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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB/A
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 33-55254-39
Skynet Telematics.com, Inc.
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(Name of small business issuer in its charter)
Nevada N/A
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Link House, 259 City Road, London U.K. EC1V 1JE
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 011 44 207 490-7900
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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) 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
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of the 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. [ ]
The issuer's net revenues for its most recent fiscal year were
$1,141,478.
The aggregate market value of the 8,805,219 shares of voting stock held
by non-affiliates of the Registrant, as of March 14, 2000 when the closing sale
price was $3.937 per share, was $34,666,147.20 (assuming solely for purposes of
this calculation that all directors, officers and greater than 5% stockholders
of the Registrant are "affiliates").
The number of shares outstanding of the issuer's common stock, par
value $.001 per share, as of March 14, 2000, was 25,785,214.
Documents Incorporated by Reference: Not Applicable.
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This document contains forward looking statements regarding the Company's
business strategy and future plans of operation. Forward looking statements
involve known and unknown risks and uncertainties. These and other important
factors, including those mentioned in various filings with the Securities and
Exchange Commission made periodically by the Company (available to the public at
www.sec.gov ), may cause the actual results and performance to differ materially
from the future results expressed in or implied by such forward looking
statements. The forward looking statements contained in this document speak only
as of the date hereof and the Company disclaims any obligation to provide public
updates, revisions or amendments to any forward looking statements made herein
to reflect changes in the Company's expectations or future events.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Skynet Telematics.com, 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. PCI owns all of the stock of Skynet Satellite Communications
Corporation, a Canadian company. Neither PCI nor Skynet Satellite Communications
Corporation have any significant operations. Netking has no significant
operations other than beneficial ownership of all of the stock of Skynet
Telematics Limited, an English private company ("Skynet") and a 51% interest in
SKAMP International Ltd., one of the joint ventures discussed below.
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) and Internet to enable customers to identify
the exact location and status information about vehicles, to receive certain
theft protection, personal security measures, email, Internet access and full
concierge services through an Audio Integrated Voice Recognition Platform (AIVR)
and 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 and concierge services available through the monitoring
station. For a further description of Skynet's business and other information
regarding Skynet, see "Skynet Telematics Limited" below.
ComROAD Distribution Agreement
On March 24, 1999, Skynet entered into a Strategic Alliance,
Distribution, License and
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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 Skamp trademark. The agreement also provides for the
exclusive licensing of the know-how that will permit Skynet to facilitate the
manufacture of the Skamp products to Original Equipment Manufacturers ("OEM") in
the United Kingdom, allowing vehicles to be outfitted with the Skamp 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 Telematics Ltd.
Skynet Telematics.com Inc, has no significant operations nor does it
hold any significant assets other than Skynet Telematics Ltd. 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 name Skamp. The products sold are essentially a box containing a
GPS engine, a GSM chipset or module, microprocessor and software. These items
are assembled in the box and mounted on printed circuit boards. Skynet Joint
Venture Partners are turnkey "Service Providers" for Telematics products.
Through a Monitoring Service Center in London, England and through
Monitoring Services Centers of Joint Venture Partners in Europe, 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 fees will vary depending upon the services the customer selects. Revenue
is also generated through the Audio Integrated Voice Recognition system (AIVR)
put in place as part of the "AVIS" solution. This AIVR allows Skynet to generate
revenues from GSM line and Telephone line usage both from the vehicle and to the
vehicle. In addition premium rated calls for diverse services such as Pro-active
route planning, information on places of interest, emergency situations, Hotel
reservations, etc provide important additional revenue. The recent addition of a
dedicated Internet connection in each Hire car will also generate substantial
revenues as customers review their emails and "surf the net"
In 1999, Skynet focused on the marketing and distribution of the Skamp
line of products. In particular, Skynet will be pursuing OEM manufacturing and
marketing of the Skamp 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. Although, Skynet is currently monitoring approximately 30
Skynet 2001 systems, it is Skynet's intention to cease the system by end June
2000 as it has been superseded by the ComROAD product.
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Skynet Directors have reviewed the useful life of the Intellectual
Property Rights and Patent Rights owned by Skynet on various products and have
decided that it would be prudent accounting policy to amortize the net book
value of the Intellectual Property Rights and Patent Rights owned by Skynet,
over a period of five years. The result of this accounting policy change will be
to increase the amortisation charge in 1999 by $502,697.(1)
Products and Services
Skamp
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) 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
Skamp names.
Skynet currently has three lines of Skamp products available to
customers: Skamp Gateway, Skamp Pro-Active Tracking and Skamp EVA. The Skamp
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 Skamp products use
the common open technology platform. Skynet as of March 31, 2000 has fitted and
is monitoring Skamp Gateway and Skamp Pro-active units.
Skamp Gateway
Skamp Gateway is designed as a fleet management tracking device. In its
original factory setting the Skamp 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. Other fleet
management tools include remote fuel readings, fuel theft gauge, mileage
recorder, and exception reports as well as driver identification and
authorisation.
Skamp Pro-Active Tracking
Skamp Pro-Active Tracking is a fleet management pro-active tracking
safety and security device with telecommunication capability. In addition to the
Skamp Gateway functions, Skamp 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. Skamp Pro-Active Tracking has the same options offered
as the Skamp Gateway product.
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(1) All British Pound amounts are converted to US Dollars at a
conversion rate of (pound)1.00 = $1.62.
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Skamp Executive Vehicle Assistant (EVA)
Skamp EVA is a lifestyle services product which provides every customer
with a whole range of audio services connected simply at the press of a button:
Talk-u-there advice, traffic information, secretarial support, PA services,
concierge and information on a wide range of topics like news, weather, shares
etc.
Soon, Skamp EVA will integrate Palm Digital Assistant ("PDA")
technology using Windows CE with the Skamp 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.
The Skamp system with Skynet's unique Universal Telematic
Interface(TM), 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 and Internet. The Skamp 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 service, and remote
product status monitoring facility, global positioning, and Internet Monitoring
and access.
By interfacing its immobilisation system, which is a vehicle security
system with crash and unauthorized entry sensors linked to the vehicle's
anti-theft control system, the Skamp system is able to provide an in-vehicle
remote monitoring/anti-theft tracking control system. The Skamp 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, information services, concierge services and
full Internet access.
The Skynet Skamp unit is concealed in the customer's vehicle and is
capable of communicating automatically with the central security-monitoring
bureau.
Intellectual Property Rights and Patents
The IPR owned by Skynet pertains to the Skynet 2001 system 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.
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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.
Skynet have applied for Intellectual Property Rights and Patent Rights
for Universal Telematic Interface(TM) ("UTI") and design of connector looms
which were required as part of the "AVIS" solution. UTI is a 4 layer printed
circuit Board with sophisticated software which when connected to a telematics
device and to the vehicle provides quickly and easily full control of the
vehicles electronic systems.
The UTI device has substantially reduced commissioning and
decommissioning of vehicle in some case to less than 1/2 an hour. In addition
the UTI can be connected to the vehicles electronic engine management system
allowing remote access information on the wear and tear of individual components
in vehicles as well as giving advanced notice of vehicle service requirements.
The UTI also acts as an immobilisation device ("Thatcham" approval is being
sought, this allows UK Insurance organisations to provide insurance discounts
when an "approved" immobiliser is fitted), and an anti-hijack device whereby
fuel supply can be remotely cut off. Connector Looms, of various sizes and
designs were necessary to achieve speedy turn-around as part of the "AVIS"
solution.
Monitoring Service Center
A monitoring service center and Audio Integrated Voice Recognition
Platform (AIVR) act together as a highly sophisticated 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, emergency assistance,
full concierge service and Internet access. There are currently two service
centers, one located in London, England and the other in Slovakia. Skynet
anticipates opening additional service centers as it grows, either directly or
in Joint Ventures with local monitoring stations, companies 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 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 Skamp product the vehicle owner has.
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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 pro-active routing services. Also available is a full concierge service that
will book restaurants, hotels, order flowers and other gifts, as well as
Internet access and email capability either through IVR or the dedicated
Internet connection.
The management believes that no other competitor offers the full array
of services that the Skynet monitoring service center can provide.
Internet Tracking
Netrak is an internet based real-time tracking facility offered by
Skynet. During 1999 Skynet has worked closely with Pole Star Space Application
Ltd to improve and develop this system. We are now able to offer our customers
global mapping, often down to street level at a fraction of the cost we were
able to supply mapping for the UK and Europe only. We believe Netrak will
revolutionise the self tracking market for smaller fleets. Good street level
mapping can cost in excess of $15,000 (when held on the clients own PC). Netrak
offers smaller customers good street level mapping at a few cents per position
request, thus providing a quality solution for less frequent fleet tracking.
Netrak also removes the need for client software to be uploaded on to a
customers PC, and allows the customer to track their vehicle from any computer
connected to the internet.
Joint Ventures
Skynet has entered or is entering into Joint Ventures ("JVs") with well
managed, well connected and important companies throughout Europe to enable
customers to obtain the best local information when travelling through that
particular country. Most of these JVs are in a preliminary and development
state. JV's are an important part of the "AVIS" and car hire solution currently
providing a "Turn Key" opportunity in 38 countries (those countries that are
only an option, which has not yet been exercised, are marked):
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Skynet England
Scotland
Wales
Northern Ireland
Eire
Eurotrade as Norway
Sweden
Denmark
Finland (option)
South Africa
Risk Consultants Lebanon
SARL Lebanon
Syria
Jordan
United Arab Emirates
Oman
Kuwait
Saudi Arabia
Yemen
Egypt
Skynet Telematics S.A.
in conjunction with
Gestion Developpement &
Financement S.A. Switzerland
Italy
India
Lancry Protection Securite
S.A. France
Spain (option)
Portugal (option)
Russia (option)
SKAMP International Ltd Bulgaria
Croatia
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Poland
Romania
Slovakia
Slovenia
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Ukraine
JV's are usually completed on a 25% or 50% Skynet ownership basis with
the intention to effect an Initial Public Offering for the JV within 18 months
of the commencement of the joint venture.
Customers
During 1999, there were no customers, other than AVIS UK Ltd., that
comprised more than 10% of Skynet's net sales. Because Skynet commenced
operations in 1998, Skynet is unable to predict the level of 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, car hire companies, motorcycle owners and individual vehicle
owners.
The ComROAD unit with GPS engine, GSM chipset or module and micro
processor components of the base unit product for the Skamp line of products
will be purchased through ComROAD pursuant to the agreement between Skynet and
ComROAD. However, management is also pursuing manufacture of the Skamp 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 Skamp products, there are several available suppliers and
management believes that such goods could be obtained from other suppliers on
acceptable terms.
Research and Development
During 1999, Skynet expended $211,388 on research and development
programs. Such costs are generally included as factors in determining Skynet's
pricing procedures. The Research and Development program successfully developed
the Universal Telematic Interface(TM), connector looms and the 4 button kit
specifically designed as part of the "AVIS" and world rental car solution.
Skynet's R&D department are currently refining the design of the four button kit
to enhance the size and ease of use of the buttons adding the dedicated Internet
interface and developing a similar product for Motorcycle and Marine use.
Competition and Marketing
There are multiple competitors in the telematics industry, such as
Trakbak, Orchid, 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, the management of Skynet believes that there is
no competitor in the United Kingdom and Europe, that sells an integrated product
incorporating voice link and SMS facilities using GSM, PCN networks a range of
Telematic products and Internet. 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 Skamp range of products, with
its integrated features and the services offered through its monitoring centers,
currently differentiates its product from those of its United Kingdom and
European competitors.
Skynet and its Joint Venture Partners believe that they are the only
Integrated group of "Service Providers" for the Telematics Industry, providing
common standards of service and emergency response with agreements in 38
countries.
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 50 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.
"AVIS" Solution - Change in Strategy
"AVIS" solution dictated important change in Skynet's strategy. The
commencement of the very important 250 unit trial for AVIS UK at Heathrow,
London, UK on 21st September 1999 has led to a major change in strategy and
direction. AVIS required Skynet and its Joint Venture partners to provide
cutting edge technological solutions to problems, which at times seemed
insurmountable. Skynet and its Joint Venture partners were able to achieve all
of these solutions sometimes at great cost, on a timely basis enabling a highly
successful conclusion to the trial.
Problem: AVIS required a simple easy to understand telematics
device.
Solution: Skynet specifically designed a unique 4 button kit to
provide ease of use.
Problem: AVIS require a 30 second billing facility so that
customer's bills could be calculated as soon as the car
hire contract is finished.
Solution: By interfacing the Audio Integrated Voice Recognition
Platform between the vehicles GSM device and the
Monitoring Centre, a sophisticated highly technical
solution was achieved. This solution also allowed Skynet
to collect additional revenues from call and line usage.
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Problem: AVIS required Internet access for its customers.
Solution: Provision of Internet access through IVR and dedicated
Internet connection.
Problem: AVIS required a full concierge route planning and places
of interest information.
Solution: Upgraded information technology and data banks at
monitoring service centres.
Problem: AVIS require speedy de-installing and re-installations
Solution: Developed Universal Telematics interface(TM)and connector
looms.
Problem: AVIS required European and world "turnkey" Telematics
solution.
Solution: Developed and continue to develop Joint Venture
relationships with strong European and middle-east
partners to provide AVIS & Hire car companies a
comprehensive turn key solution.
Problem: AVIS required "no cost option" with revenue returns.
Solution: Skynet and West Country Telecom devised a solution whereby
the weekly cost of the unit was the same as the savings
made by 'AVIS' as well as providing a significant revenue
stream calculated as a percentage of Air-time/Internet
usage.
Problem: AVIS required a credit card payment solution so that
Airtime usage was on a user pays basis avoiding
integration into the AVIS billing platform.
Solution: Skynet and West Country Telecom were able to effect "one
second" credit card authorisation by using the Audio
Integrated Voice Recognition Platform (AIVR) and a Virtual
Internet Service Provider (VISP).
Problem: AVIS required substantial reduction in car thefts and
details of the time of any accidents or knocks to
vehicles.
Solution: Skamp system successfully recovered stolen AVIS vehicle,
Skynet has 100% success rate in locating and retrieving
stolen vehicles. Motion and tilt sensor attached to Skamp
system alerted the Monitoring Centre each time the vehicle
was in an accident or damaged.
Problem: AVIS required remote petrol gauge and mileage readings to
speed up AVIS service and avoid disputes at check out.
Solution: Skamp and Universal Telematics Interface(TM) provides
these solutions.
Given the size and extent of the solutions required by the exciting
"AVIS" project, the Directors of Skynet decided to divert full Management and
Senior staff to the "AVIS" project. Inevitably this has resulted in stagnation
of UK and European sales, but Skynet Directors believe that was a small price to
pay for an opportunity to become AVIS's Worldwide Telematics solution.
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The test on the 250 units at Heathrow was highly successful,
demonstrating significant revenues to AVIS and high level of customer
appreciation, as well as location of stolen AVIS vehicle. This successful test
resulted in a letter of intent from AVIS UK Ltd., dated 7th February 2000
confirming AVIS's intention to fit the whole of their UK fleet of Hire car
vehicles (approximately 27000 units) with the Skamp Telematics device. However,
at a subsequent meeting Avis UK Ltd., stated that as a condition of this order,
AVIS required full world exclusive for the Skamp Telematics products in Hire
cars without a time limit. As we have 5 Joint Venture agreements in place we
were unable to commit for a world exclusive as it would substantially reduce the
potential profitability of Skynet and its Joint Venture partners. We have
subsequently been approached by Hertz and are currently negotiating a 250-1000
unit trial in the UK. We are also in negotiation with a number of other Hire car
companies in UK and Europe. "AVIS" solution provided Skynet with the focus to
package a Worldclass product for the car Hire industry. Skynet and its Joint
Venture partners are convinced that the "AVIS" solution for car hire companies
will prove to be a very profitable part of Skynet and its partners Telematics
business.
Connections
Telematics and GSM companies are currently valued by the number of
"connections" they have an annual basis. Large airtime providers such as
Vodaphone, Orange, etc, are particularly interested in acquiring companies with
100,000+ connections. Each hire car connection by Skynet is based on a 3 year
contract and is both a GSM connection and an Internet connection to a dedicated
Internet service provider.
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 does not have product liability insurance. Skamp
International anticipates purchasing product liability insurance, however, there
is no assurance that the Company will obtain such insurance. Skynet Telematics
Ltd. has product liability cover of (pound)1,000,000 or $1,620,000 per annum.
Employees
As of April 2000, the Company did not have any employees. Its
subsidiaries had 33 full-time employees as of April 12, 2000. 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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ITEM 2. DESCRIPTION OF PROPERTY
The Company owns no properties. Skynet leases approximately 7,500
square feet at Link House, 259 City Road, 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 (pound)60,000 or $97,200.
The lease, which expired March 24, 2000, has been extended on a month by month
basis at Skynet's option until such time that Skynet re-locates its operations.
The current premises are sufficient for the operations of the Company and its
subsidiaries, but Skynet have decided that considerable savings can be achieved
by re-locating the company outside of central London. This move is expected to
take place by end June 2000.
ITEM 3: LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded in the over-the-counter market and reported
on the NASD electronic bulletin board, under the symbol "SKYI". The following
table sets forth the high and low bid prices of the Company's Common Stock as
reported on the over-the-counter market for the periods indicated. The prices
represent inter-dealer quotations, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
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Bid Prices
Period High Low
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Calendar Year 1998 $3.27 $1.83
First Quarter $3.55 $2.53
(January 1, 1999 to
March 30, 1999)
Second Quarter $4.23 $3.02
(March 30, 1999 to
June 30, 1999)
Third Quarter $4.44 $3.52
(July 1, 1999 to
September 30, 1999)
Fourth Quarter $4.00 $0.75
(September 30, 1999 to
December 31, 1999)
First Quarter $6.50 $1.87
(January 1, 2000 to
March 20, 2000)
As of March 31, 2000, there were approximately 755 record holders of
the Company's Common Stock.
The Company has never paid any cash dividends on its Common Stock and
has no present intention to do so. The Company intends to retain all of its
earnings for use in its business.
Recent Sale of Unregistered Securities.
In October 1999, the Company sold 84,634 shares of common stock under
Regulation S of the Securities Act of 1933 for $1.50 per share or an aggregate
offering price of $126,951. There was no underwriter for the offering.
In October 1999, the Company sold 7,000 shares of common stock under
Regulation S of the Securities Act of 1933 for $2.00 per share or an aggregate
offering price of $14,000. There was no underwriter for the offering.
In October 1999, the Company sold 34,600 shares of common stock under
Regulation S of the Securities Act of 1933 for $2.50 per share or an aggregate
offering price of $86,500. There was no underwriter for the offering.
In October 1999, the Company sold 33,795 shares of common stock under
Regulation S of the Securities Act of 1933 for $2.75 per share or an aggregate
offering price of $92,936.25. There was no underwriter for the offering.
In October 1999, the Company sold 2,000 shares of common stock under
Regulation S of the Securities Act of 1933 for $3.00 per share or an aggregate
offering price of $6,000. There was no underwriter for the offering.
-13-
<PAGE>
In October 1999, the Company sold 1,777 shares of common stock under
Regulation S of the Securities Act of 1933 for $3.78 per share or an aggregate
offering price of $6,717.06. There was no underwriter for the offering.
In October 1999, the Company sold 1,500 shares of common stock under
Regulation S of the Securities Act of 1933 for $3.90 per share or an aggregate
offering price of $5,850. There was no underwriter for the offering.
In October 1999, the Company sold 10,795 shares of common stock under
Regulation S of the Securities Act of 1933 for $4.00 per share or an aggregate
offering price of $43,180. There was no underwriter for the offering.
In October 1999, the Company sold 1,576 shares of common stock under
Regulation S of the Securities Act of 1933 for $4.25 per share or an aggregate
offering price of $6,698. There was no underwriter for the offering.
In November 1999, the Company sold 39,500 shares of common stock under
Regulation S of the Securities Act of 1933 for $1.50 per share or an aggregate
offering price of $59,250. There was no underwriter for the offering.
In November 1999, the Company sold 12,800 shares of common stock under
Regulation S of the Securities Act of 1933 for $1.70 per share or an aggregate
offering price of $21,760. There was no underwriter for the offering.
In November 1999, the Company sold 4,000 shares of common stock under
Regulation S of the Securities Act of 1933 for $3.50 per share or an aggregate
offering price of $14,000. There was no underwriter for the offering.
In November 1999, the Company sold 5,000 shares of common stock under
Regulation S of the Securities Act of 1933 for $3.75 per share or an aggregate
offering price of $18,750. There was no underwriter for the offering.
In December 1999, the Company sold 6,000 shares of common stock under
Regulation S of the Securities Act of 1933 for $0.67 per share or an aggregate
offering price of $4,020. There was no underwriter for the offering.
In December 1999, the Company sold 76,400 shares of common stock under
Regulation S of the Securities Act of 1933 for $0.70 per share or an aggregate
offering price of $53,480. There was no underwriter for the offering.
In December 1999, the Company sold 8,050 shares of common stock under
Regulation S of the Securities Act of 1933 for $1.00 per share or an aggregate
offering price of $8,050. There was no underwriter for the offering.
-14-
<PAGE>
In December 1999, the Company sold 55,300 shares of common stock under
Regulation S of the Securities Act of 1933 for $1.06 per share or an aggregate
offering price of $58,618. There was no underwriter for the offering.
In December 1999, the Company sold 18,000 shares of common stock under
Regulation S of the Securities Act of 1933 for $1.25 per share or an aggregate
offering price of $22,500. There was no underwriter for the offering.
In December 1999, the Company sold 6,680 shares of common stock under
Regulation S of the Securities Act of 1933 for $2.50 per share or an aggregate
offering price of $16,700. There was no underwriter for the offering.
All of the amounts received from these sales were used by the Company
for general working capital purposes in the operations of its subsidiaries.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 around the world. Skynet entered into a
written distribution agreement with ComROAD in March 1999. Skynet develops its
own software and hardware solutions to provide for customer specific
requirements. These development projects are either patented or are registered
as intellectual property and add significant value to the project. Automotive
telematic systems combine the technology for mobile phones (GSM), global
positioning satellite systems (GPS) and Internet, 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.
These devices are available with 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
CONSOLIDATED RESULT OF OPERATIONS
<TABLE>
<CAPTION>
1999 1998 CHANGE %
---- ---- ------ -
<S> <C> <C> <C> <C>
NET SALES 352,922 154,651 198,271 228%
LICENSES 788,556 788,556
TOTAL REVENUES 1,141,478 154,651 986,827 738%
COST OF SALES (768,461) (470,235) (298,226) 163%
GROSS PROFIT (LOSS) 373,017 (315,584) 688,601 -118%
DEPRECIATION AND AMORTIZATION (1,346,949) (630,953) (715,996) 213%
RESEARCH AND DEVELOPMENT (211,388) (122,129) (89,259) 173%
GENERAL AND ADMINISTRATIVE (2,490,578) (1,281,140) (1,209,438) 194%
INTEREST EXPENSE-NET (116,074) (27,184) (88,890) 427%
WRITE-OFF OF LICENSE AND
SETTLEMENT OF LIABILITIES (413,727) (413,727)
FINDERS' FEE (250,540) 250,540
TOTAL EXPENSES (4,578,716) (2,311,946) (2,266,770) 198%
NET LOSS (4,205,699) (2,627,530) (1,578,169) 80%
</TABLE>
<PAGE>
1999
The above table represents the analysis of the increases and decreases
of the components of consolidated results of operations as derived from the
Company's consolidated financial statements. In general, 1999 is not comparable
to 1998 because in 1998 the Company was in the development stage and was
organizing and acquiring subsidiaries, whereas in 1999 the Company began a
greater effort to market the Company's products.
Net Sales
Net sales increased over 1998 as the Company was no longer in the
development stage and has now actively commenced marketing the Company's
products. The "Avis Solution" and change of corporate strategy to facilitate
software, technical and specialist design responses to Avis's demands, resulted
in lower sales than anticipated. However these matters have now been resolved
and sales are expected to increase substantially through 2000 and beyond.
License sales represent the sale of a license to sell certain of the Company's
products in North America. Although the Company may enter into additional sales
of licenses, there can be no assurance they will.
Cost of Sales
Although cost of sales has increased in 1999, the gross profit
percentage has decreased as the Company is no longer in the development stage.
The current gross profit percentage is not indicative of when the Company will
be at higher sales levels. Purchases and salaries are the largest components of
costs of sales.
Depreciation and Amortization
Depreciation and amortization has increased as 1999 is the first full
year of depreciation and amortization and, for 1999, the Company has acquired
additional fixed assets.
Research and Development
Research and development has increased and will increase substantially
as cutting edge technological solutions are designed to meet specific customer
requirements. Telematics systems require software and hardware development to
ensure full customer utilization and demand. In the same way that computers will
not function without software, telematics requires software, hardware, sensors,
looms and monitoring service center development. The Company has obtained the
additional financing to further such development.
General and Administrative Expenses
General and administrative expenses increased substantially as compared
to 1998, as 1998 was a startup and organizational period, whereas 1999 was a
full year of operations, with an increased marketing effort and substantial
additional costs were incurred in reaching the "Avis Solution". The Company has
a program to keep general and administrative expenses as low as possible.
Salaries, professional fees and marketing are the most significant components of
general and administrative.
Interest Expense
Interest expense increased substantially over 1998 as the Company
incurred additional financing as needed for the continued operations of the
Company.
Write-off of Licenses and
Settlement of Liabilities
Write-off of licenses and settlements of liabilities in 1999 includes
both the write-off of the unamortized licenses acquired in 1998 by SSCC and
settlements with certain of the sellers of SSCC.
Net Loss
Consolidated net loss has increased due to the nature of the Company's
plan of operations rather than declining profitability. The Company anticipates
reaching profitability by the end of 2000.
1998
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
-15-
<PAGE>
sales of the Skynet 2001 unit and related services. With the addition of the new
Skamp product range (ComROAD products), sales of units are expected to rise
dramatically during 1999. Skynet has orders for 87,000 Skamp 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. 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
1999
During 1999, the Company raised $3,008,677, net of expenses of
$864,564, from private sales of shares of its common stock, which were the
Company's primary source of the Company's funding of operations for the Company
and its subsidiaries'.
1998
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.
-16-
<PAGE>
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 Skamp 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. 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.
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.
Inflation
The Company believes that the impact of inflation and changing prices
on its operations since commencement of operations has been negligible.
Seasonality
The Company does not deem its revenues to be seasonal and any effect
would be immaterial.
ITEM 7. FINANCIAL STATEMENTS
The financial statements to be provided pursuant to this Item
7 begin on page F-1 of this Report, following Part III hereof.
-17-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Smith & Company was engaged as the Company's principal accountant to
audit the Company's financial statements for the fiscal year ended December 31,
1998. Most, Horowitz & Company, LLP was engaged as the Company's principal
accountant to audit the Company's financial statements for the fiscal year ended
December 31, 1999. The Company has had no disagreements with its accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Set forth below are the names of all directors and executive
officers of the Company along with certain information relating to the business
experience of each of the listed officers.
Name Age Position
---- --- -----------------------------------
Tomas Wilmot 53 President and Chairman of the Board
Stuart Langston 56 Executive Officer and Director
Mark Dingley 41 Chief Financial Officer
Guy Tingay 32 Executive Officer
Kevin Wilmot 31 Secretary
David Grimshaw 47 Executive Officer
Christopher Wilmot 30 Executive Officer
Philip Porter 29 Executive Officer
Lord Montagu of Beaulieu 74 Director
David Stead 37 Executive Officer and Director
James Ryall 38 Director
Directors are elected to serve until the next annual meeting of
stockholders or until their successors are elected and qualified. Officers serve
at the discretion of the Board of Directors subject to any contracts of
employment.
Tomas Wilmot: Mr. Wilmot is the President of the Company. From 1988
to 1998 Mr. Wilmot was involved in the development of a gold mining property
known as Anglo Swiss Gold Mine Corporation Ltd and financing young and emerging
companies. He is used to hands-on involvement in young and emerging companies
and providing finance for these companies from his personal resources and also
from the resources of professional investors and friends. He is the author of
"The Over the Counter Market".
Stuart Langston: Mr. Langston is a Managing Director of Skynet
Telematics Ltd. From 1995 to 1999, Mr. Langston acted as a specialist in
banking, asset management and credit control at Bank of Ireland, Merrill Lynch
and Lloyd's Bank.
Mark Dingley: Mr. Dingley is the Chief Financial Officer of the
Company. Trained with Finnie & Co. (now part of BDO Stoy Hayward) and spent
seven years in the profession before moving into commerce. As financial director
of the Toprak Group of Companies in the UK, part of a large Turkish
conglomerate, he was a pivotal member of the management team and instrumental in
restructuring the UK group. Following five years at Toprak, he joined Checkline
Plc, one of the leading providers of EFT solutions in the UK. As company
secretary and head of finance, he played a key role in board decisions and the
development of corporate strategy. Along with highly developed organisational
skills, he has had extensive experience in implementing and maintaining
computer-based management information systems.
-18-
<PAGE>
Guy Tinguy: Mr. Tinguy is operations director of Skynet Telematics Ltd.
Prior to joining the Company, Mr. Tinguy worked for Legal and General, where he
developed call centers which used computer telephony integration.
Kevin Wilmot: Mr. Wilmot was a director of an international private
language school from 1995 to 1998 and has been dealing with investment
throughout his career and early adulthood involving positions as a trainee
dealer between 1987 and 1991. He is currently a full member of the Investor
Relations Society.
David Grimshaw: Mr. Grimshaw is the European Sales Director for Skynet
Telematics, Ltd. From 1987 until he joined the Company, he was a corporate sales
executive at Vecta Vehicle Immobilization Systems.
Christopher Wilmot: Mr. Christopher Wilmot is the Marketing Director of
Skynet Telematics Ltd. Between 1993 and 1997, Mr. Wilmot established a financial
intermediary company in Ireland. Between 1997 and joining the Company he worked
as an independent consultant.
Philip Porter: Mr. Porter is the telematics director for Skynet
Telematics Ltd. Prior to joining the Company, he worked for an automobile
electrical manufacturer which sub-contracted with major car manufacturing
companies to install electrical systems in automobiles.
Lord Montagu of Beaulieu: Lord Montagu of Beaulieu is the third Baron
Montagu of Beaulieu. He has been an active member of the House of Lords for many
years.
David Stead: Mr. Stead is presently a Managing Director of Skynet
Telematics Ltd. Since 1995, Mr. Stead has been a member of higher levels of
management with some of the world's largest, innovative, most dynamic and
multi-billion dollar corporations, AMP, TRW, ZF, Varity and Krupp. By leading
teams to drive for early involvement in emerging programs and technologies and
through a thorough understanding of the changing market needs he has forged and
maintained market leadership dominance for these companies. Notably, he has with
marked success defined then lead new product strategies and penetrated new and
sometimes hostile accounts.
James Ryall: After eight years with Flemings (London) ending up as
director and head of Hong Kong, Singapore & Malaysian equity sales, in 1997, Mr.
Ryall left to establish a private venture capital investment company (Duncraig
International) owned by him and a partner. That company sources, appraises,
structures and manages a range of diverse investments both in UK and overseas,
from telecoms in California, to motorcycle importation from Japan and is
involved with management of all businesses both at macro and micro level,
establishing and maintaining compliance, control and reporting standards.
-19-
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16 of the Exchange Act, the Company's Directors and
executive officers and beneficial owners of more than 10% of the Company's
common stock, par value $.001 ("Common Stock"), are required to file certain
reports, within specified time periods, indicating their holdings of and
transactions in the Common Stock and derivative securities. Based solely on a
review of such reports provided to the Company and written representations from
such persons regarding the necessity to file such reports, the Company is not
aware of any failures to file reports or report transactions in a timely manner
during the Company's fiscal year ended December 31, 1999.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by,
or paid for all services rendered to the Company by the Company's Chief
Executive Officer. No other executive officer of the Company received total
compensation in excess of $100,000 during the last three years.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------- ----------------------
Payouts Awards
------- ------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Long-
term
Other Restrict- incen-
Name Annual ed tive All
and Compen- Stock Options/ Plan Other
Principal sation Award(s) SARs Payouts Com-
Position Year Salary($) Bonus($) ($) ($) (#) ($) pensation
--------- ---- --------- -------- ------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tomas Wilmot, 1999 $100,000(1) $ 0 $0 0 1,000,000 0 0
Chief Executive 1998 $0(2) $ 0 $0 0 0 0 0
Officer and 1997 $0(2) $ 0 $0 0 0 0 0
Chairman of the
Board of Directors
</TABLE>
--------------------------------
(1) The Company accrued salary of $100,000 for Mr. Wilmot during 1999.
(2) Mr. Wilmot's salary was paid by subsidiaries of the Company in 1998 and
1997.
-20-
<PAGE>
Number of Percent of Total
Securities Options/SARs
Underlying Granted Exercise
Name of Options/SARs to Employees or Base Expiration
Individual Granted In Fiscal Year Price($/Share) Date
Tomas Wilmot 1,000,000 56% $1.00 July 22, 2004
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year Ended
Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Shares Unexercised In-The-Money
Acquired on Value Options/SARs Options/SARs
Name of Exercise Realized at Fiscal Year End (#) at Fiscal Year End ($)
Individual (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
NONE
</TABLE>
Compensation of Directors
No compensation is paid currently by the Company to any of its
Directors, who are not employees of the Company. However, each Director is
entitled to receive reimbursement for travel expenses for attendance at meetings
of the Board.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date of this filing, the
number of shares of the Company's outstanding Common Stock, $.001 par value,
beneficially owned (as such term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) by each director of the Company, by each named executive
officer of the Company, by each beneficial owner of more than 5% of the
Company's Common Stock and by all of the Company's officers and directors as a
group.
-21-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership (1) of Class (2)
------------------- ------------------------ ------------
<S> <C> <C>
Tomas Wilmot 10,500,000 40.7%
c/o Skynet Telematics
Link House
259 City Road
London, U.K.
Sousa International 5,000,000 19.4%
43 Portland Place
London, U.K.
Lord Montagu of Beaulieu 110,000 *
c/o Skynet Telematics
Link House
259 City Road
London, U.K.
James Ryall 216,636 *
c/o Skynet Telematics
Link House
259 City Road
London, U.K.
Kevin Wilmot 220,000 *
c/o Skynet Telematics
Link House
259 City Road
London, U.K.
Guy Tingay 103,025 *
c/o Skynet Telematics
Link House
259 City Road
London, U.K.
Mark Dingley 195,000 *
c/o Skynet Telematics
Link House
259 City Road
London, U.K.
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership (1) of Class (2)
------------------- ------------------------ ------------
<S> <C> <C>
Christopher Wilmot 434,834 1.7%
c/o Skynet Telematics
Link House
259 City Road
London, U.K.
David Grimshaw 100,500 *
c/o Skynet Telematics
Link House
259 City Road
London, U.K.
David Stead 100,000 *
c/o Skynet Telematics
Link House
259 City Road
London, U.K.
Officers and directors as a group 11,979,995 46.5%
</TABLE>
* denotes less than 1%.
(1) Unless otherwise noted, all shares are beneficially owned and the sole
voting and investment power is held by the person indicated.
(2) Based on 25,785,214 shares outstanding as of March 14, 2000 and 1,800,000
options to purchase shares. Each beneficial owner's percentage ownership is
determined by assuming that options or warrants that are held by such person
and which are convertible or exercisable within sixty (60) days of the date
hereof (pursuant to Rule 13d-3 under the Securities Exchange Act of 1934)
have been converted or exercised.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 23, 1998, the Company issued 5,000,000 shares of common
stock to Leandra De Oliveria Sousa in exchange for the cancellation of a
(pound)4,000,000 unsecured promissory note issued by the Company's wholly owned
subsidiary, Netking. These shares were subsequently transferred to Sousa
International. Ms. Sousa is the principal stockholder of Sousa International.
Those shares represented approximately 22.7% of the issued and outstanding
shares of common stock of the Company at the time of the issuance. The shares
were issued pursuant to Regulation S of the Securities Act of 1933.
-23-
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Stock Purchase and Sale Agreement among Peripheral Connections, Inc. and
Tomas Wilmot (1)
3.1 Articles of Incorporation of Skynet Telematics, Inc., and Amended Articles*
3.2 By-laws of Skynet Telematics, Inc. (1)
10 Material Contracts Strategic Alliance, Distribution, License and Cooperation Agreement*
21 Subsidiaries of the Registrant *
23 Consents *
27 Financial Data Schedule *
</TABLE>
(1) Incorporated by reference from the Form 10-KSB filed for the fiscal year
ended December 31, 1997.
* Filed herewith.
(b) Reports on Form 8-K.
There were no Reports on Form 8-K filed by the Company during fiscal
year ended December 31, 1999.
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: April 13, 2000
SKYNET TELEMATICS, INC.
By: /s/Mark Dingley By: /s/Tomas Wilmot
----------------------- --------------------------
Mark Dingly Tomas Wilmot
Chief Financial Officer Chief Executive Officer
-25-
<PAGE>
In accordance with the Exchange Act, this Report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated:
Signature Title Date
--------- ----- ----
/s/Tomas Wilmot Chairman and Chief April 13, 2000
----------------------------- Executive Officer
Tomas Wilmot
/s/Mark Dingley Chief Financial April 13, 2000
----------------------------- Officer and Director
Mark Dingley
/s/Stuart Langston Executive Officer and Director April 13, 2000
-----------------------------
Stuart Langston
/s/Lord Montagu Director April 13, 2000
-----------------------------
Lord Montagu of Beaulieu
/s/David Stead Director April 13, 2000
-----------------------------
David Stead
/s/James Ryall Director April 13, 2000
-----------------------------
James Ryall
-26-
<PAGE>
SKYNET TELEMATICS.COM INC. AND SUBSIDIARIES
(FORMERLY SKYNET TELEMATICS INC.)
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Independent Auditors' Report - December 31, 1999 .................. F-2
Independent Auditor's Report - December 31, 1998 .................. F-3
Independent Auditor's Report - United Kingdom - December 31, 1999
and 1998
- Netking Limited and Subsidiary (UK) - December 31, 1999
and 1998
- Skamp International Limited (UK) - December 31, 1999 ........ F-4 to F-5
Consolidated Balance Sheet - December 31, 1999 .................... F-6
Consolidated Statement of Income and
Comprehensive Income - Years Ended December 31, 1999 and 1998 ... F-7
Consolidated Statement of Stockholders' Equity - Years Ended
December 31, 1999 and 1998 ...................................... F-8
Consolidated Statement of Cash Flows - Years Ended
December 31, 1999 and 1998 ...................................... F-9 to F-10
Notes to the Consolidated Financial Statement ..................... F-11 to F-19
<PAGE>
Stockholders and Board of Directors
Skynet Telematics.com Inc.
London, United Kingdom
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheet of Skynet
Telematics.com Inc. and Subsidiaries as of December 31, 1999, and the related
consolidated statements of income and comprehensive income, stockholders' equity
and cash flows for the year ended December 31, 1999. 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 audit. We did not audit the 1999 consolidated financial
statements of Netking Limited and Subsidiary or Skamp International Limited,
subsidiaries of the Company, which statements reflect total assets constituting
100 percent of the consolidated total as of December 31, 1999, and total
revenues constituting 31 percent of the related consolidated totals for the year
ended December 31, 1999. Those statements were audited by other auditors whose
reports, dated April 12, 2000, have been furnished to us and included herein and
our opinion, insofar as it relates to data included for Netking Limited and
Subsidiary and Skamp International Limited, is based solely on the report of the
other auditors.
We conducted our audit 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
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Skynet Telematics.com
Inc. and Subsidiaries as of December 31, 1999, and their results of their
operations and cash flows for the year ended December 31, 1999 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 discussed in Note
13 to the consolidated financial statements, the Company has incurred losses
from operations for 1999 and 1998 which raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans with regard
to this matter are also discussed in Note 13. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Most Horowitz & Company, LLP
---------------------------------
Most Horowitz & Company, LLP
New York, New York
April 13, 2000
F-2
<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 consolidated accompanying statements of income and
comprehensive income, changes in stockholders' equity, and cash flows of Skynet
Telematics Inc. (formerly Peripheral Connections, Inc.) (a development stage
company) and subsidiaries for the year ended 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 results of operations, changes in
stockholders' equity, and cash flows of Skynet Telematics Inc. (formerly
Peripheral Connections, Inc.) (a development stage company) and subsidiaries for
the year ended 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.
/s/ SMITH & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
March 26, 1999
F-3
<PAGE>
NETKING LIMITED
AUDITORS' REPORT TO THE MEMBERS
--------------------------------------------------------------------------------
We have audited the consolidated financial statements on pages 5 to 16 which
have been prepared under the historical cost convention and on the basis of
accounting policies set out on pages 10 and 11.
RESPECTIVE RESPONSIBILITIES OF THE DIRECTOR AND AUDITORS
As described in the director's report, the company's director is responsible for
the preparation of consolidated financial statements. It is our responsibility
to form an independent opinion , based on our audit, on those statements and to
report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the consolidated financial
statements. It also includes an assessment of the significant estimates and
judgements made by the director in the preparation of the consolidated financial
statements, and of whether the accounting policies are appropriate to the
company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the consolidated
financial statements are free from material misstatement, whether caused by
fraud or other irregularity or error. In forming our opinion we also evaluated
the overall adequacy of the presentation of information in the consolidated
financial statements.
Going concern
In forming our opinion, we have considered the adequacy of the disclosures made
in note 1 to the consolidated financial statements concerning the uncertainty
arising from the group's trading losses. In view of the significance of this
uncertainty we consider that it should be drawn to your attention but our
opinion is not qualified in this respect.
OPINION
In our opinion the consolidated financial statements give a true and fair view
of the state of affairs of the company and of the group as at 31st December 1999
and of the group's loss for the year then ended and have been properly prepared
in accordance with the Companies Act 1985.
The Lawrence Woolfson Partnership
Chartered Accountants and Registered Auditor
1 Bentinck Street
London W1M 5RN
Date: 12th April 2000
F-4
<PAGE>
SKAMP INTERNATIONAL LIMITED
AUDITORS' REPORT TO THE MEMBERS
--------------------------------------------------------------------------------
We have audited the financial statements on pages 4 to 6 which have been
prepared under the historical cost convention and on the basis of accounting
policies set out on page 6.
RESPECTIVE RESPONSIBILITIES OF THE DIRECTORS AND AUDITORS
As described in the directors' report, the company's directors are responsible
for the preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of affairs of the company as at 31st December 1999 and of its loss for the
period then ended and have been properly prepared in accordance with the
Companies Act 1985.
The Lawrence Woolfson Partnership
Chartered Accountants and Registered Auditor
1 Bentinck Street
London W1M 5RN
Date: 12th April 2000
F-5
<PAGE>
SKYNET TELEMATICS.COM INC. AND SUBSIDIARIES
(FORMERLY SKYNET TELEMATICS INC.)
CONSOLIDATED BALANCE SHEET
December 31, 1999
ASSETS
CURRENT ASSETS
Accounts receivable (net of allowance for doubtful
accounts of $21,791) ....................................$ 165,598
Inventory .................................................... 271,212
Prepaid expenses ............................................. 210,145
------------
TOTAL CURRENT ASSETS ...................................... 646,955
FIXED ASSETS (Note 5) .............................................. 526,764
SOFTWARE AND INTELLECTUAL PROPERTY (NOTE 6) ........................ 5,247,168
DEFERRED EXPENSES (Note 4) ......................................... 47,762
------------
TOTAL ASSETS .............................................. $ 6,468,649
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft ............................................... $ 66,608
Accounts payable and accrued expenses ........................ 1,177,749
Capitalized lease obligations ................................ 132,547
Note payable (Note 7) ....................................... 72,262
-----------
TOTAL CURRENT LIABILITIES ................................. 1,449,166
LOANS PAYABLE (Note 4) ............................................. 375,177
-----------
TOTAL LIABILITIES ......................................... 1,824,343
-----------
COMMITMENTS (Notes 4, 8, 9 and 14)
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; authorized: 20,000,000 shares;
issued and outstanding: none (Note 3)
Common stock - $.001 par value; authorized: 75,000,000 shares;
issued and outstanding: 24,513,495 shares in 1999
and 21,944,416 shares in 1998 (Note 3) .................. 24,514
Additional paid-in capital ................................... 11,642,153
Deficit ...................................................... (7,108,264)
Accumulated other comprehensive income ....................... 85,903
-----------
TOTAL STOCKHOLDERS' EQUITY ................................ 4,644,306
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................$ 6,468,649
===========
See notes to consolidated financial statements.
F-6
<PAGE>
SKYNET TELEMATICS.COM INC. AND SUBSIDIARIES
(FORMERLY SKYNET TELEMATICS INC.)
CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ------------
<S> <C> <C>
REVENUES
Sales ....................................................... $ 352,922 $ 154,651
License (Note 9) ............................................ 788,556
----------- ------------
TOTAL REVENUES .......................................... 1,141,478 154,651
COST OF SALES .................................................... (768,461) (470,235)
------------ ------------
GROSS PROFIT (LOSS) ..................................... 373,017 (315,584)
DEPRECIATION AND AMORTIZATION (NOTES 5 AND 6) .................... (1,346,949) (630,953)
RESEARCH AND DEVELOPMENT ......................................... (211,388) (122,129)
GENERAL AND ADMINISTRATIVE EXPENSES .............................. (2,490,578) (1,281,140)
INTEREST EXPENSE - NET ........................................... (116,074) (27,184)
WRITE-OFF OF LICENSE AND SETTLEMENT
OF LIABILITIES (NOTE 4) .................................... (413,727)
FINDER'S FEE RELATED TO
SUBSIDIARY ACQUISITION (NOTE 4) (250,540)
---------- ------------
NET LOSS ................................................ (4,205,699) (2,627,530)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ......................... (4,961) 90,864
---------- ------------
TOTAL COMPREHENSIVE LOSS ................................ ($4,210,660) ($ 2,536,666)
========== ============
NET LOSS PER COMMON SHARE (NOTE 6) ............................... ($ .18) ($ .21)
========== ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES ......................... 22,767,667 12,356,978
========== ============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
SKYNET TELEMATICS.COM INC. AND SUBSIDIARIES
(FORMERLY SKYNET TELEMATICS INC.)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Stock Paid-in Comprehensive
Shares Amount Capital Deficit Income Total
------ ------ ------- ------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1998 .................... 3,850,000 $3,850 $282,150 ($275,035) $ 10,965
Issuance of common stock
for cash (net of costs of $17,500) . 1,434,550 1,434 768,204 769,638
Issuance of common stock
for subsidiary ..................... 10,000,000 10,000 ( 10,000)
Issuance of common stock
for expenses ....................... 1,659,866 1,660 454,627 456,287
Issuance of common stock
to repayment of debt ............... 5,000,000 5,000 6,595,000 6,600,000
Paid-in capital of subsidiary .......... 2,191 2,191
Comprehensive income loss
Net loss .......................... (2,627,530) (2,627,530)
Foreign currency translation
adjustments .................... $ 90,864 90,864
----------- --------- ------------ ------------ -------- ------------
BALANCE - DECEMBER 31, 1998 .................. 21,944,416 21,944 8,092,172 (2,902,565) 90,864 5,302,415
Issuance of common stock
for cash (net of costs of $864,564) . 2,150,165 2,151 3,006,526 3,008,677
Issuance of common stock
for expenses ........................ 245,994 246 381,083 381,329
Issuance of common stock for
repayment of debt ................... 172,920 173 162,372 162,545
Comprehensive loss
Net loss (4,205,699) (4,205,699)
Foreign currency translation
adjustment .................... (4,961) ( 4,961)
----------- --------- ------------ ------------ ------- ---------
BALANCE - DECEMBER 31, 1999 .................. 24,513,495 $24,514 $11,642,153 ($7,108,264) $85,903 $4,644,306
=========== ======= =========== ========== ======= ==========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
SKYNET TELEMATICS.COM INC. AND SUBSIDIARIES
(FORMERLY SKYNET TELEMATICS INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss .................................................................. ($4,205,699) ($2,627,530)
Adjustments to reconcile net loss to cash
used by operating activities
Depreciation and amortization .................................... 1,346,949 630,953
Write-off of license and settlement of liabilities ............... 413,727
Shares issued for expenses ....................................... 381,329 456,287
Foreign currency translation adjustments ......................... (4,961)
Bad debt expense ................................................. 21,791
License income ................................................... (788,556)
Increase (decrease) in cash from
Accounts receivable .................................................. (163,916) (23,473)
Inventory ............................................................ (270,382) (830)
Prepaid expenses ..................................................... (172,692) (37,453)
Deferred expenses .................................................... (47,762)
Accounts payable and accrued expenses ................................ 820,641 429,923
----------- -----------
NET CASH USED IN
OPERATING ACTIVITIES...................................... (2,669,531) (1,172,123)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases fixed assets (net of capitalized lease
Obligations of $170,297) ............................................. (364,022) (409,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of common stock
(net of expense of $838,374 in 1999
and $17,500 in 1998) ................................................... 3,008,677 759,638
Proceeds from loans ........................................................ 107,262 434,134
Bank overdraft ............................................................. 24,866 41,742
Repayments of loans payable ................................................ (69,522) (349,297)
Payments of capitalized lease obligations .................................. (37,750)
Loans payable - stockholders 681,325
Other 2,636
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES ...................................... 3,033,533 1,570,178
----------- -----------
</TABLE>
(CONTINUED)
See notes to consolidated financial statements.
F-9
<PAGE>
SKYNET TELEMATICS.COM INC. AND SUBSIDIARIES
(FORMERLY SKYNET TELEMATICS INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31, 1999 and 1998
(CONTINUED)
1999 1998
------ --------
DECREASED IN CASH ............... ($ 20) ($10,945)
CASH AT BEGINNING OF YEAR ....................... 20 10,965
------ --------
CASH AT END OF YEAR ............................. None $ 20
====== ========
CASH PAID FOR INTEREST .......................... $6,472 $ 3,858
====== ========
SUPPLEMENTAL NONCASH ACTIVITIES
In 1999, the Company sold a license in exchange for the cancellation of
notes payable of $788,556 (Note 9).
In 1998, the Company issued 10,000,000 shares of common stock to acquire
Netking and issued 750,000 shares of common stock as a finder's fee
(Note 4). Skynet Telematics Limited 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 (Note 4).
In 1998, a subsidiary acquired SSCC with net assets of $424,063 by
incurring a liability (Note 4).
See notes to consolidated financial statements.
F-10
<PAGE>
SKYNET TELEMATICS.COM INC. AND SUBSIDIARIES
(FORMERLY SKYNET TELEMATICS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Skynet Telematics.com Inc. (Company) and its subsidiaries develop,
market, license, and monitor tracking and anti-theft systems for automobiles and
trucks.
In December 1998, the Company changed its name from Peripheral
Connections, Inc. to Skynet Telematics, Inc. and, subsequent to December 31,
1999, to Skynet Telematics.com Inc. Through December 31, 1998, the Company was
in the development stage.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Consolidation
The consolidated financial statements include the accounts of the
Company and all of its subsidiaries (Note 4), as follows:
Netking Limited (Netking), a wholly-owned subsidiary of the Company
Skynet Telematics Limited, a wholly-owned subsidiary of Netking
Peripheral Canada, Inc. (Peripheral Canada), a wholly-owned subsidiary
of the Company Skynet Satellite Communications Corporation (SSCC),
a wholly-owned subsidiary of Peripheral Canada
Skamp International Limited (Skamp), a 51% owned subsidiary of the
Company
All material intercompany transactions have been eliminated.
Accounting Methods
The Company recognizes income and expenses based on the accrual method
of accounting.
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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-11
<PAGE>
Inventory
Inventory is valued at the lower cost, determined by the first-in,
first-out method, or market.
Fixed Assets
Fixed assets were stated at cost and are being depreciated on the
declining-balance method, as follows:
Computer and office equipment 25%
Motor vehicles 25%
Furniture and fixtures 10%
Software and Intellectual Property
Software and intellectual property were stated at cost and, commencing
October 1, 1999, are being amortized on the straight-line method over the
remaining estimated useful lives of the assets of 3 1/4 years (Note 6).
Licenses
Licenses acquired were stated at cost and were being amortized on the
straight-line method over the term of the licenses of five years (Note 4).
Impairment of Long-Lived Assets
The Company annually reviews the carrying value of its long-lived
assets to determine if the future cash flows to be derived from these properties
will be sufficient to recover the remaining carrying values.
Research and Development
Research and development expenses are charged to operations as
incurred.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are
measured using the local currency as the functional currency. Assets and
liabilities of these subsidiaries are translated at exchange rates as of the
balance sheet date. Revenues and expenses are translated at average rates of
exchange in effect during the year. The resulting cumulative translation
adjustments have been recorded as a separate component of stockholders' equity.
F-12
<PAGE>
Revenue Recognition
Product sales are recognized when products are shipped and monitoring
income is recognized over the monitoring period on the straight-line method.
Although the Company warrants its products, it is unable to estimate the future
costs, if any, relating to warranty expense and, as such, recognizes warranty
expenses as incurred.
Advertising Expenses
Advertising expenses were charged to operations as incurred and were
$137,703 and $140,745 for the years ended December 31, 1999 and 1998,
respectively.
Stock Based Compensation
Compensation cost for stock, stock options, warrants, etc., issued to
non-employees are based on the fair value method.
Net Loss Per Share
Net loss per common share was computed on the weighted average number
of common shares and common shares equivalents outstanding during the year.
Fully-dilutive loss per common share is not presented because it was
anti-dilutive.
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
Deferred income taxes have been provided for temporary differences
between consolidated financial statement and income tax reporting, resulting
primarily from net operating loss carryforwards.
3. CAPITALIZATION
In March 1990, the Company's authorized 25,000,000 shares of $.001, par
value, Class A common stock and issued 1,000,000 shares of its common stock for
$1,000 in cash, for an average consideration of $.001, per share. In January
1999, the Company increased its authorized Class A common shares to 75,000,000
and authorized 20,000,000 shares of preferred stock, without designation.
F-13
<PAGE>
During the years ended December 31, 1999 and 1998, the Company issued
272,811 and 1,659,866, respectively, shares of common stock to employees and
non-employees in exchange for services at price ranging from $ .22 to $3.25, in
1999 and from $.45 to $2.00, in 1998, per share.
Options
During the year ended December 31, 1999, the Company issued 1,700,000
and 100,000 options to purchase shares of common stock, exercisble at $1 and $2,
per share, respectively, through July 2004. As of December 31, 1999, no shares
under option have been exercised.
Reserved shares
As of December 31, 1999, the Company has reserved shares as follows:
Warrants (Note 4) 3,291,662
Options (Note 3) 1,700,000
SSCC sellers (Note 4) 1,327,080
---------
6,318,742
=========
4. ACQUISITIONS
Netking
On April 9, 1998, the Company acquired all of the outstanding common
stock of Netking, an English private limited company, from the beneficial owner
of all the outstanding common stock of Netking. The purchase price paid for the
purchased stock was 10,000,000 newly issued shares of the common stock of the
Company, approximately 68.5% of all of the outstanding stock of the Company
after such issuance. The consideration was determined by arm's length
negotiations between the Seller and Company. Prior to the acquisition, there was
no material relationship between the Seller and Company or any of its
affiliates, any director or officer of the Company, or any associate of any such
directors or officers. 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 its chief operating officer, as nominee for the
Company, jointly hold title to the other share.
Netking is the beneficial owner of Skynet Telematics Limited (formerly
Skynet 2001 Limited), an English private limited company. Skynet Telematics
Limited owns the software and 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. In January 1998,
Netking acquired the assets of Skynet Telematics Limited for $6,720,000, the
fair value of the assets acquired of which $6,600,000 was a note. In December
1998, the Company issued 5,000,000 shares of common stock to repay the loan.
A portion of the business of Skynet Telematics Limited 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.
In addition, the Company issued 750,000 shares of common stock valued
at $150,000, as a finder's fee.
The transaction has been accounted for as a purchase and the Company
has allocated the purchase price primarily to software and intellectual property
acquired. The value of the shares issued was based on the value of the assets
acquired as determined by independent appraisal.
F-14
<PAGE>
SSCC
SSCC owns licenses acquired from Skynet Telematics Limited for certain
of the Company's products.
On June 5, 1998, Peripheral Canada purchased SSCC. The purchase price
will be satisfied by issuing 500,000 shares of the Company's common stock on
December 31, 1999, 2000, and 2001 (1,500,000 shares total). As additional
purchase price, the Company is required to pay the former owners of SSCC an
amount equal to 10% of consolidated gross sales made in Canada and Hong Kong and
1% of the gross sales in the United States related to SSCC's product from the
closing date through 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. Through December 31, 1999, no additional purchase
price was required to be paid. The Company has recorded the acquisition on the
purchase method and has allocated the purchase price to the license fees.
In April, 1999, certain of the sellers of SSCC exchanged their right to
receive the above shares and additional purchase price in exchange for 172,920
shares of common stock. The excess of the value of the stock issued over the
amount due to the shareholders, including interest, of $113,858, was charged to
settlement of liability, as the additional purchase price would have been in
excess of fair value.
As of December 31, 1999, the Company has determined that the licenses
were worthless and wrote off the unamortized carrying value of the licenses of
$299,869.
Amortization expense for the year ended December 31, 1999 and 1998, was
$85,676 and $42,838, respectively.
Skamp
Skamp was organized in August 1999 and has entered into an agreement to
organize a 90% owned subsidiary to provide vehicle security communications and
vehicle tracking systems in Slovakia. As of December 31, 1999, the Company paid
$47,762 to commence the operations of the Skamp subsidiary and, subsequent
thereto, paid an additional $77,760.
F-15
<PAGE>
Joint Ventures
In October and December 1999 and March 2000 the Company entered into
three agreements to organize, during 2000, joint ventures in Scandinavia, the
Middle East and France, respectively, to market the Company's products and
provide for the Company to own 25% to 50% of the joint ventures. In addition,
the agreements generally provide for capital contributions by the joint
venturers, product sales arrangements and the Company's commitment to provide
the software and training. Under one agreement, the Company has issued a warrant
to purchase up to 15% of the outstanding common stock of the Company,
exercisable at $3.50, per share, through July 31, 2000.
As of December 31, 1999, there has been no activity under these
agreements.
5. FIXED ASSETS
As of December 31, 1999, fixed assets were as follows:
Computer and office equipment .................... $504,006
Motor vehicles ................................... 74,617
Furniture and fixtures ........................... 40,752
----------
619,375
Less: accumulated depreciation .................. 92,611
----------
$526,764
==========
Depreciation expense for the year ended December 31, 1999 and 1998 was
$83,539 and $51,910, respectively.
6. Software and Intellectual Property
Software and intellectual property consisted of intangible assets used
in the products sold and licensing agreements which were acquired in 1998. As of
October 1, 1999, the Company began amortizing the software and intellectual
property on the straight-line method as if its estimated useful lives were five
years because the Company has revised their plans regarding the use of these
assets. Previously, the software and intellectual property had been amortized
over ten years. The effect of this change was to reduce net loss for the year
ended December 31, 1999 by $502,697 ($.02, per share).
Amortization expense for the year ended December 31, 1999 and 1998 was
$1,177,734 and $536,205, respectively.
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7. NOTE PAYABLE
Note payable on demand, but no later than March 1, 2002, with interest
at 12%, per annum, accruing from March 1, 2001.
8. COMMITMENTS
Distribution Agreement
In March 1999, a subsidiary entered into an exclusive agreement to
purchase and distribute certain products in the United Kingdom, Ireland,
California, Oregon, Washington and British Columbia in exchange for royalties of
7 1/2% of sales, plus $100, per unit sold, through March 2010. The agreement is
subject to termination if the Company does not meet certain sales goals.
Equipment Leases
Netking is committed under leases for motor vehicles expiring through
2002. As of December 31, 1999, the minimum future lease payments were as
follows:
Year ending
December 31,
------------
2000 ............................... $13,537
2001 ............................... 10,512
2002 ............................... 2,093
-------
$26,142
=======
9. LICENSE
In November 1999, the Company sold a license to manufacturer,
distribute, etc. a certain product in North America in exchange for the
cancellation of certain notes payable and accrued interest thereon in the amount
of $788,556. The licensor is required to pay royalties to the Company equal to
5% of net sales of the licensed products.
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10. INCOME TAXES
The Company and its U.S. subsidiary file U.S. income tax returns. The
U.K. subsidiaries file U.K. income tax returns. Both the U.S. and U.K. income
tax returns have had net losses since inception and, as such, the Company has
not been required to pay income taxes. As of December 31, 1999, realization of
the Company's net deferred tax assets resulting from their net operating loss
carryforwards, of approximately $1,560,000, were not considered more likely than
not, and accordingly, a valuation allowance of $1,560,000 has been provided.
The following is a reconciliation of expected income tax benefit
utilizing the Federal statutory tax rate to income tax benefit reported on the
statement of operations.
1999 1998
----------- ----------
Expected income tax benefit ..... ($1,315,000) ($890,000)
Change in valuation allowance ... 65,000 (125,000)
Foreign tax effect .............. 1,415,000 765,000
----------- ---------
None None
As of December 31, 1999, the Company had net operating losses of
approximately $60,000, through 2018, and $5,000,000, indefinitely, available to
reduce future U.S. and U.K. taxable income, respectively.
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11. RELATED PARTY TRANSACTIONS
During 1999, the Company purchased a motor vehicle and computer
equipment from an officer of the Company for $56,000 and $7,040, respectively.
12. RECLASSIFICATION
Certain 1998 items were reclassified to 1999 classifications.
13. GOING CONCERN
The consolidated financial statements have been prepared on a going
concern basis, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. As of December 31, 1999, the
Company had negative working capital of $802,211 and an accumulated deficit of
$7,108,264, as a result of being in the development stage through December 31,
1998 and incurring losses for 1999 and 1998. The ability to continue as a going
concern is dependent, among other things, upon the Company's obtaining
additional working capital from equity or debt financings and the attainment of
profitable operations.
Management believes that it has made the necessary investments in
intellectual property and supply and marketing relationships to obtain
sufficient sales orders and generate profitability. The Company will continue to
require additional working capital until such time as operating profits are
achieved. Management expects that these efforts will provide profitability sales
by the end of 2000, which, along with additional financing, will allow the
Company to continue as a going concern.
However, there is no assurance that additional financing will be
obtained or revenues will generate profitable operations. The consolidated
financial statements do not include any adjustments that might result from the
outcome of these matters.
14. SUBSEQUENT EVENTS
On January 1, 2000, the Company entered into an employment agreement
with its chairman/president through July 2005. The agreement provides for: (1)
an annual salary of $250,000, payable at $105,000, per annum, and the balance
payable in cash or stock, upon the Company achieving profitability, (2) bonus
and stock options as determined by the compensation committee and (3) all
benefits received by other officers of the Company. In addition, if the employee
is terminated without cause, the Company is required to continue to pay the
employee the base salary and benefits for a period of two years from the date of
termination and if there is a change of ownership, as defined, the employee
shall receive the balance due under this agreement in cash, plus benefits for
one year.
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