Skyway Communications Holding (SWYC) Inactive
Filed: 18 Sep 03, 12:00am
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: July 31, 2003
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number: 000-32033
SKYWAY COMMUNICATIONS HOLDING CORP.
(Exact name of registrant as specified in its charter)
Florida
(State or other jurisdiction of incorporation or organization)
65-0881662
(IRS Employer Identification Number)
6021 - 142nd Avenue North
Clearwater, FL 33760
(Address of principal executive offices ) (Zip Code)
727.535.8211
(Registrant's telephone no., including area code)
N/A
---------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 57,949,959
SkyWay Communications Holding Corp.
Table of Contents
Page
PART I - FINANCIAL INFORMATION 3
Item 1. Financial Statements
Balance Sheet 4-5
Statement of Operations 6
Statement of Cash Flows 7-8
Notes to Financial Statements 9-24
Item 2. Management's Discussion and Plan of Operation 25-28
Item 3. Controls and Procedures 28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Changes in Securities 29
Item 3. Defaults upon Senior Securities. 29
Item 4. Submission of Matters to a Vote of Security Holders. 29
Item 5. Other Information. 29
Item 6. Exhibits 30
SIGNATURES 31
2
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
CONTENTS
PAGE
- - Unaudited Condensed Consolidated Balance Sheets,
July 31, 2003 and April 30, 2003 4 - 5
- - Unaudited Condensed Consolidated Statements of
Operations, for the three months ended
July 31, 2003 and 2002 and for the period from
inception on April 24, 2002 through July 31, 2003 6
- - Unaudited Condensed Consolidated Statements of
Cash Flows, for the three months ended
July 31, 2003 and 2002 and for the period from
inception on April 24, 2002 through July 31, 2003 7 - 8
- - Notes to Unaudited Condensed Consolidated
Financial Statements 9 - 24
3
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
July 31, April 30,
2003 2003
___________ ___________
CURRENT ASSETS:
Cash $ 53,634 $ 741
Advance to related party 23,382 -
Employee advance 2,000 2,000
Prepaid expense 1,188 8,313
___________ ___________
Total Current Assets 80,204 11,054
___________ ___________
PROPERTY AND EQUIPMENT, net 376,847 324,961
___________ ___________
OTHER ASSETS:
Indefinite-life intangible assets 23,800 23,800
Deposit 92,500 92,500
___________ ___________
Total Other Assets 116,300 116,300
___________ ___________
$ 573,351 $ 452,315
___________ ___________
[Continued]
4
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
[Continued]
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
July 31, April 30,
2003 2003
___________ ___________
CURRENT LIABILITIES:
Accounts payable $ 391,988 $ 91,069
Accrued payroll 193,568 44,693
Accrued interest 8,509 -
Installment payable - 250,000
Advances from related party - 1,316,946
Note payable 25,000 -
Note payable - related party 3,600 -
___________ ___________
Total Current Liabilities 622,665 1,702,708
COMMITMENTS AND CONTINGENCIES [See Note 12] - -
___________ ___________
Total Liabilities 622,665 1,702,708
___________ ___________
STOCKHOLDERS' EQUITY (DEFICIT) [Restated]:
Preferred stock, $.0001 par value,
10,000,000 shares authorized:
Series A convertible preferred stock,
1,000,000 and no shares issued
and outstanding, respectively 100 -
Series B convertible preferred stock,
1,000,000 and no shares issued
and outstanding, respectively 100 -
Common stock, $.0001 par value,
2,500,000,000 shares authorized,
57,949,959 and 10,000,000 shares
issued and outstanding, respectively 5,795 1,000
Capital in excess of par value 5,656,025 30,300
Deficit accumulated during the
development stage (4,844,619) (1,281,693)
___________ ___________
817,401 (1,250,393)
Less: Subscription receivable (866,715) -
___________ ___________
Total Stockholders' Equity (Deficit) (49,314) (1,250,393)
___________ ___________
$ 573,351 $ 452,315
___________ ___________
NOTE: The balance sheet at April 30, 2003 was taken from the audited
financial statements at that date and condensed.
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
5
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months From Inception
Ended July 31, on April 24,
_________________________ 2002 Through
2003 2002 July 31, 2003
____________ ____________ _____________
REVENUE $ - $ - $ -
EXPENSES:
Selling 47,602 - 55,624
General and administrative 3,305,452 16,624 4,132,695
Research and development 209,335 92,600 682,690
____________ ____________ _____________
Total Expenses 3,562,389 109,224 4,871,009
____________ ____________ _____________
LOSS BEFORE OTHER
INCOME (EXPENSE) (3,562,389) (109,224) (4,871,009)
OTHER INCOME (EXPENSE):
Rental income - related party - - 26,927
Interest expense (537) - (537)
____________ ____________ _____________
Total Other Income
(Expense) (537) - 26,390
____________ ____________ _____________
LOSS BEFORE INCOME
TAXES (3,562,926) (109,224) (4,844,619)
CURRENT TAX EXPENSE - - -
DEFERRED TAX EXPENSE - - -
____________ ____________ _____________
NET LOSS $ (3,562,926) $ (109,224) $ (4,844,619)
____________ ____________ _____________
LOSS PER COMMON SHARE $ (.12) $ (.01) $ (.29)
____________ ____________ _____________
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
6
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months From Inception
Ended July 31, on April 24,
_________________________ 2002 Through
2003 2002 July 31, 2003
____________ ____________ _____________
Cash Flows from Operating Activities:
Net loss $ (3,562,926) $ (109,224) $ (4,844,619)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 20,263 - 41,139
Non-cash expenses - - 296,303
Non-cash services rendered for stock and warrants 2,961,285 - 2,966,685
Changes in assets and liabilities:
(Increase) in employee advance - - (2,000)
(Increase) decrease in prepaid expense 7,125 - (1,188)
(Increase) in deposit - - (92,500)
Increase in accounts payable 253,164 - 344,233
Increase in accrued payroll 71,907 - 116,600
Increase in accrued interest 537 - 537
(Decrease) in installment payable (250,000) - (250,000)
____________ ____________ _____________
Net Cash (Used) by Operating Activities (498,645) (109,224) (1,424,810)
____________ ____________ _____________
Cash Flows from Investing Activities:
Advance to related party (35,000) - (35,000)
Payments received on advance to related party 11,618 - 11,618
Payments for property and equipment (72,149) - (417,986)
____________ ____________ _____________
Net Cash (Used) by Investing Activities (95,531) - (441,368)
____________ ____________ _____________
Cash Flows from Financing Activities:
Advances from related party 247,069 115,600 1,564,015
Proceeds from issuance of common stock 400,000 - 400,000
Payments of stock offering costs - (5,500) (44,203)
____________ ____________ _____________
Net Cash Provided by Financing Activities 647,069 110,100 1,919,812
____________ ____________ _____________
Net Increase in Cash 52,893 876 53,634
Cash at Beginning of Period 741 - -
____________ ____________ _____________
Cash at End of Period $ 53,634 $ 876 $ 53,634
____________ ____________ _____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
[Continued]
7
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[Continued]
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the period from inception on April 24, 2002 through July 31, 2003:
In July 2003, the Company issued 50,000 shares of common stock for future
services pursuant to a consulting agreement valued at $18,000.
In July 2003, the Company issued warrants to purchase 10,000,000 shares of
common stock for services rendered pursuant to a consulting agreement
valued at $2,800,000.
In July 2003, the Company issued 2,250,000 shares of common stock for
future services pursuant to a consulting agreement valued at $630,000.
In June 2003, Parent acquired Subsidiary pursuant to an Amended and
Restated Agreement and Plan of Merger which has been accounted for as a
recapitalization of Subsidiary in a manner similar to a reverse purchase
[See Note 2]. Prior to the recapitalization of Subsidiary, Parent had
49,319,466 shares of common stock previously outstanding. An additional
2,330,493 shares of common stock were issued as finder's fees in the
transaction.
In June 2003, the Company issued 1,000,000 shares of preferred stock for
payment of $1,564,015 in debt.
In April 2003, the Company abandoned their proposed stock offering and
wrote off the deferred stock offering costs of $46,303 directly to general
and administrative expense.
In March 2003, the Company issued 1,360 shares of common stock for an
amended license agreement valued at $23,800.
In March 2003, the Company cancelled 3,888,360 shares of common stock.
In January 2003, the Company recorded an installment payable of $250,000
for the remaining purchase price under an Asset Purchase Agreement. The
Company also expensed $250,000 of the purchase price which was for
ground-site lease contact information and a temporary restriction on the
transfer of certain patent rights.
In April 2002, in connection with their organization, the Company issued
13,887,000 shares of common stock for organization costs of $1,870 and
services rendered valued at $5,630.
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
8
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - SkyWay Communications Holding Corp. ("Parent") was organized
under the laws of the State of Florida on December 16, 1998. In April 2003,
Parent changed its name to SkyWay Communications Holding Corp.
Sky Way Aircraft Inc. ("Subsidiary") was organized under the laws of the
State of Nevada on April 24, 2002. On June 21, 2003, Parent acquired
Subsidiary pursuant to an Amended and Restated Agreement and Plan of
Merger. The agreement called for Parent to issue 1,000,000 shares of Series
B convertible preferred stock to the former shareholders of Subsidiary for
100% of the outstanding shares of Subsidiary's common stock and for Parent
to issue 1,000,000 shares of Series A convertible preferred stock to the
former shareholders of Subsidiary for 100% of the outstanding shares of
Subsidiary's preferred stock wherein Subsidiary became a wholly-owned
subsidiary of Parent [See Note 2]. The acquisition of Subsidiary has been
accounted for as a recapitalization of Subsidiary in a manner similar to a
reverse purchase. Accordingly, the equity transactions have been restated
to reflect the recapitalization of Subsidiary and the operations of Parent
prior to the date of acquisition have been eliminated. The financial
statements reflect the operations of Subsidiary from its inception.
SkyWay Communications Holding Corp. and Subsidiary ("the Company") plans to
provide security and other services for the airline industry through
applications of their licensed high-speed, broadband wireless
communications technology. The Company has not yet generated any revenues
from their planned principal operations and is considered a development
stage company as defined in Statement of Financial Accounting Standards No.
7. The Company has, at the present time, not paid any dividends and any
dividends that may be paid in the future will depend upon the financial
requirements of the Company and other relevant factors.
Condensed Financial Statements - The accompanying financial statements have
been prepared by the Company without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows at July 31, 2003 and for the periods then ended have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles in the United States of America have been condensed or omitted.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's April 30, 2003 audited financial statements. The results of
operations for the periods ended July 31, 2003 are not necessarily
indicative of the operating results for the full year.
Consolidation - The consolidated financial statements include the accounts
of Parent and Parent's wholly owned Subsidiary. All significant
intercompany transactions have been eliminated in consolidation.
Fiscal Year - The Company's fiscal year-end is April 30th.
Cash and Cash Equivalents - The Company considers all highly liquid debt
investments purchased with a maturity of three months or less to be cash
equivalents.
9
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Accounts and Loans Receivable - The Company records accounts and loans
receivable at the lower of cost or fair value. The Company determines the
lower of cost or fair value of non-mortgage loans on an individual asset
basis. The Company recognizes interest income on an account receivable
based on the stated interest rate for past-due accounts over the period
that the account is past due. The Company recognizes interest income on a
loan receivable based on the stated interest rate over the term of the
loan. The Company accumulates and defers fees and costs associated with
establishing a receivable to be amortized over the estimated life of the
related receivable. The Company estimates allowances for doubtful accounts
and loan losses based on the aged receivable balances and historical
losses. The Company records interest income on delinquent accounts and
loans receivable only when payment is received. The Company first applies
payments received on delinquent accounts and loans receivable to eliminate
the outstanding principal. The Company charges off uncollectible accounts
and loans receivable when management estimates no possibility of collecting
the related receivable. The Company considers accounts and loans receivable
to be past due or delinquent based on contractual terms.
Property and Equipment - Property and equipment are stated at cost.
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized upon being placed in
service. Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets of four to five years. In accordance
with Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets", the Company periodically
reviews their property and equipment for impairment.
Website Costs - The Company has adopted the provisions of Emerging Issues
Task Force 00-2, "Accounting for Web Site Development Costs." Costs
incurred in the planning stage of a website are expensed as research and
development while costs incurred in the development stage are capitalized
and amortized over the life of the asset, estimated to be five years. As of
July 31, 2003, the Company has capitalized a total of $1,988 of website
costs. The Company did not incur any planning costs and did not record any
research and development costs for the three months ended July 31, 2003 and
2002.
Intangible Assets - The Company accounts for their intangible assets in
accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets". SFAS No. 142 establishes three
classifications for intangible assets including definite-life intangible
assets, indefinite-life intangible assets and goodwill and requires
different accounting treatment and disclosures for each classification. In
accordance with SFAS No. 142, the Company periodically reviews their
intangible assets for impairment. No impairment was recorded during the
three months ended July 31, 2003 and 2002.
Stock Offering Costs - Costs related to proposed stock offerings are
deferred and offset against the proceeds of the offering. In the event a
stock offering is unsuccessful, the costs related to the offering are
written off to expense.
10
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Stock-Based Compensation - The Company has one stock-based employee
compensation plan [See Note 7]. The Company accounts for their plan under
the recognition and measurement principles of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations. The following table illustrates the effect on net income
and loss per share if the Company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", to the Company's stock-based
employee compensation.
For the Three Months From Inception
Ended July 31, on April 24,
_________________________ 2002 Through
2003 2002 July 31, 2003
____________ ____________ _____________
Net loss, as reported $ (3,562,926) $ (109,224) $ (4,844,619)
Add: Stock-based employee compensation
expense included in reported net income - - -
Deduct: Total stock-based employee
compensation expense determined under
fair value based method (3,325) - (3,325)
____________ ____________ _____________
Pro forma net loss $ (3,566,251) $ (109,224) $ (4,847,944)
____________ ____________ _____________
Loss per common share, as reported $ (.12) $ (.01) $ (.29)
Loss per common share, pro forma $ (.12) $ (.01) $ (.29)
Advertising Costs - Advertising costs, except for costs associated with
direct-response advertising, are charged to operations when incurred. The
costs of direct-response advertising are capitalized and amortized over the
period during which future benefits are expected to be received.
Advertising costs for the three months ended July 31, 2003 and 2002
amounted to $47,602 and $0, respectively.
Research and Development - Research and development costs are expensed as
incurred. The Company expensed $209,335 and $92,600 in research and
development costs during the three months ended April 30, 2003 and 2002,
respectively.
Debt Extinguishment - The Company accounts for extinguishment of debt in
accordance with Statement of Financial Accounting Standards No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". SFAS No. 145 rescinds the
requirement that gains and losses from extinguishment of debt be classified
as an extraordinary item.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" [See Note 8].
11
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Loss Per Share - The computation of loss per share is based on the weighted
average number of shares outstanding during the period presented in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" [See Note 11].
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosures
of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reported period. Actual results could differ from those estimated.
Recently Enacted Accounting Standards - Statement of Financial Accounting
Standards ("SFAS") No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities", SFAS No. 147, "Acquisitions of Certain Financial
Institutions - an Amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9", SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", and SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity", were recently issued. SFAS No. 146, 147, 149 and
150 have no current applicability to the Company or their effect on the
financial statements would not have been significant.
Reclassification - The financial statements for periods prior to July 31,
2003 have been reclassified to conform to the headings and classifications
used in the July 31, 2003 financial statements.
Restatement - The financial statements have been restated for all periods
presented to reflect the recapitalization of Subsidiary [See Note 2] and to
reflect a 1.8516-for-1 forward stock split that Subsidiary effected on
March 11, 2003 [See Note 7].
NOTE 2 - AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
On May 30, 2003, Parent and Subsidiary entered into an Agreement and Plan
of Merger. On June 19, 2003, Parent and Subsidiary entered into an Amended
and Restated Agreement and Plan of Merger whereby Parent agreed to acquire
100% of Subsidiary in a stock for stock exchange. The agreement called for
Parent to issue 1,000,000 shares of Series B convertible preferred stock to
the former shareholders of Subsidiary for 100% of the outstanding shares of
Subsidiary's common stock and for Parent to issue 1,000,000 shares of
Series A convertible preferred stock to the former shareholders of
Subsidiary for 100% of the outstanding shares of Subsidiary's preferred
stock. Voting control of the Company passed to the former shareholders of
Subsidiary. The Company has accounted for the acquisition as a
recapitalization of Subsidiary in a manner similar to a reverse purchase.
Accordingly, the equity transactions have been restated to reflect the
recapitalization of Subsidiary and the operations of Parent prior to the
date of acquisition have been eliminated. The financial statements reflect
the operations of Subsidiary from its inception. Prior to the
recapitalization of Subsidiary, Parent had 49,319,466 shares of common
stock previously outstanding. An additional 2,330,493 shares of common
stock were issued as finder's fees in the transaction.
12
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
July 31, April 30,
2003 2003
___________ ___________
Machinery and equipment $ 336,718 $ 264,569
Vehicles 79,280 79,280
Website 1,988 1,988
___________ ___________
417,986 345,837
Less: accumulated depreciation (41,139) (20,876)
___________ ___________
Net property and equipment $ 376,847 $ 324,961
___________ ___________
Depreciation expense for the three months ended July 31, 2003 and 2002
amounted to $20,263 and $0, respectively.
NOTE 4 - INDEFINITE-LIFE INTANGIBLE ASSETS
Indefinite-life intangible assets consist of the following at:
July 31, April 30,
2003 2003
___________ __________
License agreements with Sky Way Global, Inc. $ 23,800 $ 23,800
___________ __________
Indefinite-life Intangible Assets $ 23,800 $ 23,800
___________ __________
On June 23, 2003, the Company signed a License Agreement with Sky Way
Global, LLC ("SWG"), an entity under common control, to replace the
Company's Amended and Restated Software License and Services Agreement
dated March 11, 2003. This new agreement exclusively and irrevocably
assigns virtually all of SWG's rights to certain patented technology in
exchange for a royalty of 3% of the Company's net revenues.
On March 11, 2003, the Company signed an Amended and Restated Software
License and Services Agreement with SWG, an entity under common control, to
replace the Company's Licensing Agreement entered into during 2002. Under
this new agreement, the Company issued 1,360 shares of common stock valued
at $23,800 to obtain the rights for indefinite use of certain high-speed,
broadband wireless technology for the aircraft industry and other related
uses. This agreement was replaced by a License Agreement signed June 23,
2003.
In 2002, the Company entered into a ten-year licensing agreement with SWG,
an entity under common control. The Company was to pay a royalty fee of 5%
of gross sales for the exclusive right to use Global's high-speed,
broadband wireless technology for the aircraft industry. This agreement was
replaced by an Amended and Restated Software License and Services Agreement
signed March 11, 2003.
13
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE
Notes payable consist of the following at:
July 31, April 30,
2003 2003
___________ ___________
18% unsecured demand note payable to
ECI Communications, Inc. $ 25,000 $ -
11% unsecured demand note payable to a
shareholder of the Company 3,600 -
___________ ___________
28,600 -
Less current portion (28,600)
___________ ___________
$ - $ -
___________ ___________
For the three months ended July 31, 2003 and 2002, interest expense
amounted to $537 and $0, respectively.
NOTE 6 - PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock, $.0001 par
value, with such rights, preferences and designations and to be issued in
such series as determined by the Company's Board of Directors. In June
2003, the Board of Directors designated 1,180,000 shares as Series A and
1,000,000 shares as Series B.
Series A Convertible Preferred Stock - Each share of Series A convertible
preferred stock has a stated value of $15,000,000, has the voting rights of
100 shares of common stock and is convertible at the shareholder's option
into 100 shares of common stock. Series A convertible preferred
shareholders must approve any dividend payments and are entitle to share in
common stock dividends as if their preferred stock had been converted into
common stock. Upon liquidation of the Company, Series A convertible
preferred shareholders are entitled to receive an amount equal to the
stated value plus one percent per annum from the date of issuance. The
Company may redeem all or part of the Series A convertible preferred stock
within one year of the date of issuance by paying an amount equal to the
stated value plus five percent.
In June 2003, in connection with an Amended and Restated Agreement and Plan
of Merger, the Company issued 1,000,000 shares of their previously
authorized but unissued Series A convertible preferred stock for all
1,000,000 shares of Subsidiary's preferred stock which had been issued to
SWG for debt relief of $1,564,015 or approximately $1.564 per share.
14
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - PREFERRED STOCK [Continued]
Series B Convertible Preferred Stock - Each share of Series B convertible
preferred stock has a stated value of $15,000,000 and has no voting,
liquidation or dividend rights. Within three years of the date of issuance,
each share of Series B convertible preferred stock will be converted
automatically into 200 shares of the Company's common stock if certain
conditions are met. The Company may redeem all or part of the Series B
convertible preferred stock within one year of the date of issuance by
paying an amount equal to the stated value plus five percent. Any shares of
Series B convertible preferred stock which remain outstanding three years
following the date of issuance will be automatically cancelled.
In June 2003, in connection with an Amended and Restated Agreement and Plan
of Merger, the Company issued 1,000,000 shares of their previously
authorized but unissued Series B convertible preferred stock for all
10,000,000 shares of Subsidiary's common stock.
NOTE 7 - CAPITAL STOCK, OPTIONS AND WARRANTS
Common Stock - The Company has authorized 2,500,000,000 shares of common
stock with a par value of $.0001. In July 2003, the Company issued
1,000,000 shares of their previously authorized but unissued common stock
at $.10 per share for cash of $100,000 upon the exercise of warrants.
In July 2003, the Company issued 3,000,000 shares of their previously
authorized but unissued common stock at $.10 per share for cash of
$300,000.
In July 2003, the Company issued 50,000 shares of their previously
authorized but unissued common stock at $.36 per share for future services
valued at $18,000.
In July 2003, the Company issued 2,250,000 shares of their previously
authorized but unissued common stock at $.28 per share for future services
valued at $630,000.
In March 2003, the Company issued 1,360 shares of their previously
authorized but unissued common stock at $17.50 per share for an amended
license agreement valued at $23,800.
In April 2002, in connection with their organization, the Company issued
13,887,000 shares of their previously authorized but unissued common stock
at approximately $.00054 per share for payment of organization costs of
$1,870 and non-cash services valued at $5,630 including $2,100 which was
classified as stock offering costs and $3,530 which was classified as
general and administrative expense.
Cancellation - In March 2003, the Company's Board of Directors approved to
cancel 3,888,360 shares of common stock that had been accounted for as
issued to consultants in April 2002 [See Note 12].
Stock Split - On March 11, 2003, Subsidiary effected a 1.8516-for-1 forward
stock split. The financial statements for all periods presented have been
restated to reflect the stock split.
15
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CAPITAL STOCK, OPTIONS AND WARRANTS [Continued]
Abandoned Proposed Stock Offering - The Company was proposing to make a
public offering of 5,000,000 shares of their previously authorized but
unissued common stock which was to be registered with the Securities and
Exchange Commission on Form SB-2. An offering price of $17.50 per share was
arbitrarily determined by the Company and offering costs were estimated to
be approximately $73,000. In April 2003, the Company abandoned their
proposed stock offering and wrote off the deferred stock offering costs of
$46,303 directly to general and administrative expense.
Stock Warrants - In July 2003, the Company issued five-year warrants to
purchase 10,000,000 shares of common stock for future services valued at
$2,800,000 or $.28 per warrant using the Black-Scholes option pricing
model, with the following assumptions: risk-free interest rate of 2.48%,
expected dividend yield of zero, expected lives of 5 years and expected
volatility of 670%. The warrants were issued to purchase shares of common
stock at the following exercise prices: 1,000,000 at $.10 per share,
2,000,000 at $.15, 1,000,000 at $.30 per share, 1,000,000 at $.55 per
share, 1,000,000 at $1.00 per share, 2,000,000 at 80% of market value with
a $.20 per share minimum, 1,000,000 at 85% of market value with a $.20 per
share minimum and 1,000,000 at 90% of market value with a $.20 per share
minimum. In July 2003, warrants to purchase 1,000,000 shares of common
stock at $.10 per share were exercised. At July 31, 2003, warrants to
purchase 9,000,000 shares of common stock were still outstanding.
Stock Options - In June 2003, Parent granted options to purchase 420,000
shares of common stock at $.19 per share as additional compensation to
officers of the Company. The options vest over three years with 140,000
vesting on June 20, 2004, 140,000 vesting on June 20, 2005 and 140,000
vesting on June 20, 2006. The options are exercisable for three years
following vesting. Since the exercise price of the options was the same as
the market price of the Company's common stock on the grant date, the
Company has recorded no compensation cost for the options in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees".
16
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CAPITAL STOCK, OPTIONS AND WARRANTS [Continued]
A summary of the status of the options granted under the Company's
stock-based employee compensation plan is presented below.
For the Three Months From Inception
Ended July 31, on April 24,
__________________________________ 2002 Through
2003 2002 July 31, 2003
________________ ________________ ________________
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
_______ _______ _______ _______ _______ _______
Outstanding at beginning of period - $ - - $ - - $ -
Granted 420,000 $ .19 - $ - 420,000 $ .19
Exercised - $ - - $ - - $ -
Forfeited - $ - - $ - - $ -
Expired - $ - - $ - - $ -
_______ _______ _______ _______ _______ _______
Outstanding at end of period 420,000 $ .19 - $ - 420,000 $ .19
_______ _______ _______ _______ _______ _______
Weighted average fair value of options
granted during the period 420,000 $ .19 - $ - 420,000 $ .19
_______ _______ _______ _______ _______ _______
The fair value of each option granted is estimated on the date granted
using the Black-Scholes option pricing model, with the following
assumptions: risk-free interest rate of 2.31%, expected dividend yield of
zero, expected lives of 4 to 6 years and expected volatility of 680%.
A summary of the status of the options outstanding under the Company's
stock-based employee compensation plan at July 31, 2003 is presented below:
Options Outstanding Options Exercisable
___________________________________________ _________________________
Range of Weighted-Average Weighted-Average Weighted-Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
___________ ___________ ______________ ______________ _________ ______________
$ .19 420,000 4.9 years $ .19 - $ -
___________ ___________ ______________ ______________ _________ ______________
17
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". SFAS
No. 109 requires the Company to provide a net deferred tax asset or
liability equal to the expected future tax benefit or expense of temporary
reporting differences between book and tax accounting methods and any
available operating loss or tax credit carryforwards. At July 31, 2003, the
Company has available unused operating loss carryforwards of approximately
$2,284,000, which may be applied against future taxable income and which
expire in various years through 2024.
At July 31, 2003, the total of all deferred tax assets was approximately
$522,000 and the total of all deferred tax liabilities was approximately
$0. The amount of and ultimate realization of the benefits from the
deferred tax assets for income tax purposes is dependent, in part, upon the
tax laws in effect, the future earnings of the Company, and other future
events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforwards, the
Company has established a valuation allowance of approximately $522,000.
The net change in the valuation allowance was approximately $197,000 during
the three months ended April 30, 2003.
The temporary differences gave rise to the following deferred tax asset
(liability):
July 31,
2003
___________
Excess of tax over financial
accounting depreciation $ 50,045
Accrued compensation 22,774
Net operating loss carryover 449,209
18
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES [Continued]
The components of federal income tax expense from continuing operations
consisted of the following for the three months ended:
July 31,
2003
___________
Current income tax expense:
Federal $ -
State -
___________
Net current tax expense $ -
___________
Deferred tax expense (benefit) resulted from:
Excess of tax over financial
accounting depreciation $ 4,472
Accrued compensation (17,447)
Net operating loss carryover (184,283)
Valuation allowance 197,258
___________
Net deferred tax expense $ -
___________
Deferred income tax expense results primarily from the reversal of
temporary timing differences between tax and financial statement income.
The reconciliation of income tax from continuing operations computed at the
U.S. federal statutory tax rate to the Company's effective rate is as
follows for the three months ended:
July 31,
2003
___________
Computed tax at the expected
federal statutory rate 15.00%
State income taxes, net of federal benefit 4.67
Compensation due to warrants (14.13)
Valuation allowance (5.54)
___________
Effective income tax rates 0.00%
___________
19
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America,
which contemplate continuation of the Company as a going concern. However,
the Company was only recently formed and has not yet been successful in
establishing profitable operations. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. In this
regard, management is proposing to raise any necessary additional funds not
provided by operations through loans or through additional sales of their
common stock. There is no assurance that the Company will be successful in
raising this additional capital or in achieving profitable operations. The
financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
NOTE 10 - RELATED PARTY TRANSACTIONS
Advance to Sky Way Global - In July 2003, the Company advanced $35,000 to
Sky Way Global, LLC ("SWG"), an entity under common control. SWG has made
payments on behalf of the Company totaling $11,618 through July 31, 2003,
resulting in a balance of $23,382 owed by SWG to the Company as of July 31,
2003. The advance bears no interest and is due on demand.
License Agreements - The Company has entered into licensing agreements with
SWG [See Note 4].
Advances from Sky Way Global and Note Payable - SWG made payments on behalf
of the Company and made cash advances to the Company totaling $1,564,015.
The advances bore no interest and were due on demand. On June 19, 2003, the
Company converted the amounts owed to SWG into a promissory note. The note
bore no interest and was due on demand. On June 21, 2003, Subsidiary issued
1,000,000 shares of its preferred stock to SWG as repayment of the note and
advances.
Note Payable - At July 31, 2003, $3,600 of the Company's notes payable and
$988 of accrued interest were owed to a shareholder of the Company [See
Note 5]. For the three months ended July 31, 2003 and 2002, interest
expense to the shareholder amounted to $43 and $0, respectively.
Office Space - The Company shares office space with SWG. In May 2003, due
to the reduced operations of SWG, the Company stopped charging rent to SWG.
During the three months ended July 31, 2003 and 2002, respectively, the
Company billed SWG $0 and $0 in rent.
Employment Agreements and Management Compensation - In June 2003, the
Company entered into a three-year Employment Agreement with the Company's
President to pay a salary of $150,000 per year increased annually by 10%.
The agreement also required the Company to grant options to purchase
210,000 shares of common stock and to pay $750 per month as a
non-accountable automobile allowance. The June 2003 Employment Agreement
replaced an April 2003 five-year Employment Agreement which required a
salary of $150,000 per year increased annually by 10%. During the three
months ended July 31, 2003 and 2002, respectively, the Company expensed
$38,250 and $0 as compensation to the Company's President. At July 31,
2003, the Company owed $44,583 in accrued salary to the Company's
President.
20
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - RELATED PARTY TRANSACTIONS [Continued]
In June 2003, the Company entered into a three-year Employment Agreement
with the Company's Chief Executive Officer to pay a salary of $150,000 per
year increased annually by 10%. The agreement also required the Company to
grant options to purchase 210,000 shares of common stock and to pay $750
per month as a non-accountable automobile allowance. The June 2003
Employment Agreement replaced an April 2003 five-year Employment Agreement
which required a salary of $175,000 per year increased annually by 10%.
During the three months ended July 31, 2003 and 2002, respectively, the
Company expensed $42,417 and $0 as compensation to the Company's Chief
Executive Officer. At July 31, 2003, the Company owed $50,697 in accrued
salary to the Company's Chief Executive Officer.
During the three months ended July 31, 2003 and 2002, respectively, the
Company expensed $20,000 and $0 as compensation to a shareholder of the
Company. At July 31, 2003, the Company owed $20,500 in accrued salary to
the shareholder.
Consulting Agreement - In July 2003, the Company entered into a six-month
Consulting Agreement with Michael Farkas, a shareholder of the Company, to
provide consulting services valued at $2,030,000 using the Black-Scholes
option pricing model in exchange for 1,250,000 shares of common stock and
five-year warrants to purchase 6,000,000 shares of common stock [See Note
7]. The warrants were issued to purchase shares of common stock at the
following exercise prices: 1,000,000 at $.10 per share, 2,000,000 at $.15,
1,000,000 at $.30 per share, 1,000,000 at $.55 per share and 1,000,000 at
$1.00 per share. At July 31, 2003, the Company has recorded $291,667 of the
services as a subscription receivable.
Investment Banking/Advisory Agreement - In June 2003, the Company entered
into an Investment Banking/Advisory Agreement with Atlas Capital Services,
LLC ("Atlas"), an entity controlled by a shareholder of the Company. The
agreement provided for Atlas to assist the Company in finding an
acquisition candidate and the Company was to issue 2,330,493 shares of
common stock upon consummation of an acquisition. In June 2003, Parent
acquired Subsidiary and issued 2,330,493 shares of common stock to Atlas
for services rendered valued at $442,794. The agreement also provides for
Atlas to assist the Company in obtaining financing and the Company will pay
10% of the proceeds received from any such financing.
21
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - LOSS PER SHARE
The following data shows the amounts used in computing loss per share:
For the Three Months From Inception
Ended July 31, on April 24,
_________________________ 2002 Through
2003 2002 July 31, 2003
____________ ____________ _____________
Loss from operations available to
common shareholders (numerator) $ (3,562,926) $ (109,224) $ (4,844,619)
____________ ____________ _____________
Weighted average number of common
shares outstanding used in loss per
share for the period (denominator) 29,835,852 13,887,000 16,636,340
____________ ____________ _____________
At July 31, 2003, the Company had outstanding options to purchase 420,000
shares of common stock, warrants to purchase 9,000,000 shares of common
stock and preferred stock convertible into 300,000,000 shares of common
stock which were not used in the computation of loss per share because
their effect would be anti-dilutive. Dilutive loss per share was not
presented, as the Company had no common stock equivalent shares for all
periods presented that would affect the computation of diluted loss per
share.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Consulting Agreements - In July 2003, the Company entered into a six-month
Consulting Agreement with Bruce Baker to provide consulting services valued
at $1,400,000 using the Black-Scholes option pricing model in exchange for
1,000,000 shares of common stock and five-year warrants to purchase
4,000,000 shares of common stock [See Note 7]. The warrants were issued to
purchase shares of common stock at the following exercise prices: 2,000,000
at 80% of market value with a $.20 per share minimum, 1,000,000 at 85% of
market value with a $.20 per share minimum and 1,000,000 at 90% of market
value with a $.20 per share minimum. At July 31, 2003, the Company has
recorded $233,334 of the services as a subscription receivable.
In July 2003, the Company entered into a nine-month Consultant Services
Plan with Beadros Asare to provide consulting services valued at $18,000 in
exchange for 50,000 shares of common stock. At July 31, 2003, the Company
has recorded $16,000 of the services as a subscription receivable.
Engagement Agreement - In June 2003, Parent entered into an Engagement
Agreement with Michael Williams to provide legal services through December
31, 2003 valued at $380,000 in exchange for 2,000,000 shares of common
stock. At July 31, 2003, the Company has recorded $325,714 of the services
as a subscription receivable.
22
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES [Continued]
Escrow and Lease Agreements - In January 2003, the Company signed an Escrow
Agreement with ECI Telecom, Inc. ("ECI") and Klein & Heuchan ("KH") to rent
office space for the month of February 2003 while a long-term lease was
finalized. The agreement called for the Company to deposit $105,000 with KH
and for rent of $16,000 to accrue for February. In March 2003, the Company
signed an Extension of Escrow Agreement with ECI and KH to provide for the
Company to continue to occupy the rented office space through April 30,
2003. In May 2003, the Company signed a Lease Agreement with ECI Telecom,
Inc ("ECI") to replace the escrow agreements. The lease provides for a
five-year term beginning February 1, 2003 and the lease is renewable for
one additional five-year term. The lease requires payments of $46,367 per
month beginning June 2003 and skipping January 2004. The lease payments
will increase 3% each February 1 and the Company will pay additional
expenses for upkeep of the building. The lease continues the $92,500
security deposit of the escrow agreement. The Company paid $15,000 required
under the lease in order for the Company to have the option to purchase the
leased office space for $4,750,000 by August 1, 2003 or $4,900,000 by
November 1, 2003. The lease is guaranteed by Sky Way Global, LLC, an entity
under common control. For the three months ended July 31, 2003 and 2002,
total rent expense amounted to $139,101 and $0, respectively.
Minimum future rental payments under the lease agreement for the
twelve-month periods ended and in aggregate are:
July 31, Amount
___________ ___________
2004 $ 564,750
2005 581,693
2006 599,143
2007 617,118
2008 313,119
___________
$ 2,675,823
___________
Letter of Intent - In July 2003, the Company signed a Letter of Intent to
acquire Star Navigation Systems Group Ltd. The agreement provides for the
two companies to work toward an acquisition agreement. No acquisition
agreement has been signed and final consummation of an acquisition is not
guaranteed.
Services Agreement - In February 2003, the Company entered into a
three-year Services Agreement with XO Communications, Inc. ["XO"]. The
agreement calls for XO to provide internet services to the Company and the
term of the agreement does not begin until XO has completed installation of
the internet connection. The agreement requires the Company to purchase a
minimum of $4,600 of services per month with annual minimum purchases of
$55,200 for the first year, $110,400 for the second year and $165,600 for
the third year. At July 31, 2003, XO had not yet complete installation of
the internet connection and no amount has been accrued in the accompanying
financial statements for the payments required under this agreement.
23
SKYWAY COMMUNICATIONS HOLDING CORP. AND SUBSIDIARY
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES [Continued]
Stock Cancellation and Contingency - In March 2003, Subsidiary's Board of
Directors approved to cancel 3,888,360 shares of Subsidiary's common stock
that had been accounted for as issued to consultants in April 2002.
Management claims that consideration was not received for the stock.
Although the certificates representing these shares were not delivered, the
possibility exists that the consultants may demand delivery of the shares
pursuant to agreements with the Company.
NOTE 13 - SUBSEQUENT EVENTS
Consulting Agreements - In September 2003, the Company entered into
one-year Consulting Agreements with Doug Dahms and William Craig to provide
consulting services in exchange for a total of 12,000,000 shares (6,000,000
shares each) of the Company's common stock.
Stock Issuances - In August 2003, the Company issued 666,667 shares of
their previously authorized but unissued common stock at $.15 per share for
cash of $100,000 upon the exercise of warrants.
In September 2003, the Company issued 372,000 shares of their previously
authorized but unissued common stock at approximately $.25 per share for
cash of $92,842.
24
Item 2. Management's Discussion and Plan of Operation
Forward-Looking Statements
This Quarterly Report contains forward-looking statements about SkyWay
Communications Holding Corp.'s business, financial condition and prospects that
reflect management's assumptions and beliefs based on information currently
available. We can give no assurance that the expectations indicated by such
forward-looking statements will be realized. If any of our management's
assumptions should prove incorrect, or if any of the risks and uncertainties
underlying such expectations should materialize, SkyWay Communications Holding
Corp.'s actual results may differ materially from those indicated by the
forward-looking statements.
The key factors that are not within our control and that may have a
direct bearing on operating results include, but are not limited to, acceptance
of our services, our ability to expand our customer base, managements' ability
to raise capital in the future, the retention of key employees and changes in
the regulation of our industry.
There may be other risks and circumstances that management may be unable
to predict. When used in this Quarterly Report, words such as, "believes,"
"expects," "intends," "plans," "anticipates," "estimates" and similar
expressions are intended to identify forward-looking statements, as defined in
Section 21E of the Securities Exchange Act of 1934, although there may be
certain forward-looking statements not accompanied by such expressions.
The safe harbors of forward-looking statements provided by Section 21E
of the Exchange Act are unavailable to issuers of penny stock. As we issued
securities at a price below $5.00 per share, our shares are considered penny
stock and such safe harbors set forth under the Reform Act are unavailable to
us.
BUSINESS DEVELOPMENT. We were incorporated under the name Mastertel, Inc. in the
State of Florida on December 16, 1998 as a wholly owned subsidiary of
i-Incubator.com, Inc. (now known as Inclusion, Inc.), a public company that
formerly traded on the NASDAQ OTC Electronic Bulletin Board. On December 2,
1999, the Company filed a Certificate of Amendment changing the name of the
Company to i-Teleco.com, Inc. On April 14, 2003, the Company filed a Certificate
of Amendment changing the name of the Company to SkyWay Communications Holding
Corp.
On June 21, 2003, SWYC Acquisition Corporation, a Florida corporation and our
wholly owned subsidiary, merged, pursuant to an Amended and Restated Agreement
and Plan of Merger, dated as of June 19, 2003, with and into Sky Way Aircraft,
Inc., a Nevada corporation. The merger closed on June 21, 2003. In connection
with the merger, we moved our headquarters to 6021 - 142nd Avenue North,
Clearwater, FL 33760.
25
CURRENT BUSINESS OF ISSUER. We are developing a ground to air in-flight aircraft
communication network that we anticipate will facilitate homeland security and
in-flight entertainment. We are focused on bringing to the market a network
supporting aircraft-related services including anti-terrorism support, real time
in-flight surveillance and monitoring, WIFI or wireless access to the Internet,
telephone service and enhanced entertainment service for commercial and private
aircraft throughout the United States. Based on the final upgrading of a
previous airborne telephone and communications network, we intend to provide
broadband connectivity between the ground and in-flight aircraft throughout the
U.S. using technology that provides a broadband high-speed data transmission. We
intend to be the communications solution for commercial and private aircraft
owners wanting real time access to on-board security systems, aircraft health
and welfare monitoring, avionics operations and for passengers wanting real time
high-speed access to the internet. Our network will enable third party
applications that can personalize the in-flight entertainment experience,
provide real time access to flight management avionics with long-term data
storage and also support for ground monitoring of in-flight surveillance systems
that are being designed with the goal of enhancing current airline security
standards. However, we will only provide the network. Other parties will use
their applications on our network to provide these types of services.
Sky Way Aircraft was formed to utilize now-patented wireless data transmission
software technology developed by Mr. Brent Kovar, our President. This technology
is a software program for data indexing, which is similar to data compression
but which mitigates data loss problems associated with compression. This
technology permits faster and less expensive transmission of data, video, voice
and audio between the ground and an airplane or other homeland security related
ground locations than using traditional, non-indexed data transmission
mechanisms. This is because indexed data takes up less transmission space, and
thus travels faster and costs less to transmit than non-indexed data
transmission. The technology is licensed to us under an irrevocable, perpetual
exclusive worldwide license agreement.
We are currently in the process of testing our technology in the transmission of
data between the ground and airplanes. We have demonstrated that video and
internet connection data can be transmitted between the ground and airplanes
using our technology. We are in the process of additional testing to refine
these communication links. We are also in the process of developing our homeland
security applications.
We currently have no customers, although we have signed a contract to provide
services to Southeast Airlines. All of our products and services are in the
development stage and will require additional testing. In addition, we need to
develop our infrastructure and secure agreements with a number of third party
service providers in order to commence operations.
26
Results of Operations
We had the following expenses for the following periods:
Three months ended July 31, 2002 vs. three months ended July 31, 2003
General and administrative expenses for the three months ended July 31, 2003
totaled $3,305,452 and included consulting fees, payroll, rent and legal fees.
Selling expenses for the three months ended July 31, 2003 totaled $47,602 and
included advertising. Research and Development expenses for the three months
ended July 31, 2003 totaled $209,355 and included rental costs for equipment and
testing. Interest expense was $537.
General and administrative expenses for the three months ended July 31, 2002
totaled $16,624 and included office expenses, travel and legal fees. We had no
selling expenses. Research and Development expenses for the three months ended
July 31, 2002 totaled $92,600 and included personnel costs for research and
development and rental costs for equipment and testing. We had no interest
expense.
All increases in expenses were the result of our merger with Sky Way Aircraft,
Inc. and the fact that Sky Way Aircraft had minimal operations during the three
months ended July 31, 2002.
Future Plans
We plan to accomplish the following in the future. We need additional funds to
finance our business development in the next 12 months, as set forth below, but
we are not committed to make any of these expenditures. We have no source of
these funds identified. We hope to be able to raise additional funds from an
offering of our stock in the future. However, this offering may not occur, or if
it occurs, may not raise the desired funding. If we fail to secure adequate
funds to accomplish the objectives outlined below, we will be able to conduct
only limited operations. However, we believe that if we secure the required
funding on a timely basis, we can accomplish these objectives within the
projected time frames.
- -------------------------------------- -------------------------------- ------------------------------ ------------------------
EVENT OR MILESTONE TIME FRAME FOR IMPLEMENTATION METHOD OF ACHIEVEMENT ESTIMATED COST
[Low/High]
- -------------------------------------- -------------------------------- ------------------------------ ------------------------
Lease, activate and upgrade tower October 1, 2003 - June 30, 2003 Contact owners and complete $600,000 - $850,000
network negotiations; conduct site
survey
- -------------------------------------- -------------------------------- ------------------------------ ------------------------
Identify, test and upgrade equipment October 1, 2003 - June 30, 2003 Identify airlines, execute $500,000 - $650,000
in aircraft agreement, secure
installation service
- -------------------------------------- -------------------------------- ------------------------------ ------------------------
Build out and equip operations center October 1, 2003 - June 30, 2003 Construct and test all $300,000 - $450,000
operations
- -------------------------------------- -------------------------------- ------------------------------ ------------------------
Complete research and testing of October 1, 2003 - December 31, Continue research and testing $250,000 - $400,000
aircraft network 2003
- -------------------------------------- -------------------------------- ------------------------------ ------------------------
Hire additional employees to operate October 1, 2003 - December 31, Interview and hire $500,000 - $650,000
network 2003
- -------------------------------------- -------------------------------- ------------------------------ ------------------------
27
We have no sources of financing identified. Even if we identify sources for such financing:
o Additional financing may not be available on commercially reasonable
terms or available at all
o Additional financing may result in dilution to existing and future
equity holders; and
o If we issue debt instruments, we will be subject to increased debt
obligations that will impose a greater financial strain upon our
operations.
If we do not secure the required funding, the major expansion planned milestones
may not be achieved within the anticipated time period, if at all. We believe
that future plans will be achieved if we receive the necessary funding.
Furthermore, in the event that the level of funding is less that we have
anticipated, this may also result in a delay in our ability to generate revenues
or a reduced amount of revenues being generated.
Liquidity and Capital Resources
From our inception on April 24, 2002 to July 31, 2003, we incurred operating
losses of ($4,844,619) and at July 31, 2003 we had a net working capital deficit
of $524,461. Net cash used in operating activities for the period from May 1,
2003 to July 31, 2003 was $498,645.
In addition, as of July 31, 2003, we had only $53,634 of current cash available.
Our cash resources of $53,634 are not sufficient to satisfy our cash
requirements over the next 12 months. We will need to secure a minimum of
$2,000,000 to satisfy such requirements, but we need an additional minimum of
$5,000,000 to finance our planned expansion in the next 12 months, which funds
will be used for product development and personnel. In order to become
profitable we may still need to secure additional debt or equity funding. We
have no source of funding identified. Our failure to secure additional funds
would impair and delay our ability to implement our business plan.
Other than described above, we do not expect to purchase any plant or
significant equipment.
We may experience problems; delays, expenses, and difficulties sometimes
encountered by an enterprise in Sky Way Aircraft's stage of development, many of
which are beyond our control. These include, but are not limited to,
unanticipated problems relating to the development of the system, production and
marketing problems, additional costs and expenses that may exceed current
estimates, and competition.
Item 3. Controls and Procedures
Based on their most recent evaluation, which was completed as of the end of
the period covered by this periodic report on Form 10-QSB, the Company's Chief
Executive Officer and Chief Financial Officer believe the Company's disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) are
effective to ensure that information required to be disclosed by the Company in
this report is accumulated and communicated to the Company's management,
including its principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure. During the
fiscal quarter to which this report relates, there were no significant changes
in the Company's internal controls or other factors that could significantly
affect these controls subsequent to the date of their evaluation and there were
no corrective actions with regard to significant deficiencies and material
weaknesses.
28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
Warrants to purchase 1,000,000 shares of our common stock at $1.10 per
share were modified to reduce the exercise price to $.10 per share.
Item 3. Defaults upon Senior Securities.
NONE
Item 4. Submission of Matters to a Vote of Security Holders.
NONE
Item 5. Other Information.
NONE
29
Item 6. Exhibits
Exhibit Name and/or Identification of Exhibit
Number
- ---------------------------------------------------------------------
2.1 Letter of intent with Star Navigation*
3 Articles of Incorporation & By-Laws
(a) Articles of Incorporation of the Company.*
(b) By-Laws of the Company.*
4.1 Consulting Agreement between Michael Farkas and the Company with
Warrants attached*
4.2 Consulting Agreement between Bruce Baker and the Company with
Warrants attached*
10.1 Southeast Airlines Press Release.*
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer, and Chief Executive Officer, Jim Kent
32.1 Section 1350 Certification, Jim Kent
* Incorporated by reference to the exhibits to the Company's Forms SB-2, 8-K
and S-8 filings, and amendments thereto, previously filed with the Commission.
8-K reports
8-K/A [html][text] 70 KB [Amend]Current report, item 7 2003-09-05 000-32033
8-K [html][text] 7 KB Current report, items 4 and 7 2003-09-05 000-32033
8-K [html][text] 11 KB Current report, items 5 and 7 2003-09-02 000-32033
8-K [html][text] 3 KB Current report, item 5 2003-07-29 000-32033
8-K [html][text] 12 KB Current report, items 2, 5, and 7
30
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
SkyWay Communications Holding Corp.
-----------------------------------
(Registrant)
By: /s/ Jim Kent
-----------------------
Jim Kent
CEO, Principal Financial Officer
and Principal Accounting Officer
Date: September 18, 2003