Table of Contents
As filed with the Securities and Exchange Commission on September 30,
2008
Registration No.
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
SKYPOSTAL
NETWORKS, INC.
(Name of small business issuer in its
charter)
Nevada
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4212
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27-0005846
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(State or jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
I.D. Number)
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7805 NW 15th Street
Miami, FL 33126
(305) 599-1812
(Address and telephone number of principal executive offices)
7805 NW 15th Street
Miami, FL 33126
(305) 599-1812
(Address of principal place of
business or intended principal place of business)
Albert P. Hernandez, Chief Executive Officer
7805 NW 15th Street
Miami, FL 33126
(305) 599-1812
(Name, address and telephone number of agent for service)
Copies to:
Gary A. Agron, Esquire
5445 DTC Parkway, Suite 520
Greenwood Village, CO 80111
(303) 770-7254
(303) 770-7257 (Fax)
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date of this registration
statement.
If
any securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act, check the
following box:
x
If this form
is filed to register additional securities for an offering pursuant to Rule 462(b) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
o
If this form
is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
o
If this form
is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
o
Indicate by
check mark whether Registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
x
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(Do no check if a smaller reporting company)
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CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered
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Amount to
Be Registered
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Proposed Maximum
Offering Price
Per Share
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Proposed Maximum
Aggregate
Offering Price
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Amount of
Registration Fee
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Common stock, $.001 par value
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29,661,177
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$
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1.05 (1
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)
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$
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31,144,236
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$
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1,223.97
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Totals
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29,661,177
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$
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31,144,236
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$
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1,223.97
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(1)
Represents
the closing price of the Common Stock on the Electronic Bulletin Board on
September 26, 2008.
This
registration statement registers the resale of 29,661,177 shares of Common
Stock. In addition to the number of shares set forth above, the amount to be
registered includes any shares of Common Stock issued as a result of stock
splits, stock dividends and similar transactions in accordance with Rule 416.
The Proposed
Maximum Offering Price Per Share and the Proposed Maximum Aggregate Offering
Price in the table above are estimated solely for the purpose of calculating
the registration fee pursuant to Rule 457(c) promulgated under the
Securities Act of 1933.
The Registrant hereby amends
this registration statement on such date or dates as may be necessary to delay
its effective date until it shall file a further amendment which
specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the registration statement shall become effective on such date as
the Securities and Exchange Commission, acting pursuant to said Section 8(a),
may determine.
Table
of Contents
The information in
this prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an offer to sell these
securities, and we are not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
Subject
to completion
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Dated
September 30
,
2008
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29,661,177 shares of Common Stock
SKYPOSTAL NETWORKS, INC.
This
prospectus covers the resale by our 156 selling stockholders of 29,661,177 shares of our Common Stock.
The selling stockholders names and share amounts are set forth under Selling
Stockholders and Plan of Distribution in this prospectus. We will not receive
any proceeds from the sale of shares offered by the selling stockholders.
Our Common
Stock is quoted for sale on the Electronic Bulletin Board under the symbol SKPN.
On September 26, 2008, the closing price of the Common Stock was $1.05 per
share.
Investing in our Common Stock involves substantial risks. See
Risk Factors beginning on page 4.
The Securities
and Exchange Commission and state securities regulators have not approved or
disapproved these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
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The date of this
prospectus is
, 2008.
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Table of Contents
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus as
we have not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not making an offer to sell these securities
in any jurisdiction where such an offer or sale is not permitted.
i
Table of Contents
SUMMARY
This
summary highlights material information regarding our company and the offering
contained in this prospectus. However, you should read the entire prospectus
carefully, including the financial information and related notes, before making
an investment decision.
Business
and History
We are an
international mail distribution company based in Miami, Florida that
specializes in the hand delivery to final addressees of commercial mail and
periodicals mailed into the Latin America-Caribbean region (LAC) from the
United States and Europe. SkyPostal operates one of the larger private mail
networks in Latin America handling mail from European postal administrations,
major periodical, magazine and catalog publishers, international mailers and
financial institutions based in Europe and the United States that require time
defined and reliable delivery of their mail or magazines. The SkyPostal service
is supported by a web-based proprietary tracking system, PosTrac, that will
allow our clients to track the status of their mailings and our delivery performance.
We were
organized as a Nevada corporation on June 3, 1998 as an online
entertainment booking service. Through December 31, 2007 we did not have
any revenue, were in the development stage and indicated in our reports filed
with the Securities and Exchange Commission that we were a shell company under Rule 12b-2
of the Securities Exchange Act.
On April 15,
2008, we entered into and closed an Agreement Concerning the Exchange of
Securities between us and SkyPostal, Inc. and the Security Holders of SkyPostal
(the Securities Exchange). Pursuant to the Securities Exchange, we issued
29,000,000 shares of our Common Stock for all of the issued and outstanding
Common Stock of SkyPostal, Inc. Subsequently, we issued an additional
20,191,948 shares in exchange for an equal number of shares of SkyPostal, Inc.
sold in a SkyPostal, Inc. March 1, 2008 private placement exclusively
to a group of European investors. Prior to closing the Securities Exchange, we
had 9,000,000 shares of Common Stock outstanding after giving effect to the
retirement of 25,420,500 shares previously held by our two executive officers
and directors.
On July 25,
2008, we changed our name to SkyPostal Networks, Inc. All references
throughout this prospectus to SkyPostal Networks, Inc., SkyPostal or
the Company refers to the combined operations of SkyPostal Networks, Inc.
and our wholly-owned subsidiary, SkyPostal, Inc.
The
Offering
Securities offered by
our selling stockholders:
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29,661,177 shares of
Common Stock
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Common stock outstanding prior
to and after the offering(1):
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As of August 31,
2008, 55,944,664 shares of Common Stock
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Use of proceeds:
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We will not receive any
proceeds from the sale of the Common Stock.
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(1)
Excluding (i) stock grants representing
2,264,136 shares which will vest over a three-year period, and (ii) 2,619,195
shares issuable upon exercise of warrants.
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Description
of Selling Stockholders
Through this prospectus, we are registering for
resale (i) 22,632,750 shares of our Common Stock which we issued in a
private placement of our securities, and (ii) 7,028,427 shares of Common
Stock issued upon conversion of convertible debt instruments.
The
names and share amounts of the selling stockholders are set forth under Selling
Stockholders and Plan of Distribution in this prospectus. None of the selling
stockholders are officers, directors or 10% or greater stockholders of our
company, nor are any affiliated or associated with any broker-dealers except
Falcon Capital, a London, England-based broker-dealer. Falcon Capital is not a
member of FINRA.
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SUMMARY FINANCIAL DATA
The
following summary financial data should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations and
our financial statements and related notes thereto. This financial information
is derived from our audited financial statements for the years ended December 31,
2007 and 2006 and unaudited financial statements for the six months ended June 30,
2008 and 2007, contained elsewhere herein.
Statement
of Operations Data
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Year Ended
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Year Ended
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Six Months Ended
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Six Months Ended
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December 31, 2007
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December 31, 2006
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June 30, 2008
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June 30, 2007
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Revenue
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$
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8,696,145
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$
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5,914,683
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$
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4,532,113
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$
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3,891,724
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Loss from operations
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$
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(2,103,291
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)
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$
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(1,761,254
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$
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(1,871,406
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$
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(545,222
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Net loss
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$
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(4,618,723
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$
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(2,588,873
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$
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(641,234
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$
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(912,618
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Net loss per share:
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Basic
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$
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(0.30
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$
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(0.22
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$
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(0.02
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$
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(0.06
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Diluted
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$
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(0.30
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$
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(0.22
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$
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(0.02
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$
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(0.06
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)
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Balance Sheet Data
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As of
June 30, 2008
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As of
December 31, 2007
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Working capital
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$
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2,029,760
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$
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(7,108,073
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)
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Total assets
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$
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4,827,164
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$
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1,155,540
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Total liabilities
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$
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1,664,330
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$
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9,878,631
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Stockholders equity
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$
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3,162,834
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$
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(8,723,091
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)
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On April 15, 2008, Omega United, Inc. (Omega) entered into and closed
an Agreement Concerning the Exchange of Securities between Omega and SkyPostal,
Inc. (SkyPostal) and the Security Holders of SkyPostal (the Securities
Exchange). Pursuant to the Securities Exchange, Omega issued 29,000,000 shares
of common stock for all of the issued and outstanding common stock of
SkyPostal. On July 25, 2008, Omega changed its name to SkyPostal Networks, Inc.
(the Company).
The merger of a private operating company into a nonoperating public
shell corporation with nominal net assets typically results in the owners and
management of the private company having actual or effective operating control
of the combined company after the transaction, with shareholders of the former
public shell continuing only as passive investors. The Securities and Exchange
Commission (SEC) staffs rules indicate that these transactions are to be
capital transactions in substance, rather than business combinations. That is,
the transaction is equivalent to the private company issuing stock for the net
monetary assets of the shell corporation, accompanied by a recapitalization.
The accounting is identical to that resulting from a reverse acquisition,
except that no goodwill or other intangible assets should be recorded. Accordingly, for accounting purposes,
SkyPostal is treated as the acquirer and the historical financial statements
presented herein are those of SkyPostal.
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of Contents
RISK FACTORS
The shares of
Common Stock offered by this prospectus involve a high degree of risk and
represent a highly speculative investment. You should not purchase these shares
if you cannot afford the loss of your entire investment. In addition to the
other information contained in this prospectus, you should carefully consider
the following risk factors in evaluating our company, our business prospects
and an investment in our shares of Common Stock.
Risks Related to Our Company
We rely on
our relationships with major state owned and private postal operators and
cannot be assured that these relationships will be sustained, in which event
our revenue and any profitability would be reduced.
SkyPostal
has agreements with government postal services, such as the French postal
service and Deutsche Posts DHL Global Mail, to deliver commercial mail into
the LAC. We also deliver mail to the LAC for a number of large
international companies. The agreements may generally be cancelled on 30 days
notice and do not require any minimum quantities of mail to be delivered by us.
There can be no guarantee that the level of future mail to be delivered from
current clients will continue. A material decrease in tonnage from any of
our major mailers, or the loss of any of our larger clients, would reduce our
revenue and any profitability. In addition, to the extent that new clients are
added, whether following the loss of existing clients or otherwise, we may
incur substantial start-up expenses in initiating services to new clients.
SkyPostals
growth may be dependent on our ability to complete acquisitions and integrate
the operations of acquired businesses, in the absence of which our revenue
would be reduced from anticipated levels and our expenses would be elevated.
We
expect that a significant portion of our growth may be achieved through
acquisitions of other private postal delivery companies, and our growth
strategy includes such acquisitions. We may not be able to make
acquisitions in the future and any acquisitions that are made may not be
successful. Furthermore, future acquisitions may have a material adverse
effect upon operating results, particularly in periods immediately following
the consummation of those transactions while the operations of the acquired
businesses are being integrated into SkyPostals operations.
Achieving
the benefits of acquisitions depends on the timely, efficient and successful
execution of a number of post-acquisition events, including integrating the
business of the acquired company into SkyPostals purchasing programs,
distribution network, marketing programs and reporting and information systems.
We may not be able to successfully integrate the acquired companys operations
or personnel, or realize the anticipated benefits of the acquisition.
SkyPostals ability to integrate acquisitions may be adversely affected by many
factors, including the size of the business acquired and the allocation of its
limited management resources among various integration efforts.
In
connection with the acquisition of businesses in the future, SkyPostal may
decide to consolidate the operations of an acquired business with existing
operations or make other changes with respect to the acquired business, which
could result in special charges or other expenses. Results of operations
also may be adversely affected by expenses incurred in making acquisitions, by
amortization of acquisition-related intangible assets and by additional
depreciation expense attributable to acquired assets. Any of the
businesses acquired may also have liabilities or adverse operating issues,
including
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some not discovered before the
acquisition. Additionally, our ability to make any future acquisitions
may depend upon obtaining additional financing, and we may not be able to
obtain additional financing on acceptable terms or at all. To the extent
that SkyPostal seeks to acquire other businesses in exchange for its common
stock, fluctuations in the stock price could have a material adverse effect on our
ability to complete acquisitions.
While
SkyPostals corporate plans call for the acquisition of additional businesses,
managing growth may be difficult and the actual growth rate may decline,
thereby reducing revenue and increasing expenses.
SkyPostals
growth has placed and will continue to place significant demands on
administrative, operational and financial resources, and we may not be able to
successfully integrate the operations of acquired businesses with our existing
operations, which could have a material adverse effect on the business, and
growth may not continue. To the extent that our customer base and our
services continue to grow, this growth will place a significant demand on our
managerial, administrative, operational and financial resources. Future
performance and results of operations will depend in part on our ability to
successfully implement enhancements to our business management systems and to
adapt those systems as necessary to respond to changes in the business.
SkyPostal
is dependent for success on a few key executive officers, including Albert P.
Hernandez. Our inability to retain those officers would impede its growth
strategy, which would have a negative impact on the business and the value of
your investment.
SkyPostals
success is largely dependent on the skills, experience and efforts of Albert P.
Hernandez, its Chief Executive Officer, and other key executive officers.
The loss of one or more of the Companys executive officers could have a
material adverse effect upon its growth strategy and future business
development, and therefore the value of your investment. The Company
maintains a key man life insurance policy on Mr. Albert Hernandez, its Chief
Executive Officer. Additionally, any
failure to attract and retain qualified employees in the future could also
negatively impact our business strategy.
Negative
economic and political developments in the Latin American-Caribbean region may
reduce our revenue and any profitability.
A
large portion of SkyPostals operations are located in LAC. As a result, the
Companys financial condition, results of operations and business may be
negatively affected by the general condition of LACs regional economy, any
devaluation of local currencies as compared to the US Dollar, as well as
inflation, interest rates, regulation, taxation, social instability and other
political, social and economic developments in the LAC region. Any of
these events could reduce our revenue and any profitability.
Currency
fluctuations or the devaluation and depreciation of local currencies could
limit SkyPostals ability to convert those currencies into US Dollars or reduce
the amount of US Dollars received upon currency conversions.
Decreases
in the value of any of the currencies within the LAC region against the US
Dollar could cause SkyPostal to incur foreign exchange losses, which would
reduce net income. Severe devaluation or depreciation of the currencies
of countries in the LAC region may also result in governmental intervention, as
has resulted in Venezuela, or disruption of international foreign exchange
markets. This may limit the Companys ability to transfer or convert those
currencies into US Dollars and
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other currencies. To the extent
that a foreign government institutes restrictive exchange control policies in
the future, SkyPostals ability to transfer or convert foreign currencies into
US Dollars may be limited.
SkyPostal
may need to raise additional capital, which could dilute the ownership
interests of existing shareholders and cause the issuance of securities with
preferences and privileges superior to our Common Stock.
We
may need to raise additional funds in the future. If additional funds are
raised through the issuance of equity or convertible debt securities, the
percentage ownership of the current stockholders of the Company will be
reduced, stockholders may experience additional dilution and such securities
may have rights, preferences and privileges senior to those of the Common Stock
and may have covenants which impose restrictions on the Companys operations.
Risks Relating to Our Securities
Insiders
have substantial control over us, and they could delay or prevent a change in
our corporate control even if our other stockholders wanted it to occur.
Our executive officers and directors own 8,093,909 shares of our Common
Stock or approximately 14.5% of our outstanding Common Stock. Accordingly,
these individuals will be able to control all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. This could delay or prevent an outside party from
acquiring or merging with us even if our other stockholders wanted it to occur.
If we fail
to remain current on our reporting requirements, we could be removed from the
OTC Bulletin Board which would limit the ability of broker dealers to sell our
securities and the ability of stockholders to sell their securities in the
secondary market.
Companies
trading on the OTC Bulletin Board must be reporting issuers under Section 12
of the Securities Exchange Act of 1934, as amended, and must be current in
their reports under Section 13, in order to maintain price quotation
privileges on the OTC Bulletin Board. If we fail to remain current on our
reporting requirements, we could be removed from the OTC Bulletin Board. As a
result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market.
In addition, we may be unable to get re-listed on the OTC Bulletin Board, which
may have an adverse material effect on our Company.
Our Common
Stock in the future may be subject to the penny stock regulations and
restrictions, which could impair liquidity and make trading difficult.
SEC
Rule 15g-9, as amended, establishes the definition of a penny stock as
any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to a limited
number of exceptions. In the future, our shares may be considered to be penny
stock. This classification could severely and adversely affect the market
liquidity for our Common Stock.
For
any transaction involving a penny stock, unless exempt, the penny stock rules require
that a broker or dealer approve a persons account for transactions in penny
stock and the broker or dealer receive from the investor a written agreement to
the transaction setting forth the identity and quantity of the penny stock to
be purchased. To approve a persons account for transactions in penny
stock, the
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broker or dealer must obtain
financial information and investment experience and objectives of the person
and make a reasonable determination that the transactions in penny stock are
suitable for that person and that that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stock.
The
broker or dealer must also deliver, prior to any transaction in a penny stock,
a disclosure schedule prepared by the SEC relating to the penny stock market,
which, in highlight form, sets forth:
·
the basis on which the broker or dealer made
the suitability determination, and
·
that the broker or dealer received a signed,
written agreement from the investor prior to the transaction.
Disclosure
also has to be made about the risks of investing in penny stock in both public
offerings and in secondary trading and commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stock.
Because
of these regulations, broker-dealers may not wish to engage in the
above-referenced necessary paperwork and disclosures and/or may encounter
difficulties in their attempt to sell shares of our Common Stock, which may
affect the ability of selling stockholders or other holders to sell their
shares in any secondary market and have the effect of reducing the level of
trading activity in any secondary market. These additional sales practice and
disclosure requirements could impede the sale of our securities, if and when
our securities become publicly traded. In addition, the liquidity for our
securities may decrease, with a corresponding decrease in the price of our
securities. Our shares, in all probability, will be subject to such penny stock
rules for the foreseeable future and our stockholders will, in all
likelihood, find it difficult to sell their securities.
The market
price of our Common Stock may be volatile.
The
market price of our Common Stock may be highly volatile, as is the stock market
in general, and the market for OTC Bulletin Board quoted stocks in particular.
Some of the factors that may materially affect the market price of our Common
Stock are beyond our control, such as changes in financial estimates by
industry and securities analysts, announcements made by our competitors or
sales of our Common Stock. These factors may materially adversely affect the
market price of our Common Stock, regardless of our performance.
In
addition, the public stock markets have experienced extreme price and trading
volume volatility. This volatility has significantly affected the market prices
of securities of many companies for reasons frequently unrelated to the
operating performance of the specific companies. These broad market
fluctuations may adversely affect the market price of our Common Stock.
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We have not
paid dividends in the past and do not expect to pay dividends in the future,
and any return on investment may be limited to the value of our stock.
We
have never paid any cash dividends on our Common Stock and do not anticipate
paying any cash dividends on our Common Stock in the foreseeable future, so any
return on investment may be limited to the value of our stock. We plan to
retain any future earnings to finance growth.
Future
sales of our Common Stock may depress our stock price.
Sales
of a substantial number of shares of our Common Stock by significant
stockholders into the public market could cause a decrease in the market price
of our Common Stock.
Failure to
achieve and maintain effective internal controls in accordance with Section 404
of the Sarbanes-Oxley Act of 2002 could prevent the Company from producing
reliable financial reports or identifying fraud. In addition,
shareholders could lose confidence in the Companys financial reporting, which
could have an adverse effect on its stock price.
Effective
internal controls are necessary for the Company to provide reliable financial
reports and effectively prevent fraud, and a lack of effective controls could
preclude the Company from accomplishing these critical functions. The
Company will be required to document and test its internal control procedures
in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley
Act of 2002, which requires annual management assessments of the effectiveness
of the Companys internal controls over financial reporting and a report by its
independent registered public accounting firm addressing these
assessments. We recently hired a full time Chief Financial Officer to
augment our internal controls procedures and expand our accounting staff, but
there is no guarantee that these efforts will be adequate.
During
the course of the Companys testing, it may identify deficiencies which the
Company may not be able to remediate in time to meet the deadline imposed by
the Sarbanes-Oxley Act for compliance with the requirements of Section 404.
In addition, if the Company fails to maintain the adequacy of its internal
accounting controls, as such standards are modified, supplemented or amended
from time to time, the Company may not be able to ensure that it can conclude
on an ongoing basis that it has effective internal controls over financial
reporting in accordance with Section 404. Failure to achieve and
maintain an effective internal control environment could cause the Company to
face regulatory action and also cause investors to lose confidence in its
reported financial information, either of which could have an adverse effect on
the Companys stock price.
There is a
reduced probability of a change of control or acquisition of us due to the
possible issuance of additional preferred stock. This reduced probability could
deprive our investors of the opportunity to otherwise sell our stock in an
acquisition of us by others.
Our
Articles of Incorporation authorize our Board of Directors to issue up to 50,000,000
shares of preferred stock, of which no shares have been issued. Our preferred
stock is issuable in one or more series and our Board of Directors has the
power to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, liquidation preferences and the number of shares
constituting any series or designation of such series, without further vote or
action by stockholders. As a result of the existence of this blank check
preferred stock, potential acquirers of our company may find it more difficult
to, or be discouraged from, attempting to effect an acquisition transaction
with, or a change of control of, our company, thereby
8
Table of Contents
possibly depriving holders
of our securities of certain opportunities to sell or otherwise dispose of such
securities at above-market prices pursuant to such transactions.
FORWARD-LOOKING STATEMENTS
This
prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations about future events. These
forward-looking statements are subject to risks, uncertainties and assumptions
about us which are discussed in the Risk Factors section above and
throughout this prospectus. In light of these risks, uncertainties and
assumptions, any forward-looking events discussed in this prospectus might not
occur.
USE OF PROCEEDS
We will not
receive any proceeds from the sale of shares of our Common Stock being offered
by the selling stockholders.
PRICE
RANGE OF OUR COMMON STOCK
Our Common
Stock was quoted on the OTC Bulletin Board (OTC Bulletin Board) under the
symbol OMGU from June 2006 until April 15, 2008, when the symbol
was changed to OMGA. However, during
this period of time, no trading market developed for the Common Stock.
On April 24, 2008, trading commenced in our
Common Stock. The chart below sets forth the high and low bid prices for our
Common Stock for the period indicated and does not include markups, markdowns
or discounts between dealers.
|
|
High Bid
|
|
Low Bid
|
|
|
|
|
|
|
|
Quarter Ended September 30, 2008
(through September 26, 2008)
|
|
$
|
1.50
|
|
$
|
1.05
|
|
Quarter Ended June 30, 2008
|
|
$
|
1.46
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
As of August 31,
2008, we had approximately 185 stockholders of record.
9
Table of Contents
SELECTED FINANCIAL DATA
Statement
of Operations Data
|
|
Year Ended
|
|
Year Ended
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
|
December 31, 2007
|
|
December 31, 2006
|
|
June 30, 2008
|
|
June 30, 2007
|
|
Revenue
|
|
$
|
8,696,145
|
|
$
|
5,914,683
|
|
$
|
4,532,113
|
|
$
|
3,891,724
|
|
Loss from operations
|
|
$
|
(2,103,291
|
)
|
$
|
(1,761,254
|
)
|
$
|
(1,871,406
|
)
|
$
|
(545,222
|
)
|
Net loss
|
|
$
|
(4,618,723
|
)
|
$
|
(2,588,873
|
)
|
$
|
(641,234
|
)
|
$
|
(912,618
|
)
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.30
|
)
|
$
|
(0.22
|
)
|
$
|
(0.02
|
)
|
$
|
(0.06
|
)
|
Diluted
|
|
$
|
(0.30
|
)
|
$
|
(0.22
|
)
|
$
|
(0.02
|
)
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2008
|
|
As of
December 31, 2007
|
|
|
|
|
|
Working capital
|
|
$
|
2,029,760
|
|
$
|
(7,108,073
|
)
|
|
|
|
|
Total assets
|
|
$
|
4,827,164
|
|
$
|
1,155,540
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,664,330
|
|
$
|
9,878,631
|
|
|
|
|
|
Stockholders equity
|
|
$
|
3,162,834
|
|
$
|
(8,723,091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Table
of Contents
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
Forward-Looking Statement and Information
This prospectus may contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and
uncertainties and are based on the beliefs and assumptions of management and
information currently available to management.
The use of words such as believe, anticipates, intends, plans, estimates,
should, likely, or similar expressions, indicates a forward-looking
statement.
Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events, or performance and underlying
assumptions. Future results may differ
materially from those expressed in the forward-looking statements. Many of the factors that will determine these
results are beyond our ability to control or predict. Unit holders are cautioned not to put undue
reliance on any forward-looking statements. We claim the protection of the
safe-harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events, or performance and underlying
assumptions, which are not statements of historical facts. These statements are subject to uncertainties
and risks including, but not limited to, changes in technology, economic
conditions, competition and pricing, and government regulations. We caution that assumptions, expectations,
projections, intentions, or beliefs about the future events may, and often do,
vary from actual results and the differences can be material.
11
Table
of Contents
Comparison
of Six Months Ended June 30, 2008
The following table sets
forth, for the periods indicated, unaudited condensed consolidated statements
of operations information and information from the unaudited condensed
consolidated statements of operations expressed as a percentage of revenue.
|
|
Six Months Ended June 30
|
|
Change
|
|
|
|
2008
|
|
2007
|
|
Amount
|
|
Percent
|
|
NET
REVENUES
|
|
$
|
4,532,113
|
|
$
|
3,891,724
|
|
$
|
640,389
|
|
16.5
|
%
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
Cost of
Delivery
|
|
3,752,705
|
|
2,962,465
|
|
790,240
|
|
26.7
|
|
General
and Administrative
|
|
1,744,540
|
|
1,218,067
|
|
526,473
|
|
43.2
|
|
Stock
Based Compensation
|
|
810,808
|
|
138,408
|
|
672,400
|
|
485.8
|
|
Factoring
Fees
|
|
95,466
|
|
118,006
|
|
(22,540
|
)
|
(19.1
|
)
|
TOTAL
OPERATING EXPENSES
|
|
6,403,519
|
|
4,436,946
|
|
1,966,573
|
|
44.3
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
(1,871,406
|
)
|
(545,222
|
)
|
(1,326,184
|
)
|
243.2
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES/(INCOME)
|
|
|
|
|
|
|
|
|
|
Interest
|
|
385,832
|
|
215,366
|
|
170,466
|
|
79.2
|
|
Reversal
of excess of value of put options over the estimated fair value of shares
|
|
(1,600,000
|
)
|
|
|
(1,600,000
|
)
|
|
|
Other
|
|
(16,004
|
)
|
152,030
|
|
(168,034
|
)
|
110.5
|
|
TOTAL
OTHER EXPENSES/(INCOME)
|
|
(1,230,172
|
)
|
367,396
|
|
(1,597,568
|
)
|
434.8
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(641,234
|
)
|
$
|
(912,618
|
)
|
$
|
271,384
|
|
29.7
|
%
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
38,198,100
|
|
14,755,818
|
|
23,442,282
|
|
158.9
|
%
|
Effect
of dilutive shares
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
38,198,100
|
|
14,755,818
|
|
23,442,282
|
|
158.9
|
%
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME/(LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
$
|
(0.06
|
)
|
$
|
0.04
|
|
66.7
|
%
|
Diluted
|
|
$
|
(0.02
|
)
|
$
|
(0.06
|
)
|
$
|
0.04
|
|
66.7
|
%
|
12
Table
of Contents
Revenue
Revenue increased in the
first half of 2008 compared with the same period in 2007 due to an increase in
tonnage of 20.3 percent, which included increases in tonnage for both of the
first two quarters of 2008. The tonnage increase offset a decline in revenue
per kilogram for the comparative periods of 3.3 percent which, was due largely
to a 21.4 percent decline in this indicator in the foreign segment of the
business.
Operating
Expenses
Cost of
Delivery
. This
expense increased on a per kilogram basis by 5.5 percent as second quarter
increases offset an improvement in this indicator in first quarter 2008. The
margin between revenue and delivery cost declined by 16.1 percent in dollar
terms when compared with the second half of 2007. This margin may show further
decline in the second half of 2008, although an increase in tonnage would in
part offset this effect.
General and Administrative
. This expense increased due to
additional costs for professional services related to the Securities Exchange and
SEC filing requirements, and an increase in salaries and benefits related to
the addition of senior management and administrative staff.
Stock Based Compensation
. This non-cash expense increased due
to share-based compensation expense recognized during the period, as well as
stock granted to senior management pursuant to certain agreements we entered
into in connection with the Securities Exchange.
With certain members of
executive management, with respect to unpaid compensation in prior periods, we
granted them shares of common stock in exchange for the release of this
liability.
With certain members of
executive management, with respect to certain stock options for SkyPostal
common stock that they held, we granted them one share of common stock in
exchange for every two options they held, resulting in the issuance to them of
shares of common stock.
Factoring Fees
. This expense declined as we
terminated our relationship with a factor during the second quarter of 2008.
Operating Loss
. The operating loss in 2008 increased
because the margin between revenue and delivery costs declined both in dollar
and percentage terms in the first half of 2008 and general and administrative
expenses increased from 31.3 percent of revenue for the six months ending June 30,
2007 to 38.5 percent for the comparable period in 2008.
13
Table
of Contents
Other Expenses
Interest Expense
. Interest expense increased due to the
bridge loan (previously discussed) which we used to finance operations prior to
the Securities Exchange and the private placement.
Other Income
. This non-recurring gain occurred due
to an adjustment to a put liability.
Net Loss
The decline in net loss is
primarily attributable to the non-recurring, non-cash gain on the adjustment to
the value of the put option.
Comparison
of Twelve Months Ended December 31, 2007
The following table sets
forth, for the periods indicated, audited condensed consolidated statements of
operations information and information from our audited condensed consolidated
statements of operations expressed as a percentage of revenue.
|
|
Twelve Months Ended December 31
|
|
Change
|
|
|
|
2007
|
|
2006
|
|
Amount
|
|
Percent
|
|
NET REVENUES
|
|
$
|
8,696,145
|
|
$
|
5,914,683
|
|
$
|
2,781,462
|
|
47.0
|
%
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
Cost of Delivery
|
|
6,976,947
|
|
4,776,654
|
|
2,200,293
|
|
46.1
|
%
|
General and Administrative
|
|
3,526,385
|
|
2,538,401
|
|
987,984
|
|
38.9
|
%
|
Factoring Fees
|
|
296,104
|
|
360,882
|
|
(64,778
|
)
|
-17.9
|
%
|
TOTAL OPERATING EXPENSES
|
|
10,799,436
|
|
7,675,937
|
|
3,123,498
|
|
40.7
|
%
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
(2,103,291
|
)
|
(1,761,254
|
)
|
(342,037
|
)
|
19.4
|
%
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES/(INCOME)
|
|
|
|
|
|
|
|
|
|
Interest
|
|
564,130
|
|
374,368
|
|
189,762
|
|
50.7
|
%
|
Initial public offering expenses
|
|
|
|
578,164
|
|
(578,164
|
)
|
-100.0
|
%
|
Reverse merger expenses
|
|
128,530
|
|
|
|
128,530
|
|
|
|
Excess of value of put options over the
estimated fair value of shares
|
|
1,600,000
|
|
|
|
1,600,000
|
|
|
|
Other
|
|
222,772
|
|
(124,913
|
)
|
347,685
|
|
-278.3
|
%
|
TOTAL OTHER EXPENSES/(INCOME)
|
|
2,515,432
|
|
827,619
|
|
1,687,813
|
|
203.9
|
%
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(4,618,723
|
)
|
$
|
(2,588,873
|
)
|
$
|
(2,029,849
|
)
|
78.4
|
%
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
15,350,389
|
|
11,808,434
|
|
3,541,955
|
|
30.0
|
%
|
Effect of dilutive shares
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
15,350,389
|
|
11,808,434
|
|
3,541,955
|
|
30.0
|
%
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.30
|
)
|
$
|
(0.22
|
)
|
$
|
(0.08
|
)
|
36.4
|
%
|
Diluted
|
|
$
|
(0.30
|
)
|
$
|
(0.22
|
)
|
$
|
(0.08
|
)
|
36.4
|
%
|
Revenue
Revenue increased in 2007 due to the increased tonnage of mail
delivered and better rates paid by customers in International Operations, which
is largely attributable to the Spring acquisition and the acquisition of new
clients.
Operating Expenses
Cost of Delivery
. This expense increased principally due to
increased tonnage in 2007 and to increases in certain costs related to inbound
US mail originating in LAC and tendered to the US Postal Service.
14
Table
of Contents
General and Administrative.
The increased expense is attributable
primarily to increased salary expense for a new member of senior management,
the expensing of stock options granted to certain members of senior management,
the option expense related to a service agreement with an advisor to the
Company and the costs of the Spring acquisition.
Factoring Fees.
The Companys ability to secure financing
outside of its factoring relationship led to lower factoring fees in 2007.
Operating Loss.
The Operating Loss in 2007 increased despite
a continued increase in tonnage and an increase in the margin between revenue
and delivery cost per kilogram due to the increase in General and
Administrative expenses as discussed above.
Other Expenses
Interest Expense.
The Companys borrowings increased in 2007 and
the reliance on financing at high interest rates, plus accrued interest on
convertible debt, contributed to the increase in interest expense.
Reverse Merger Expense.
These expenses arose from matters in
connection with the Securities Exchange.
Initial Public Offering Expenses.
These expenses arose from the Companys
failed effort in 2006 and 2007 to secure an AIM Listing.
Excess Value of Put Options.
This expense reflects the difference between
the fair value of the Companys stock and the exercise price of certain puts
related to 3.2 million shares of the Companys stock, as more fully explained
in Note 9 of the Companys audited financial statements dated December 31,
2007.
Other Expenses.
This increase is largely attributable to
expenses related to the Companys development of a GPS PDA and other product
development expenses.
Net Loss
The Net Loss increased because of the increased Operating Loss and the
increase in Other Operating Expenses. One-time expenses contributing to the
loss totaled $666,530 and included Reverse Merger Expenses of $128,530,
$278,000 for the Spring acquisition and non-cash expenses of $260,000 for
options granted to management. Additional non-cash expenses of $283,965 for
stock-based compensation to management also contributed to the Net Loss.
15
Table
of Contents
Liquidity
and Capital Resources
Operating Activities
. Our principal source of liquidity is
not cash generated from operations. The net cash used in operating activities
in the six months ending June 30, 2008 was ($4,539,985), which includes
the non-cash adjustment for the put liability of $1,600,000 and payments for
non-current accounts payable. We have no debt.
Investing Activities
. During the first six months of 2008,
cash used in investing activities was $96,008. The most significant expenditure
was $ 80,000 for development of our PDA.
Financing Activities
. During the six
months ended June 30, 2008, cash provided by financing activities was
$6,418,701. During the period, we received net proceeds of $8,308,456 from the
issuance of new shares of common stock through the private placement. We repaid
loans from third parties and shareholders totaling $1,790,562.
Critical
Accounting Policies and Estimates
Use of
Estimates
Our discussion and analysis
of financial condition and results of operations are based upon our audited
financial statements, which have been prepared in accordance with US GAAP. The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Such estimates and
assumptions impact, among others, the following: the amount of uncollectible
accounts receivable, the amount to be paid for the settlement of liabilities
for services included in cost of sales and accounts payable, the amount to be
paid for tax liabilities, accrued expenses, and the estimated useful lives for
amortizable property and equipment. Actual results could differ from those
estimates.
Making estimates with
respect to cost of sales requires management to exercise significant judgment.
It is at least reasonably possible that the estimate of the effect on the
financial statements of a condition, situation or set of circumstances that
existed at the date of the financial statements, which management considered in
formulating its estimate could change in the near term due to one or more
future confirming events. Accordingly, the actual results regarding estimates
in the cost of sales could differ materially from our estimates.
16
Table
of Contents
Revenue
Recognition
Revenue is recognized upon
delivery of a letter or package in accordance with Emerging Issues Task Force
91-9,
Revenue and Expense Recognition for Freight
Services.
Cost of
delivery
Cost of Delivery is
comprised of postage, export line haul costs, clearance costs, and hand
delivery costs.
Stock
Based Compensation Plan
We sponsor a stock option
plan under which incentive stock options may be granted periodically to certain
employees, directors, and consultants that provide services to us. Our
stock options have an exercise price equal to the stock price on the date of
the grant and vest over one to three years after the grant date. The required
disclosures related to our stock-based employee compensation plan are included
in our Financial Statements. Effective January 1, 2006, we adopted SFAS No. 123R,
Share-Based Payment, using the modified prospective transition method.
The modified prospective transition method was applied to new awards, to any
outstanding awards, and to awards that were forfeited after January 1,
2006. We did not issue any awards prior to January 1, 2006.
Allowance
for Doubtful Accounts
We maintain an allowance for
doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments. A considerable amount of judgment is
required in assessing the ultimate realization of these receivables, including
the current credit-worthiness of each customer. Although results of prior
estimates have been in line with managements expectations, should the
financial condition of our customers deteriorate, resulting in an impairment of
their ability to make payments, additional allowances might be required.
Capitalized
Software Development Costs
Research and development
costs are expensed as incurred. Software and PDA development costs
incurred subsequent to establishing technological feasibility through the
general release of the software products are capitalized, within property and
equipment, in accordance with Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use
. Technological
feasibility is demonstrated by the completion of a working model.
Property
and Equipment
Property and equipment are
stated at cost, net of accumulated depreciation and amortization. Property and
equipment are depreciated on a straight-line basis over the estimated useful
lives of the assets which ranges from three to seven years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
respective lease term or the estimated useful life of the asset.
Business
Concentrations and Credit Risk
Financial instruments that
subject us to concentrations of credit risk consist primarily of cash and cash
equivalents, restricted cash and accounts receivable. We maintain all our cash
and cash equivalents
17
Table
of Contents
in two financial
institutions. Any excess cash not required for daily operations is invested in
overnight US Treasury bills. We perform periodic evaluations of the relative
credit standing of these institutions. Our customers are primarily concentrated
in the US, Europe and LAC. We perform ongoing credit evaluations, generally do
not require collateral, and establish an allowance for doubtful accounts based
upon factors surrounding the credit risk of customers, historical trends and
other information. To date, actual losses have been within managements
expectations and have been less than 0.5% of sales.
Income
Taxes
Income taxes are accounted
for under the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
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BUSINESS
Introduction
We
are an international mail distribution company based in Miami, Florida that
specializes in the hand delivery to final addressees of commercial mail and
periodicals mailed into the Latin America-Caribbean region (LAC) from the
United States and Europe. SkyPostal
operates one of the larger private mail networks in Latin America handling mail
from European postal administrations, major periodical, magazine and catalog
publishers, international mailers and financial institutions based in Europe
and the United States that require time defined and reliable delivery of their
mail or magazines. The SkyPostal service
is supported by a web-based proprietary tracking system, PosTrac, which allows
our clients to track the status of their mailings and our delivery performance.
As
a region wide, cross border private postal service, SkyPostal offers solutions
for reliable, low cost, time defined, and trackable mail service in LAC. The
Public Postal agencies in LAC, regulated by the Universal Postal Union (UPU),
an agency of the United Nations, face artificially high inter country mail
tariffs (terminal dues), inefficiencies with little or no technology and poor
mail service. According to research
based on mailing tests from Europe and the US conducted by an independent
testing agency in 2003, approximately 30% of the mail destined for delivery to
LAC never gets delivered to its final destination.
SkyPostal
is one of the larger facilitators of mail delivery from Europe and the US into
LAC. La Poste (France), Deutsche Post/DHL Global Mail (Germany), Swiss Post,
Belgian Post, Dutch Post (Spring), New Zealand Post and other progressive posts
have established commercial postal operations in countries outside their
borders to compete with the national post offices for international mail. This
is most prevalent in the US and UK, the worlds largest postal markets. These
operations seek alternative delivery systems to the national post offices in
the LAC countries. SkyPostal fills this need by providing improved service,
lower costs and better technology compared to the UPU Network of public post
offices in LAC. Currently our largest
customers are the French and German National Posts for which we handle mail
originating in their home countries as well as their Extraterritorial Offices
of Exchange (ETOEs). We also service other European post offices cross border
companies and major mail consolidators, acting as a middle man in the
delivery of mail into the region.
SkyPostal
believes it has the opportunity to consolidate through acquisition parts of the
mail delivery chain to LAC. As a result of postal liberalization (discussed
below), an opportunity exists to consolidate the last mile, which is the
actual hand delivery of mail. There are hundreds of private postal delivery
companies in each country throughout the region. SkyPostal has contracted with
many top tier companies in each of these countries for its deliveries. We
intend to seek to acquire some of our strategic delivery partners or similar
competitors. We will also seek to acquire other private postal companies in the
same markets and consolidate their customers into our operations. Throughout
LAC there can often be up to six different deliveries to the same address from
different companies every day. Consolidation could result in an increase in
revenue without a corresponding increase in delivery cost.
The
second part of the last mile consolidation is to complete the roll out
PosTrac, our under-development GPS based delivery technology, which will
provide proof of delivery for regular post, without actually getting a
signature from the recipient. Nearly
half of all packages sent via FedEx, UPS, etc., are not time sensitive, but the
customer and the shipper want tracking and proof of delivery. When PosTrac is
rolled out, region by region, we project that we will be able to capture a
portion of the
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non-critical
segment from the relatively expensive express delivery networks. We anticipate, but cannot assure, that field
implementation of the PosTrac technology will commence by January, 2009.
Other
acquisition targets include wholesale mail consolidators in Europe, the UK and
US. These companies are the second step in international delivery. They collect
the mail from the retailers (companies that have the customer originating the
post), consolidate shipments to reduce cost and deliver, either by truck or
air, to the final destination city. We believe this will allow us to grow
without becoming involved in the retail side of the sales process.
Postal Liberalization
Several
of the major national postal services have been privatized and the postal
monopoly eliminated in certain countries, particularly in Western Europe. This
trend has caused intense competition. Most of the large European Postal
Services have started marketing their services outside their national
borders. As a result, the cross-border
postal operators are seeking technological advancement to differentiate their
product and are constantly striving to improve service at a lower cost than
current UPU terminal dues, which is what a country pays to the destination
country for mail delivery. Currently a European
country pays a LAC country approximately US $6.10 per kilo (2.2 lbs), which
averages $.41 per mail item for delivery based on a worldwide average of 15
items per kilo (IPK) or 67 grams (2.4 ounces). SkyPostals average is 7 IPK or
143 grams (5 ounces) and the delivery companys costs per item are
approximately $.10-$.15. The commercially progressive posts in Europe have
started to build and/or have entered into strategic alliances with less costly
and more efficient alternative mail delivery systems (such as private postal
operators like SkyPostal) replacing the antiquated and inefficient UPU Public
Postal Network consisting of the national post offices in each country. We
believe that as the terminal dues costs increase, without a corresponding improvement
in service and technology in the developing countries public postal systems,
the industrialized countries national postal services will seek alternative
means to deliver their mail and parcel post more efficiently and at lower
costs.
PosTrac and GPS-PDA
Technology
Most
of the private postal services that form part of the SkyPostal hand delivery
network have little or no technology capable of tracking individual mail items.
The messengers are not provided with any PDA and instead use manual manifests.
There is very little control on the messenger when he makes delivery. We
believe that when developed, the PosTrac PDA scanner, using GPS will ensure
that the messenger delivers to the correct address and records the exact time
the item was delivered. By using a digital address bar code on the mail item,
upon scanning, the GPS triangulation checks to make sure that the messenger is
delivering at the correct location. The PDA will also calculate the messengers
pay, since it lends itself to compensating the messenger per GPS validated
delivery instead of hourly. Thus, we anticipate that every address will have an
eight digit alpha-numeric GPS address accurate to within 10 meters radius. We
anticipate completing the development and field testing of PosTrac by October,
2008 and beginning implementation and roll out of the technology by January,
2009.
The
US Postal Service through extensive research has identified a need for
Intelligent Mail. Intelligent Mail is defined as mail that is bar coded and
tracked from posting to final delivery. The USPS has invested in technology and
equipment to be able to provide this capability domestically. In November, 2004
it ordered 300,000 handheld scanners from Motorola at a cost of $300 million.
These scanners are not GPS equipped.
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During
2008 we believe that the US mail industry will complete the deployment of the
Intelligent Mail barcode requirement, a change that will be largely invisible
to consumers but that has vast implications for business mailers of all sizes.
The Intelligent Mail barcode is the tool that the USPS will use to dramatically
enhance its service to commercial mailers and effective May 2009 all
commercial mail will be required to have the intelligent mail bar code in order
to obtain automation discounts. The barcode has the capacity to uniquely
identify every piece of mail entering the postal system, a first for the Postal
Service. This technology will enable unprecedented visibility into the postal
network for mailers and for the USPS itself, opening the door to a host of new
and valuable opportunities for companies to make their mailings even more
efficient and effective. The USPS cannot offer Intelligent Mail service
internationally since most foreign posts, especially in LAC, cannot afford the
scanner equipment and systems. SkyPostal intends to continue development of
PosTrac and offer the USPS the equivalent of Intelligent Mail delivery service
in LAC using the SkyPostal private postal network equipped with GPS PDAs. This
service would be very valuable particularly when applied to USPS international
parcel post service, which today does not provide a signature or delivery
confirmation.
Descriptive Addresses in LAC
One
of the biggest challenges facing most postal administrations in the LAC region
is the lack of an efficient address system. In most countries, addresses are
descriptive and postal codes have not been established or poorly
developed. An analysis of the top 20
postal administrations ranked by total country population, indicates that only
eight have postal codes, but in only three countries are postal codes used by
businesses because the postal services have not enforced or promoted the use of
postal codes. The lack of postal codes and the use of descriptive addresses
preclude any possibility of automation. Without automation, the postal
administrations will not be able to improve the efficiencies of their mail
delivery operations.
Direct Mail Response
Marketing Industry in Latin America
There
is very little direct mail marketing in Latin America. According to the UPU
Report Development of Postal Services in 2006 (Nov 2007) the average letter
post items posted per capita in the US was 404 while in LAC it was only 19. The
world average was 67 letter post mail items per capita. US and European direct
response marketers have sought consumer mailing lists, but the quality and
reliability is very poor. In addition, those US marketers who have used the
USPS or their National Postal Service to deliver the mail items have become
disappointed with the results since the USPS depends on the UPU Network of
National Postal Services to deliver the mail in country. In addition, the mailing response is poor
because of the lack of good addressing systems, postal codes and unavailability
of list updating services.
Even
if the lists were available, the management of the mailing lists would be a
daunting task since the majority of the countries use descriptive four line
addresses that can be written in many different styles. Without postal codes,
street names and house numbers, the tools familiar to US and European marketers
such as the merge-purge of lists, segmentation of mailing lists by income,
demographics and other selection criteria is currently almost impossible.
Today
the majority of the postal administrations in Latin America do not return
undeliverable direct mail either to the local mailer or to the USPS or European
postal service. Thus the mailer is not able to update its mailing lists.
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Market Overview and
Opportunities
As
reported by the UPU in its Worldwide Postal Statistics Report for 2006, first
class letter mail volumes are stabilizing, but the growth in parcel post
volumes is continuing, and postal revenue is sharply up. Advertising/direct
marketing items had a positive impact on mail volumes, which have faced heavy
competition from electronic communications over the past few years. Volumes of
international letter posts (5.5 billion items) were down 2% overall in 2006,
though there was wide regional variation, with volumes up 8.1% in the LAC
region. With a total of 6.235 billion items in the domestic and international
services combined, parcel post traffic was up 4.8% in 2006 compared to 2005.
For the international service, Eastern Europe and the Commonwealth of
Independent States (CIS) had the biggest increase (+21.4%). The delivery of
merchandise ordered via the Internet is considered to be one of the growth
factors. With a total of USD $308.1 billion, worldwide postal revenue was up
13% compared to 2005. This growth was shared by three-quarters of UPUs 191
member countries. Letter post still generates more than half (52.3%) of
operating revenue, but this figure was 7.7% lower than in 2005. Meanwhile,
revenue generated by parcels and logistics services rose by 6% in 2006 to
contribute 27% of global revenue.
SkyPostal
operates in a specific market niche for the reliable, time defined (as contrasted
with time sensitive) international delivery of business correspondence, bank
statements, publications and small parcels addressed to LAC consumers and
businesses. The potential market for this service, on a regional basis was
estimated in 2005 by the UPU to be between $1.0 to $1.8 billion. In 2005, the
population of LAC exceeded 559 million and over 11 billion mail items were
delivered in the region. The Population Reference Bureau projects that the
population will grow by 200 million by 2025. We estimate the USPS market for
mail origin from the US to LAC is approximately $200 million per year.
The
latest UPU report titled Development of Postal Services in 2006 published in
November, 2007 indicates that most postal operators in LAC have reported only a
0.4% increase in letter post volumes handled by their post offices. According
to markets surveys of local postal operators, domestic commercial mail
delivered by the national postal services in 2007, in most of the region
averages about 50% market share, and as low as 10% in Paraguay and 13% in Peru.
In Mexico, it is estimated the national post in 2007 had a 50% share of the
commercial mail market with the private postal operators, Brazil 85%, Argentina
45%. The local private hand-delivery messenger services have captured most of
the domestic business mail delivery market for bank statements, invoices and
payments and continue to pose a serious threat to the national postal services
market share.
The
number of local private postal messenger services has significantly increased
over the past 10 years, as businesses have searched for more efficient
alternatives to deliver their bills. Businesses that traditionally employed
their own messengers for delivery of invoices and payments, due to increased
labor costs are outsourcing the mail delivery to the private postal operators.
These businesses include banks, credit card companies, utility companies and in
some LAC countries, even the government uses private companies for the delivery
of its tax forms.
European
postal operators have realized that in order to effectively compete in their
markets, they must improve their delivery to LAC. Several of these European
postal operators have turned to regional private postal operators who can
provide time defined, hand delivery service with limited technology. SkyPostal
is one these companies. We currently provide among the best service in this
niche market and we believe we are positioned to be the dominant provider of
reliable, time defined international mail delivery in LAC.
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Competition
Traditional
competitive factors in the mail delivery industry include price per unit of
delivery, reliability, timeliness and the application of technologies to
improve delivery services. The Latin American competition for postal delivery
services is divided into national postal organizations, local private messenger
services, express courier firms, and global re-mailers.
National Public Posts.
Most of the LAC public post
offices are under-funded, lack technology and have high turnover of top
management who usually are political appointees. This results in poor service
and continuing loss of market share to the private postal operators.
Private Postal Services.
Unlike the US, where due to
the USPS monopoly, it is illegal to deliver mail via a private postal service,
in LAC there are over 6,000 private mail services known as correos privados
massivos to mass distribute commercial documents, bank and credit statements,
utility bills, publications and small packets either across town or nationally
with limited technology. The National Postal Service is rarely used by
businesses. These firms operate
exclusively within their own boundaries and have limited uses of technologies
to confirm the timeliness and reliability of their delivery services.
Global Express Couriers.
At the higher end of the postal
services spectrum are the top express integrators that accounted for 12% of
global airmail and express cargo in 2004(UPU WTO 2006 report) The major players are DHL, FedEx and United
Parcel Service (UPS). We estimate that over 50% of the items tendered to these
courier companies do not require time critical delivery. Instead the clients
would like time specified delivery. Six to eight days delivery would be
acceptable in the majority of the cases. The courier companies are used because
there is no widely available time defined mail delivery service into Latin
America that provides on line tracking visibility at USPS international postal
rates. If and when SkyPostals low cost Intelligent Mail and PostTrac systems
are implemented throughout the region, we believe the need for the much higher
priced courier service will decrease substantially.
Global Re-Mailers and Mail Consolidators.
These
companies transport mail internationally and arrange for posting in the foreign
postal service. The companies operating in Latin America are: Deutsche Posts
DHL Global Mail, United Express, Mail Latin America, ITS and Spring (a company
owned 51% by Dutch Post Office). In August 2007, SkyPostal acquired the
Spring LAC operations. SkyPostal handles most of DHL Global Mail volumes to
LAC.
SkyPostal
believes that the cost, reliability and timeliness of its services are superior
to most of its LAC competitors and that the development of PosTrac will further
improve its competitive position.
Opportunity to Build
Regional Private Postal Network
SkyPostal
will seek to deploy an acquisition strategy to consolidate postal delivery
services in LAC. There are hundreds of possible acquisition candidates in key
markets that have good local entrepreneurial management, are undercapitalized
and lack technology, which affords us an opportunity to consolidate some of
these firms. By first building domestic private postal networks linked by the
PosTrac system, under the same brand and using a combination of acquisitions
and licensing, we will seek to build a branded region wide private postal
network. The same clients serviced in one country can be marketed region wide
when the network and brand are developed.
In
2004 and 2007, respectively, SkyPostal acquired two companies, from LAN, the
Chilean Airlines, and from Spring, a competitor in LAC and a subsidiary of the
Dutch Post. SkyPostals strategy
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is to continue to pursue the acquisition of
additional private postal delivery companies, using a methodology similar to
that utilized by management in previous industry acquisitions in which it
purchased intangible operating assets such as trading name, phone numbers,
customer list, key contracts and key management with owners keeping other
assets and all liabilities. With our
existing infrastructure, including current contracts with private postal
companies and an experienced management team, we believe we will be able to
integrate additional private postal delivery companies and enterprises gaining
economies of scale and eliminating duplicative operational expenses.
Current SkyPostal Hand
Delivery Network and Customers
The
current SkyPostal network is composed of local correos privados massivos
(HDPs) who principally deliver bank statements, utility bills, publications,
business bills received from local businesses and mail received from abroad via
SkyPostal usually consisting of publications, catalogs, commercial
correspondence, advertising mail and small parcel post packets.
SkyPostal
has entered into delivery agreements with many of the larger local private
messengers in all the LAC major countries.
Collectively, they deliver over 65 million items of mail per month and
have over 9,000 employees in the region. In each country, there is usually a
major HDP in the gateway/capital city who employs his own messengers and relies
on an agent network of smaller messenger services to deliver in the rest of the
country. PosTrac is expected to tie this network together and permit better
delivery data transfer between the network members. The standardization of the
service will provide SkyPostal with a uniformed and measurable product
throughout the region.
After
the deployment of the GPS-PDA each HDP will serve as a Data Collection Agent
to build a database of GPS coded addresses and mailing lists. SkyPostal has
received commitments from several of the electric utility companies in LAC that
will cooperate in building the GPS Address databases. This data will be used to create digital
postal codes for the region.
In
addition to strategic acquisitions in key markets, once the network is linked
with a uniform IT system and standard operating procedures, SkyPostal, will
seek to develop and implement a regional licensing system of private postal
services which will offer uniform postal products under a brand name. The
candidates will be the current SkyPostal service providers and their sub
agents. SkyPostal, as one of their largest clients, will seek influence in
establishing the operating procedures and use of the IT system.
Our
customers consist of major European postal authorities, retailers who sell
directly to the producer of the mail, mail consolidators, mail fulfillment
houses and re-mailers (also known as wholesalers) in the US and UK.
Following
a wave of privatizations in 2000-2005, European postal authorities have begun
to compete aggressively with each other. Publishing houses are typical
customers, requiring bulk mail delivery service for periodicals to LAC. The
foreign postal authorities operating in the US offer these publishers lower
prices than, for example, the USPS. They also offer more reliable and time
defined delivery. They are able to offer such services because they have the
ability to outsource mail delivery into LAC to companies like SkyPostal. These
postal authorities realize an average margin of 15% to 20% on such outsourced
delivery service, in addition to the marketing benefit of securing for their
customers a higher level of service and satisfaction. Retail prospective
customers in LAC include banks, publishers, direct marketers, credit card,
finance, utility and large multinational companies.
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Re-mailers
and mail consolidators comprise private mail forwarding services that provide
service acting as intermediaries between the retail customers and the postal
delivery companies. Re-mailers such as Brokers Worldwide in the US and
MailFlight in the UK have strong sales forces and are able to acquire and then
outsource business to companies like SkyPostal. Letter shops and fulfillment
services also generate international mail, but usually tender their clients
mail to the USPS or national postal service.
Employees
As
of June 30, 2008, we had 37 full time employees, including our executive
officers.
Facilities
We lease
17,000 square feet of office, warehouse and mail processing facilities at 7805
NW 15th Street in Miami, Florida. Our
lease expires on June 30, 2009 and we pay $10,762 per month for the
facility.
In connection with a new service soon to be offered
through SkyShop Logistics, Inc., on June 30, 2008 we entered into a
lease agreement for approximately 10,000 square feet of office and warehouse
space in Doral, Florida, expiring July 31, 2013, for $5,200 per month for
the first year, with gradual increases in the following years.
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MANAGEMENT
Executive Officers and Directors
The
names, ages and positions of our directors and executive officers are as
follows:
Name of Director
|
|
Age
|
|
Position(s) with
the Company
|
|
Officer/Director Since
|
Albert P. Hernandez
|
|
59
|
|
Chairman, Chief Executive Officer
|
|
2002
|
|
|
|
|
|
|
|
A.J. Hernandez
|
|
38
|
|
Chief Operating Officer and Director
|
|
2002
|
|
|
|
|
|
|
|
Christian J. Weber
|
|
65
|
|
Director Director Europe Sales &
Service
|
|
2008
|
|
|
|
|
|
|
|
Mathijs van Houweninge
|
|
40
|
|
Director
|
|
2008
|
|
|
|
|
|
|
|
S. David Fineman
|
|
62
|
|
Director
|
|
2008
|
|
|
|
|
|
|
|
Florian M. Schuhbauer
|
|
33
|
|
Director
|
|
2008
|
|
|
|
|
|
|
|
Jose Misrahi
|
|
51
|
|
Director
|
|
2008
|
|
|
|
|
|
|
|
Michael J. Knorr
|
|
45
|
|
Executive Vice President
|
|
2006
|
|
|
|
|
|
|
|
Clement S. Harary
|
|
53
|
|
Chief Financial Officer
|
|
2008
|
Mathijs van Houweninge
and Jose Misrahi are Class I
directors and hold office until the next annual meeting of stockholders and
until their successors are elected and qualified; Florian M. Schuhbauer and S.
David Fineman are Class II directors and hold office until the second
annual meeting of stockholders and until their successors are elected and
qualified; and Christian J. Weber, A.J. Hernandez and Albert P. Hernandez are Class III
directors and hold office until the third annual meeting of stockholders
and until their successors are elected and qualified. Thereafter, all
directors will be elected for three year terms.
There is no family relationship between any of
our directors or executive officers, except that A.J. Hernandez is the son of
Albert P. Hernandez.
Albert P. Hernandez
Chairman and Chief Executive Officer
Mr. Hernandez was born in Havana, Cuba
and emigrated to the US at age eight. He has over 40 years experience in mail
and messenger delivery services, having been involved in over 60 messenger,
courier and delivery company acquisitions. He was a pioneer in developing the
private courier and mail delivery business in Latin America, having opened his
first operation in Venezuela in 1972. From 1965 to 1978 Mr. Hernandez held
various executive positions at Choice Delivery Systems/Choice Logistics, a
US-based local messenger service operating in 40 states. Between 1978 and 1984
he started and ran Choice Air Courier, specializing in courier delivery in
Latin America. In 1985 he became President of Sky Courier International
and in 1986 became Chief Operating Officer of Sky Courier Network, with 650
employees, which was sold to Airborne Express in 1988. In 1988 he started
SkyNet Worldwide Express, which he sold to Lanlogistics, a division of Lan
Chile Airlines in 2001. He founded SkyPostal in 2002 in partnership with
Lanlogistics. In 2004, along with Holston Investments, he purchased SkyPostal
from
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Lanlogistcs.
He has a B.B.A. degree in Accounting (1972) and an M.B.A. degree in Marketing
(1975) from Iona College, New Rochelle, NY.
A.J. Hernandez Chief
Operating Officer and Director
Mr. Hernandez has been employed by
SkyPostal since 2001 and is responsible for all international operations. He
has negotiated all service provider agreements in the LAC region. Between 1993
and 2001 he developed SkyBox Services, Inc. in Latin America, a company
providing a US address facility to enable upscale Latin American residents to
receive mail, catalogues and Internet purchases via a mail warehouse facility
in Miami, Florida. He sold SkyBox to LanLogistics, a division of Lan Chile
Airlines in 2001. He was a co-founder of SkyPostal in partnership with Lan.
Along with Albert P. Hernandez, his father, he co-purchased SkyPostal from Lan
in 2004. In 1992-1993 he played professional baseball for the California
Angels. He has a B.B.A. degree in Marketing from the University of North
Florida (1992), and an M.B.A. degree in International Business from Florida
International University (1998).
Christian J. Weber Director
Europe
Sales and Service
Mr. Weber, based in London, has been
responsible for all of Sales and Service in Europe for SkyPostal since 2002.
From 1981 to 2002 he was Managing Director of SkyNet Worldwide Express and
SkyMail UK, Ltd. developing it into an £18 million company; which was sold to
Lan Chile in 2002. During his tenure, he led the UK team that developed SkyCom,
the first independently owned worldwide courier track and trace platform that
was leased on a usage fee basis to international courier companies forming the
SkyNet network. From 1978 to 1985 he was co-founder and President of Sky
Courier International, Inc Reston, Virginia which INC Magazine named as one of
the 500 fastest growing small companies in the US for 2 consecutive years. He
was founder and first President of ACCA International, the USAs first
international express and mail industry association. He was also
cofounder and director of AEEC, the Brussels based European mail and express
industry association. From 1971 to 1978 he was Director, International
Logistics for Columbia Pictures and Inflight Services. Mr. Weber has held
non executive board seats in the logistics industry in companies based in South
Africa, Hong Kong, Australia, UK, Italy and France.
Mathijs van Houweninge
Director
Mr. van Houweninge has been the Managing
Partner of Falcon Capital since 2007 and since 2005 an active investor in
Falcon. Falcon assisted the Company in its recently completed $10 million
private placement to European investors. In 1990 he started ICT, a software company,
while attending university in Utrecht, The Netherlands. The company specialized
in consultancy and software development for the financial industry. In 2000 he
sold the company to Ordina, a major software firm but continued to run the
company until 2003. Since 2003, he has been active in evaluating business
proposals of start-ups and early growth firms and has acted as a consultant to
early stage companies since 2004. He is currently a member of the board of
Cyber City, USA and a member of the Advisory Board Private Equity for Triodos,
The Netherlands.
S. David Fineman Director
Mr. Fineman, as senior partner of the law
firm Fineman, Krekstein & Harris in Philadelphia for the last 10
years, has represented a wide diversity of clients, including governmental
authorities and
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private
clients dealing with government. In 1995 he was appointed by President Bill
Clinton and confirmed by the US Senate as one of nine Governors of the U.S.
Postal Service as well as served as Chairman of the Board of Governors from
2001 to 2004. From 1999 to 2003 he was also on the Board of Directors of MDI, Inc.
(which merged with Scientific Games in May, 2003.)
From 1994 to 1998, Mr. Fineman was a
member of the Industry Policy Advisory Committee, a CEO-level committee that
advises the Secretary of Commerce and U.S. Trade Representative on
international trade, and has served on the boards of a number of private
companies and non-profit entities. He has also been selected for Whos Who in
American Law, Whos Who in Emerging Leaders in America, and in 2006 was
named a Pennsylvania Super Lawyer for his expertise in Business Litigation.
In 1991 he was selected by the Court of Common Pleas of Philadelphia County to
Serve as Judge Pro Tempore. From 1889 to 1991 he was a Member of the
Philadelphia City Planning Commission. From 1972 to 1981 he was a lecturer of
Business Law at Temple University. Mr. Fineman holds a B.A. from The
American University (1967) and a J.D. with honors from George Washington
University (1970).
Florian M. Schuhbauer
Director
Florian M. Schuhbauer holds a
Diplom-Betriebswirt degree (German MBA equivalent) in Business Administration
from the Frankfurt School of Finance and Management (the leading German
Business School for Finance and Management). In addition, he holds the German
professional degree of Bankkaufmann (Banker certified by the Hannover Chamber of
Industry and Commerce). From 1994-1999 he worked in risk management, managing a
7.5bn limit for derivatives, and in Equity Research for Dresdner Bank/Dresdner
Kleinwort Benson. He was part of the top rated Equity Research team for
European Retailers and covered companies like Metro, Arcandor (Karstadt) and
Douglas. In 1999 Mr. Schuhbauer co-founded Newtron AG, a supplier
relationship management software company where he was the Finance/IR
Director. He managed several M&A transactions and three financing rounds.
In 2000 Florian also co-founded EVP Euro Venture GmbH, a Venture Capital
Boutique. In 2002 he joined Deutsche Post AG in Corporate Development and led
the development of Deutsche Posts international mail strategy. In 2004
he became the Global Head of Strategic Business Development and M&A
International Mail and was also appointed CFO and Executive Vice President of
DHL Global Mail in the US. He assumed global responsibility for strategy
development and execution as well as for all M&A transactions and
integrations. In 2006 he founded NG Outsourcing, Inc. a consulting and
investment boutique and joined General Capital Group. He became a partner of
General Capital Group in 2008.
Jose Misrahi Director
Since 2006, Mr. Misrahi has been the
Chief Financial Officer of Facey Commodity Company Limited, a multi-national
company operating in 29 countries. He has over 27 years of extensive financial
experience with start-up, international and multi-location companies
encompassing a broad range of businesses. His background includes structured
financings, financial negotiations and banking relationships, mergers and
acquisitions, real estate and cash flow management. He has expertise in complex
international tax structuring, ad compliance, financial reporting, IT
administration, budgeting and planning, cost reduction programs and human
resource management. From 2003 to 2006, Mr. Misrahi was Managing Director
of Vaupen Financial Advisors, a boutique Investment Bank. From 1992 to 2002, he
served as Vice President, Finance for the Cisneros group of companies, a $3
billion multinational group with extensive media and communications holdings.
While at Cisneros, he led the negotiations of the $550 million acquisition of
Univision, the largest Spanish language television and station network in the
US. From 1985 to 1991, Misrahi served as Assistant Controller and head of SEC
reporting for NVF Company and Subsidiaries. The Group generated over $1 billion
in revenues and
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consisted of
three public companies and over 50 subsidiaries. From 1981 to 1985 Mr. Misrahi
was an auditor with Touché Ross & Co. in Miami, which is now part of
Deloitte & Touché. Mr. Misrahi holds a BS degree in Accounting
from the University of Miami (1980) and obtained his CPA from the State of
Florida in 1982.
Michael J.
Knorr Executive Vice President
From 2000
until he joined us in 2006, Mr. Knorr was the Executive Vice President of
Swiss Post International (USA), Inc., a wholly-owned subsidiary of Swiss
Post AG, the Swiss Post Office. In that capacity he directed all of Swiss
Posts North American business units and reported to its Chief Executive Officer. From 1995 to 2000 he was employed by Express
Messenger Systems, Inc., a 2,000 employee, Phoenix, Arizona-based express
transportation company. Prior thereto, he was employed by various companies
involved in the messenger and mail industries. He earned a B.B.A. degree from
Dowling College, New York.
Clement S.
Harary Chief Financial Officer
Mr. Harary has over 20 years
of experience in finance. He worked with
Arthur Andersen S.A. of Brazil (from1979 to 1982), General Motors Corporation
(from 1984 to 1987), Ivax Corporation (from 1989 to 1990) and United
Technologies Corporation (from 1990 to 1996).
He also served as Director, Finance, Latin America for York
International Corporation from 1996 to 1998.
From 1998 to 2001, Mr. Harary was Vice President, Finance, Latin America
and the Caribbean for Tech Data Corporation, a wholesaler of computer equipment
and supplies. In 2001 Mr. Harary started
a textile distribution company. He is a
graduate of Escola Politécnica, University of São Paulo, Brazil and holds the
equivalent of an MS in Industrial Engineering (1977) and an MBA in Finance from
The Wharton School at the University of Pennsylvania (1983).
Board of Directors and
Committees
Board
Meetings
During calendar 2007, the Board of Directors
held four meetings. Each director attended at least seventy-five percent of the
aggregate number of meetings of the Board of Directors. We expect each of our
directors to attend our Annual Meeting every year, unless extenuating
circumstances prevent their attendance.
Committees
We have Audit, Compensation and Nominating and
Governance Committees comprised of independent directors. Our Audit Committee
consists of Jose Misrahi as Chairman and S. David Fineman and Florian M.
Schuhbauer as members. Our Compensation
Committee consists of Florian M. Schuhbauer as Chairman and Jose Misrahi and
Mathijs van Houweninge as members. Our
Nominating and Governance Committee consists of S. David Fineman, Mathijs van
Houweninge and Albert Hernandez as members.
Director
Compensation
We have not paid our directors fees in the
past for attending any meetings of our Board of Directors. Each non employee
director was granted 135,000 shares of our Common Stock with vesting over two
years through June 1, 2010. We reimburse each director for reasonable
travel expenses related to such directors attendance at Board of Directors
meetings.
Director
Independence
The majority of our directors are independent
and all Committee members are independent. In determining whether our directors
are independent we are guided by the rules of the American Stock Exchange.
Our Board of Directors will also consult with counsel to ensure that the boards
determinations are consistent with AMEX rules and all relevant securities
and other laws and regulations regarding the independence of directors,
including those adopted under the Sarbanes-Oxley Act of 2002 with respect to
the independence of audit committee members. The AMEX listing standards define
an independent director generally as a person, other than an officer of a
company, who does not have a relationship with the company that would interfere
with the directors exercise of independent judgment.
Executive Compensation
For the year ended December 31, 2007, we
paid compensation to Albert P. Hernandez, A.J. Hernandez and Michael J. Knorr
of $100,000, $100,000 and $150,000, respectively. For the year ended December 31,
2006 such compensation was $100,000, $100,000 and $0, respectively. During 2006
and 2007 the Company did not compensate Messrs. Hernandez and Hernandez
the full amount due under their employment agreements and accordingly they
received an aggregate of 602,222 shares and 483,333 shares respectively in lieu
of certain salaries and benefits. No other executive officers received
compensation in excess of $100,000 for either year. No executive officers or
directors were granted stock
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options or
other forms of equity compensation in 2006 or 2007 except Albert P. Hernandez
and A.J. Hernandez in the form of stock grants in lieu of salary and none
exercised any options or received any other form of compensation in either
year.
We currently pay Albert P. Hernandez, A.J.
Hernandez, Michael J. Knorr and Clement Harary annual salaries of $200,000,
$175,000, $150,000, and $150,000 respectively. No other executive officers
receive annual compensation in excess of $100,000, although certain non-executive
employees receive compensation in excess of $100,000 annually.
We have employment agreements with Albert P.
Hernandez, A.J. Hernandez, and Clement S. Harary.
2008 Omnibus Equity Plan
In July 2008 our
stockholders approved our 2008 Omnibus Equity Plan (the 2008 Omnibus Plan) The
following is a summary of the material features of our Omnibus Plan.
Purpose
The general purpose of the Omnibus Plan is to
provide a means to enable us to (i) attract and retain personnel of
exceptional ability; (ii) to motivate such personnel through added
incentives to make a maximum contribution to greater profitability; (iii) to
develop and maintain a highly competent management team; and (iv) to be
competitive with other companies with respect to executive compensation.
Eligibility
All of our directors, executives and key
employees, as well as any other persons whose participation the Board of
Directors determines is in our best interests (collectively, the Participants),
are eligible to participate in the Omnibus Plan. There are currently
approximately 28 directors, executives, key employees, and consultants eligible
to participate in the Omnibus Plan.
Shares Subject to Award under
the Omnibus Plan
The number of authorized but unissued shares
of Common Stock reserved for issuance is 5,000,000. If any awards granted
pursuant to the Omnibus Plan expire unexercised or are forfeited, terminated,
or settled in cash in lieu of Common Stock, the shares of Common Stock
theretofore subject to such awards generally are again available for awards
under the Omnibus Plan.
Administration of the Omnibus
Plan
The Omnibus Plan is administered by a
Compensation Committee which currently consists of our Board of Directors. The
Compensation Committee is authorized to interpret, construe and administer the
Omnibus Plan and to adopt such rules, regulations and procedures of general
application for the administration of the Omnibus Plan, as it deems
appropriate.
Each
Participant receiving an award under the Omnibus Plan is required to enter into
an agreement with us that sets forth the restrictions, terms, and conditions of
the award (the Award Agreement). The Compensation Committee is also
responsible for correcting any defect or omission or reconciling any
inconsistency in the Omnibus Plan or any Award Agreement.
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Grant of Awards under the Omnibus
Plan
Participants may receive a variety of stock options
and awards under the Omnibus Plan.
Participants may purchase our Common Stock
through stock options granted to them under the Omnibus Plan. An option
entitles the optionee to purchase shares of Common Stock from us at the
exercise price designated in the option. Two types of options, incentive stock
options and non-qualified stock options, may be granted under the Omnibus Plan.
The two types of options differ primarily in the tax consequences attending the
exercise of an option and the disposition of the shares received upon exercise
of an option.
Participants also may be granted stock
appreciation rights, also known as SARs, independently of, or in relation to,
an option. Related SARs are granted in relation to a particular option and
can be exercised only upon the surrender to us, unexercised, of that portion of
the option to which the SAR relates. The exercise of an SAR entitles the
Participant to receive the excess of the fair market value of a share of
Common Stock on the date of exercise over the exercise price of the related
option.
Participants also may be awarded restricted
stock (Restricted Stock), which is Common Stock issued with the restriction
that the holder may not sell, transfer, pledge or assign such Common Stock
until the terms and conditions of the award are met.
Awards under the Omnibus Plan may also be in
the form of performance-based shares (Performance Shares), with each
performance share representing such monetary amount as is determined by the
Compensation Committee and subject to such terms and conditions as the
Compensation Committee and the Board of Directors deem appropriate.
Pursuant to the Omnibus Plan, we may also
award to a Participant (i) rights to receive shares of Common Stock at a
future time (Deferred Stock) and/or (ii) shares of Common Stock in
exchange for compensation that has been earned or that is to be earned by such
Participant (Stock Awards). A Restricted Stock Award Unit (a Unit) is one
type of Deferred Stock that the participant may be awarded pursuant to the
Omnibus Plan. A Unit entitles the holder thereof to, subject to vesting and/or
performance requirements, receive shares of Common Stock.
In addition to the awards discussed above, the
Omnibus Plan provides for the granting of other awards of Common Stock and
awards that are valued in whole or part by reference to a share of Common
Stock, including convertible preferred stock, preferred stock, convertible
debentures, exchangeable securities, phantom stock, and book value stock awards
and options, which awards may be either alone, in addition to or in tandem with
other awards permitted under the Omnibus Plan (Other Stock-Based Awards). The
Compensation Committee may recommend for Board approval conditions,
restrictions, limitations, values and other terms applicable to Other
Stock-Based Awards as it determines in its discretion.
Terms and Conditions of Awards
Options
. An option
to purchase shares of Common Stock granted under the Omnibus Plan will either (a) qualify
under Section 422 of the Code for treatment as an incentive stock option
or (b) not qualify for treatment as an incentive stock option under Section 422
of the Code (a non-qualified option). An option may be granted alone or in
addition to any other award under the Omnibus Plan and may be subject to a
periodic vesting schedule. The Compensation Committee will recommend and the
will approve
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Participants
to whom options will be granted, whether an option is an incentive stock option
or a non-qualified stock option, the number of shares of Common Stock subject
to each grant. All options granted under the Plan are subject to the applicable
provisions of the Plan and the applicable Award Agreement and to such other
provisions as the Compensation Committee and Board of Directors may adopt.
By law, incentive stock options may only be
granted to employees of the Company. No Participant may be granted incentive
stock options (under the Omnibus Plan and any other equity plan of the Company)
that are first exerciseable in any calendar year for Common Stock having an
aggregate fair market value (determined as of the date that the incentive stock
option was granted) in excess of $100,000 and the limitations prescribed by Section 422(d) of
the Code. The preceding annual limitation does not apply with respect to
non-qualified stock options.
Subject to certain restrictions, the
Compensation Committee recommends to the Board of Directors for its approval
the exercise prices, expiration dates and other material conditions relating to
options awarded under the Omnibus Plan. For example, the option price of an
incentive stock option may not be less than the Fair Market Value (as such
term is defined in the Omnibus Plan) on the date the option is granted. It is
our policy to set the exercise price of any option grant at the closing price
of our Common Stock on the AMEX on the day preceding the grant date. In
addition, in the case of an incentive stock option granted to a Participant who
is a Ten Percent Stockholder (as such term is defined below), the option
price may not be less than 110% of Fair Market Value on the date the option is
granted. The term of an option will be such period of time as is fixed at the
time of grant subject to the following limitations: (a) the term of an
incentive stock option may not exceed ten years after the date of grant and (b) the
term of an incentive stock option granted to a Ten Percent Stockholder may not
exceed five years. The term will be described in the applicable Award
Agreement.
An option may be exercised by giving written
notice of exercise to us specifying the number of shares to be purchased. Such
notice must be accompanied by payment in full of the exercise price in cash or
if permitted by the terms of the governing Award Agreement by delivery of (a) a
fully-secured, recourse promissory note or (b) shares of Common Stock
already owned by the Participant. In its discretion, the Compensation
Committee and the Board of Directors also may permit Participants to
simultaneously exercise an option, sell all or some of the shares of the Common
Stock thereby acquired, and use the proceeds from such sale for payment of the
exercise price.
Upon the termination of a Participants
employment, vested options will remain exerciseable for the period as may be
specified by the Compensation Committee or in the Award Agreement.
Notwithstanding the foregoing, pursuant to the terms of the Omnibus Plan, in
the event a Participants employment is terminated for any reason other than
disability, retirement or death, the exercise period cannot exceed three months
following termination and, in the event a Participants employment is
terminated for disability or retirement, the exercise period cannot exceed one
year following termination.
Stock Appreciation Rights
. Awards of
SARs may be made by the Compensation Committee and the Board of Directors under
the Omnibus Plan in conjunction with awards of options (a Related SAR) or
independent of any related option (an Independent SAR). An Independent SAR is
a right to receive an amount payable either in Common Stock and/or cash equal
to the appreciation in the Fair Market Value of our Common Stock for a
predetermined number of shares over the period designated in the Award
Agreement. The terms and conditions for such a SAR and its exercise (including,
among other things, a Participants right to exercise the SAR upon termination)
are determined by the Board of Directors upon the recommendation of the
Compensation Committee and will be set out in the Award Agreement. A
Related SAR entitles the Participant to surrender the related option and
receive in exchange therefor a payment in cash or shares of Common Stock having
an aggregate value equal to the
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amount by
which the Fair Market Value on the day of surrender exceeds the exercise price
of the option multiplied by the number of shares acquirable under the
surrendered option. A Related SAR is subject to the same terms and conditions
as the related option and is vested and exerciseable only if the option is
vested and exerciseable.
Restricted Stock
. Awards
under the Omnibus Plan may be in the form of Restricted Stock. Restricted Stock
may be granted along or in addition to any other award under the Omnibus Plan.
The Board of Directors, upon the recommendation of the Compensation Committee,
shall determine the number of shares of Restricted Stock to be granted and may
impose different terms and conditions on any particular grant. In consideration
with each grant, the Compensation Committee shall recommend and the Board of
Directors shall determine: the purchase price, if any, to be paid for the
Restricted Stock, the length of the restriction period, any service or
performance restrictions applicable to the Restricted Stock, the schedule pursuant
to which restrictions shall lapse, and if dividends or other distributions on
the Restricted Stock are to be paid currently to the Participant or for the
account of the Participant, subject to certain conditions.
Performance Shares
.
Awards under the Omnibus Plan may be in the form of Performance Shares,
including a requirement that the Participant forfeit such Performance Shares in
the event certain performance criteria are not met within a designated period
of time. Performance Shares may be granted alone or in addition to any other
award under the Omnibus Plan. The Board of Directors, upon the recommendation
of the Compensation Committee, determines the number of Performance
Shares to be granted to a Participant. The Compensation Committee may recommend
and the Board of Directors may impose different terms and conditions on any
particular Performance Shares granted to any Participant. Participants
receiving grants of Performance Shares will only earn into and be entitled to
payment in respect of such awards if we and the Participant achieve certain
performance goals (the Performance Goals) during and in respect of a
designated performance period (the Performance Period). The Performance Goals
and the Performance Period are established by the Compensation Committee and
the Board of Directors.
Deferred Stock
. Awards of
Deferred Stock, including Units, may be made pursuant to the Omnibus Plan.
Deferred Stock awards may contain such conditions as to vesting, the purchase
price (if any) payable by the Participant, forfeiture, performance goals and
other terms as the Compensation Committee recommends and Board of Directors
determines. Deferred Stock may be granted alone or in addition to any other
award under the Omnibus Plan. In general, upon the close of the deferral period
specified in the Deferred Stock Award Agreement, the vested shares of Common
Stock subject to the Agreement are issued to the Participant. The remaining
shares, if any, awarded will either be forfeited or will continue to be subject
to the terms and conditions set by the Compensation Committee and Board of
Directors, as applicable. Among the types of Deferred Stock awards that may be
made under the Omnibus Plan are Units. In general, a Unit represents a right to
receive one share of Common Stock once any applicable vesting or other
conditions or restrictions for the unit are met. This is similar to a
Restricted Stock Award, except that the underlying shares of Common Stock are
not issued to the Participant until all conditions for payment have been met.
Other Stock Awards
. The Omnibus
Plan also provides for Stock Awards. The value of a Stock Award is determined
by multiplying the number of shares awarded by the Fair Market Value of a share
of Common Stock on the day of the award. The Compensation Committee and the Board
of Directors may establish such conditions, restrictions and limitations on
Stock Award as it determines in its sole discretion, and may cause a Stock
Award at such time as the value represented thereby is to be paid to a
Participant to be paid in cash or in the number of shares of Common Stock equal
to such value divided by the Fair Market Value of a share on the date of
payment.
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Suspension,
Termination and Amendment of the Omnibus Plan
The Board of
Directors, upon recommendation of the Compensation Committee or otherwise, may
amend or terminate the Omnibus Plan, at any time and from time to time, in such
respects as the Board of Directors may deem advisable, subject to the
limitations that:
·
No such
termination or amendment may be effected after the date of an occurrence of a change
in control if the result would be to impair the rights of any Participant with
respect to an outstanding award made to him or her;
·
No such
amendment may, without stockholder approval:
·
Alter the
group of persons eligible to be Participants;
·
Subject to
limited exceptions, materially increase the number of shares of Common Stock
available for the issuance of awards under the Omnibus Plan;
·
Extend the
period during which incentive stock options may be granted under the Omnibus
Plan;
·
Limit or
restrict the powers of the Board of Directors with respect to the
administration of the Omnibus Plan; or
·
Modify the
requirement of stockholder approval with respect to the foregoing amendments;
and
·
No amendment
to or discontinuance of the Omnibus Plan or any provision thereof by the board
or the stockholders shall, without the written consent of the Participant,
adversely affect any award previously granted to the Participant, except for
the cancellation or forfeiture of awards if the Participant is terminated for
cause or competes against us or any of our subsidiaries.
Federal Income
Tax Consequences
The following
discussion summarizes our understanding of the more significant federal income
tax consequences associated with options granted under the Omnibus Plan. The
tax consequences of receipt of any award under the Omnibus Plan may vary
depending upon the particular circumstances and it should be noted that the
income tax laws, regulations and interpretations thereof change frequently.
Participants should rely upon their own tax consultants for advice concerning
the specific tax consequences applicable to them.
Incentive Stock Options
.
The grant of an incentive stock option
will not be a taxable event for the Participant or for us. A Participant will
not recognize taxable income upon exercise of an incentive stock option (except
that the alternative minimum tax may apply), and any gain realized upon a
disposition of our Common Stock received pursuant to the exercise of an
incentive stock option will be taxed as long-term capital gain if the
Participant holds the shares of Common Stock for at least two years after the
date of grant and for one year after the date of exercise (the Holding Period
Requirement). We will not be entitled to any business expense deduction
with respect to the exercise of an incentive stock option, except as discussed
below.
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For the exercise of
an option to qualify for the foregoing tax treatment, the Participant generally
must be our employee or an employee of one of our subsidiaries from the date
the option is granted through a date within three months before the date of
exercise of the option.
If all of the
foregoing requirements are met except the Holding Period Requirement, the
Participant will recognize ordinary income upon the disposition of the Common
Stock in an amount generally equal to the excess of the fair market value of
the Common Stock at the time the option was exercised over the option exercise
price (but not in excess of the gain realized on the sale). The balance
of the realized gain, if any, will be capital gain. We will be allowed a
business expense deduction to the extent the grantee recognizes ordinary
income, subject to our compliance with Section 162(m) of the Internal
Revenue Code of 1984, as amended (the Code) and to certain reporting
requirements.
Non-Qualified
Options
.
The grant of a non-qualified option will not
be a taxable event for the Participant or us. Upon exercising a
non-qualified option, a Participant will recognize ordinary income in an amount
equal to the difference between the exercise price and the fair market value of
the Common Stock on the date of exercise. Upon a subsequent sale or exchange of
shares acquired pursuant to the exercise of a non-qualified option, the
Participant will have taxable capital gain or loss, measured by the difference
between the amount realized on the disposition and the tax basis of the shares
of Common Stock (generally, the amount paid for the shares plus the amount
treated as ordinary income at the time the option was exercised).
If we comply with
applicable reporting requirements and with the restrictions of Section 162(m) of
the Internal Revenue Code, we will be entitled to a business expense deduction
in the same amount and generally at the same time as the Participant recognizes
ordinary income.
A Participant who
has transferred a non-qualified stock option to a family member by gift will
realize taxable income at the time the non-qualified stock option is exercised
by the family member. The Participant will be subject to withholding of income
and employment taxes at that time. The family members tax basis in the shares
of Common Stock will be the fair market value of the shares of Common Stock on
the date the option is exercised. The transfer of vested non-qualified stock
options will be treated as a completed gift for gift and estate tax purposes.
Once the gift is completed, neither the transferred options nor the shares
acquired on exercise of the transferred options will be includable in the
Participants estate for estate tax purposes.
In the event a
Participant transfers a non-qualified stock option to his or her ex-spouse
incident to the Participants divorce, neither the Participant nor the
ex-spouse will recognize any taxable income at the time of the transfer. In
general, a transfer is made incident to divorce if the transfer occurs within
one year after the marriage ends or if it is related to the end of the marriage
(for example, if the transfer is made pursuant to a divorce order or settlement
agreement). Upon the subsequent exercise of such option by the ex-spouse,
the ex-spouse will recognize taxable income in an amount equal to the
difference between the exercise price and the fair market value of the shares
of Common Stock at the time of exercise. Any distribution to the ex-spouse as a
result of the exercise of the option will be subject to employment and income
tax withholding at this time.
Stock Appreciation
Rights
.
There are no immediate tax consequences of
receiving an award of a SAR under the Omnibus Plan. Upon exercising a SAR, a
Participant will recognize ordinary income in an amount equal to the difference
between the exercise price and the fair market value of the Common Stock on the
date of exercise. If we comply with applicable reporting requirements and with
the restrictions of
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Section 162(m) of
the Code, we will be entitled to a business expense deduction in the same
amount and generally at the same time as the Participant recognizes ordinary
income.
Restricted Stock
.
A Participant who is awarded Restricted Stock will not recognize any
taxable income for federal income tax purposes in the year of the award,
provided that the shares of Common Stock are subject to restrictions (that is,
the restricted stock is nontransferable and subject to a substantial risk of
forfeiture). However, the Participant may elect under Section 83(b) of
the Code to recognize compensation income in the year of the award in an amount
equal to the fair market value of the Common Stock on the date of the award
(less the purchase price, if any), determined without regard to the
restrictions. If the Participant does not make such a Section 83(b) election,
the fair market value of the Common Stock on the date the restrictions lapse
(less the purchase price, if any) will be treated as compensation income to the
Participant and will be taxable in the year the restrictions lapse and
dividends paid while the Common Stock is subject to restrictions will be
subject to withholding taxes. If we comply with applicable reporting
requirements and with the restrictions of Section 162(m) of the Code,
we will be entitled to a business expense deduction in the same amount and
generally at the same time as the Participant recognizes ordinary income.
Performance Shares
.
The payment of an award of Performance Shares is taxable to a
Participant as ordinary income. If we comply with applicable reporting
requirements and with the restrictions of Section 162(m) of the Code,
we will be entitled to a business expense deduction in the same amount and
generally at the same time as the Participant recognizes ordinary income.
Deferred Stock
. There
are no immediate tax consequences of receiving an award of Deferred Stock under
the Omnibus Plan. A Participant who is awarded Deferred Stock Units will
be required to recognize ordinary income in an amount equal to the fair market
value of shares issued to such Participant at the end of the restriction period
or, if later, the payment date. If we comply with applicable reporting
requirements and with the restrictions of Section 162(m) of the Code,
we will be entitled to a business expense deduction in the same amount and
generally at the same time as the Participant recognizes ordinary income.
Other Stock Awards
.
Participants who are awarded unrestricted Common Stock will be
required to recognize ordinary income in an amount equal to the fair market
value of the shares of Common Stock on the date of the award, reduced by the
amount, if any, paid for such shares. If we company with applicable reporting
requirements and with the restrictions of Section 162(m) of the Code,
we will be entitled to a business expense deduction in the same amount and
generally at the same time as the Participant recognizes ordinary income.
Section 280(G).
To the
extent payments that are contingent on a change in control are determined to
exceed certain Code limitations, they may be subject to a 20% nondeductible
excise tax and our deduction with respect to the associated compensation
expense may be disallowed in whole or in part.
Section 409A
.
We intend for awards granted under the plan to comply with Section 409A
of the Code. To the extent a Participant would be subject to the additional 20%
excise tax imposed on certain nonqualified deferred compensation plans as a
result of a provision of an award under the plan, the provision will be deemed
amended to the minimum extent necessary to avoid application of the 20% excise
tax.
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Restrictions on
Resale
Shares of Common
Stock acquired by Participants pursuant to the Omnibus Plan may be resold only
in compliance with the registration requirements of the Securities Act of 1933,
as amended, and applicable state securities laws. We intend to file a
Registration Statement on Form S-8 registering all of the shares of Common
Stock underlying outstanding options granted pursuant to the Omnibus Plan and
those shares reserved for issuance under awards to be granted pursuant to the
Omnibus Plan.
Liability
and Indemnification of Officers and Directors
Our Articles of Incorporation provide that liability
of directors to us for monetary damages is eliminated to the full extent
provided by Nevada law. Under Nevada law, a director is not personally liable
to us or our stockholders for monetary damages for breach of fiduciary duty as
a director except for liability (i) for any breach of the directors duty of
loyalty to us or our stockholders; (ii) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law; (iii) for
authorizing the unlawful payment of a dividend or other distribution on our
capital stock or the unlawful purchases of our capital stock; (iv) a
violation of Nevada law with respect to conflicts of interest by directors; or (v) for
any transaction from which the director derived any improper personal benefit.
The effect of this provision in our Articles of
Incorporation is to eliminate our rights and our stockholders rights (through
stockholders derivative suits) to recover monetary damages from a director for
breach of the fiduciary duty of care as a director (including any breach
resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (v) above. This provision
does not limit or eliminate our rights or the rights of our security holders to
seek non-monetary relief, such as an injunction or rescission, in the event of
a breach of a directors duty of care or any liability for violation of the
federal securities laws.
Insofar as indemnification for liabilities arising
under the Act may be permitted to our directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
SECURITY OWNERSHIP OF EXECUTIVE
OFFICERS, DIRECTORS
AND
BENEFICIAL OWNERS OF GREATER THAN 5% OF OUR COMMON STOCK
As of August 31,
2008, there were 55,944,664 shares of Common Stock outstanding. The following
table sets forth certain information regarding the beneficial ownership of the
outstanding shares as of August 31, 2008 by (i) each person who is
known by us to own beneficially more than 5% of our outstanding Common Stock; (ii) each
of our executive officers and directors; and (iii) all of our executive
officers and directors as a group. Except as otherwise indicated, each such
person has investment and voting power with respect to such shares, subject to
community property laws where applicable. The address of our executive officers
and directors is in care of us at 7805
NW 15th Street, Miami, FL 33126.
Name of Holder
|
|
Number of Shares
of Common Stock
|
|
Percent Owned
of Common Stock
|
|
|
|
|
|
|
|
Albert P. Hernandez
|
|
3,907,851
|
|
7.0
|
%
|
|
|
|
|
|
|
A. J. Hernandez
|
|
3,886,058
|
|
6.8
|
%
|
|
|
|
|
|
|
Michael J. Knorr
|
|
0
|
(1)
|
0
|
%
|
37
Table of Contents
Name of Holder
|
|
Number of Shares
of Common Stock
|
|
Percent Owned
of Common Stock
|
|
|
|
|
|
|
|
Clement S. Harary
|
|
0
|
(1)
|
0
|
%
|
|
|
|
|
|
|
Christian J. Weber
|
|
300,000
|
|
*
|
%
|
|
|
|
|
|
|
Jose Misrahi
|
|
0
|
(2)
|
0
|
%
|
|
|
|
|
|
|
S. David Fineman
|
|
0
|
(2)
|
0
|
%
|
|
|
|
|
|
|
Florian M. Schuhbauer
|
|
0
|
(2)
|
0
|
%
|
|
|
|
|
|
|
Mathijs van Houweninge
|
|
0
|
(2)
|
0
|
%
|
|
|
|
|
|
|
Holston Investments, BVI
|
|
7,626,780
|
|
13.6
|
%
|
|
|
|
|
|
|
All executive officers and
directors as a group (nine individuals)
|
|
8,093,909
|
|
14.5
|
%
|
* Less than 1%
(1)
We
have granted a stock bonus to Messrs. Knorr and Harary of 300,000 shares
each, which will vest over a two-year period. No such shares have yet vested.
(2)
Does
not include a stock bonus of 135,000 shares granted to these individuals which
will vest over a two-year period. No such shares have yet vested.
38
Table of Contents
SELLING STOCKHOLDERS AND PLAN OF
DISTRIBUTION
As of August 31, 2008, we had outstanding
55,944,664 shares of Common Stock. We are registering by this prospectus an
aggregate of 29,661,177 shares of Common Stock. The following table sets forth
the names of the selling stockholders, the number of shares of our Common Stock
and common stock issuable upon conversion of convertible debt instruments held
by each selling stockholder and certain other information. The selling
stockholders listed below are offering for sale all shares listed following
their names. None of the selling stockholders is required to sell any of their
shares at any time.
The
shares may be offered from time to time by the selling stockholders. Since the
selling stockholders may sell all or part of the shares of Common Stock offered
in this prospectus, we cannot estimate the number of shares of our Common Stock
that will be held by the selling stockholders upon termination of this offering.
None
of our selling stockholders are officers, directors or 10% or greater
stockholders. None of our selling stockholders are broker-dealers or affiliates
of broker-dealers, and none of the selling stockholders has or had any material
relationship with us except Falcon Capital, a London, England-based
broker-dealer. Falcon Capital is not a member of FINRA.
Name of Stockholder
|
|
Shares of
Common Stock
Owned
|
|
Percentage of
Outstanding
Common
Stock Owned
|
|
Shares of
Common
Stock Offered
for Sale
|
|
Percentage of
Common
Stock Owned
After Sale
|
|
A.J. Hodgkinson
|
|
30,000
|
|
0.1
|
%
|
30,000
|
|
|
|
Adrian Cox
|
|
100,000
|
|
0.2
|
%
|
100,000
|
|
|
|
Adriene Josephson
|
|
114,285
|
|
0.2
|
%
|
114,285
|
|
|
|
Alaister D. McMahon
|
|
20,000
|
|
0.0
|
%
|
20,000
|
|
|
|
Allan Lipton
|
|
60,417
|
|
0.1
|
%
|
60,417
|
|
|
|
Amado Cabrera
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Ana Parafinczuk
|
|
30,000
|
|
0.1
|
%
|
30,000
|
|
|
|
Andrew Barrett
|
|
47,685
|
|
0.1
|
%
|
47,685
|
|
|
|
Andrew Wall I
|
|
20,000
|
|
0.0
|
%
|
20,000
|
|
|
|
Andrew Wall II
|
|
20,000
|
|
0.0
|
%
|
20,000
|
|
|
|
Annabelle Small
|
|
40,000
|
|
0.1
|
%
|
40,000
|
|
|
|
Anne Walker
|
|
60,000
|
|
0.1
|
%
|
60,000
|
|
|
|
Ardis Heiman
|
|
114,285
|
|
0.2
|
%
|
114,285
|
|
|
|
Arun Nagwaney
|
|
50,000
|
|
0.1
|
%
|
50,000
|
|
|
|
B. Bradley
|
|
107,891
|
|
0.2
|
%
|
107,891
|
|
|
|
Berthe Milton/ACH
|
|
1,019,108
|
|
1.8
|
%
|
1,019,108
|
|
|
|
Brian Perry
|
|
20,000
|
|
0.0
|
%
|
20,000
|
|
|
|
Brian Withington
|
|
40,000
|
|
0.1
|
%
|
40,000
|
|
|
|
Calum Cameron
|
|
90,000
|
|
0.2
|
%
|
90,000
|
|
|
|
Capelin Financial Mgmt
|
|
50,000
|
|
0.1
|
%
|
50,000
|
|
|
|
Carol Haworth
|
|
500,000
|
|
0.9
|
%
|
500,000
|
|
|
|
Charles Malcolm Hyde
|
|
80,000
|
|
0.1
|
%
|
80,000
|
|
|
|
Charles Wyley
|
|
40,000
|
|
0.1
|
%
|
40,000
|
|
|
|
Christopher Sheasby
|
|
64,000
|
|
0.1
|
%
|
64,000
|
|
|
|
39
Table of Contents
Name of Stockholder
|
|
Shares of
Common Stock
Owned
|
|
Percentage of
Outstanding
Common
Stock Owned
|
|
Shares of
Common
Stock Offered
for Sale
|
|
Percentage of
Common
Stock Owned
After Sale
|
|
CJW Walford
|
|
100,000
|
|
0.2
|
%
|
100,000
|
|
|
|
Clive Collins
|
|
190,873
|
|
0.3
|
%
|
190,873
|
|
|
|
Cross
|
|
107,891
|
|
0.2
|
%
|
107,891
|
|
|
|
Cumberland
|
|
43,157
|
|
0.1
|
%
|
43,157
|
|
|
|
Damian Hamill
|
|
17,508
|
|
0.0
|
%
|
17,508
|
|
|
|
David Barker
|
|
500,000
|
|
0.9
|
%
|
500,000
|
|
|
|
David Buchanan
|
|
50,000
|
|
0.1
|
%
|
50,000
|
|
|
|
David Clews
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
David Gilmour
|
|
80,000
|
|
0.1
|
%
|
80,000
|
|
|
|
David Kopecek
|
|
10,000
|
|
0.0
|
%
|
10,000
|
|
|
|
Derek Capelin
|
|
50,000
|
|
0.1
|
%
|
50,000
|
|
|
|
Desmond Green
|
|
323,674
|
|
0.6
|
%
|
323,674
|
|
|
|
Desmond Shekleton
|
|
60,000
|
|
0.1
|
%
|
60,000
|
|
|
|
Eamon Blaney
|
|
456,686
|
|
0.8
|
%
|
456,686
|
|
|
|
Eddy Vermier
|
|
150,000
|
|
0.3
|
%
|
150,000
|
|
|
|
Ensa Foundation
|
|
22,461
|
|
0.0
|
%
|
22,461
|
|
|
|
Ernest Morrison
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Eugewe OReilly
|
|
45,948
|
|
0.1
|
%
|
45,948
|
|
|
|
Falcon Capital, Ltd
|
|
1,000,000
|
|
1.8
|
%
|
1,000,000
|
|
|
|
Fergus Murphy
|
|
300,000
|
|
0.5
|
%
|
300,000
|
|
|
|
Florian Daniels
|
|
50,000
|
|
0.1
|
%
|
50,000
|
|
|
|
Gary Hawkins
|
|
400,000
|
|
0.7
|
%
|
400,000
|
|
|
|
Geoff and Helen Liberman
|
|
400,000
|
|
0.7
|
%
|
400,000
|
|
|
|
Geoff Haworth
|
|
2,000,000
|
|
3.6
|
%
|
2,000,000
|
|
|
|
George Blackwell
|
|
52,773
|
|
0.1
|
%
|
52,773
|
|
|
|
George Robinson
|
|
362,778
|
|
0.6
|
%
|
362,778
|
|
|
|
Gert Vanoppen
|
|
40,000
|
|
0.1
|
%
|
40,000
|
|
|
|
Graham Bird
|
|
1,000,000
|
|
1.8
|
%
|
1,000,000
|
|
|
|
Gustiaman Deru
|
|
1,200,000
|
|
2.1
|
%
|
1,200,000
|
|
|
|
Guy Feld
|
|
43,157
|
|
0.1
|
%
|
43,157
|
|
|
|
Hamish D. Reid
|
|
30,000
|
|
0.1
|
%
|
30,000
|
|
|
|
Hannu Peltarri
|
|
20,000
|
|
0.0
|
%
|
20,000
|
|
|
|
Henk Terbraack
|
|
75,000
|
|
0.1
|
%
|
75,000
|
|
|
|
Hilary Shekleton
|
|
60,000
|
|
0.1
|
%
|
60,000
|
|
|
|
Hornbuckle Mitchell Trustees-JW Herbert
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Hornbuckle Mitchell Trustees-Richard Best
|
|
50,000
|
|
0.1
|
%
|
50,000
|
|
|
|
Iain Morgan
|
|
20,000
|
|
0.0
|
%
|
20,000
|
|
|
|
Ian Bundock
|
|
17,000
|
|
0.0
|
%
|
17,000
|
|
|
|
Ian Fletcher
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Irwin Kudman
|
|
202,410
|
|
0.4
|
%
|
202,410
|
|
|
|
40
Table of Contents
Name of Stockholder
|
|
Shares of
Common Stock
Owned
|
|
Percentage of
Outstanding
Common
Stock Owned
|
|
Shares of
Common
Stock Offered
for Sale
|
|
Percentage of
Common
Stock Owned
After Sale
|
|
J. Cran
|
|
43,157
|
|
0.1
|
%
|
43,157
|
|
|
|
J. L. Galliers
|
|
40,000
|
|
0.1
|
%
|
40,000
|
|
|
|
Jan Kees Lampe
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Jean Pierre Vanden Broeck
|
|
20,000
|
|
0.0
|
%
|
20,000
|
|
|
|
Jeanette Bradley
|
|
20,000
|
|
0.0
|
%
|
20,000
|
|
|
|
Jeremy Dale
|
|
20,000
|
|
0.0
|
%
|
20,000
|
|
|
|
Joad
|
|
86,313
|
|
0.2
|
%
|
86,313
|
|
|
|
Joanne Holland
|
|
100,000
|
|
0.2
|
%
|
100,000
|
|
|
|
John Garvey
|
|
50,000
|
|
0.1
|
%
|
50,000
|
|
|
|
John Howland Jackson
|
|
400,000
|
|
0.7
|
%
|
400,000
|
|
|
|
Jonathan Landsberg
|
|
90,000
|
|
0.2
|
%
|
90,000
|
|
|
|
Jonathan Lawson Brown
|
|
140,000
|
|
0.3
|
%
|
140,000
|
|
|
|
Jonathan Reed
|
|
40,000
|
|
0.1
|
%
|
40,000
|
|
|
|
Joshua Z. Tabin
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Keith Young
|
|
12,000
|
|
0.0
|
%
|
12,000
|
|
|
|
Kevin Blaney
|
|
12,478
|
|
0.0
|
%
|
12,478
|
|
|
|
Kevin Jones
|
|
120,000
|
|
0.2
|
%
|
120,000
|
|
|
|
Kevin McLeod
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Killian OReilly
|
|
15,000
|
|
0.0
|
%
|
15,000
|
|
|
|
King Consultants Pension Scheme
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Leo Burghouwt
|
|
100,000
|
|
0.2
|
%
|
100,000
|
|
|
|
Louis Latour
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Lucy Barker
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Malcolm John Lanyon
|
|
50,000
|
|
0.1
|
%
|
50,000
|
|
|
|
Marc Cass
|
|
100,000
|
|
0.2
|
%
|
100,000
|
|
|
|
Martin John Knott
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Martin Lawrence
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Martyn Gannicott
|
|
100,000
|
|
0.2
|
%
|
100,000
|
|
|
|
Mary Quinn
|
|
32,000
|
|
0.1
|
%
|
32,000
|
|
|
|
Matthew Hall
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Michael Chamier
|
|
20,000
|
|
0.0
|
%
|
20,000
|
|
|
|
Mikael Sidenius (Internet Mgmt)
|
|
100,000
|
|
0.2
|
%
|
100,000
|
|
|
|
Mike Browne
|
|
230,000
|
|
0.4
|
%
|
230,000
|
|
|
|
Mimoun Amagir
|
|
30,000
|
|
0.1
|
%
|
30,000
|
|
|
|
Mr & Mrs Withey
|
|
18,717
|
|
0.0
|
%
|
18,717
|
|
|
|
Mrs H. Rose
|
|
21,213
|
|
0.0
|
%
|
21,213
|
|
|
|
Nathan Plowman
|
|
20,000
|
|
0.0
|
%
|
20,000
|
|
|
|
NG Atkinson (Denton Trustees)
|
|
150,000
|
|
0.3
|
%
|
150,000
|
|
|
|
Nigel Patrick & Jennifer Wisden
|
|
400,000
|
|
0.7
|
%
|
400,000
|
|
|
|
Onyechinaedu N. Igwe
|
|
400,000
|
|
0.7
|
%
|
400,000
|
|
|
|
41
Table of Contents
Name of Stockholder
|
|
Shares of
Common Stock
Owned
|
|
Percentage of
Outstanding
Common
Stock Owned
|
|
Shares of
Common
Stock Offered
for Sale
|
|
Percentage of
Common
Stock Owned
After Sale
|
|
P.A. Ives
|
|
17,000
|
|
0.0
|
%
|
17,000
|
|
|
|
Patricia Diedre Barrett
|
|
9,894
|
|
0.0
|
%
|
9,894
|
|
|
|
Paul Blaney
|
|
126,148
|
|
0.2
|
%
|
126,148
|
|
|
|
Paul Bratby
|
|
40,000
|
|
0.1
|
%
|
40,000
|
|
|
|
Paul Coker
|
|
50,000
|
|
0.1
|
%
|
50,000
|
|
|
|
Paul Francis Hollowday
|
|
400,000
|
|
0.7
|
%
|
400,000
|
|
|
|
Penelope Gibson
|
|
40,000
|
|
0.1
|
%
|
40,000
|
|
|
|
Penrith Consultants Ltd
|
|
155,976
|
|
0.3
|
%
|
155,976
|
|
|
|
Peter Blaney
|
|
199,132
|
|
0.4
|
%
|
199,132
|
|
|
|
Peter Callahan
|
|
100,000
|
|
0.2
|
%
|
100,000
|
|
|
|
Peter Motion
|
|
50,000
|
|
0.1
|
%
|
50,000
|
|
|
|
Peter Mullen
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Philip Oliver Tracy
|
|
500,000
|
|
0.9
|
%
|
500,000
|
|
|
|
Phillip Martin Davis
|
|
50,000
|
|
0.1
|
%
|
50,000
|
|
|
|
Pierce Buxton
|
|
50,000
|
|
0.1
|
%
|
50,000
|
|
|
|
Rachid Stitou Laarossi
|
|
30,000
|
|
0.1
|
%
|
30,000
|
|
|
|
Rashalter Breack
|
|
50,000
|
|
0.1
|
%
|
50,000
|
|
|
|
Ray Ellen Yarkin
|
|
60,417
|
|
0.1
|
%
|
60,417
|
|
|
|
Ray Pettitt
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Regent Capital Trust (Jon Cook)
|
|
50,000
|
|
0.1
|
%
|
50,000
|
|
|
|
Richard Bradford
|
|
500,000
|
|
0.9
|
%
|
500,000
|
|
|
|
Richard Coombs
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Richard De Basto
|
|
400,000
|
|
0.7
|
%
|
400,000
|
|
|
|
Richard Goulden
|
|
20,000
|
|
0.0
|
%
|
20,000
|
|
|
|
Richard Penny
|
|
107,891
|
|
0.2
|
%
|
107,891
|
|
|
|
Rob Carrozzo
|
|
158,940
|
|
0.3
|
%
|
158,940
|
|
|
|
Roberto Sepulveda
|
|
28,000
|
|
0.1
|
%
|
28,000
|
|
|
|
Robyn Bunting
|
|
400,000
|
|
0.7
|
%
|
400,000
|
|
|
|
Roger Powdrill
|
|
20,000
|
|
0.0
|
%
|
20,000
|
|
|
|
Ross Hyett Giltspur
|
|
100,000
|
|
0.2
|
%
|
100,000
|
|
|
|
Sarah Wild
|
|
30,000
|
|
0.1
|
%
|
30,000
|
|
|
|
Scott Sullivan
|
|
400,000
|
|
0.7
|
%
|
400,000
|
|
|
|
Sean Cunial
|
|
30,000
|
|
0.1
|
%
|
30,000
|
|
|
|
Simon Lofthouse - Denton Trustees
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Simone Smith
|
|
100,000
|
|
0.2
|
%
|
100,000
|
|
|
|
SRPE Fund One, LLP (Heidi Hsueh, Manager)
|
|
2,548,864
|
|
4.6
|
%
|
2,548,864
|
|
|
|
Stephen Block
|
|
20,000
|
|
0.0
|
%
|
20,000
|
|
|
|
Steve Drury
|
|
100,000
|
|
0.2
|
%
|
100,000
|
|
|
|
Steven Minkey
|
|
36,000
|
|
0.1
|
%
|
36,000
|
|
|
|
Stuart Canwell
|
|
100,000
|
|
0.2
|
%
|
100,000
|
|
|
|
Susan Keeble
|
|
40,000
|
|
0.1
|
%
|
40,000
|
|
|
|
Tachion Projects, Inc. (Carl Kruse)
|
|
428,571
|
|
0.8
|
%
|
428,571
|
|
|
|
42
Table of Contents
Name of Stockholder
|
|
Shares of
Common Stock
Owned
|
|
Percentage of
Outstanding
Common
Stock Owned
|
|
Shares of
Common
Stock Offered
for Sale
|
|
Percentage of
Common
Stock Owned
After Sale
|
|
Tarquin
|
|
86,313
|
|
0.2
|
%
|
86,313
|
|
|
|
Tech Invest (Connor McCarthy, Manager)
|
|
641,773
|
|
1.1
|
%
|
641,773
|
|
|
|
Thomas Bull
|
|
155,976
|
|
0.3
|
%
|
155,976
|
|
|
|
Thomas Hughes
|
|
60,417
|
|
0.1
|
%
|
60,417
|
|
|
|
Torben Maersk
|
|
1,300,000
|
|
2.3
|
%
|
1,300,000
|
|
|
|
Warwick Ellis
|
|
40,000
|
|
0.1
|
%
|
40,000
|
|
|
|
William Gore
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
William James Farrant
|
|
400,000
|
|
0.7
|
%
|
400,000
|
|
|
|
William James Farrant (Denton Trustees)
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Zoe Turner
|
|
200,000
|
|
0.4
|
%
|
200,000
|
|
|
|
Total
|
|
29,661,177
|
|
54.3
|
%
|
29,661,177
|
|
|
|
In
the event that we permit or cause this prospectus to lapse, the selling
stockholders may only sell shares of our Common Stock pursuant to Rule 144
under the Securities Act of 1933. The selling stockholders will have the sole
and absolute discretion not to accept any purchase offer or make any sale of
these shares of our Common Stock if they deem the purchase price to be
unsatisfactory at any particular time.
The
selling stockholders may also sell these shares of our Common Stock directly to
market makers and/or broker-dealers acting as agents for their customers. These
broker-dealers may receive compensation in the form of discounts, concessions
or commissions from the selling stockholders and/or the purchasers of these
shares of our Common Stock for whom such broker-dealers may act as agents. As
to a particular broker-dealer, this compensation might be in excess of
customary commissions. Market makers and block purchasers purchasing these
shares of our Common Stock may do so for their own account and at their own
risk. It is possible that a selling stockholder will attempt to sell shares of
our Common Stock in block transactions to market makers or other purchasers at
a price per share which may be below the prevailing market price of our Common
Stock. There can be no assurance that all or any of these shares of our Common
Stock offered hereby will be issued to, or sold by, the selling stockholders. Upon
effecting the sale of any of these shares of our Common Stock offered under
this prospectus, the selling stockholders and any brokers, dealers or agents,
hereby, may be deemed underwriters as that term is defined under the
Securities Act of 1933 or the Securities Exchange Act of 1934, or the rules and
regulations thereunder.
Alternatively,
the selling stockholders may sell all or any part of the shares of our Common
Stock offered hereby through an underwriter. No selling stockholder has entered
into any agreement with a prospective underwriter, and there is no assurance
that any such agreement will be entered into. If a selling stockholder enters
into an agreement or agreements with an underwriter, then the relevant details
will be set forth in a supplement or revision to this prospectus.
The
selling stockholders and any other persons participating in the sale or
distribution of these shares of our Common Stock will be subject to applicable
provisions of the Securities Exchange Act of 1934 and the rules and
regulations thereunder including, without limitation, Regulation M. These
provisions may restrict activities of, and limit the timing of purchases and
sales of any of these shares of our Common Stock by, the selling stockholders. Furthermore,
pursuant to Regulation M, a person
43
Table of Contents
engaged in a distribution of
securities is prohibited from bidding for, purchasing or attempting to induce
any person to bid for or purchase our securities for a period beginning five
business days prior to the date of this prospectus until such person is no
longer a selling stockholder. These regulations may affect the marketability of
these shares of our Common Stock.
We will pay substantially all of the expenses incident to the
registration and offering of our Common Stock, other than commissions or
discounts of underwriters, broker-dealers or agents.
RELATED PARTY AND OTHER MATERIAL
TRANSACTIONS
As
of December 31, 2007, there were promissory notes outstanding totaling
$465,517 due several stockholders and executive officers and directors, all of
which were paid by April 24, 2008.
We have not adopted
formal policies and procedures for the review, approval or ratification of
related party transactions with our executive officers, directors or
significant stockholders. However, we intend that such transactions will, on a
going-forward basis, be subject to the review, approval or ratification of our
Board of Directors, or an appropriate committee thereof.
44
Table
of Contents
DESCRIPTION OF CAPITAL STOCK
General
We are authorized to issue
150,000,000 shares of Common Stock, $.001 par value per share, and 50,000,000
shares of preferred stock, $.001 par value per share.
Common
Stock
As
of August 31, 2008 there were 55,944,664 shares of Common Stock
outstanding. The holders of Common Stock
are entitled to one vote per share on all matters submitted to a vote of
stockholders, including the election of directors. There is no right to cumulate votes in the
election of directors. The holders of
Common Stock are entitled to any dividends that may be declared by the Board of
Directors out of funds legally available therefore subject to the prior rights
of holders of preferred stock and any contractual restrictions we have against
the payment of dividends on Common Stock.
In the event of our liquidation or dissolution, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preferences of any outstanding shares of
preferred stock. Holders of Common Stock
have no preemptive rights and have no right to convert their Common Stock into
any other securities.
Preferred
Stock
We are authorized to issue 50,000,000
shares of preferred stock in one or more series with such designations, voting
powers, if any, preferences and relative, participating, optional or other
special rights, and such qualifications, limitations and restrictions, as are
determined by resolution of our Board of Directors. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control of our company
without further action by stockholders and could adversely affect the rights
and powers, including voting rights, of the holders of Common Stock. In certain circumstances, the issuance of
preferred stock could depress the market price of the Common Stock. No shares
of preferred stock have been issued.
Common Stock Purchase Warrants
and Stock Options
As of August 31, 2008 we had
outstanding Common Stock purchase warrants to purchase up to 2,619,195 shares
of our Common Stock at $0.50 per share exerciseable at any time until August 11,
2011.
Dividends
We do not intend to pay
dividends on our capital stock in the foreseeable future.
Transfer
Agent
Holladay Stock Transfer,
Scottsdale, Arizona, is our transfer agent.
SHARES ELIGIBLE FOR FUTURE SALE
As of August 31, 2008
we had 55,944,664 shares of Common Stock outstanding, of which 29,661,177
shares of Common Stock are being registered hereby. In addition, 7,800,000 shares are currently
free trading and the remaining 18,483,487 shares are restricted shares
45
Table
of Contents
and will be eligible for
sale under Rule 144 promulgated under the Securities Act of 1933, as
amended, on or after April 15, 2009.
An aggregate of 6,833,171
shares being registered hereby are subject to lock-up agreements with the
holders which limit resales upon the effectiveness of the prospectus to no more
than 20% of the shares held by the holders in any 30-day period.
In general, under Rule 144
as modified on February 15, 2008, a person who owns shares that were
purchased from us, or any affiliate, at least six months previously and who is
not an officer, director or 10% or greater stockholder of our company (a non-affiliate),
is entitled to sell all or any portion of such shares under Rule 144 so
long as we have filed all required SEC reports and continue to do so while the
shares are offered for sale. After one
year from purchase, the shares may be sold by a non-affiliate regardless of
whether we have filed all required SEC reports.
Our affiliates may also sell their shares under Rule 144 after they
have been held for six months or more in an amount not to exceed:
·
1% of the then
outstanding shares of our Common Stock; or
·
The average weekly trading volume of our
Common Stock during the four calendar weeks preceding the date on which notice
of the sale is filed with the SEC.
Future sales of restricted
Common Stock under Rule 144 or otherwise or of the shares which we are
registering under this prospectus could negatively impact the market price of
our Common Stock. We are unable to
estimate the number of shares that may be sold in the future by our existing
stockholders or the effect, if any, that sales of shares by such stockholders
will have on the market price of our Common Stock prevailing from time to
time. Sales of substantial amounts of
our Common Stock by existing stockholders could adversely affect prevailing
market prices.
EXPERTS
Our
audited financial statements included in this prospectus for the years ended December 31,
2007 and December 31, 2006, have been included in reliance on the report of
Morrison Brown Argiz & Farra, LLP, an independent registered public
accounting firm, given on the authority of this firm as experts in accounting
and auditing.
LEGAL MATTERS
The validity of the Common
Stock offered hereby will be passed upon for us by the Law Office of Gary A.
Agron, Greenwood Village, Colorado.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the
Securities and Exchange Commission a registration statement on Form S-1 under
the Securities Act of 1933 with respect to the Common Stock offered by this
prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits to the registration statement.
For further information with respect to our company and our Common Stock
offered hereby, reference is made to the registration statement and the
exhibits filed as part of the registration statement. We are also required to file periodic reports
with the Securities and Exchange
46
Table
of Contents
Commission, including
quarterly reports, annual reports which include our audited financial
statements and proxy statements, and we provide our annual reports, including
audited financial statements and proxy statements, to our stockholders. The registration statement, including
exhibits thereto, and all of our periodic reports may be inspected without
charge at the Securities and Exchange Commissions principal office in
Washington, DC, and copies of all or any part thereof may be obtained from the
Public Reference Section of the Securities and Exchange Commission, 100 F
Street, NE, Washington, DC 20549. You
may obtain additional information regarding the operation of the Public
Reference Section by calling the Securities and Exchange Commission at
1-800-SEC-0330. The Securities and
Exchange Commission also maintains a website which provides online access to
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission at the address: http://www.sec.gov.
47
Table
of Contents
SKYPOSTAL, INC.
CONTENTS:
|
F-2
|
|
|
FINANCIAL STATEMENTS:
|
|
|
|
|
F-3
|
|
|
|
F-4
|
|
|
|
F-5
|
|
|
|
F-6
|
|
|
|
F7 - F23
|
F-1
Table
of Contents
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To
the Board of Directors and Stockholders of
SkyPostal, Inc.
We
have audited the accompanying balance sheets of SkyPostal, Inc. (the Company)
as of December 31, 2007 and 2006 and the related statements of operations,
changes in stockholders deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with
auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial statements referred to above present fairly, in all
material respects, the financial position of SkyPostal, Inc. as of December 31,
2007 and 2006, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted
in the United States of America.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company has suffered
recurring losses from operations, has a deficiency in working capital and has a
net capital deficiency that raise substantial doubt about its ability to
continue as a going concern. Managements plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Miami, Florida
April 15, 2008
F-2
Table
of Contents
SKYPOSTAL, INC.
BALANCE SHEETS
DECEMBER
31,
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
Cash
|
|
$
|
851
|
|
$
|
737
|
|
Accounts
receivable, net (NOTE 4)
|
|
635,277
|
|
377,811
|
|
Prepaid expenses
and other
|
|
107,834
|
|
75,002
|
|
|
|
|
|
|
|
TOTAL CURRENT
ASSETS
|
|
743,962
|
|
453,550
|
|
|
|
|
|
|
|
DUE FROM
STOCKHOLDER
|
|
40,687
|
|
46,968
|
|
PROPERTY AND
EQUIPMENT, net (NOTE 5)
|
|
138,018
|
|
193,875
|
|
INTANGIBLES AND
OTHER ASSETS
|
|
232,873
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,155,540
|
|
$
|
694,393
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
|
$
|
3,680,500
|
|
$
|
2,712,543
|
|
Current portion
of due to stockholders (NOTE 6)
|
|
135,975
|
|
195,000
|
|
Current portion
of notes payable (NOTE 7)
|
|
4,022,729
|
|
160,100
|
|
Customer
deposits (NOTE 8)
|
|
12,831
|
|
300,106
|
|
|
|
|
|
|
|
TOTAL CURRENT
LIABILITIES
|
|
7,852,035
|
|
3,367,749
|
|
|
|
|
|
|
|
DUE TO
STOCKHOLDERS, less current portion (NOTE 6)
|
|
329,542
|
|
332,659
|
|
|
|
|
|
|
|
NOTES PAYABLE,
less current portion (NOTE 7)
|
|
97,054
|
|
2,963,454
|
|
|
|
|
|
|
|
EXCESS OF VALUE
OF PUT OPTIONS OVER THE ESTIMATED FAIR VALUE OF SHARES (NOTE 9)
|
|
1,600,000
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
9,878,631
|
|
6,663,862
|
|
|
|
|
|
|
|
COMMITMENTS AND
CONTINGENCIES (NOTE 12)
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS
DEFICIT
|
|
|
|
|
|
Common stock,
$.0001 par value, 50,000,000 shares authorized, 16,131,215 issued and
outstanding in 2007 and 13,144,608 issued and outstanding in 2006
|
|
1,613
|
|
1,315
|
|
Additional
paid-in capital
|
|
5,150,641
|
|
3,285,838
|
|
Accumulated
deficit
|
|
(13,875,345
|
)
|
(9,256,622
|
)
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS DEFICIT
|
|
(8,723,091
|
)
|
(5,969,469
|
)
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS DEFICIT
|
|
$
|
1,155,540
|
|
$
|
694,393
|
|
The accompanying notes are an integral part of these financial
statements.
F-3
Table
of Contents
SKYPOSTAL, INC.
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31,
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
NET REVENUES
|
|
$
|
8,696,145
|
|
$
|
5,914,683
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
Cost of delivery
|
|
6,976,947
|
|
4,776,654
|
|
General and
administrative
|
|
3,526,385
|
|
2,538,401
|
|
Factoring fees
|
|
296,104
|
|
360,882
|
|
|
|
|
|
|
|
TOTAL OPERATING
EXPENSES
|
|
10,799,436
|
|
7,675,937
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
(2,103,291
|
)
|
(1,761,254
|
)
|
|
|
|
|
|
|
OTHER EXPENSES
(INCOME)
|
|
|
|
|
|
Interest
|
|
564,130
|
|
374,368
|
|
Initial public
offering expenses
|
|
|
|
578,164
|
|
Reverse merger
expenses
|
|
128,530
|
|
|
|
Excess of value
of put options over the estimated fair value of shares
|
|
1,600,000
|
|
|
|
Other
|
|
222,772
|
|
(124,913
|
)
|
|
|
|
|
|
|
TOTAL OTHER
EXPENSES
|
|
2,515,432
|
|
827,619
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(4,618,723
|
)
|
$
|
(2,588,873
|
)
|
The accompanying notes are an integral part of these financial
statements.
F-4
Table
of Contents
SKYPOSTAL, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIT
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Common
|
|
Paid-In
|
|
Accumulated
|
|
|
|
|
|
Stock
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES AT
JANUARY 1, 2006
|
|
$
|
1,000
|
|
$
|
89,153
|
|
$
|
(6,667,749
|
)
|
$
|
(6,577,596
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
(2,588,873
|
)
|
(2,588,873
|
)
|
|
|
|
|
|
|
|
|
|
|
Conversion of
debt to common stock (NOTE 13)
|
|
315
|
|
3,196,685
|
|
|
|
3,197,000
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES AT
DECEMBER 31, 2006
|
|
1,315
|
|
3,285,838
|
|
(9,256,622
|
)
|
(5,969,469
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
(4,618,723
|
)
|
(4,618,723
|
)
|
|
|
|
|
|
|
|
|
|
|
Stock
compensation (NOTES 11 and 13)
|
|
37
|
|
502,929
|
|
|
|
502,966
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for
license agreement (NOTE 13)
|
|
42
|
|
142,758
|
|
|
|
142,800
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
debt to common stock (NOTES 6 and 13)
|
|
219
|
|
1,219,116
|
|
|
|
1,219,335
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES AT
DECEMBER 31, 2007
|
|
$
|
1,613
|
|
$
|
5,150,641
|
|
$
|
(13,875,345
|
)
|
$
|
(8,723,091
|
)
|
The accompanying notes are an integral part of these financial
statements.
F-5
Table
of Contents
SKYPOSTAL, INC.
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31,
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
|
|
Net loss
|
|
$
|
(4,618,723
|
)
|
$
|
(2,588,873
|
)
|
Adjustments to
reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
Depreciation and
amortization
|
|
69,769
|
|
68,638
|
|
Provision for
(reversal of) allowance for doubtful accounts
|
|
89,293
|
|
(368,151
|
)
|
Put options
payable
|
|
|
|
(145,000
|
)
|
Stock
compensation
|
|
502,966
|
|
|
|
Changes in
assets and liabilities:
|
|
|
|
|
|
Net (increase)
decrease in accounts receivable
|
|
(346,759
|
)
|
257,576
|
|
Increase in
prepaid expenses and other current assets
|
|
(32,832
|
)
|
(5,086
|
)
|
Increase in
intangibles and other assets
|
|
(90,073
|
)
|
|
|
Decrease in due
from stockholder
|
|
6,281
|
|
9,892
|
|
Increase in
accounts payable and accrued liabilities
|
|
1,022,847
|
|
430,411
|
|
Decrease in
customer deposits
|
|
(287,275
|
)
|
(163,859
|
)
|
Increase in
excess of value of put options over the estimated fair value of shares
|
|
1,600,000
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN
OPERATING ACTIVITIES
|
|
(2,084,506
|
)
|
(2,504,452
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
|
|
Property and
equipment expenditures
|
|
(13,912
|
)
|
(95,661
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
|
|
Payment for
shares subject to mandatory redemption
|
|
|
|
(17,776
|
)
|
Increase in
notes payable, net
|
|
2,060,674
|
|
2,413,350
|
|
Increase in due
to stockholders
|
|
37,858
|
|
204,839
|
|
|
|
|
|
|
|
NET CASH
PROVIDED BY FINANCING ACTIVITIES
|
|
2,098,532
|
|
2,600,413
|
|
|
|
|
|
|
|
NET INCREASE IN
CASH
|
|
114
|
|
300
|
|
|
|
|
|
|
|
CASH, BEGINNING
OF YEAR
|
|
737
|
|
437
|
|
|
|
|
|
|
|
CASH, END OF
YEAR
|
|
$
|
851
|
|
$
|
737
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during
the period for:
|
|
|
|
|
|
Interest
|
|
$
|
379,516
|
|
$
|
234,857
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF NON-CASH TRANSACTIONS:
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
notes payable to common stock
|
|
$
|
1,064,445
|
|
$
|
3,197,000
|
|
Conversion of
due to stockholders to common stock
|
|
$
|
100,000
|
|
$
|
|
|
Conversion of
trade accounts payable to common stock
|
|
$
|
54,890
|
|
$
|
|
|
Stock
compensation
|
|
$
|
502,966
|
|
$
|
|
|
Common stock
issued for license agreement
|
|
$
|
142,800
|
|
$
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-6
Table of Contents
SKYPOSTAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 1.
ORGANIZATION
Organization
SkyPostal
(the Company), incorporated in the State of Delaware, was established to
create a new standard for time defined mail delivery in the Americas. The
Companys purpose is to focus on high volume mail distribution in Latin America
and the Caribbean (LAC). The Companys headquarters are located in Miami,
Florida.
The
Company believes that it is the largest private mail network in LAC offering
European Postal administrations and mail consolidators in Europe and the United
States, an alternative to the Latin public postal services, providing better
service at lower prices with proprietary technology. The Company offers
time-defined, secure intelligent mail delivery solutions via an established
private messenger network, and solves a vast market need for reliable and
affordable mail delivery service.
Basis
of Presentation and Managements Plan
As
shown in the accompanying financial statements, the Company has incurred
recurring losses from operations and as of December 31, 2007, the Companys
current liabilities exceeded its current assets by approximately $7,108,000,
and its total liabilities exceeded its total assets by approximately
$8,723,000. These factors raise substantial doubt about the Companys ability
to continue as a going concern.
The
Company hopes to increase the current revenue levels by focusing on expanding
its services to other regions and through the acquisition of private mail
delivery services in the LAC region. In August 2007, the Company completed
the acquisition of the operating assets of Spring Global Mail-Latin America, a
division of the Dutch Post office. The Company is attempting to raise up to
$10,000,000 in capital by selling up to 20,000,000 shares in a contemplated
reverse merger (NOTE 14) into an Over the Counter Bulletin Board company.
Management believes these factors will contribute towards increasing revenues
and achieving profitability in the future. However, there can be no assurance
that the Company will be able to raise capital, increase its revenue levels or
complete any mergers or acquisitions, which would enable the Company to meet
its liabilities or continue operations without additional support. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
During
2007, the Company raised an additional $974,250 in convertible debt (NOTE 7).
The funds were used to reduce debt and to fund certain software development
costs.
F-7
Table of Contents
SKYPOSTAL, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Management
Use of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions. Those
estimates and assumptions affect the reported amounts of assets and liabilities
as of December 31, 2007 and 2006 and disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses for the years
ended December 31, 2007 and 2006. Actual results could differ from those
estimates. Estimates are used for, but not limited to, the allowance for
doubtful accounts, depreciation and the valuation of deferred tax assets.
Cash
Cash primarily consists of
demand deposits in interest and non-interest bearing accounts. The carrying
amount of these deposits approximates their fair value. The Companys balances
maintained may, at times, exceed available depository insurance limits. As of December 31,
2007 and 2006, the Company did not hold any balances in excess of available
depository limits. As of December 31, 2007 and 2006, overdraft balances
classified as liabilities amounted to $164,092 and $7,905, respectively.
Accounts Receivable
Accounts
receivable are uncollateralized customer obligations due under normal trade
terms requiring payment within 30 days from the invoice date. Payments of trade
accounts receivable are allocated to the specific invoices identified on the
customers remittance advice or, if unspecified, are applied to the earliest
unpaid invoices. Accounts receivable are recorded at the invoice amount net of
allowance based on managements estimate of uncollectible accounts.
On
March 27, 2006, the Company entered into a one year renewable agreement (Current
Agreement) to sell, on an ongoing basis, selected trade accounts receivable to
a third party. The Current Agreement was renewed on October 1, 2007 for a
one year term. The receivables are sold with full recourse until the buyer
issues its credit approval and assumes or accepts the credit risk of the
purchased account. The buyer is responsible for servicing the receivables. The
sales of the receivables were accounted for under Statement of Financial
Accounting Standards (SFAS) No. 140,
Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities.
At the time of
the sales of its receivables, the Company receives an initial advance on the
amount of the net invoice for 85% and a balance payment of the remaining 15% is
received, less any fees incurred to collect the entire invoice, at collection
completion.
F-8
Table of Contents
SKYPOSTAL, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation of office and computer equipment, furniture and
fixtures, computer software and warehouse equipment is calculated using the
straight-line method over the estimated useful life of the asset generally
ranging from three to seven years. Leasehold improvements are amortized over
the shorter of their estimated useful lives or the related lease term, commencing
the month after the asset is placed in service. The costs of repair and
maintenance are expensed when incurred, while expenditures for improvements
that significantly add to the productive capacity or extend the useful life of
an asset are capitalized.
Capitalized
Software Development Costs
Research
and development costs are expensed as incurred. Software and PDA development
costs incurred subsequent to establishing technological feasibility through the
general release of the software products are capitalized, within property and
equipment, in accordance with Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
. Technological feasibility is demonstrated by the
completion of a working model. Capitalized costs are amortized on a
straight-line basis over three years which is the estimated useful life of the
software product. Unamortized software development costs were $73,144 and
$109,173 as of December 31, 2007 and 2006, respectively, and are included
in property and equipment, net. Amortization expense amounted to $36,029 and
$40,798 for the years ended December 31, 2007 and 2006, respectively.
During 2007, the Company incurred approximately $204,000 in software
development costs that were expensed and included in other expenses in the
statements of operations. During 2006, there were no software development costs
expensed.
Impairment of Long-Lived Assets
In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets
, long-lived assets, such as property and equipment, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount
by which the carrying amount of the asset exceeds the fair value of the asset.
F-9
Table of Contents
SKYPOSTAL, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Long-Lived Assets
(continued)
Assets
to be disposed of would be separately presented in the balance sheet and
reported at the lower of the carrying amount or fair value less costs to sell,
and are no longer depreciated. The assets and liabilities of a disposal group
classified as held for sale would be presented separately in the appropriate
asset and liability sections of the balance sheet.
Revenue Recognition
Revenue is
recognized upon delivery of a letter or a package in accordance with Emerging
Issues Task Force 91-9,
Revenue and Expense
Recognition for Freight Service in Process.
Cost of Delivery
Cost of Delivery is
comprised of postage, export line haul costs, clearance costs, and hand
delivery costs.
Stock Based Compensation Plan
The
Company sponsors a stock option plan under which incentive stock options may be
granted periodically to certain employees, directors, and consultants that
provide services to the Company. The Companys stock options have an exercise
price equal to the stock price on the date of the grant and vest over one to
three years after the grant date. The required disclosures related to the
Companys stock-based employee compensation plan are included in Note 11.
Effective January 1, 2006, the Company adopted SFAS No. 123R,
Share-Based Payment,
using the modified prospective
transition method. The modified prospective transition method was applied to
new awards, to any outstanding awards, and to awards that were forfeited after January 1,
2006. The Company did not issue any awards prior to January 1, 2006.
Acquisition of List of Accounts
and Subsequent Disposal
On
August 16, 2007, the Company entered into an Asset Purchase Agreement (the
Purchase Agreement) with an unrelated company (the Seller). As part of the
Purchase Agreement, the Company agreed to acquire a list of accounts (the List)
and certain assets for $1,000, assume certain leases and retain certain
employees of the Seller. Subsequent to the acquisition, the Company continues
to use the List but terminated the employees and cancelled one of the leases
assumed. The costs incurred amounted to
approximately $278,000 and were accounted for in accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or
Disposal Activities
, and are included in operating expenses in the
statements of operations.
F-10
Table
of Contents
SKYPOSTAL, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Income taxes are
accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax
credit carry forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Loss Contingencies
Liabilities for loss contingencies, arising from claims, assessments,
litigation, fines, and penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount of the assessment
and/or remediation can be reasonably estimated. Legal costs incurred in connection
with loss contingencies are expensed as incurred.
Recently
Issued Accounting Standards
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections.
Statement 154
establishes, unless impracticable, retrospective application as the required
method for reporting a change in accounting principle in the absence of
explicit transition requirements specific to a newly adopted accounting
principle. This Statement is effective for the Company for all accounting
changes and any error corrections occurring after January 1, 2006. The
adoption of this Statement did not have an effect on the Companys financial
statements.
In June 2006, the FASB issued interpretation No. 48,
Accounting for Uncertainty in Income Taxes-an interpretation of FASB No. 109
(FIN 48). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprises financial statements in accordance with
SFAS No. 109, Accounting for Income Taxes. The interpretation
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 was effective for fiscal years beginning
after December 15, 2006. On February 1, 2008, the FASB issued
FASB Staff Position (FSP) No. FIN 48-2, Effective Date of FASB
Interpretation No. 48 for Certain Nonpublic Enterprises. This FSP
defers the effective date of FIN 48 for nonpublic enterprises included within
this FSPs scope to the annual financial statements for fiscal years beginning
after December 15, 2007 (applied as of the beginning of the enterprises
fiscal year). The Company is currently evaluating the impact the adoption
of FIN 48 could have on its financial condition, results of operations and cash
flows.
F-11
Table of Contents
SKYPOSTAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Standards (continued)
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurement
. SFAS No. 157
defines fair value, establishes a framework for the measurement of fair value,
and enhances disclosures about fair value measurements. SFAS No. 157 does
not require any new fair value measures and is effective for fair value
measures already required or permitted by other standards for fiscal years
beginning after November 15, 2007. The Company is required to adopt SFAS No. 157
beginning on January 1, 2008. SFAS No. 157 is required to be applied
prospectively, except for certain financial instruments. Any transition
adjustment will be recognized as an adjustment to opening retained earnings in
the year of adoption. On February 12, 2008, the FASB issued FSP No. 157-2,
Effective Date of FASB SFAS No. 157
.
This FSP is a one-year deferral of SFAS No. 157s fair-value measurement
requirements for nonfinancial assets and liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The Company is currently evaluating the
impact of adopting SFAS No.157 on its financial condition, results of
operations and cash flows.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities including an amendment of FASB Statement No. 115
(SFAS
No. 159). SFAS No. 159 gives the Company the irrevocable option to
carry most financial assets and liabilities at fair value that are not
currently required to be measured at fair value. If the fair value option is
elected, changes in fair value would be recorded in earnings at each subsequent
reporting date. SFAS No. 159 is effective for the Companys 2008 fiscal
year. The Company is currently evaluating the impact the adoption of this
statement could have on its financial condition, results of operations and cash
flows.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
which replaces
SFAS No. 141, Business Combinations and supersedes other authoritative
guidance. SFAS No. 141(R) broadens the scope of SFAS No. 141
and requires the acquisition method (SFAS No. 141 referred to as the
purchase method) to be used on all events where a business obtains control over
another business. SFAS No. 141(R) establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interests in the acquiree, and goodwill acquired in a business
combination or a gain from a bargain purchase. SFAS No. 141(R) also
requires the acquirer to disclose information that enables the users to
evaluate the nature and financial effects of the business combination. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after December 15,
2008, with early adoption prohibited. SFAS No. 141(R) will have an
impact on the accounting for the Companys business combinations, once adopted,
but the effect depends on the terms of the Companys business combinations
subsequent to January 1, 2009, if any.
F-12
Table of Contents
SKYPOSTAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE
3.
CONCENTRATION
OF REVENUES
The Company had net sales of approximately $4,159,000 to three
customers, which individually approximated 10%, 15% and 14% of total net sales
for the year ended December 31, 2007. The Company had net sales of
approximately $4,577,000 to four customers, which individually approximated
10%, 16%, 21% and 31% of total net sales for the year ended December 31,
2006.
NOTE
4.
ACCOUNTS
RECEIVABLE
Accounts receivable, net, consisted of the
following at December 31:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
662,038
|
|
$
|
312,746
|
|
Factored
receivables
|
|
844,175
|
|
859,459
|
|
Advances
received
|
|
(717,474
|
)
|
(730,225
|
)
|
Less:
Allowance for doubtful accounts
|
|
(153,462
|
)
|
(64,169
|
)
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$
|
635,277
|
|
$
|
377,811
|
|
NOTE
5.
PROPERTY
AND EQUIPMENT, NET
Property and equipment, net, consisted of the
following at December 31:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Office
and computer equipment
|
|
$
|
124,439
|
|
$
|
124,439
|
|
Computer
software
|
|
265,449
|
|
265,449
|
|
Furniture
and fixtures
|
|
21,756
|
|
21,756
|
|
Warehouse
equipment
|
|
44,041
|
|
30,129
|
|
Leasehold
improvements
|
|
1,755
|
|
1,755
|
|
|
|
|
|
|
|
|
|
457,440
|
|
443,528
|
|
|
|
|
|
|
|
Less:
Accumulated depreciation
|
|
(319,422
|
)
|
(249,653
|
)
|
|
|
|
|
|
|
|
|
$
|
138,018
|
|
$
|
193,875
|
|
Depreciation
and amortization expense was $69,769 and $68,638 for the years ended December 31,
2007 and 2006, respectively.
F-13
Table of Contents
SKYPOSTAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE
6.
RELATED
PARTY TRANSACTIONS
Due to Stockholders
Due
to stockholders consisted of the following at December 31:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Two
unsecured notes payable bearing 4% interest, maturing on August 4, 2007.
During 2007, $60,000 of the notes were converted into 117,647 shares of the
Company at $0.51 per share. The maturity date for the remaining $60,000 was
extended to the completion of a funding event by the Company of $5,000,000.
If the funding event does not occur, the maturity date will be March 1,
2009.
|
|
$
|
60,000
|
|
$
|
120,000
|
|
|
|
|
|
|
|
Two
unsecured loans payable bearing no interest and having no maturity date.
During 2007, one of the loans for $25,000 was converted into 49,020 shares of
the Company at $0.51 per share.
|
|
11,000
|
|
36,000
|
|
|
|
|
|
|
|
Unsecured
notes payable bearing no interest, maturing on June 30 and July 1,
2008.
|
|
61,975
|
|
|
|
|
|
|
|
|
|
Unsecured
note payable bearing 4% interest, maturing on August 9, 2008.
|
|
30,000
|
|
|
|
|
|
|
|
|
|
Unsecured
note payable bearing no interest, maturing on February 1, 2008. The
maturity date was extended to the completion of a funding event by the
Company of $5,000,000. If the funding event does not occur, the maturity date
will be March 1, 2009.
|
|
76,296
|
|
76,296
|
|
|
|
|
|
|
|
Unsecured
notes payable bearing 4% interest, maturing on March 1, 2007 and
February 1, 2008. During 2007, $15,000 of one of the notes was converted
into 29,412 shares of the Company at $0.51 per share. The maturity date was
extended to the completion of a funding event by the Company of $5,000,000.
If the funding event does not occur, the maturity date will be March 1,
2009.
|
|
193,246
|
|
295,363
|
|
|
|
|
|
|
|
Unsecured
note payable bearing 10% interest and having no maturity date.
|
|
33,000
|
|
|
|
|
|
|
|
|
|
|
|
465,517
|
|
527,659
|
|
|
|
|
|
|
|
Less
current maturities
|
|
(135,975
|
)
|
(195,000
|
)
|
|
|
|
|
|
|
|
|
$
|
329,542
|
|
$
|
332,659
|
|
F-14
Table of Contents
SKYPOSTAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE
7.
NOTES
PAYABLE
Notes payable consisted of the following at December 31:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Various
unsecured notes bearing 10% interest and maturing May 18, 2008. At
December 31, 2007, the notes plus accrued interest of $233,423 are
convertible into 3,418,975 shares of common stock of the Company from $0.51
to $0.75 per share.
|
|
$
|
1,632,300
|
|
$
|
2,632,300
|
|
|
|
|
|
|
|
Various
convertible notes bearing 10% interest and maturing on June 30, 2008.
These notes have 1,036,720 warrants attached and are secured by the Companys
uncollateralized accounts receivables. These notes, the exercise of the
warrants, plus accrued interest of $62,580 are convertible into 3,069,830
shares of common stock of the Company at $0.51 per share. These notes must
convert upon a public listing of the Companys stock.
|
|
974,250
|
|
|
|
|
|
|
|
|
|
Note
payable that bears interest at 18% and matures on July 16, 2008. This
note is secured by 333,333 of the Companys shares of one of the
stockholders. This note can be converted into common stock of the Company at
$0.60 per share.
|
|
200,000
|
|
|
|
|
|
|
|
|
|
Secured
note payable with discounted interest of $31,220, due November 1, 2008
in the amount of $332,220. The note is secured by 1,500,000 of Company shares
of one of the stockholders. The note carries 100,000 warrants for the
purchase of the Companys stock at $0.35 per share that expire on
November 1, 2008.
|
|
332,220
|
|
|
|
|
|
|
|
|
|
Various
unsecured notes payable that bear interest at 18% and mature on
December 31, 2008.
|
|
492,738
|
|
|
|
|
|
|
|
|
|
Unsecured
notes payable that bear interest at 48% and mature on August 1 and
December 31, 2008.
|
|
300,000
|
|
150,000
|
|
|
|
|
|
|
|
Unsecured
note payable that bears interest at 10% and matures on February 1, 2008.
The maturity date was extended to the completion of a funding event by the
Company of $5,000,000. If the funding event does not occur, the maturity date
will be March 1, 2009.
|
|
97,054
|
|
181,154
|
|
|
|
|
|
|
|
Unsecured
note payable that bears interest at 18% and has an original maturity of
April 23, 2007, which was extended to July 5, 2008.
|
|
60,000
|
|
60,000
|
|
|
|
|
|
|
|
Unsecured
note payable that bears interest at 18% and had an original maturity of
April 23, 2007, which was extended to December 31, 2008.
|
|
31,221
|
|
45,000
|
|
|
|
|
|
|
|
Unsecured
note payable that bore interest at 4.5% and matured on March 31, 2007.
|
|
|
|
55,100
|
|
|
|
|
|
|
|
|
|
4,119,783
|
|
3,123,554
|
|
|
|
|
|
|
|
Less
current maturities
|
|
(4,022,729
|
)
|
(160,100
|
)
|
|
|
|
|
|
|
|
|
$
|
97,054
|
|
$
|
2,963,454
|
|
F-15
Table of
Contents
SKYPOSTAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE
7.
NOTES
PAYABLE (CONTINUED)
The aggregate amount of required payments at December 31,
2007 is as follows:
Years
ending December 31,
2008
|
|
$
|
4,022,729
|
|
2009
|
|
97,054
|
|
|
|
|
|
|
|
$
|
4,119,783
|
|
During February 2006,
a suit was filed against the Company regarding a note payable whose payments
were not being made in accordance with the terms agreed to. This loan had a
balance outstanding of $125,358 as of December 31, 2005 and was settled on
June 5, 2006 for $66,396. As part of the settlement, the Company was
released of all claims. The gain on settlement of $58,962 is included in other
income in the statements of operations.
NOTE 8.
CUSTOMER
DEPOSITS
During 2007, one customer paid in advance for
future mail services. During 2006, two of the Companys customers paid in
advance for future mail services. As the Company provides services to these
customers, the deposit balance is reduced. The amount outstanding as of December 31,
2007 and 2006 was $12,831 and $300,106, respectively.
NOTE 9.
EXCESS OF VALUE OF PUT
OPTIONS OVER THE ESTIMATED FAIR VALUE OF SHARES
As
of December 31, 2007, the Company had 3,200,000 shares of common stock
outstanding that were granted put options as part of a Sale Option Agreement
dated April 1, 2007 between the Company and a shareholder. These options
have an exercise price of $1.00 per share and may be exercised at the rate of
160,000 shares per quarter beginning on April 1, 2008 and ending on January 1,
2013. The Sale Option Agreement expires on January 2, 2013.
At
December 31, 2007, the Companys stock was valued at $0.50 per share.
Accordingly, a liability of $1,600,000 has been recorded for the difference
between the stock price at December 31, 2007 and the exercise price times
the number of shares. The liability will be adjusted based on the Companys
stock price at the end of each reporting period. Any shares that are ultimately
repurchased will be recorded as treasury stock at fair value of the shares at
the time of repurchase.
F-16
Table
of Contents
SKYPOSTAL, INC.
NOTES TO FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER
31, 2007 AND 2006
NOTE 10.
INCOME
TAXES
The actual income tax
expense for 2007 and 2006 differs from the statutory tax expense for the year
(computed by applying the U.S. federal corporate tax rate of 34% to income
before provision for income taxes) as follows:
|
|
|
|
Effective
|
|
|
|
Effective
|
|
|
|
2007
|
|
Tax Rate
|
|
2006
|
|
Tax Rate
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
taxes at statutory rate
|
|
$
|
(1,570,366
|
)
|
34.00
|
%
|
$
|
(880,217
|
)
|
34.00
|
%
|
State
income taxes, net of federal tax
|
|
|
|
|
|
|
|
|
|
benefit
|
|
(92,783
|
)
|
2.00
|
|
(75,696
|
)
|
2.92
|
|
Other
permanent differences
|
|
727,195
|
|
(15.74
|
)
|
(132,107
|
)
|
5.10
|
|
Change
in valuation allowance
|
|
935,954
|
|
(20.26
|
)
|
1,088,020
|
|
(42.02
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
0.00
|
%
|
$
|
|
|
0.00
|
%
|
The Companys deferred
tax assets are as follows:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
Depreciation
and other
|
|
$
|
168,947
|
|
$
|
188,296
|
|
Allowance
for doubtful accounts
|
|
57,748
|
|
50,111
|
|
Net
operating loss carryover
|
|
4,202,679
|
|
3,255,013
|
|
|
|
|
|
|
|
Total
|
|
4,429,374
|
|
3,493,420
|
|
Less:
Valuation allowance
|
|
(4,429,374
|
)
|
(3,493,420
|
)
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
$
|
|
|
$
|
|
|
As
of December 31, 2007 the Company has available approximately $11,000,000
of operating loss carryforwards, which may be used in the future filings of the
Companys tax returns to offset future taxable income for United States income
tax purposes. Net operating losses expire beginning in the year 2022. As of December 31,
2007 and 2006, the Company has determined that due to the uncertainty regarding
profitability in the near future, a 100% valuation allowance is needed with
regards to the deferred tax assets. Changes in the estimated tax benefit that
will be realized from the tax loss carryforwards and other temporary
differences will be recognized in the financial statements in the years in
which those changes occur.
F-17
Table of
Contents
SKYPOSTAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER
31, 2007 AND 2006
NOTE 10.
INCOME
TAXES (CONTINUED)
In
assessing the realizability of deferred tax assets, management considered
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment.
NOTE
11.
STOCK
OPTION PLAN
Employees
of the Company have options to purchase shares of the Companys common stock
under an employee stock option plan (the Plan). Under the Plan, the total
number of shares authorized is 6,000,000, of which 137,406 remain available.
The options granted to employees vest over one to three years following the
grant date and expire three years from the grant date.
On
January 1, 2006, the Company adopted SFAS No. 123R, which requires
compensation expense related to share based payments to be recognized in net
income using a fair value measurement method at grant date.
For
stock-based awards granted after January 1, 2006, the Company recognized
compensation expense based on the estimated grant date fair value method using
the Lattice option pricing model, adjusted for estimated forfeitures. There
were no forfeitures during 2007.
For
the year ended December 31, 2007, the Company recognized compensation
expense of approximately $284,000, related to the adoption of SFAS No. 123R.
The expense is reported within general and administrative expense in the
accompanying statements of operations.
As
of December 31, 2007, unrecognized compensation cost related to unvested
stock-based awards totaled approximately $300,000. This cost is expected to be
recognized over approximately three years.
SFAS
No. 123R requires cash flows resulting from excess tax benefits to be
classified as a part of cash flows from financing activities. Excess tax
benefits are realized tax benefits from tax deductions for exercised options in
excess of the deferred tax asset attributable to the compensation cost for such
options. There were no options exercised at December 31, 2007; therefore,
the Company did not receive any cash payments or recognize any tax benefits
from option exercises during 2007.
F-18
Table of Contents
SKYPOSTAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE
11.
STOCK
OPTION PLAN (CONTINUED)
The Company calculates the fair value of each option award on the date
of grant using the Lattice option pricing model. The per share average fair
value of stock options granted to employees and a consultant during the year
ended December 31, 2007 was $0.11.
The
following weighted average assumptions were used for the reporting period ended
December 31, 2007:
Expected
life
|
|
2.57-3 years
|
Dividends
|
|
None
|
Average
risk-free interest rate
|
|
4.90-5.12%
|
Expected
volatility
|
|
24-32%
|
The
Companys stock was not actively traded on an exchange during 2007. Expected
volatility is based on the historical volatility of comparable early stage
companies based on the similarity in business focus, industry, and financial
position. The computation of expected life is calculated based on the
simplified method for 2007. The risk free interest rate for all periods is
based upon a zero coupon U.S. Treasury bond with a similar life as the option
at the time of grant.
The
following table presents a summary of all stock options:
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
|
|
Number of
|
|
Per Option
|
|
Price
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Shares
|
|
Share
|
|
Per Share
|
|
Term
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006:
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
Granted
|
|
5,862,594
|
|
0.30-0.60
|
|
0.30-0.60
|
|
2.57-3 years
|
|
|
|
Forfeited
- Unvested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007:
|
|
5,862,594
|
|
$
|
0.30-0.60
|
|
$
|
0.30-0.60
|
|
|
|
$
|
987,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total
pre-tax intrinsic value (the difference between the valuation of the Companys
stock at December 31, 2007 and the exercise price, multiplied by the number
of options considered in-the-money) that would have been received by the option
holders had all option holders exercised their options on December 31,
2007.
At
December 31, 2007, 423,958 shares were eligible for exercising. The
remaining 5,438,636 were ineligible for exercising as the vesting requirement
had not been met.
These
options are exercisable as follows:
|
|
Options
|
|
Exercise Price
|
|
2008
|
|
2,570,865
|
|
$
|
0.30-0.60
|
|
2009
|
|
1,645,865
|
|
$
|
0.30
|
|
2010
|
|
1,645,864
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
5,862,594
|
|
|
|
F-19
Table of Contents
SKYPOSTAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 12.
COMMITMENTS
AND CONTINGENCIES
Operating Leases
The
Company has non-cancellable operating leases that expire in 2009. Rental
expense under these leases was $122,492 and $109,785 for the years ended December 31,
2007 and 2006, respectively.
The
future minimum rental payments under these leases for the years subsequent to December 31,
2007 are as follows:
2008
|
|
$
|
140,000
|
|
2009
|
|
58,000
|
|
|
|
|
|
|
|
$
|
198,000
|
|
Confidentiality and Non-Compete Agreement
On
April 1, 2007 the Company entered into a five year confidentiality and
non-compete agreement with one of its shareholders. The agreement becomes
effective on April 1, 2008. It has a decreasing schedule of quarterly
payments totaling $735,000 payable over five years ending January 1, 2013.
Litigation
The
Company may become a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, there
were no matters that would have a material adverse effect on the financial
condition of the Company as of December 31, 2007 and 2006.
NOTE
13.
COMMON
STOCK
On
January 15, 2007, the Company converted $54,890 of trade payables due to
an unrelated third party into 91,483 shares of the Companys common stock at
$0.60 per share.
On
July 1, 2007, a non executive director was granted 65,000 shares of the
Companys common stock representing a portion of total compensation as provided
in a one year financial consulting agreement expiring May 31, 2008. The
shares were valued at $0.60 per share. As part of this agreement, the non
executive director was also granted options to purchase 925,000 shares of the
Companys common stock at $0.60 per share (NOTE 14).
On
July 1, 2007, a member of management, as part of his compensation package,
was granted 300,000 shares of the Companys common stock representing a
compensation bonus. The shares were valued at $0.60 per share.
F-20
Table of Contents
SKYPOSTAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE
13.
COMMON
STOCK (CONTINUED)
On
September 1, 2007, a delivery service partner of the Company was granted
420,000 shares of the Companys common stock at $0.34 per share as
consideration for the service partner entering into an exclusive service
agreement with the Company and as partial consideration for converting
outstanding invoices due by the Company to the service partner into a
promissory note in the amount of $276,659. As of December 31, 2007, there
was approximately $143,000 recorded as an intangible asset in the accompanying
balance sheets. The promissory note was paid off on November 15, 2007.
On
September 14, 2007, a convertible note holder converted two promissory
notes amounting to $1,000,000 and $64,445 in accrued interest into 2,087,146
shares of the Companys common stock at a conversion price of $0.51 per share.
On
May 15, 2006, a loan assumption and restructuring agreement was entered
into, by and among the Company and Holston Investments, Inc. B.V.I. (Holston)
whereby Holston assumed all of the Companys obligations under various loans
amounting to $3,197,000 in exchange for the complete and unconditional release
of the Company from any obligation and the issuance by the Company to Holston
of 3,144,608 shares of its common stock.
NOTE 14.
SUBSEQUENT
EVENTS
On
January 8, 2008, two notes payable of $40,000 each were executed with two
unrelated parties. These notes bear interest at 18% and have a maturity date of
December 31, 2008.
On
February 10, 2008, the Company entered into a non binding Letter of Intent
(LOI) with an unrelated Corporation (the Corporation) to exchange shares of
the common stock of the Corporation for all of the issued and outstanding
common stock of the Company. The LOI provides for, amongst other things, the
acquisition of all the issued and outstanding common stock of the Company
(including convertible debt, options and warrants) from the shareholders of the
Company in exchange for 29,000,000 shares of the $0.001 par value common stock
of the Corporation. Subsequent to the proposed exchange of the shares, the
existing shareholders of the Corporation will own approximately 18.8% of the
total shares outstanding of the Corporation. As a condition to the closing of
the proposed exchange, the Company must raise a minimum of $5,000,000 in a
private placement of the Corporations securities.
On
February 20, 2008, the Company entered into an agreement with a Placing
Agent (the Agent) to sell up to 10,000,000 shares of the Companys common
stock at $0.50 per share under a private placement offer. On March 20,2008,
this agreement was amended to increase the number of shares to 20,000,000. As
of April 7, 2008, investors signed a subscription agreement amounting to
approximately $6.1 million for the purchase of 12,205,000 common shares of the
Companys stock at $0.50 per share. The Agent will receive a cash fee of 10% of
the total funds raised and will be granted warrants to purchase shares of the
Companys common stock equal to 10% of the number of shares sold. The warrants
to purchase common stock of the Company will have an exercise price of $0.50
per share with the exercise period expiring 3 years from the date of funding the
Company.
F-21
Table of Contents
SKYPOSTAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 14.
SUBSEQUENT
EVENTS (CONTINUED)
On
February 22, 2008, a note payable of $250,000 was executed with an
unrelated party. This note will bear interest at 10% and mature upon the
occurrence of any funding event completed by the Company in the amount of
$5,000,000 or greater. In the event that the funding does not occur, the
maturity date will be June 30, 2008. Upon ten days notice from the funding
event, the note holder has the option to extend the maturity date and convert
the note into the Companys common stock at $0.50 per share. The conversion
option expires 180 days from the occurrence of the funding event. In addition,
the note holder has been granted 250,000 warrants to purchase 250,000 common
shares of the Company at a strike price of $0.50 per share. The exercise period
of the warrants will expire on March 1, 2011.
On
February 26, 2008, two notes payable of $125,000 each were executed with
two unrelated parties. These notes will bear interest at 10% and mature upon
the occurrence of any funding event completed by the Company in the amount of
$5,000,000 or greater. In the event that the funding does not occur, the
maturity date will be June 30, 2008. Upon ten days notice from the funding
event, the note holders have the option to convert the notes into the Companys
common stock at $0.50 per share. The conversion option expires 180 days from
the occurrence of the funding event. In addition, the note holders have each
been granted 125,000 warrants to purchase 125,000 common shares of the Company at
a strike price $0.50 per share. The exercise period of the warrants will expire
on March 1, 2011.
On
March 1, 2008, two members of management were granted common shares
totaling 1,085,556 for unpaid compensation amounting to $325,667, as provided
in their employment agreements. At December 31, 2007, approximately
$277,000 was accrued for unpaid portions as of that date. These managers have
agreed to accept a portion of their compensation due under their employment
agreements for 2008 in common stock.
On
March 1, 2008, an advisor to the Board of Directors was granted 350,000
shares of stock as part of his consulting agreement.
On
March 12, 2008, a note payable of $100,000 was executed that will bear
interest at 10% and has a maturity date of June 30, 2008 or the occurrence
of any funding event completed by the Company totaling $5,000,000 or greater.
Upon ten days notice from the funding event, the note holder has the option to
extend the maturity date and convert the note into the Companys common stock at
$0.50 per share. The option expires 180 days from the occurrence of the funding
event as defined herein. In addition, the note holder has been granted 100,000
warrants to purchase common stock of the Company at a strike price of $0.50 per
share. The exercise period expires March 1, 2011.
F-22
Table of Contents
SKYPOSTAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 14.
SUBSEQUENT
EVENTS (CONTINUED)
On
March 15, 2008, as a condition to the reverse merger agreement, a non
executive director was granted 40,000 shares of the Companys common stock in
exchange for 925,000 options at $0.60 per share that had been previously
granted as part of a consulting agreement (NOTE 13).
On
March 15, 2008, as a condition to the reverse merger agreement, a non
executive director was granted 10,000 shares of the Companys common stock in
exchange for 100,000 warrants at $0.35 per share that had been previously
granted as partial consideration for a promissory note executed between the
Company and the non executive director.
On
March 31, 2008, $2,256,550 in convertible notes and $311,529 in accrued
interest were converted into 6,048,154 shares of the Companys common stock at
a conversion price of $0.34 - $0.56 per share.
On
March 31, 2008, notes payable totaling $430,000, of which $250,000 were
outstanding as of December 31, 2007, were converted into 1,057,141 shares
of the Companys common stock at a conversion price of $0.35 - $0.50 per share.
F-23
Table
of Contents
SKYPOSTAL NETWORKS, INC.
29,661,177 SHARES OF COMMON STOCK
Until
,
2008, all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
Table
of Contents
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND
DISTRIBUTION (1)
SEC Registration Fees
|
|
$
|
1,224
|
|
Blue Sky Filing Fees
|
|
$
|
2,000
|
|
Blue Sky Legal Fees
|
|
$
|
3,000
|
|
Printing Expenses
|
|
$
|
5,000
|
|
Legal Fees
|
|
$
|
30,000
|
|
Accounting Fees
|
|
$
|
20,000
|
|
Transfer Agent Fees
|
|
$
|
2,000
|
|
Miscellaneous Expenses
|
|
$
|
10,000
|
|
|
|
|
|
Total
|
|
$
|
73,224
|
(2)
|
(1) All expenses,
except the SEC registration fee, are estimated.
(2) All expenses of
the offering (excluding brokerage commissions) will be borne by the Registrant
and not the selling stockholders.
ITEM
14. INDEMNIFICATION OF DIRECTORS AND
OFFICERS
Our
Articles of Incorporation provide that liability of directors to us for
monetary damages is eliminated to the full extent provided by Nevada law. Under Nevada law, a director is not
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach of
the directors duty of loyalty to us or our stockholders; (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (iii) for authorizing the unlawful payment of a dividend
or other distribution on our capital stock or the unlawful purchases of our
capital stock; (iv) a violation of Nevada law with respect to conflicts of
interest by directors; or (v) for any transaction from which the director
derived any improper personal benefit.
The
effect of this provision in our Articles of Incorporation is to eliminate our
rights and our stockholders rights (through stockholders derivative suits) to
recover monetary damages from a director for breach of the fiduciary duty of
care as a director (including any breach resulting from negligent or grossly
negligent behavior) except in the situations described in clauses (i) through
(v) above. This provision does not
limit or eliminate our rights or the rights of our security holders to seek
non-monetary relief, such as an injunction or rescission, in the event of a
breach of a directors duty of care or any liability for violation of the
federal securities laws.
Insofar as indemnification
for liabilities arising under the Act may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable.
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ITEM
15. RECENT SALES OF UNREGISTERED
SECURITIES
In the last
three years, we have issued the following unregistered securities:
(i)
In connection with the
Securities Exchange, we issued an aggregate of 28,905,816 unregistered shares of Common Stock to
SkyPostal, Inc. security holders including 10,460,000 shares issued to a group
of 54 European security holders who purchased the shares from SkyPostal, Inc.
for an aggregate of $5,230,000. We also
issued $4,536,550 face amount of convertible debt instruments to the SkyPostal,
Inc. convertible debt holders, $3,686,550 of which converted into 9,194,293
shares of Common Stock and such shares are included in the total above.
(ii)
Between April 16, 2008 and July
18, 2008, we issued an additional 9,521,948 shares to 71 European investors for
an aggregate of $4,760,974 or $0.50 per share.
The securities
issuances described in items (i) above were made in connection with the Share
Exchange with SkyPostal, Inc. and in reliance upon the exemption provided in
Section 4(2) of the Securities Act.
These issuances were to a limited number of investors (excluding the
European investors, none of whom are U.S. citizens or residents) and all of
whom had a prior relationship with us, received their shares as founders or
employees and executed subscription agreements acknowledging they were familiar
with our business operations and were taking the shares for investment and not
for distribution. The issuances under (ii) above, were solely to European
investors, none of whom were U.S. citizens or residents. All such securities were marked with the
customary restrictive legend prohibiting transfer except under certain
circumstances. All of the investors
executed subscription agreements affirming that they were taking the shares for
investment and not for distribution, and recognized that a restrictive legend
would be placed on the certificates.
ITEM 16.
EXHIBIT INDEX
Number
|
|
Exhibit
|
3.1
|
|
Articles of Incorporation,
as amended, of Registrant (1)
|
3.2
|
|
Bylaws of Registrant (1)
|
5.1
|
|
Opinion of Gary A. Agron
|
10.1
|
|
Securities Exchange
Agreement with SkyPostal, Inc. (2)
|
10.2
|
|
Employment Agreement with
Albert Hernandez (2)
|
10.3
|
|
Employment Agreement with
A.J. Hernandez (2)
|
10.4
|
|
Employment Agreement with
Clement S. Harary (2)
|
23.1
|
|
Consent of Morrison Brown
Argiz & Farra, LLP,
an independent registered public accounting firm
|
23.3
|
|
Consent of Gary A. Agron
(see 5.1 above)
|
(1)
|
|
Incorporated by reference
to the Registrants Registration Statement on Form 10-SB filed
July 14, 2006
|
(2)
|
|
Incorporated by reference
to Registrants Current Report on Form 8-K dated April 17, 2008
|
ITEM
17. UNDERTAKINGS
The undersigned registrant
hereby undertakes:
(1)
To file, during
any period in which offers or sales are being made, a post-effective amendment
to this registration statement:
i.
To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
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ii.
To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered (if the
total value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 12% change in the maximum aggregate offering price set
forth in the Calculation of registration Fee table in the effective
registration statements; and
iii.
To include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the registration
statement.
(2)
That, for the purpose of determining any
liability under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3)
To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4)
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 (the Act) may be permitted to
directors, officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In
the event that a claim for indemnification against such liabilities (other than
the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such director
or controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5)
That, for the purpose of determining
liability under the securities Act of 1933 to any purchaser:
(i)
If the registrant is relying on Rule 430B:
(A)
Each prospectus filed by the registrant
pursuant to Rule 424(b)(3) shall be deemed to be part of the
registration statement as of the date the filed prospectus was deemed part of
and included in the registration statement; and
(B)
Each prospectus required to be filed pursuant
to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration
statement in reliance on Rule 430B relating to an offering made pursuant
to Rule 415(a)(1)9i), (vii), or (x) for the purpose of providing the
information required by section 10(a) of the Securities Act of 1933 shall
be deemed to be part of and included in the registration statement as of
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the earlier of the date such
form of prospectus is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in the prospectus. As
provided in Rule 430B, for liability purposes of the issuer and any person
that is at that date an underwriter, such date shall be deemed to be a new
effective date of the registration statement relating to the securities in the
registration statement to which that prospectus relates, and the offering of
such securities at that time shall be deemed to be the initial
bona fide
offering thereof.
Provided,
however,
that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to
a purchaser with a time of contract of sale prior to such effective date, supersede
or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such effective date; or
(ii)
If the registrant is subject to Rule 430C,
each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other prospectuses filed in reliance on
rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness.
Provided, however
,
that no statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus that is
part of the registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any statement
that was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to such
date of first use.
(6)
That, for the purpose of determining
liability of the registrant under the Securities Act of 1933 to any purchaser
in the initial distribution of the securities:
The undersigned registrant
undertakes that in a primary offering of securities of the undersigned
registrant pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i)
Any preliminary prospectus or prospectus of
the undersigned registrant relating to the offering required to be filed
pursuant to Rule 424;
(ii)
Any free writing prospectus relating to the
offering prepared by or on behalf of the undersigned registrant or used or
referred to by the undersigned registrant;
(iii)
The portion of any other free writing
prospectus relating to the offering containing material information about the
undersigned registrant or its securities provided by or on behalf of the
undersigned registrant; and
(iv)
Any other communication that is an offer in
the offering made by the undersigned registrant to the purchaser.
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SIGNATURES
Pursuant to the requirements
of the Securities Act, as amended, the Registrant has caused this Registration
Statement on Form S-1 to be signed on its behalf by the undersigned,
thereunto duly authorized in Miami, Florida on
September 30
, 2008.
|
SKYPOSTAL NETWORKS, INC.
|
|
|
|
By:
|
/s/
Albert P. Hernandez
|
|
|
Albert
P. Hernandez
|
|
|
Chief
Executive Officer
|
Pursuant to the
requirements of the Securities Act, as amended, this Registration Statement has
been signed below by the following persons on September 30, 2008.
Signature
|
|
Title
|
|
|
|
/s/ Albert P. Hernandez
|
|
Chairman of the Board of
Directors and
|
Albert P. Hernandez
|
|
Chief Executive Officer
|
|
|
|
/s/ A.J. Hernandez
|
|
Chief Operating Officer
and Director
|
A.J.
Hernandez
|
|
|
|
|
|
/s/
Christian J. Weber
|
|
Director
|
Christian
J. Weber
|
|
|
|
|
|
/s/
Jose Misrahi
|
|
Director
|
Jose Misrahi
|
|
|
|
|
|
/s/
Mathijs van Houweninge
|
|
Director
|
Mathijs van Houweninge
|
|
|
|
|
|
/s/
S. David Fineman
|
|
Director
|
S. David Fineman
|
|
|
|
|
|
/s/
Florian M. Shuhbauer
|
|
Director
|
Florian M. Schuhbauer
|
|
|
II-5
Table
of Contents
EXHIBIT INDEX
Number
|
|
Exhibit
|
3.1
|
|
Articles of Incorporation,
as amended, of Registrant (1)
|
3.2
|
|
Bylaws of Registrant (1)
|
5.1
|
|
Opinion of Gary A. Agron
|
10.1
|
|
Securities Exchange
Agreement with SkyPostal, Inc. (2)
|
10.2
|
|
Employment Agreement with
Albert Hernandez (2)
|
10.3
|
|
Employment Agreement with
A.J. Hernandez (2)
|
10.4
|
|
Employment Agreement with
Clement S. Harary (2)
|
23.1
|
|
Consent of Morrison Brown
Argiz & Farra, LLP,
an independent registered public accounting firm
|
23.3
|
|
Consent of Gary A. Agron
(see 5.1 above)
|
(1)
|
|
Incorporated by reference
to the Registrants Registration Statement on Form 10-SB filed
July 14, 2006
|
(2)
|
|
Incorporated by reference
to Registrants Current Report on Form 8-K dated April 18, 2008
|
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