10-Q 1 b313096_10q.txt QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 2001. [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _______ to _______. Commission File No. 33-55254-39 SKYNET TELEMATICS.COM, INC. (Exact name of Small Business Issuer as specified in its charter) NEVADA 87-0485315 ------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Link House, 259 City Road London, England EC1V 1JE ------------------------ (Address of principal executive offices) Issuer's telephone number, including area code: 44 207 490 7900 Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the issuer's common stock, $.001 par value, per share, as of July 24, 2001, was 33,680,035 shares. Transitional Small Business Disclosure Format (check one): Yes No X --- --- SKYNET TELEMATICS.COM, INC. FORM 10-QSB FOR QUARTER ENDED JUNE 30, 2001 INDEX

-2- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) SKYNET TELEMATICS.COM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JUNE 30, 2001 ASSETS CURRENT ASSETS Cash in bank $ 28,827 Accounts receivable 151,330 Inventory 337,474 Prepaid expenses and other current assets 274,781 ------------ TOTAL CURRENT ASSETS 792,412 Furniture and equipment 346,047 Software and intellectual property 2,283,489 ------------ TOTAL ASSETS $ 3,421,948 ============ LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft $ 152,050 Accounts payable and accrued expenses 2,774,512 Capitalized lease obligations 5,537 Notes payable 440,845 ------------ TOTAL CURRENT LIABILITIES 3,372,944 Loans payable 33,453 ------------ TOTAL LIABILITIES 3,406,397 ------------ STOCKHOLDERS' EQUITY Preferred stock - $.001 par value; authorized: 20,000,000 shares; issued and outstanding: none Common stock - $.001 par value; authorized: 75,000,000 shares; issued and outstanding: 33,500,818 shares 33,501 Additional paid-in capital 16,921,369 Deficit (16,947,630) Accumulated other comprehensive income 8,311 ------------ TOTAL STOCKHOLDERS' EQUITY 15,551 ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,421,948 ============

See notes to consolidated financial statements -3- SKYNET TELEMATICS.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS

See notes to consolidated financial statements -4- SKYNET TELEMATICS.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS

See notes to consolidated financial statements -5- SKYNET TELEMATICS.COM, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. NATURE OF OPERATIONS Skynet Telematics.com, Inc. and Subsidiaries (Company) develop, market, license, and monitor tracking and anti-theft systems for automobiles and trucks. 2. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial statements have been included. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto, included in Form 10-KSB of Skynet Telematics.com Inc. and Subsidiaries, as of and for the year ended December 31, 2000, as filed with the Securities and Exchange Commission. The results of operations for the three and six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year. 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. 3. NET LOSS PER SHARE Basic net loss per share was computed based upon the weighted average number of common shares outstanding during the year. Dilutive net loss per common share has not been presented because it was anti-dilutive. 4. MINORITY INTERESTS In April 2001, a subsidiary sold 60,000 shares of its common stock and options to purchase an additional 60,000 shares of its common stock for an aggregate of $8,460. The options are exercisable through March 2003. 5. LOANS FROM SUPPLIER On May 1, 2001, a subsidiary borrowed $254,819 from a supplier repayable by October 31, 2001, with interest at 8% per annum, and an officer of the Company has guaranteed 50% of the loan. In July 2001, the Company borrowed an additional $84,940 from the supplier, without interest and repayable on demand. In addition, in June 2001, another subsidiary borrowed $84,940 from the supplier, without interest and repayable on demand. -6- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OVERVIEW The business of the Company and its subsidiaries is the development, marketing, and distribution of integrated modular automotive telematic systems, with extensive range of sensors and providing of monitoring services to users of those products. Through its subsidiary, Skynet Telmatics, Ltd., 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 the 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. Telematics enables the remote access of information, status reporting and alarm from vehicles and personnel in-vehicle. Remote access can be to either of Skynet's Monitoring Service Centres or directly to a designated personal computer. Skynet are able to connect up to 32 electronic/analogue inputs and outputs, thereby enabling the collection and report of a vast amount of real time data from vehicles, equipment and personnel. Geo-fencing and tilt and motion/crash sensors warn the Monitoring Service Centre and/or remote location, about accidents, attacks and thefts in real time. In addition, hands free GSM communication allows safe conduct of business when travelling. Skynet uses the ComROAD Telematic device in most of their GPS (position locating satellite), GSM (mobile phone technologies) and Inmarsat (low-level satellite) applications. Skynet's sensors, interfaces, training and service provision makes the ComROAD device consumer friendly. The Telematics industry worldwide has been slow to achieve a high level of consumer acceptance. Skynet Telematics.com Inc and Solutions Direct Limited provide full Telematic in-vehicle support on a real time basis, for Close Personal Protection and Security of customers and clients on a worldwide basis. With increasing concerns about terrorism and protection of employees and their families in areas/countries of high risk, in-vehicle Telematics with emergency call buttons, silent dial-in facilities, immobilisation and 24-hour monitoring, allows emergency incidents to be monitored from a remote location such as a Skynet monitoring station or a customer's personal computer. Combining the technologies of GPS (Global Positioning Satellite), GSM (mobile phone), Inmarsat (low level satellite system) and Telematics, Skynet Telematics.Com Inc and Solutions Direct Ltd are able to provide Close Personal Protection even in remote and dangerous areas. In the event of terrorist attacks on vehicles, the driver is given precise turn-by-turn instructions from Skynet's Monitoring Service Centre in London or Slovakia, so that the vehicle and occupants can quickly re-locate to a safe haven. Local security and emergency services can also be involved, if required. In volatile and high-risk areas, alarm calls will trigger the immediate despatch of Intervention and Specialist Recovery Teams, who will be directed to the exact location of the incident by Skynet's Monitoring Service Station in London or Slovakia. In GSM coverage areas, hands free communication with the vehicle enables occupants of vehicles under threat, or attack, to keep in constant contact with rescuers. In remote areas this is possible through text message communication. -7- RESULTS OF OPERATIONS CONSOLIDATED RESULT OF OPERATIONS

The above tables represent an analysis of the increases and decreases of the components of consolidated results of operations as derived from the Company's consolidated statement of operations for the six and three months ended June 30, 2001 and 2000. In general, 2001 is not comparable to 2000 because the Company has been in an early growth stage, heavily involved in product development and organization of monitoring services. Only recently has the Company begun a greater effort to market the Company's products. -8- Net Sales Sales have been disappointing in the first half of 2001, due mainly to changes in Telematic consumer requirements and demands. However, now with a much improved product, further enhanced by a range of sensors developed by the Company, and with a greater understanding of the market place, management believes that sales in the second half of the year will increase. The Slovakian Monitoring Service Station is now fully operational and sales are expected to be generated by the Slovakian Company in Eastern Europe during the second half of 2001. -9- Cost of Sales Although cost of sales has decreased in 2001, the gross profit percentage is not indicative of what it will be at higher sales levels. Purchases and salaries are the largest components of cost of sales. Depreciation and Amortization Depreciation and amortization has decreased in 2001 primarily due to a fall in capital expenditure as the Company had a reduced requirement for additional fixed assets. Research and Development Research and development has decreased and is expected to remain fairly constant 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. General and Administrative Expenses General and administrative expenses decreased in 2001 resulting from the Company's program to keep expenses as low as possible. Salaries, professional fees and telephone costs are the most significant components of general and administrative. Interest Expense Interest expense decreased in 2001 as the Company repaid certain financings. Settlements of Liabilities Settlements of liabilities in 2001 include continued settlements with certain of the former shareholders of SSCC. Net Loss Consolidated net loss has decreased due to the nature of the Company's plan of operations. The Company anticipates reaching profitability by the end of 2001. -10- FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES During the six months ended June 30, 2001, the Company raised $497,086, net of expenses, as compared to $2,860,347 during the first half of 2000, from private sales of shares of its common stock, which have been the Company's primary source of the Company's funding of operations for the Company and its subsidiaries. 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. For the six months ended June 30, 2001, the Company's operating activities used cash of $1,300,529 as compared to $2,325,013 in 2000. 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 dependent 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. We are experiencing liquidity difficulties. As of June 30, 2001, we had a working capital deficit of approximately $2,584,000 and available cash of approximately $29,000. [Our current liabilities at June 30, 2001 include accounts payable and accrued expenses of approximately $2,774,512. Our accounts payable include approximately $1,488,000, which has been in dispute for over 18 months and as to which there have been no active collection efforts during the last year.] We have settled some of our obligations by issuing shares of common stock. In May of 2001 we borrowed approximately $255,000 from ComROAD A.G, our principal supplier. The loan bears interest at 8% per annum and is payable on October 31, 2001. Tomas Wilmot, Chairman of our Board of Directors, has personally guaranteed payment of 50% of this loan. In June 2001, ComROAD advanced approximately $85,000 to our Skynet subsidiary. Those advances, which do not bear interest, are repayable on demand. As of August 15, 2001, we owed ComROAD approximately $217,000 under invoices. ComROAD has expressed an interest in providing us with equity financing of $500,000 if we are able to obtain an additional $500,000 from another source and we pay at least 50% of the approximately $217,000 in overdue invoices to ComROAD and agree to pay the remaining balance under a payment plan acceptable to ComROAD. Under the terms of the proposed ComROAD equity financing, ComROAD and the other investor(s) would purchase shares of our common stock at a purchase price of $0.25 per share and our existing $300,000 indebtedness to ComROAD would be converted into shares of our common stock at a conversion price of $0.25 per share. The proposed ComROAD equity financing is subject to the negotiation of definitive financing documentation. We cannot guarantee that ComROAD will provide us with additional financing on these or any other terms acceptable to us. If we are unable to obtain additional financing, we may have to curtail or suspend operations. We have and plan to continue to sell shares of our common stock to offshore investors to provide working capital. Sale of our equity securities will result in dilution to our shareholders. FORWARD LOOKING INFORMATION This Form 10-QSB 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 and in various press releases of the Company, 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 herein are 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. -11- PART II Other Information Item 1. Legal proceedings: None Item 2. Changes in Securities: Sales of Securities to offshore investors During the second quarter of 2001, the Company sold 425,144 shares of common stock at prices between $0.115 and $0.693 per share, for aggregate proceeds of $68,597, net of commissions of $12,687. These shares were sold to a total of 12 non U.S. persons, pursuant to Regulation S under the Securities Act of 1933. During the second quarter of 2001, the Company issued 28,000 shares of common stock at $0.50 per share, in payment of expenses of $14,000, to a non U.S. person, pursuant to Regulation S under the Securities Act of 1933. During the second quarter of 2001, the Company issued 100,000 shares of common stock at $0.50 per share, in payment of expenses totaling $50,000. The sale of these shares was exempt from the registration requirements of the Securities Act of 1933 under Section 4(2) thereof. There were no underwriters for any of the above offerings. Item 3. Defaults Upon Senior Securities: None Item 4. Submission of Matters to a Vote of Security Holders: None Item 5. Other Information: None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 15 - Letter on unaudited financial information (b) Reports on Form 8-K: None -12- SIGNATURES In accordance with the requirements of the Securities and Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Skynet Telematics.com, Inc. Dated: August 10, 2001 By: /s/ Tomas George Wilmot --------------- ------------------------------- Tomas George Wilmot, President -13-

SKYNET TELEMATICS INC 10-Q