, or the appropriate emergency service for action. If the driver of the
vehicle is in distress (illness, breakdown, or fear of attack) he or she can
communicate by the cellular telephone at the service center where an operator
can take the appropriate action while still maintaining voice contact with the
driver or passengers. The service center operators also have the capability to
immobilize the vehicle and cut the power to the vehicle in the event of
unauthorized entry.
The operators also have the ability to control certain functions of a
vehicle, such as turning on headlights, opening a sun roof, sound its horn and
turn on the air systems. The monitoring center also offers traffic information
and routing services. Also available is a full concierge service that will book
restaurants, hotels, order flowers and other gifts.
The management believes that no other competitor offers the full array
of services that the Skynet monitoring service center can provide.
Netrak
Skynet has developed an internet based real-time tracking and vehicle
monitoring system called Netrak. Management believes that the Netrak system will
be fully operational during the second quarter of 1999. Management anticipates
that the Netrak system will provide an on-line capability to fleet owners who,
by keying in via a secure system, will be able to determine the status and
location of every one of their on-road vehicles. Skynet spent approximately
$60,000 to develop this internet site.
Licenses
Licenses for the Skynet 2001 system were sold by SSL pursuant to three
license agreements for the territories of Ireland, Canada and Hong Kong. Skynet
has succeeded SSL as licensor in those agreements. The license fees received
(the first year fees) or to be received (the subsequent year fees) from these
transactions are: a) Ireland - #150,000 for the first year with a minimum of
#150,000 annually thereafter; b) Canada - #25,000 plus possible royalties for
the first year with a minimum of #125,000 annually thereafter; and c) Hong Kong
- -#25,000 plus possible royalties for the first year with a minimum of #125,000
annually thereafter. The license agreements for Canada and Hong Kong are held by
SSCC, a wholly-owned subsidiary of the Company. The licensees are in default
under such licenses and Skynet did not receive any such license fees in 1998.
Customers
During 1998, there were no customers that comprised more than 10% of
Skynet's net sales. Because Skynet commenced operations in 1998, Skynet is
unable to predict the level of
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purchases by its largest customers, or any other customer, in the future. The
current customer base consists of fleet owners and individuals, with
approximately 70% of sales attributed to the fleet owners. Skynet will continue
to target owners of fleets of vehicles and individual vehicle owners.
Suppliers
Management estimates that it currently has enough Skynet 2001 systems
to meet demand for the next six to nine months. If demand increases, management
believes that additional product can by obtained. The Skynet 2001 product
currently requires a Dancall telephone to enable it to function correctly and
the Dancall telephone is no longer available. However, management believes that
with minor alterations to the software of the Skynet 2001 system, it will be
able to use alternative telephones. Supplies of the Skynet 2001 system, however,
could be interrupted through lack of availability of the Dancall telephone.
The GPS engine, GSM chipset or module and micro processor components of
the base unit product for the Sk>AMP line of products will be purchased through
ComROAD pursuant to the agreement between Skynet and ComROAD. However,
management is also pursuing manufacture of the Sk>AMP products through other
manufacturers that will be able to manufacture and design the products to OEM
standard. With respect to other principal suppliers of components of the Skynet
products, there are several available suppliers and management believes that
such goods could be obtained from other suppliers on acceptable terms.
As of April 12, 1999, there were approximately 87,000 orders for the
Sk>AMP Gateway product. There is a current delay in the production of the base
units from ComROAD. Management is currently receiving the ComROAD product at a
rate of 100 units per week, but expects to receive such product at a rate in
excess of 1,000 units per week by July of 1999. ComROAD is in the process of
moving its manufacturing facilities from Germany to China, which is expected to
decrease the cost of the units.
Research and Development
During 1998, Skynet estimates that $122,129 has been expended on
research and development programs. Such costs are generally included as factors
in determining Skynet's pricing procedures.
Competition and Marketing
There are multiple competitors in the telematics industry, such as
Trakbak, Tracker (Lo- Jack), OnStar, and Minor Planet. Trakbak, Tracker
(Lo-Jack), OnStar, and Minor Planet have financial resources far greater than
Skynet's, and such companies can undertake much more extensive marketing and
advertising programs than Skynet. Certain other competitors also have greater
financial resources than Skynet.
Skynet competes by stressing the complete range of services that Skynet
can provide. While competitors can offer some of the options available to
customers, Skynet believes it is the only one to offer all of the services it
can provide through one product.
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With respect to Skynet 2001, the management of Skynet believes that
there is no competitor in the United Kingdom that sells an integrated product
incorporating voice link and SMS facilities using GSM and PCN networks. There
are, however, other vehicle security systems on the market, and a number of
major vehicle manufacturers are or are planning to offer automobiles with some
form of vehicle tracking and assistance service. Management believes, however,
that the Skynet 2001 system with its integrated features and the services
offered through its monitoring center, currently differentiates its product from
those of its United Kingdom competitors.
Skynet's marketing efforts are directed by its sales managers. Each
sales manager is focused on a specific target market or markets. In addition to
its internal sales force, Skynet markets its products through its 73 authorized
dealers. Skynet utilizes direct solicitation through its sales force and its
dealer network and provides its dealers with various marketing materials. Skynet
is also utilizing selected advertising in trade journals and participates in
selected trade shows. Skynet also maintains an internet web site.
In addition to soliciting fleet owners and individuals, Skynet is
currently actively pursuing arrangements with car manufacturers to have Skynet
products fitted as standard at the factory.
Backlog
As of March 31, 1999 Skynet's backlog of orders was approximately
$64,000,000.
Key Employee
Skynet's operations to date have been largely dependent on the efforts of
its President, Tomas G. Wilmot. The loss to Skynet of Mr. Wilmot would have a
material adverse effect upon the operations of Skynet.
Product Liability Insurance
The Company anticipates purchasing product liability insurance,
however, there is no assurance that the Company will obtain such insurance.
Employees
As of April 12, 1999, the Company did not have any employees. Its
subsidiaries had 26 full-time employees as of April 12, 1999. Skynet considers
its relationships with its employees to be satisfactory.
Government Regulations
The Company and its subsidiaries have not been materially impacted by
existing government regulation, nor is the Company aware of any probable
government regulation that would materially affect its operations. There have
been no costs to the Company or its subsidiaries in complying with environmental
laws.
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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.
Other Developments
On December 23, 1998, the Company issued 5,000,000 shares of its stock
in exchange for the cancellation of a #4,000,000 unsecured promissory note of
Netking payable to Leandra De Oliveria Sousa. Such shares were approximately
22.7% of all of the outstanding shares of the Company at such time. The shares
were issued pursuant to Regulation S under the 1933 Act and are not available
for resale in the United States for a period of one year. Such shares are also
considered to be "restricted" securities as defined in Rule 144.
The Company raised capital through three separate Regulation S
offerings in 1998. An aggregate of 1,434,550 shares of the Company were issued
for a net amount of $759,638.
Item 2. Properties
The Company owns no properties. Skynet leases approximately 7,500
square feet in London, England, which serves as an office and monitoring service
center. Skynet has come to terms of agreement with the landlord to lease the
space at an annual rate of #60,000. The proposed lease would expire March 24,
2000. It is anticipated that a formal lease will be entered into soon. The
landlord was previously paid 300,000 shares of Company stock for full payment of
rent prior to March 24, 1999. The current premises are sufficient for the
operations of the Company and its subsidiaries.
Item 3. Legal Proceedings
On August 6, 1996, SSL obtained an interlocutory injunction against Mr.
Anthony Mayes, who claimed that he and/or Worldstream Enterprises Limited and/or
third parties had ownership rights in the SSL intellectual property. An
application was made seeking a permanent injunction and damages for injurious
falsehood and/or defamation to which Mr. Mayes has not responded.
On August 9, 1996 SSL entered into an agreement with Mr. Troy Kelly who
claimed that he and/or Worldstream Limited were owners of the SSL intellectual
property. The parties entered into a settlement agreement dated August 9, 1996
under which Mr. Kelly and the Kelly companies assigned to SSL all their rights
(if any) in the intellectual property at question, and certifying that they had
not granted any rights in the intellectual property to anyone else, indemnifying
SSL in that regard.
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On November 29, 1996, SSL received a letter from a solicitor acting for
Laura Mayes wherein she claimed ownership rights in the SSL intellectual
property for herself and/or Worldstream Enterprises Limited. SSL sought
clarification as to the alleged claim which has never been answered and no
further proceedings have issued.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to the Company's security holders for a vote
during the fiscal year ending December 31, 1998.
PART II
Item 5. Market of the Registrant's Common Equity and Related Stockholder
Matters.
(a) As of the third quarter of 1997, the Company's common stock has
been traded in the over-the-counter market and is quoted in the NASDAQ
electronic bulletin board ("OTCBB"). Prior to February 5, 1999 it traded under
the symbol PEPC, and as of February 5, 1999 has been trading under the symbol
SKYI. Prior to the third quarter of 1997, there were no market quotes for the
Company's common stock. The following table sets forth the range of bid prices
for the common stock of the Company as reported in the NASDAQ OTCBB during the
periods indicated, and represents prices between broker-dealers, which do not
include retail mark-ups and mark-downs, or any commissions to the
broker-dealers. The bid prices do not reflect prices in actual transactions.
<TABLE>
<CAPTION>
Company Common Stock - Bids
High Low High Low
---- --- ---- ---
1997 998
- ---- ---
<S> <C> <C> <C> <C> <C>
3rd Quarter $.10 $.10 1st Quarter $2.5625 $ .5625
4th Quarter $1.00 $.10 2nd Quarter $3.125 $2.00
3rd Quarter $3.4375 $2.25
4th Quarter $3.9688 $2.50
1999
1st Quarter $3.50 $2.00
</TABLE>
(b) As of April 13, 1999, there were approximately 416 record holders
of the Company's common stock. The Company has not previously declared or paid
any dividends on its common stock and does not anticipate declaring any
dividends in the foreseeable future.
Item 6. Management Discussion and Analysis or Plan of Operation.
Forward Looking Statements.
Certain statements contained in this Management's Discussion and
Analysis or Plan of Operation including, without limitation, statements
containing the words, "believes," "anticipates," "intends," "expects," and words
with similar meanings, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Many factors
affecting the business of the registrant could cause actual results to differ
materially from those projected or implied in the forward-looking statements.
Such risk factors include, but are
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not limited to, changes in the overall economies of the countries in which the
registrant does business and anticipates doing business, the nature and pace of
technological change, the number, size and financial strength of competitors in
the registrant's markets, the increasing competitiveness of the business of the
registrant, changes in law and regulatory policies in the countries in which the
registrant does business and proposes to do business, and the quality of the
products of other companies that are distributed by the registrant and the
general economic condition of any companies with whom the registrant has formed
or intends to form a strategic alliance.
Overview
The business of the Company and its subsidiaries is the
development, marketing, and distribution of integrated modular automotive
telematic systems and the provisions of monitoring services to users of those
products. Through its subsidiary Skynet, the Company distributes its own
proprietary products and products developed and manufactured by third parties,
generally ComROAD AG ("ComROAD")in a number of countries in Europe and in
portions of the United States and Canada. Skynet entered into a written
distribution agreement with ComROAD in March 1999. Automotive telematic systems
combine the technology for mobile phones (GSM) and global positioning satellite
systems (GPS) to enable customers to identify the exact location and status
information about automotive vehicles and to receive a variety of information
through communication with the monitoring station. These devices can be used by
businesses to manage fleets of vehicles of various kinds and by individuals for
their automobiles for security purposes, emergencies and access to information
available from the monitoring station. Within the next six months, Skynet
intends to be distributing an automotive telematic PDA product which is
currently being developed by ComROAD. These devices will be in-car vehicle
computers operating with Windows CE that provide the user with an array of usage
options as are found on a personal digital assistant (PDA), including internet
connections and e-mail capabilities.
Results of Operations
The year ended December 31, 1998 was the first year the Company
generated revenues from operations. The consolidated statement of operations for
the year ended December 31, 1998 reflects the operations of the Company and its
subsidiaries. For that period the Company's consolidated total sales were
$154,651, consisting of $98,339 for vehicle units, $27,299 in monitoring fees
and $29,013 from airtime connection bonuses. All of these sales were generated
by Skynet solely from sales of the Skynet 2001 unit and related services. With
the addition of the new Sk>AMP product range (ComROAD products), sales of units
are expected to rise dramatically during 1999. Skynet has orders for 87,000
Sk>AMP units that it anticipates will be provided to customers over the next 18
months. Revenue from monitoring fees and airtime connections will also increase
along with new revenue streams from other related services such as sale of
airtime usage and information services.
The Company's consolidated total cost of sales for the year ended
December 31, 1998 were $470,235. The largest component of the total cost of
sales was wages, including social security payments, for monitoring personnel,
representing 54% of the total, all of which represent wages for Skynet
personnel. Skynet believes that it had to create a full scale operational
monitoring facility in order to expand that portion of its business and during
the 1998 calendar year created a monitoring facility capable of handling a six
fold increase in its current monitoring business.
12
<PAGE>
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 expenses for the year ended December 31, 1998 were $2,061,406.
The largest single component of such overhead expenses was depreciation of
Skynet's intellectual property rights in the amount of $621,882, a non-cash item
that represents 30% of total overhead. The second largest component of such
overhead expenses was wages and salaries, including social security payments,
equal to $446,080, which represent 22% of total overhead, which represents
primarily wages and salaries of Skynet personnel. During the year ended December
31, 1998 the Company and its subsidiaries created a management team and other
personnel that they believe is necessary for their expected growth that is
reflected in this expense item. Other significant components of the Company and
its subsidiaries' overhead expenses were marketing costs, research and
development, professional fees, and facility costs such as rent and utilities.
The Company's consolidated net loss for the year ended December 31,
1998 was ($2,627,530) and after foreign currency translation gains of $90,864
the total comprehensive loss for the year was ($2,536,666).
Financial Condition, Liquidity and Capital Resources
During the year ended December 31, 1998, the Company raised additional
capital of $759,638 from private sales of shares of its common stock. Such
capital raising activities provided a primary source of the Company's funding
for the operations of the Company, its subsidiaries and for the creation of
their infrastructure. The Company does not have any significant capital
commitments; however, it is committed to maintain the infrastructure it has
developed, the expenses of which consist primarily of wages and salaries of
Skynet personnel.
The Company also borrowed $497,825 from a shareholder of the Company,
at 12% interest per annum repayable on demand and no later than 4th September
1999, $58,500 from another shareholder of the Company, at 12% interest per annum
repayable on demand and no later than 1st March 2000, $125,000 from the same
shareholders at 12% interest per annum repayable on demand, and $63,973 from the
directors of Skynet 2001 Limited interest free and repayable on demand.
The Company believes it has built an infrastructure sufficient to
support a substantial increase in the size of the operations of the Company and
its subsidiaries over the next few years and intends to focus its efforts on
revenue growth. Skynet intends to substantially increase its marketing and
distribution efforts over the next year, and will focus its marketing efforts
primarily on the distribution of the ComROAD Sk>AMP range of products. Such
activities will require additional funds either in the form of additional
capital or financing to permit Skynet to purchase the products from ComROAD that
it in turn sells to others. Skynet also plans to arrange for AMP Inc to
manufacture the Sk>AMP products to OEM standard, which, if this arrangement can
be accomplished, would significantly reduce the product cost. There can be no
assurance that the Company and its subsidiaries will be able to obtain the
capital or financing they need to implement their growth strategy.
13
<PAGE>
At the present time, the Company's consolidated revenues cannot support
the expenses of the operations of the Company and its subsidiaries. The Company
intends to raise additional capital to fund such operations until its
consolidated revenues are sufficient to support all of the costs and expenses of
its operations. The Company will remain dependant upon infusions of capital from
investors and/or loans from its shareholders until such time. There can be no
assurance that the Company can continue to raise capital from the sale of its
securities.
Item 7. Financial Statements.
14
<PAGE>
SMITH & COMPANY
A PROFESSIONAL CORPORATION OF
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF: 10 WEST 100 SOUTH, SUITE 700
AMERICAN INSTITUTE OF SALT LAKE CITY, UTAH 84101
CERTIFIED PUBLIC ACCOUNTANTS TELEPHONE: (801) 575-8297
UTAH ASSOCIATION OF FACSIMILE: (801) 575-8306
CERTIFIED PUBLIC ACCOUNTANTS E-MAIL: [email protected]
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Skynet Telematics Inc.
(formerly Peripheral Connections, Inc.)
(A Development Stage Company)
We have audited the accompanying consolidated balance sheets of Skynet
Telematics Inc. (formerly Peripheral Connections, Inc.) (a development stage
company) and subsidiaries as of December 31, 1998 and 1997, and the related
statements of income and comprehensive income, changes in stockholders' equity,
and cash flows for the years ended December 31, 1998, 1997, and 1996, and for
the period of March 14, 1990 (date of inception) to December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Skynet Telematics
Inc. (formerly Peripheral Connections, Inc.) (a development stage company) and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations, changes in stockholders' equity, and their cash flows for the years
ended December 31, 1998, 1997, and 1996, and for the period of March 14, 1990
(date of inception) to December 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company has a working capital deficiency of $1,301,306
at December 31, 1998 and an accumulated deficit of $2,902,565. The Company has
suffered losses from operations and has a substantial need for working capital.
This raises substantial doubt about its ability to continue as a going concern.
The accompanying consolidated financial statements do not include any adjustment
that may result from the outcome of this uncertainty.
Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
March 26, 1999
F-1
<PAGE>
SKYNET TELEMATICS INC. AND SUBSIDIARIES
(FORMERLY PERIPHERAL CONNECTIONS, INC.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------ ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash in bank $ 20 $ 10,965
Accounts receivable 23,473 0
Inventory 830 0
Prepaid expenses 37,453 0
------------------ ------------------
TOTAL CURRENT ASSETS 61,776 10,965
OTHER ASSETS
Furniture and equipment (Note 9) 75,984 0
Software and intellectual property rights (Note 9) 6,810,446 0
------------------ ------------------
6,886,430 0
------------------ ------------------
$ 6,948,206 $ 10,965
================== ==================
LIABILITIES & EQUITY
CURRENT LIABILITIES
Bank overdraft $ 41,742 $ 0
Accounts payable 249,765 0
Accrued expenses 161,423 0
Current portion of loans (Note 10) 886,652 0
Interest payable 23,500 0
------------------ ------------------
TOTAL CURRENT LIABILITIES 1,363,082 0
Long-term portion of loans (Note 10) 282,709 0
------------------ ------------------
TOTAL LIABILITIES 1,645,791 0
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 21,944,416 shares (3,850,000 in 1997) 21,944 3,850
Additional paid-in capital 8,092,172 282,150
Deficit accumulated during the development stage (2,902,565) (275,035)
Accumulated other comprehensive income 90,864 0
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 5,302,415 10,965
------------------ ------------------
$ 6,948,206 $ 10,965
================== ==================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
SKYNET TELEMATICS INC. AND SUBSIDIARIES
(FORMERLY PERIPHERAL CONNECTIONS, INC.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
3/14/90
(Date of
Year ended December 31, inception) to
1998 1997 1996 12/31/98
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Net sales $ 154,651 $ 0 $ 0 $ 154,651
Cost of sales 470,235 0 0 470,235
------------------ ----------------- ----------------- ------------------
GROSS LOSS (315,584) 0 0 (315,584)
Bad debt - related party (Note 5) 0 171,417 0 171,417
Depreciation and amortization 630,953 0 0 630,953
Research & development 122,129 0 0 122,129
Net interest expense (income) 27,184 16,025 (18) 43,191
General & administrative expenses 1,281,140 74,821 11,790 1,368,751
------------------ ----------------- ----------------- ------------------
2,061,406 262,263 11,772 2,336,441
------------------ ----------------- ----------------- ------------------
NET LOSS BEFORE OTHER (2,376,990) (262,263) (11,772) (2,652,025)
OTHER (EXPENSE)
Finder's fee related to subsidiary
acquisition (250,540) 0 0 (250,540)
------------------ ----------------- ----------------- ------------------
(250,540) 0 0 (250,540)
------------------ ----------------- ----------------- ------------------
NET LOSS (2,627,530) (262,263) (11,772) (2,902,565)
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments 90,864 0 0 90,864
------------------ ----------------- ----------------- ------------------
TOTAL COMPREHENSIVE LOSS $ (2,536,666) $ (262,263) $ (11,772) $ (2,811,701)
================== ================= ================= ==================
Net income (loss) per weighted average share $ (.21) $ (.14) $ (.01)
================== ================= =================
Weighted average number of common shares
used to compute net income (loss) per
weighted average share 12,356,978 1,864,795 1,000,000
================== ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
SKYNET TELEMATICS INC. AND SUBSIDIARIES
(FORMERLY PERIPHERAL CONNECTIONS, INC.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated
Common Stock Additional During Other
Par Value $0.001 Paid-in Development Comprehensive
Shares Amount Capital Stage Income
----------------- ------------------ --------------- ----------------- ------------------
Balances at 3/14/90
<S> <C> <C> <C> <C> <C>
(Date of inception) 0 $ 0 $ 0 $ 0 $ 0
Issuance of common stock
(restricted) at $.001 per
share at 3/14/90 1,000,000 1,000 0 0
Net loss for period (1,000)
----------------- ------------------ --------------- ----------------- ------------------
Balances at 12/31/90 1,000,000 1,000 0 (1,000) 0
Net income for year 0
----------------- ------------------ --------------- ----------------- ------------------
Balances at 12/31/91 1,000,000 1,000 0 (1,000) 0
Net income for year 0
----------------- ------------------ --------------- ----------------- ------------------
Balances at 12/31/92 1,000,000 1,000 0 (1,000) 0
Net income for year 0
----------------- ------------------ --------------- ----------------- ------------------
Balances at 12/31/93 1,000,000 1,000 0 (1,000) 0
Net income for year 0
----------------- ------------------ --------------- ----------------- ------------------
Balances at 12/31/94 1,000,000 1,000 0 (1,000) 0
Net income for year 0
----------------- ------------------ --------------- ----------------- ------------------
Balances at 12/31/95 1,000,000 1,000 0 (1,000) 0
Net loss for year (11,772)
----------------- ------------------ --------------- ----------------- ------------------
Balances at 12/31/96 1,000,000 1,000 0 (12,772) 0
Issuance of common stock
(restricted):
at $.10 per share for
services at 7/29/97 50,000 50 4,950
at $.10 per share to
cancel debt and
accrued interest at
9/9/97 2,300,000 2,300 227,700
at $.10 per share for
services at 9/26/97 500,000 500 49,500
Net loss for year (262,263)
----------------- ------------------ --------------- ----------------- ------------------
Balances at 12/31/97 3,850,000 $ 3,850 $ 282,150 $ (275,035) $ 0
================= ================== =============== ================= ==================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
SKYNET TELEMATICS INC. AND SUBSIDIARIES
(FORMERLY PERIPHERAL CONNECTIONS, INC.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated
Common Stock Additional During Other
Par Value $0.001 Paid-in Development Comprehensive
Shares Amount Capital Stage Income
----------------- ------------------ --------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Balances at 12/31/97 3,850,000 $ 3,850 $ 282,150 $ (275,035) $ 0
Comprehensive income (loss)
Net loss (2,627,530)
Other comprehensive income,
net of tax
Foreign currency translation
adjustments 90,864
Issuance of common stock
(Regulation S) for cash at:
$.45296 11/11/98 1,284,000 1,284 580,316
$1.379 12/2/98 19,300 19 26,586
$2.00 12/23/98 5,000 5 9,995
$1.3381 12/31/98 126,250 126 168,807
Issuance of common stock
(Regulation S) for subsidiary
at $.001 4/1/98 10,000,000 10,000 (10,000)
Issuance of common stock
(Regulation S) for expenses at:
$.20 4/1/98 750,000 750 149,250
$.50 10/1/98 300,000 300 149,700
$.2472 11/11/98 494,000 494 121,591
$.22 12/2/98 83,200 83 18,221
$.22 12/23/98 25,000 25 5,475
$1.356 12/31/98 7,666 8 10,390
Issuance of common stock
(Regulation S) to cancel debt
at $1.32 12/23/98 5,000,000 5,000 6,595,000
Paid-in capital of subsidiary 2,191
Capital raising costs (17,500)
----------------- ------------------ --------------- ----------------- ------------------
Balances at 12/31/98 21,944,416 $ 21,944 $ 8,092,172 $ (2,902,565) $ 90,864
================= ================== =============== ================= ==================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
SKYNET TELEMATICS INC. AND SUBSIDIARIES
(FORMERLY PERIPHERAL CONNECTIONS, INC.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
3/14/90
(Date of
Year ended December 31, Inception) to
OPERATING ACTIVITIES 1998 1997 1996 12/31/98
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net (loss) $ (2,627,530) $ (262,263) $ (11,772) $ (2,902,565)
Adjustments to reconcile net (loss) to cash
used by operating activities
Stock issued for expenses 456,287 85,000 0 541,287
Depreciation and amortization 630,953 0 0 630,953
Changes in assets and liabilities:
Accounts receivable (23,473) 0 0 (23,473)
Inventory (830) 0 0 (830)
Prepaid expenses (37,453) 0 0 (37,453)
Bank overdraft 41,742 0 0 41,742
Accounts payable 245,000 0 0 245,000
Accrued expenses 161,423 0 0 161,423
Accrued interest payable 23,500 (3,333) 3,333 23,500
--------------- --------------- --------------- ----------------
NET CASH USED BY
OPERATING ACTIVITIES (1,130,381) (180,596) (8,439) (1,320,416)
INVESTING ACTIVITIES
Purchase fixed assets (409,000) 0 0 (409,000)
Loans to related party and accrued interest 0 28,085 (28,085) 0
--------------- --------------- --------------- ----------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (409,000) 28,085 (28,085) (409,000)
FINANCING ACTIVITIES
Proceeds from sale of common stock 759,638 0 0 760,638
Proceeds from convertible debentures 0 0 400,000 400,000
Loans 434,134 0 0 434,134
Loan repayments (349,297) 0 0 (349,297)
Loans - shareholders 681,325 0 0 681,325
Cash from subsidiaries 445 0 0 445
Paid-in capital of subsidiary 2,191 0 0 2,191
Debenture repayments 0 0 (200,000) (200,000)
--------------- --------------- --------------- ----------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,528,436 0 200,000 1,729,436
--------------- --------------- --------------- ----------------
INCREASE (DECREASED) IN
CASH AND CASH EQUIVALENTS (10,945) (152,511) 163,476 20
Cash and cash equivalents at beginning of year 10,965 163,476 0 0
--------------- --------------- --------------- ----------------
CASH & CASH EQUIVALENTS
AT END OF YEAR $ 20 $ 10,965 $ 163,476 $ 20
=============== =============== =============== ================
Cash paid for interest $ 3,858 $ 0 $ 0 $ 3,858
=============== =============== =============== ================
</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.
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
SKYNET TELEMATICS INC. AND SUBSIDIARIES
(FORMERLY PERIPHERAL CONNECTIONS, INC.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997, and 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principals of Consolidation
The consolidated financial statements for 1998 include the
accounts of the Company; its wholly-owned subsidiaries Skynet
Satellite Communication Corporation ("SSCC") which was acquired on
June 5, 1998, Peripheral Canada, Inc. incorporated on May 29, 1998
(no activity for 1998) , which is owned directly by the Company
and acquired SSCC in the acquisition on June 5, 1998, NetKing
Limited ("NetKing") which was acquired on April 9, 1998, and
NetKing's subsidiary Skynet 2001 Limited, which was acquired by
NetKing on February 27, 1998. All significant intercompany
balances have been eliminated on consolidation. The financial
statements for 1997 and prior years are those of the Company only.
Accounting Methods
The Company recognizes income and expenses based on the accrual
method of accounting.
Dividend Policy
The Company has not yet adopted any policy regarding payment of
dividends.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all
highly-liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentration of risk, consist of cash and investments. The
Company places its investments in highly rated term deposit
obligations which limits the amount of credit exposure.
Historically, the Company has not experienced any losses related
to investments.
Income Taxes
The Company records the income tax effect of transactions in the
same year that the transactions enter into the determination of
income, regardless of when the transactions are recognized for tax
purposes. Tax credits are recorded in the year realized. Since the
Company has not yet realized income as of the date of this report,
no provision for income taxes has been made.
In February, 1992, the Financial Accounting Standards Board
adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, which supersedes substantially all
existing authoritative literature for accounting for income taxes
and requires deferred tax balances to be adjusted to reflect the
tax rates in effect when those amounts are expected to become
payable or refundable. The Statement was applied in the Company's
financial statements for the fiscal year commencing January 1,
1993.
At December 31, 1998 a deferred tax asset has not been recorded
due to the Company's lack of operations to provide income to use
the net operating loss carryover of $370,966 which expires as
follows:
Year Ended Expiration Date Amount
----------------- ----------------- -----------------
December 31, 1998 December 31, 2018 $ 370,966
=================
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997, and 1996
SKYNET TELEMATICS INC. AND SUBSIDIARIES
(FORMERLY PERIPHERAL CONNECTIONS, INC.)
(A Development Stage Company)
NOTE 2: DEVELOPMENT STAGE COMPANY
The Company was incorporated under the laws of the State of Nevada
on March 14, 1990 as Peripheral Connections, Inc. and has been in
the development stage since incorporation. On December 3, 1998,
the Board of Directors voted to change the name to Skynet
Telematics Inc. On January 21, 1999 an amendment was filed with
Nevada to effect the name change. The Company intends to operate
through its subsidiaries. The subsidiaries operate in the area of
using communication and security technology to provide in-vehicle
protection, security and information services using mobile
cellular telecommunications.
NOTE 3: CAPITALIZATION
On the date of incorporation, the Company sold 1,000,000 shares of
its common stock to Capital General Corporation for $1,000 cash
for an average consideration of $.001 per share. The Company's
authorized stock includes 25,000,000 shares of common stock at
$.001 par value.
NOTE 4: RELATED PARTY TRANSACTIONS
Prior to 1998, the Company neither owned nor leased any real
property. Office services were provided without charge by current
management. Such costs are immaterial to the financial statements,
and, accordingly, have not been reflected therein.
NOTE 5: LOAN RECEIVABLE - RELATED PARTY
At December 31, 1996, the Company was owed principal of $27,860
and interest of $225 by an entity whose president was
Secretary/Treasurer and a Director of the Company. The loan was
due on demand and had an interest rate of 8%. During 1997,
additional loans were made to bring total principal due to
$165,296 and interest due was $6,121. The total of $171,417 has
been charged to bad debt expense at December 31, 1997 due to the
entity's inability to repay the debt.
NOTE 6: CONVERTIBLE DEBENTURE - RELATED PARTY
On November 1, 1996, the Company issued a convertible debenture to
an entity significantly influenced by the Company's
Secretary/Treasurer at the time for $200,000 cash. The debenture
had an interest rate of 10% per annum, calculated semi-annually.
The first interest payment of $10,000 was due May 31, 1997. The
debenture was payable on November 1, 2001. The lender had the
option to convert prior to November 1, 2001, in whole or in part,
the outstanding principal and accrued interest into $.001 par
value Class A common stock of the Company at a conversion price of
$.10 per share. Had the lender exercised the option at December
31, 1996, the lender would have received 2,000,000 shares of
common stock and would have become the Company's majority
shareholder. The debt was secured by all assets of the Company.
Scheduled principal reductions of debentures were as follows:
1997 $ 0
1998 0
1999 0
2000 0
2001 200,000
--------------
$ 200,000
==============
In September of 1997, the entity accepted 2,300,000 shares of
restricted common stock as payment in full of the debenture and
interest.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997, and 1996
SKYNET TELEMATICS INC. AND SUBSIDIARIES
(FORMERLY PERIPHERAL CONNECTIONS, INC.)
(A Development Stage Company)
NOTE 7: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, and other
current assets and current liabilities approximate fair value.
NOTE 8: 1998 EVENTS
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. The
consideration was determined by arm's lenghth 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. 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.
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
2001 in-vehicle system. The Skynet 2001 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 2001 system
provides 24 hour monitoring of vehicle security, personal distress
alarm, and impact sensor and information services, as well as
normal cellular telephone capability.
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.
The transaction has been treated as a purchase.
On June 5, 1998, the Company, through a subsidiary, purchased
SSCC. The purchase price 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 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.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998, 1997, and 1996
SKYNET TELEMATICS INC. AND SUBSIDIARIES
(FORMERLY PERIPHERAL CONNECTIONS, INC.)
(A Development Stage Company)
NOTE 9: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment as of December 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
Accumulated Net Book Value
Cost Depreciation 1998
------------------ ----------------- ------------------
<S> <C> <C> <C>
Furniture and equipment $ 85,055 $ 9,071 $ 75,984
Software and intellectual
property rights 7,432,328 621,882 6,810,446
------------------ ----------------- ------------------
$ 7,517,383 $ 630,953 $ 6,886,430
================== ================= ==================
</TABLE>
Depreciation expense is calculated under straight-line methods
based on the estimated service lives of the assets which are four
years for furniture and equipment and five to ten years on the
software and intellectual property rights.
During 1998, the Company obtained an appraisal on the intellectual
property rights which indicated a value of about $6.6 million.
Other licenses have increased the book value to about $6.8 million
at December 31, 1998. Depreciation expense for the year ended
December 31, 1998 was $630,953.
NOTE 10: LOANS PAYABLE
Current Long-term
----------- ----------
Payable to acquire SSCC(1) $ 141,354 $ 282,709
Payable - shareholder 12% 183,500 0
Payable - shareholder 12% 497,825 0
Payable - directors 63,973 0
----------- ----------
$ 886,652 $ 282,709
=========== ==========
(1 )Will be paid by issuing 500,000 shares of the
Company's Regulation S common stock on December 31,
1999, 2000, and 2001 (1,500,000 shares total).
NOTE 11: GOING CONCERN
The financial statements are presented on the basis that the
Company is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business over a reasonable length of time. At December 31, 1998,
the Company has a deficit in working capital of $1,301,306, a loss
from operations for 1998 of $2,376,990, and an accumulated deficit
of $2,902,565.
NOTE 12: COMMITMENTS AND CONTINGENCIES
NetKing has the following commitments:
It is expected the officers and directors will
receive salaries of $612,000 in 1999 and $918,000 in
2000 for a total of $1,530,000.
NetKing has operating leases on three vehicles which expire in
2000 and 2001. Future expected lease payments are as follows:
Year ending December 31, 1999 $ 18,012
Year ending December 31, 2000 6,759
Year ending December 31, 2001 2,390
----------
$ 27,161
==========
F-10
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Item 9. Directors and Executive Officers of the Registrant.
The following table shows the positions held by the Company's
officers and directors. Such Officers held the same positions with Skynet. Tomas
G. Wilmot was appointed as a director as of April 20, 1998 and Lord Edward
Montagu of Beaulieu as of January 1, 1999 and will serve until the next annual
meeting of the Company's stockholders, and until their successors have been
elected and have qualified. Mr. Wilmot was appointed to his officer positions as
of April 20, 1998 and Mark L. Dingley as of January 1, 1999, and they continue
in such positions, at the discretion of the directors.
Name Age Position
Tomas G. Wilmot 52 President,
Chairman of the Board,
Director
Lord Edward Montagu 73 Director
of Beaulieu
Mark L. Dingley 41 Director of Finance, Secretary
CURRENT DIRECTORS AND OFFICERS
TOMAS G. WILMOT has been a Director and President and Chairman of the Board
of the Company since April 20, 1998. He has also served as chairman and managing
director of Skynet since February 4, 1998 and as chairman and managing director
of Netking since March 2, 1998. In the past five years Mr. Wilmot has been
involved in private investment activities, including financing and raising
financing for developing companies. Since 1998 he has served as a director of
Broker's Arms public house, a restaurant and bar. From 1975 to 1988, Mr. Wilmot
was Chairman and Managing Director of Harvard Securities PLC, a licensed dealer
in stocks. He is a director of Tread Inn Ltd., Chipwilo Ltd. and Ladner Creek
Gold Mining Corporation. Mr. Wilmot's two sons, Christopher Wilmot and Kevin
Wilmot, serve as Marketing Director and Director of Investor Relations,
respectively, of the Company and both serve as Directors of Skynet.
LORD EDWARD MONTAGU OF BEAULIEU, has been a Director of the Company since
January 1, 1999 and a Director of Skynet since October 13, 1998. Lord Montagu is
an active member of the House of Lords and lectures world-wide on historic
houses, English heritage and the history of the automobile. He serves as
President of the Federation of British Historical Vehicle Clubs, British Vehicle
Salvage Association and Historic Commercial Vehicle Society. He is a Fellow of
the Royal society of Arts, the Royal Geographical Society, and the Institute of
Public Relations, and an Honorary Fellow of the Institute of the Motor Industry
and the Museums Association. Lord Montagu is also a member of the Royal
Automobile Club and the Beefsteak Club. Lord Montagu is a director of the
following companies: Arab-British Chamber of Commerce, Beaulieu River Management
Ltd. (Chairman), British Vehicle Salvage Federation (Chairman), Buildings at
Risk Trust, Global Sport Communications Ltd., Commodore International Travel
Ltd. (Group Chairman), Corkwise Ltd., Crag Automotive Ltd. (Chairman), Global
Automotive Ltd. (Chairman), Mayflower Theater Trust, Montagu Ventures Ltd.
15
<PAGE>
(Chairman), National Motor Museum Trust (Chairman), Southern Tourist Board,
Ventures Consultancy Ltd., Vintage Tyre Supplies Ltd., and Wine Guild of the
United Kingdom.
MARK L. DINGLEY has been the Director of Finance and Secretary of the
Company since January 1, 1999. He has also served as Secretary and a Director of
Skynet since July 10, 1998 and the Secretary of Netking since October 13, 1998.
He was an employee of Skynet and its predecessor SSL from August 1996 through
1998, serving as financial controller. Mr. Dingley served as head of finance and
secretary of Checkline PLC from January 1994 to July 1996.
FORMER DIRECTOR AND OFFICER
MILTON KLYMAN was a Director and the President of the Company from July 2,
1996 to April 20, 1998, and a Director and Secretary and Treasurer from April
20, 1998 to January 1, 1999. He has been a self-employed financial consultant
since 1982. Milton Klyman is presently a director and/or officer of the
following other companies and has been from the date indicated to the present
(unless otherwise indicated): Windy Mountain Explorations Ltd. (07/91), Academy
Explorations Limited (08/82), Agnico Eagle Mines Ltd. (director) (06/72), Blue
Power Energy Corp. (10/95), Canlorm Resources Inc. (09/94), CD Rom Network Corp.
(07/94), Covesco Capital Corporation (01/96), Curran Bay Resource Ltd. (08/93),
Concho Resources & Energy Inc. (12/92 to 09/94), Destrobelle Mines Ltd. (06/82),
Falcon Point Resources Limited (05/84), Golden Penguin Resources Ltd. (12/87),
Gracefield Capital Corporation (01/95), Grand Empire Explorations Ltd. (11/87),
Grand Oakes Resources Corp. (12/88), HMD Capital Corp. (02/96), Harte Resources
Corporation (01/82), Humlin Red Lake Mines Limited (04/95), Inland National
Capital Ltd. (01/95), July Resources Corp. (06/90), MW Capital Resources Corp.
(06/90), Merbank Capital Corporation (01/95 to 08/95), Midswana Diamond
Exploration Corp. (11/79 to 11/94), Mountain Beaver Resources, Inc. (02/96), Oil
Springs Energy Corp. (08/93), Olympic Rom World Inc. (10/94), Planetsafe Enviro
Corporation (03/95), Raw Creek Resources Inc. (01/95), Red Fox Resources Inc.
(12/87), Reed Lake Exploration Ltd. (11/95), Resources Minieres Platinor Inc.
(01/96), Rusty Lake Resources Ltd. (03/95 to 05/95), Scotia Prime Minerals,
Incorporated (02/95), Silver Circle Compact Disc Books Inc. (03/94), Sudbury
Contact Mines Ltd. (09/71), Tejas Petroleum Resources Ltd. (11/90), Triangle
Capital Energy Corp. (01/93), Twin Star Energy Corp. (09/91), Unique Capital
Corporation (01/96), United Dixie Resources Inc. (05/93), Willow Resources Ltd.
(01/93 to 11/93) and Xxpert Rental Tool Inc. (02/97). Agnico Eagle Mines Ltd. is
listed on the New York Stock Exchange.
Item 10. Executive Compensation
Except for the compensation described below, neither the Company nor any of
its subsidiaries paid, set aside or accrued any salary or other renumeration, or
any amount pursuant to a profit sharing, pension, retirement, deferred
compensation or other similar plan during 1998, to or for their chief executive
officer or their directors. No executive officer of the Company or its
subsidiaries received compensation in excess of $100,000 for 1998. Except for
the shares described below issued to Lord Edward Montagu of Beaulieu, the
directors of the Company received no consideration for serving in their capacity
as directors of the Company during the last fiscal year.
Director Shares
The Company issued on December 2, 1998, 10,000 shares of stock in the
Company to Lord Edward Montagu of Beaulieu in consideration for his becoming a
member of the Board of Directors as of January 1, 1999. Such shares were issued
pursuant to Regulation S of the 1933 Act. Prior to becoming a Director of the
Company, Lord Edward Montagu of Beaulieu also received $2,490 from Skynet in
1998 in consideration for his services as a Director of Skynet.
16
<PAGE>
The following table summarizes the total compensation of Milton Klyman, who
served as President of the Company through April 20, 1998 and as Secretary and
Treasurer from April 20, 1998 through January 1, 1999.
SUMMARY COMPENSATION TABLE FOR THE COMPANY:
Name/ Annual Compensation
Principal Position Year Bonus
Milton Klyman 1998 ------
President through 4/20/98
Secretary/Treasurer
Milton Klyman 1997 $25,0001
President
1 Represents 250,000 shares of the Company Mr. Klyman received pursuant to
a Consulting Agreement entered into between the Company and Mr. Klyman.
SUMMARY COMPENSATION TABLE FOR SKYNET:
Name/ Annual Compensation
Principal Position Year Salary
Tomas G. Wilmot 1998 $43,575
President
Chairman of the Board
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners.
The following table sets forth, as of April 12, 1999 information regarding
the beneficial ownership of shares by each person known by the Company to own
five percent or more of the outstanding common shares of the Company.
No. of Shares % of Total
Name and Address of of Common Stock Common Shares
Beneficial Owner Beneficially Owned Outstanding1
- ---------------- ------------------ -----------
Tomas G. Wilmot 9,900,000 44.88%
Link House
259 City Road
London, England
EC1V 1JE
Sousa International S.A. 5,000,000 22.66%
43 Portland Place
London, England
W1
- --------
1 Based upon 22,060,500 shares of common stock outstanding as of April 12, 1999.
17
<PAGE>
(b) Security Ownership of Management.
As of April 10, 1999, the present directors and executive officers of the
Company are the beneficial owners of the numbers of shares of common stock of
the Company set forth below.
Name and address of No. of Shares % of Total
Beneficial Owner of Common Stock Common Shares
and Position Held Beneficially Owned Outstanding1
- ----------------- ------------------ ---------------
Tomas G. Wilmot 9,900,000 44.88%
Link House
259 City Road
London, England
ECIV 15E
Lord Edward Montagu 10,000 .04%
of Beaulieu
Palace House
Beaulieu, Brockenhurst
Hampshire, England 5042 77N
Mark L. Dingley 100,000 .45%
48 Hadley Way
Winchmore Hill
London England N21 1AN
All Officers and
Directors as a Group 10,010,000 45.37%
(three persons)
1 See Note 1 to the foregoing table.
(c) Changes in Control. The Company is not aware of any current
arrangements that may result in a change of control of the Company.
Item 12. Certain Relationships and Related Transactions
Since January 1, 1997, the following transactions have occurred in which
persons who, at the time of such transactions, were directors, officers or
owners of more than 5% of the Company's common stock, had a direct or indirect
material interest.
In September of 1997, a Second Debenture of the Company in the amount of
$200,000 was converted into 2,300,000 shares of the common stock of the Company
by the holder of the Second Debenture, in accordance with the terms of the
debenture, to retire the $200,000 debt and $30,000 of accrued interest. After
such conversion and prior to the purchase of the stock of Netking, Chalmette
Finance, Inc., the holder of the Second Debenture, was the controlling
shareholder of the Company. Mr. Moscoe, the Secretary and Treasurer of the
Company and a director at such time, owned 9.9% of the stock of Chalmette and
controlled the voting power of Chalmette.
On December 31, 1996, the Company lent $27,860 to National Media Funding
Corporation, an entity controlled by Mr. Moscoe and in which he has a 100%
ownership interest. During 1997, additional loans were made to bring total
principal due to $165,296 and the interest due to $6,121. The total of $171,417
has been charged to bad debt expense at December 31, 1997 due to the entity's
inability to repay the debt.
18
<PAGE>
The Company entered into a Consulting Agreement dated September 1, 1997
with Milton Klyman, the then President and a Director of the Company. Mr. Klyman
was paid 250,000 shares of the Company for services valued at $25,000. The
Consulting Agreement terminated August 31, 1998.
Tomas Wilmot, the President, Chairman of the Board and a Director of the
Company has loaned Skynet #16,438 as of December 31, 1998, which unsecured
non-interest bearing amount is payable upon demand.
Mark L. Dingley, the Secretary and Director of Finance of the Company has
loaned Skynet #22,000 which unsecured non-interest bearing amount is payable
upon demand.
In connection with the purchase of Netking, the Company agreed to pay to
Morton Glickman a consulting fee of 750,000 shares of the Company. Mr. Glickman
directed the Company to issue the 750,000 shares to Jayhead Investments,
Limited, a Canadian corporation owned solely by Mr. Glickman. Such shares were
issued pursuant to Regulation S; however, the Company has registered such shares
on Form S-8. After payment by the Company of such consulting fee, Mr. Glickman
at such time owned in excess of 5% of the Company's stock.
On December 23, 1998, the Company issued 5,000,000 shares of its stock in
exchange for the cancellation of a #4,000,000 unsecured promissory note of
Netking payable to Leandra De Oliveria Sousa. Such shares were approximately
22.7% of all of the outstanding shares of the Company at such time. The shares
were issued pursuant to Regulation S under the 1933 Act and are not available
for resale in the United States for a period of one year. Such shares are also
considered to be "restricted" securities as defined in Rule 144.
Item 13. Exhibits, Lists and Reports on Form 8-K
(a) Exhibits
2.1 Stock Purchase and Sale Agreement among Peripheral
Connections, Inc., Local Protectors Limited and Tomas George
Wilmot and Limited dated March 19, 1998 (Incorporated by
reference from Company's Form 10-KSB dated December 31,
1997)
3(i) Articles of Incorporation (incorporated by reference from
Form 10- KSB dated December 31, 1996 of the Company)
Amendment to Articles, changing the Company's name.
3(ii)By Laws (incorporated by reference from Form 10-KSB dated
December 31, 1996 of the Company)
10.1 Form of Debenture of M.I. Manek Inc. (Incorporated by
reference from Company's Form 8-K/A dated July 8, 1996)
10.2 Form of Debenture of Chalmette Finance Inc. (Incorporated by
reference from Form 10-KSB dated December 31, 1996 of the
Company)
19
<PAGE>
10.3 Related Party Note (Incorporated by reference from Form
10-KSB dated December 31, 1996 of the Company)
10.4 Consulting Agreement between the Company and Meyers Pollock
Robbins Inc. dated as of July 7, 1997 (Incorporated by
reference from the Company's Form S-8 filed September 24,
1997)
10.5 Consulting Agreement between the Company and Jayhead
Investments, Limited dated September 1, 1997 (Incorporated
by reference from the Company's Form S-8 filed September 24,
1997)
10.6 Consulting Agreement between Milton Klyman and Company dated
September 1, 1997 (Incorporated by reference from the
Company's Form S-8 filed September 24, 1997)
10.7 Nominee Agreement of Tomas George Wilmot.(Incorporated by
reference from the Company's Form 10-KSB dated December 31,
1997.)
10.8 Nominee Agreement of SNH Cooper. (Incorporated by reference
from the Company's Form 10-KSB dated December 31, 1997.)
10.9 Loan Facility Letter Between Netking and Keymore.
(Incorporated by reference from the Company's Form 10-KSB
dated December 31, 1997.)
10.10Promissory Note of Netking to Leandra De Oliveria Sousa in
the amount of #4,000,000 (Incorporated by reference from the
Company's Form 10-KSB dated December 31, 1997.)
10.11Strategic Alliance, Distribution, License and Cooperation
Agreement between ComROAD AG and Skynet.
20
<PAGE>
LIST OF EXHIBITS TO STRATEGIC ALLIANCE, DISTRIBUTION, LICENSE AND
COOPERATION AGREEMENT*
Exhibit Description
Exhibit 1 General Conditions of ComROAD
Price List 01/1999
Exhibit 2 Conditions of sale quantities
UK + IR, first year 2000 Units, second year 6000 units.
Third year and following 20000 Units
Exhibit 3 Discounts for the purchase of the Products.
Discount schedule 03/1999
Exhibit 4 purchase order form Skynet order form.
Exhibit 5 guidelines for marketing and advertising activities
Exhibit 6 requirements for after sales activities Training with
installation of Mapcom-server.
Exhibit 7 warranty obligations
12 Month warranty on parts, return to factory
Exhibit 8 listed Products
Manufacturing Documentation
Exhibit 9 Minimum quantity of the Licensed Products
25000 Units in the first year of this Agreement and 50000
Units thereafter.
Exhibit 10 Royalties
Product -StreetGuard-
*omitted pursuant to Item 601(b)(2) of Regulation S-B
21. Subsidiaries of the Company
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file a report on Form 8-K during the fiscal quarter
ended December 31, 1998.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SKYNET TELEMATICS INC.
Date: April 19, 1999 By: s\ Tomas G. Wilmot
-----------------------------
Tomas G. Wilmot
President, Chairman of the Board, and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Date: April 19, 1999 By: s\ Tomas G. Wilmot
---------------------------------
Tomas G. Wilmot
President, Chairman of the Board, and
Director
Date: April 19, 1999 By: s\ Mark L. Dingley
-------------------------------------
Mark L. Dingley
Secretary, Director of Finance
Date: April 19, 1999 By: s\ Lord Edward Montagu of Beaulieu
----------------------------------
Lord Edward Montagu of Beaulieu
Director
22
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(d) OF
THE EXCHANGE ACT BY NON-REPORTING ISSUERS
The Company has not furnished to its security holders an annual report
or proxy materials since the filing of its immediately prior report on Form
10-KSB.
23
<PAGE>
Exhibit 10.11
Strategic Alliance, Distribution, License and Cooperation Agreement
between
ComROAD AG, represented by the Chairman Mr. Bodo A. Schnabel, Edisonstrasse 8,
D-85716 Unterschlei heim, Germany
(hereinafter referred to as "ComROAD")
and
Skynet 2001 Limited, represented by the Chairman Mr. Thomas G. Wilmot, Link
House, 259 City Road, London, EC1V1JE, United Kingdom
(hereinafter referred to as "Skynet 2001")
Preamble and Definitions
Whereas ComROAD and Skynet 2001 are two companies among the first in the
development and marketing of products and services in the Intelligent
Transportatrion System (hereinafter referred to as "ITS") market. Versus other
vendors, both companies have marketed various ITS products into the Market.
Whereas, ComROAD is designing, manufacturing and selling certain products
(hereinafter referred to as "Products") to third parties; whereas the markets
targeted today by ComROAD are fleet management, security-emergency, online
information and off-board navigation application. The product line consists of
in-vehicle units StreetMachine-StreetGuard-StreetPC and client-server products -
MapCom-client, MapCom-server, InfoCom-server, NavCom-server and DONNA- Telematic
Services.
Whereas, Skynet 2001 is selling and distributing certain products to third
parties within the territory of the United Kingdom and Ireland, West Coast of
USA (the States of California, Oregon and Washington) and West Coast of Canada
(Province of British Columbia) (hereinafter referred to as the "Territory");
whereas the markets targeted by Skynet 2001 are security-emergency and fleet
management. The product line consists of in-vehicle units and Telematic-servers.
Whereas, ComROAD is willing to expand their business in the Territory by
appointing Skynet 2001 as their sole and exclusive distributor for the sale of
the Products to third parties residing in the Territory.
Whereas, Skynet 2001 is willing to act as distributor for the Products in the
Territory.
Whereas as a result of ComROAD's activities, ComROAD is the owner of secret
know-how relating to fleet management, security-emergency, online information
and off-board navigation
24
<PAGE>
application. The product line consists of in-vehicle units
StreetMachine-StreetGuard-StreetPC and client-server products - MapCom-client,
MapCom-server, InfoCom-server, NavCom-server and DONNA-Telematic Services.
Whereas at the time of entering into this Agreement, such Products have been
produced on an industrial scale.
Whereas Skynet 2001 is desirous to license from ComROAD the know-how to be
enabled to make use of the technology and produce -StreetGuard- as licensed
product.
Now, in consideration of the terms and conditions set forth hereunder, the
parties convene and agree as follows:
Chapter I
Distributor Agreement
Art. 1 - Appointment of Skynet 2001
(1) ComROAD hereby appoints Skynet 2001 as their distributor for the sale of the
Products within the Territory.
(2) Skynet 2001 shall buy and sell the Products directly from ComROAD in their
own name and their own account, and Skynet 2001 then shall sell them to third
parties domiciling within the Territory in their own name and on their own
account.
(3) Nothing in this Agreement shall constitute the right of Skynet 2001 to act
as agent of ComROAD or to represent ComROAD in any way whatsoever. Skynet 2001
shall have no authority whatsoever to enter into any obligations on behalf of
ComROAD.
Art. 2 - Exclusivity
(1) Skynet 2001 shall act as ComROAD's sole and exclusive distributor within the
Territory. Skynet 2001 will source ITS Service Centre Hardware and Software
exclusively through ComROAD.
(2) Skynet 2001 shall not be entitled to act as agent, representative or
distributor, dealer or alike for products other than ist own products being held
competitive to the Products sold within the Territory.
(3) Skynet 2001 shall not solicit any sales of the Products outside of the
Territory. Skynet 2001 shall restrict their active efforts to advertise and
solicit sales of the Products to activities executed within the Territory.
However, Skynet 2001 may sell the Products to third parties residing outside of
the Territory.
(4) Skynet 2001 shall not be entitled to engage subcontractors or any other
third party as their subagent without having obtained ComROAD's prior written
approval to do so. Such approval shall not be unreasonably withheld.
25
<PAGE>
(5) Skynet 2001 shall not change their place of business without having informed
ComROAD in advance.
Art. 3 - Purchase and Sale of the Products
(1) ComROAD shall sell to Skynet 2001 Products on the basis of the General
Conditions attached hereto as Exhibit 1.
(2) Skynet 2001 shall not be bound in any way whatsoever by the prices paid to
ComROAD, but shall determine at their own risk the prices for the sale of the
Products to third parties.
(3) The term "Product" shall also incorporate spare parts, designed,
manufactured and sold to third parties by ComROAD.
(4) Skynet 2001 shall distribute a minimum quantity of the Products, as more
closely set forth in Exhibit 2 to this Agreement for various countries of the
Territory listed in such Exhibit. If Skynet 2001 does not fulfill the minimum
quantities set forth, ComROAD shall be entitled to terminate the exclusivity
under this Agreement and the distribution shall continue to be non-exclusive for
the respective country of the Territory. If the quantities of the Products
distributed by Skynet 2001 falls below 50 percent of the minimum quantities set
forth for a respective country of the Territory during two consecutive years,
ComROAD shall be entitled to terminate the distribution grant for such
respective country with three months notice. Such termination right does not
require that ComROAD has terminated the exclusivity of the license grant for
such country of the Territory before.
Art. 4 - Sales Forecast
(1) The parties shall convene from time to time in order to reasonably agree the
sales forecast for the forthcoming calendar quarter. Such sales forecast, if
confirmed by Skynet 2001, will not be binding upon the parties hereto.
(2) Skynet 2001 acknowledges and accepts the following discounts for the
purchase of the Products as attached as Exhibit 3.
(3) Every and each purchase order shall become binding upon ComROAD for the sale
of Products, if it has been transmitted to ComROAD using the form attached
hereto as Exhibit 4. ComROAD shall be bound to execute such order on the basis
of the General Conditions attached hereto as Exhibit 1, unless ComROAD has
rejected any order received within four working days (Monday through Friday),
thereby giving due reasons for not accepting and executing the respective order.
Art. 5 - Trademarks - Sales Promotion
(1) ComROAD shall grant to Skynet 2001 the non-exclusive license to use any and
all trademarks, logos and other markings used by ComROAD in order to promote the
sale of the Products. The grant of such license shall be free of any charge
whatsoever.
(2) All major marketing and advertising activities of Skynet 2001 relating to
the sale of the Products shall be coordinated by ComROAD in order to not divulge
the identity and image of the
26
<PAGE>
Product. Skynet 2001 shall comply with the guidelines issued by ComROAD, as
attached in Exhibit 5.
(3) Skynet 2001 shall be obligated to display the trademark, logo or any other
marking relevant to the sale of the Products at their premises, thereby
complying with the relevant terms and conditions of Exhibit 5.
(4) Skynet 2001 shall be obliged to reasonably promote the sale of the Products
by keeping such number of Products at their premises as has been agreed upon
with ComROAD.
Art. 6 - After Sales Activities
(1) In order to promote the sale of the Products Skynet 2001 shall be obligated
to effect after sales activities to their customers in line with the
requirements laid down in Exhibit 6.
(2) Skynet 2001 shall be obligated to secure that their personnel is in the
possession of the relevant know-how for the due performance of such after sales
activities. Therefore Skynet 2001 is obligated to send a reasonable number of
their staff for adequate training to seminars held by ComROAD. The costs
incurred thereby shall be borne by Skynet 2001.
(3) Skynet 2001 shall duly perform any and all warranty obligations in line with
the requirements set forth in Exhibit 7. The costs incurred for such activities
shall be reimbursed by ComROAD on the basis of the prices laid down in said
Exhibit 7. (4) Skynet 2001 shall order the necessary spare parts and any other
machinery deemed necessary for the due and proper performance of any warranty
claims. The necessary quantities of spare parts will be incorporated in the
respective sales forecasts.
Art. 7 - Service
(1) ComROAD is selling ITS Service Centres in countries world-wide to give
service to the customers with Telematic in-vehicle units installed in their
vehicles. If Skynet 2001 or ComROAD will set up ComROAD ITS Service Centres in
countries world-wide to give service to the customers with Telematic in-vehicle
units installed in their vehicles, each party shall grant the other party the so
called ,,first choice" possibility to join as a partner to the so set up ITS
Service Centre. Before setting up such ITS Service Centres, the party who will
set up such an ITS Service Centre has to inform the other party about this
enterprise.
(2) Skynet 2001 will pay to ComROAD 7 1/2 % of all world-wide monitoring or
telematic related income generated by ComROAD ITS Service Centre and in-vehicle
Products. Skynet 2001 will purchase MS25/2500, this will be up-graded free of
charge as when usage exceeds 2,500 customers.
(3) Products sold by Skynet 2001 or their associates and partners will be
exclusively serviced by Skynet 2001 or by ComROAD service centers if an
agreement on sharing of income has been reached.
27
<PAGE>
Art. 8 - Information Requirements
(1) Skynet 2001 shall be obligated to transmit to ComROAD its attested annual
balance sheet at the latest by June 30 of the following year. Furthermore,
ComROAD shall be entitled to check the books and records of Skynet 2001 inasmuch
as reasonable, provided that the legitimate interests of Skynet 2001 are not
impaired thereby.
(2) Skynet 2001 shall not change the structure of their company and/or its
ownership without having informed ComROAD beforehand in writing of any such
prospective undertaking. If the legitimate interests of ComROAD are likely to be
unreasonably impaired by such undertaking, then the parties shall convene and
agree a reasonable solution. Failing to do so within a reasonable time, ComROAD,
at their option, may terminate this Agreement, thereby reasonably compensating
any losses incurred by Skynet 2001 in consideration of such termination.
(3) ComROAD will provide ongoing Software and Hardware development and technical
support for all ComROAD Products under this Agreement.
Chapter II
License Agreement
Art. 1 - Definitions
(1) "Know-how" means the secret technical information relating to the
manufacture and use of -StreetGuard- closely defined in Exhibit 8 and the
therein listed documents and drawings, which know-how has been developed and is
owned by ComROAD.
(2) "Licensed Products" means -StreetGuard- developed by ComROAD.
(3) "Territory" within the License Agreement means the territory of the United
Kingdom.
Art 2 - License Grant
(1) ComROAD herewith grants to Skynet 2001 a license to make use of the Know-how
on an exclusive basis in the Territory to produce Licensed Products.
(2) During the term of this Agreement, ComROAD shall not grant any further
licenses to the Know-how within the territory nor shall ComROAD use the Know-how
in the territory itself.
(3) The documents listed in Exhibit 8 will be transmitted to the Skynet 2001
upon signature of this Agreement.
(4) ComROAD is entitled to terminate the exclusiveness of the license grant two
years after signature of this Agreement with a notice period of three months if
Skynet 2001 without objective justification does not to a satisfactory extent
make use of the Know-how in producing Licensed Products. If ComROAD exercises
this termination right, the license shall continue as a non-exclusive license.
ComROAD shall have the same termination right thereafter on each second
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<PAGE>
anniversary of the signature of this Agreement with a notice period of three
months to the end of the contract year.
Art 3 - Territory
(1) The license is granted for the Territory as written down on "Definitions"
Art 1 (3).
(2) Skynet 2001 is not entitled to actively sell the Licensed Products to
countries outside of the Territory. For countries of the European Union, this
sales limitation ends ten years from the date that the Licensed Products are
first put on the market within the Common Market by Skynet 2001 or any of the
other licensees of ComROAD.
(3) Skynet 2001 is not entitled to sell the Licensed Products to countries
outside of the Territory, in response to unsolicited orders. For countries of
the European Union, this sales limitation ends five years from the date when the
Licensed Products are first put on the market within the Common Market by either
the Skynet 2001 or by one of the other licensees of ComROAD.
Art. 4 - Field of Use
The license covers the entire area of the application of the Know-how, including
all further developments, as it relates to the Licensed Products. Skynet 2001
shall be entitled to produce the Product -StreetGuard- making use of Know-how
only for Licensed Products and shall not use any of the Products for the
production of any other material.
Art. 5 - Obligation to further Develop the Know-how and to Obtain Governmental
Approvals
(1) Skynet 2001 solely shall be obliged to develop the Know-how to the extent
necessary to manufacture and distribute the Licensed Products.
(2) It shall be the sole obligation of Skynet 2001 to fulfill any marketing
regulations within the Territory and to obtain governmental approvals within the
Territory if such are necessary for marketing of the Licensed Products. ComROAD
shall provide whatever help necessary to obtain such approvals against
reimbursement of costs.
(3) In case of termination of this Agreement before the end of the initial term,
Skynet 2001 shall enable ComROAD to make use of the further developments of the
know-how and shall assign any existing governmental approvals or pending
applications for the Territory to ComROAD against reimbursement of the costs
incurred for the further developments and for obtaining such approvals.
Art. 6 - Obligation to Use Know-how and to produce Licensed Products
(1) Skynet 2001 shall use its best efforts to exploit the Know-how and to
procure the manufacture and market the Licensed Products.
(2) Skynet 2001 shall produce a minimum quantity of the Licensed Products, as
more closely set forth in Exhibit 9 to this Agreement for various countries of
the Territory listed in such Exhibit. If Skynet 2001 does not fulfill the
minimum quantities set forth, ComROAD shall be entitled to terminate the
Agreement with three months notice or to terminate the exclusivity under this
29
<PAGE>
Agreement and the license shall continue to be non-exclusive for the respective
country of the Territory. Such termination right does not require that ComROAD
has terminated the exclusivity of the license grant for such country of the
Territory before.
Art. 7 - Improvements
(1) All improvements to the Know-how in the field of use by ComROAD or by Skynet
2001 shall be reported to the other Party immediately. Each Party shall secure
the exclusive rights to such improvements if it was not the sole developer of
such improvements or if such improvements were developed by employees or third
party contractors.
(2) If ComROAD made improvements to the Know-how such improvements shall come
under the license grant set forth herein and shall be subject to the terms and
conditions of this Agreement. No further royalty shall become due and payable
because of such improvements.
(3) If Skynet 2001 made such improvements it shall grant to ComROAD a license in
respect of such improvements, such license being only an exclusive license if
the improvements cannot be separated from the Know-how. Under the terms and
conditions of this Agreement Skynet 2001 shall be entitled to make use of such
improvements. If the improvements can be separated from the Know-how then the
license shall be non-exclusive and Skynet 2001 shall be entitled within its sole
discretion to apply for patent protection on such separable improvements,
provided this does not require to lay open any part of the Know-how.
Art. 8 - Warranties
(1) ComROAD warrants that according to its best knowledge, the Know-how is
secret and has not become public knowledge or has not been made available to any
third parties, provided, however, that this may be the case if such third
parties are bound by a non-disclosure agreement and are not entitled to make use
of the Know-how or, provided, that such third parties are further licensees of
ComROAD outside of the Territory which want to make use of the Know-how outside
of the Territory.
(2) ComROAD warrants that it is not aware of any prior use-rights of third
parties and that it is also not aware of any third party rights which could be
violated by the use of the Know-how by Skynet 2001 in the Territory.
(3) ComROAD further warrants that it has not granted any prior license to any
third party within the Territory.
Art. 9 - Royalties
(1) Skynet 2001 shall pay during the time of this Agreement a royalty as
consideration for the exclusive license grant of USD $ 10 plus value added tax
(VAT) or any other sales tax born by German or European law per piece/per unit
of Product as listed in Exhibit 10, which royalty shall be due and payable on
the 15 th of each month following the month of sale.
(2) If ComROAD terminates the exclusivity for any or all of the countries of the
Territory in accordance with the terms of this Agreement such termination shall
have no influence on the
30
<PAGE>
payment obligation of Skynet 2001. The termination of the license grant for some
countries of the Territory shall also have no influence on the amount of royalty
paid, provided that the basis of the royalty payment will decrease.
(3) Skynet 2001 shall keep separate records relating to the manufacture and sale
of the Licensed Products for each country of the Territory. Skynet 2001 shall
report in writing to ComROAD, broken down for each respective country of the
Territory, quarterly within 30 days after the end of a calendar quarter, what
turnover was made by Skynet 2001 in the respective country of the Territory.
ComROAD shall be entitled through its certified public accountants to inspect at
ComROAD's expense the books of account and other records, at reasonable times
and to such an extent as this will not interfere with normal operations of the
Skynet 2001, to determine the accuracy of the reporting and payments made by
Skynet 2001. If such an audit reveals inaccuracies of 4% or more, the cost for
such audit shall be borne by Skynet 2001.
(4) Skynet 2001 shall continue to pay the royalties even if the Know-how becomes
publicly known if this is not caused by an act of ComROAD.
Art. 10 - Third Party Rights
If Skynet 2001 is charged with the infringement of third party rights based on
the exploitation of the Know-how Skynet 2001 shall immediately inform ComROAD
about this allegation. ComROAD shall defend Skynet 2001 of such infringement
allegations if Skynet 2001 does not chose to defend itself, in which case
ComROAD shall cover the costs and expenses of Skynet 2001. ComROAD shall
indemnify and hold Skynet 2001 harmless of all damages and costs of Skynet 2001
incurred because of such infringement allegation.
Chapter III
Miscellaneous Clauses
Art. 1 - Promotion of the Business
(1) SKYNET 2001 shall diligently promote and make every effort steadily to
increase the business laid down in this Agreement by such advertisements, signs,
entries in telephone or trade directories or other forms of publicity as may be
approved by COMROAD.
(2) SKYNET 2001 shall distribute to customers and potential customers in the
most effective manner point-of-service advertising material provided by COMROAD.
(3) SKYNET 2001 shall also co-operate with COMROAD and other distributors and
licensees of COMROAD in any advertising campaign, sales promotion program or
other special promotion activity in which COMROAD may engage.
Art. 2 - Term and Termination
(1) This Agreement becomes effective upon signing by both Parties and shall
continue for a period of ten (10) years from the date of signature ("initial
term") and shall be renewed automatically from year to year thereafter until
terminated with six months, notice to the end of any renewal
31
<PAGE>
period. If the Parties want to extend the exclusivity of the license grant
beyond the initial term they shall take whatever steps appropriate to obtain the
necessary approval, if any, for such exclusivity.
(2) In the event of default by either Party under any of the terms and
conditions of this Agreement, the Party not being in default may terminate this
Agreement by giving thirty (30) days written notice.
(3) This Agreement shall be terminated forthwith if any party to this Agreement
has fundamentally breached any of the obligations of the Agreement. The party
being in breach of its contractual obligations shall be obligated to compensate
to the other party any damages incurred due to such breach.
(4) The same shall apply, if bancruptcy proceedings have been initiated or if a
liquidator has been appointed.
(5) If ComROAD has terminated the Agreement in line with subsection (1), then
Skynet 2001 shall no longer be obligated to act as ComROAD's sole and exclusive
distributor but shall be dissolved from their obligation to not compete with
ComROAD's Products.
(6) ComROAD shall be obligated to repurchase any and all spare parts from Skynet
2001 upon expiry of this Agreement at the prices shown in Exhibit 7, provided
that the respective spare parts are still unpacked, unsued and can reasonably be
used by any other third party having reasonable expertise in doing any necessary
repair work for the Products. This obligation shall elapse if there is evidence
that ComROAD has terminated this Agreement with cause.
Art. 3 - Secrecy Obligation and Confidentiality
(1) ComROAD and Skynet 2001 agree to keep secret and not to communicate to third
parties the Know-how or any other information which is either marked
confidential or which has to be deemed confidential from the circumstances it is
provided under or comes to the attention of the other Party. This does not
restrict ComROAD from entering into any agreements with further licensees
outside of the Territory.
(2) The secrecy obligation does not apply to any information of which Skynet
2001 can prove by written documents that it was known to Skynet 2001 at the time
of disclosure and was not disclosed to it by a third party breaching any secrecy
obligation, or is generally available to the public through no fault of Skynet
2001, or was received by Skynet 2001 under no obligation of secrecy from a third
party which did not receive it directly or indirectly from ComROAD.
(3) Upon termination of this Agreement the Parties shall return to each other
all documents, files, or other evidence or copies thereof containing secret
information.
(4) The secrecy obligation shall survive the termination of this Agreement.
(5) Skynet 2001 shall not challenge the ownership of ComROAD as to the Know-how.
If Skynet 2001 challenges the secret nature of the Know-how, ComROAD shall be
entitled to terminate this Agreement without notice.
32
<PAGE>
(6) Both parties shall also require this obligation of their employees.
Art. 4 - Assignability and Sublicensing
This Agreement may neither be assigned without the prior written consent of the
other Party nor may the Know-how be sublicensed without the prior written
consent of ComROAD. In addition to this Agreement ComROAD remains the sole owner
of all rights, trade secrets and Know-how about the Products of ComROAD
mentioned under point Preamble and Definitions.
Art. 5 - Miscellaneous
(1) This Agreement shall not be altered or modified, unless in writing and
signed by the parties hereto.
(2) If any term or condition of this Agreement is null and void or will become
null and void during its course, then the validity and effectiveness of all
other terms and conditions shall not be impaired thereby. All terms and
conditions of this Agreement are separable.
(3) This Agreement shall be governed by German Law.
(4) Place of jurisdiction shall be Munich, Germany.
Munich, March 1, 1999 place/date
/s/ /Bodo A. Shnabel/
Bodo A. Schnabel
ComROAD AG
London, March 24, 1999 place/date
/s/ /Tomas G. Wilmot/
Tomas G. Wilmot
Chairman and Managing Director
Skynet 2001 Limited
33
<PAGE>
LIST OF EXHIBITS
Exhibit 1 General Conditions of ComROAD
Pricelist 01/1999
Exhibit 2 Conditions of sale quantities
UK + IR, first year 2000 Units, second year 6000 units. Third
year an following 20000 Units
Exhibit 3 Discounts for the purchase of the Products.
Discount schedule 03/1999
Exhibit 4 purchase order form Skynet order form.
Exhibit 5 guidelines for marketing and advertising activities Will be
sent separately.
Exhibit 6 requirements for after sales activities Training with
installation of Mapcom-server.
Exhibit 7 warranty obligations
12 Month warrenty on parts, return to factory
Exhibit 8 listed Products
Manufacturing Documentation
Exhibit 9 Minimum quantity of the Licensed Products
25000 Units in the first year of this Agreement and 50000
Units thereafter.
Exhibit 10 Royalties
Product -StreetGuard-
ComROAD_Distributor_agreement.DOC
15.03.1999
34
<PAGE>
Exhibit 21
NetKing Limited
Skynet 2001 Limited (subsidiary of NetKing Limited)
Peripheral Canada, Inc.
Skynet Satellite Communications Corporation (Subsidiary of Peripheral Canada,
Inc.)
35
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from Skynet Telematics Inc. (formerly Peripheral Connections,
Inc.) December 31, 1998 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> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 20
<SECURITIES> 0
<RECEIVABLES> 23,473
<ALLOWANCES> 0
<INVENTORY> 830
<CURRENT-ASSETS> 61,776
<PP&E> 7,517,383
<DEPRECIATION> (630,953)
<TOTAL-ASSETS> 6,948,206
<CURRENT-LIABILITIES> 1,363,082
<BONDS> 0
0
0
<COMMON> 21,944
<OTHER-SE> 5,280,471
<TOTAL-LIABILITY-AND-EQUITY> 6,948,206
<SALES> 154,651
<TOTAL-REVENUES> 154,651
<CGS> 470,235
<TOTAL-COSTS> 470,235
<OTHER-EXPENSES> 2,061,406
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,358
<INCOME-PRETAX> (2,376,990)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,376,990)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,627,530)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
