Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-K**

 

**ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**

**EXCHANGEACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008**

 

**Commission File No. 000-50983**

 

**SkyPostalNetworks, Inc.**

(Exact name of registrant as specified in itscharter)

 

| **NEVADA**                               | ** ** | **27-0005846**      |
|------------------------------------------|------------|---------------------|
| (State or other jurisdiction of          |       | (I.R.S. Employer    |
| incorporation or organization)           |       | Identification No.) |
|                                     |       |                |
| **7805 NW 15th Street**                  |       |                |
| **Miami, Florida**                       | ** ** | **33126**           |
| (Address of principal executive offices) |       | (Zip Code)          |

 

**(305) 599-1812**

(Registrant’s telephone number, includingarea code)

 

**Securities registered pursuant to Section 12(b) ofthe Act: None**

 

**Securities registered pursuant to Section 12(g) ofthe Act: Common Stock, par value $0.001 per share**

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes  o    No  x

 

Indicate by check mark if the registrant isnot required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.Yes  o    No  x

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.    Yes  x    No  o

 

Indicate by check mark if disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of the registrant’s knowledge,in definitive proxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form 10-K.  o

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filed, a non-accelerated filer ora smaller reporting company as defined in Rule 12b-2 of the Exchange Act.

 
| Large accelerated file | o |   |   | Accelerated filer         | o |   |
|------------------------|---|--------|--------|---------------------------|---|--------|
| Non-accelerated filer  | o |   |   | Smaller reporting company | x |   |

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

 

As of MARCH 15, 2009, the number ofoutstanding shares of common stock, $0.001 par value per share, of theregistrant was 65,999,664.

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

Portions of the Issuer’s Proxy Statementrelating to its 2009 Annual Meeting of Shareholders are incorporated byreference into Item 11.

 

 

 

----

Tableof Contents

 

**Table of Contents**

 
| 1st Page | Filing Submission                                                                                |            |
|---------------|--------------------------------------------------------------------------------------------------|-----------------|
| Part I   |
|          |                                                                                             |            |
| Item 1        | Business                                                                                         | 3               |
| Item 1a       | Risk  Factors                                                                                    | 5               |
| Item 1b       | Unresolved Staff Comments                                                                        | 10              |
| Item 2        | Properties                                                                                       | 10              |
| Item 3        | Legal Proceedings                                                                                | 11              |
| Item 4.       | Submission Of Matters To A Vote Of Security  Holders                                             | 11              |
|          |                                                                                             |            |
| Part II  |
|          |                                                                                             |            |
| Item 5        | Market For Registrant’s Common Equity                                                       | 11              |
| Item 6.       | Selected Financial Data                                                                          | 12              |
| Item 7.       | Management’s  Discussion And Analysis Of Financial Condition And Results Of Operations      | 12              |
| Item 8.       | Financial Statements And Supplementary Data                                                      | F-1 – F-24 |
| Item 9.       | Changes In And Disagreements With  Accountants On Accounting And Financial Disclosure            | 21              |
| Item 9A(T).   | Controls  And Procedures                                                                         | 22              |
| Item 9B.      | Other  Information                                                                               | 25              |
|          |                                                                                             |            |
| Part III |
|          |                                                                                             |            |
| Item 10.      | Directors,  Executive Officers And Corporate Governance                                          | 25              |
| Item 11.      | Executive  Compensation                                                                          | 27              |
| Item 12.      | Security  Ownership Of Certain Beneficial Owners And Management And Related Stockholder  Matters | 27              |
| Item 13.      | Certain  Relationships And Related Transactions And Director Independence                        | 29              |
| Item 14.      | Principal  Accounting Fees And Services                                                          | 30              |
|          |                                                                                             |            |
| Part IV  |
|          |                                                                                             |            |
| Item 15.      | Exhibits  And Financial Statement Schedules                                                      | 30              |
| 12.1          | Code Of  Ethics For Senior Management                                                            |            |
| 31.1          | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive  Officer                     |            |
| 31.2          | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial  Officer                     |            |
| 32.1          | Certification under Section 906 of the Sarbanes-Oxley Act (18  U.S.C. Section 1350)    |            |

 

2

----

Tableof Contents

 

**Forward Looking Statements**

 

Certain statements in this Report are “forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of 1995.When used in this Report, words such as “may,” “should,” “seek,” “believe,” “expect,”anticipate,” “estimate,” “project,” “intend,” “strategy” and similarexpressions are intended to identify forward- looking statements regardingevents, conditions and financial trends that may affect the Company’s futureplans, operations, business strategies, operating results and financialposition. Forward-looking statements are subject to a number of known andunknown risks and uncertainties that may cause actual results, trends,performance or achievements of the Company, or industry trends and results, todiffer materially from the future results, trends, performance or achievementsexpressed or implied by such forward-looking statements.

 

These risks and uncertainties include, among others: general economicand business conditions in the United States and other countries in which theCompany’s customers and suppliers are located; industry conditions and trends;technology changes; competition and other factors which may affect prices whichthe Company may charge for its products and its profit margins; theavailability and cost of the inventory purchased by the Company; relative valueof the United States dollar to currencies in the countries in which the Company’scustomers, suppliers and competitors are located; changes in, or the failure tocomply with, government regulation, principally environmental regulations; theCompany’s ability to implement changes in its business strategies anddevelopment plans; and the availability, terms and deployment of debt andequity capital if needed for expansion. These and certain other factors arediscussed in this Report and from time to time in other Company reports filedwith the Securities and Exchange Commission. The Company does not assume anobligation to update the factors discussed in this Report or such otherreports.

 

**PART 1**

 

**ITEM 1          BUSINESS**

 

On April 15, 2008, Omega United, Inc. (“Omega”) entered intoand closed an Agreement Concerning the Exchange of Securities between Omega andSkyPostal, Inc. (“SkyPostal”) and the Security Holders of SkyPostal (the “SecuritiesExchange”). Pursuant to the Securities Exchange, Omega issued 29,000,000 sharesof common stock for all of the issued and outstanding common stock ofSkyPostal. On July 25, 2008, Omega changed its name to SkyPostal Networks, Inc.(the “Company”). Unless otherwise indicated in this Annual Report or thecontext otherwise requires, all references in this Annual Report to “SkyPostal,”the “Company,” “us,” “our” or “we” are to SkyPostal Networks, Inc. andsubsidiaries.

 

**History**

 

SkyPostal was organized on June 3,1998 as a Nevada corporationunder the name Omega United, Inc. Omega had no significant operations or assets and liabilities prior tothe Securities Exchange referenced above.

 

**Introduction**

 

SkyPostal is an international wholesale mail distribution company basedin Miami, Florida that specializes in the hand delivery to final addressees ofcommercial mail and periodicals mailed into the Latin America-Caribbean region(LAC) from the United States, Europe and Latin America and from the UnitedStates and Latin America to Europe.

 

**Overview**

 

SkyPostal provides international, wholesale mail delivery services to20 major countries in LAC, of which all of the countries would be classified asemerging markets and to all countries in Europe. 

 

3

----

Table of Contents

 

SkyPostal provides a door-to-door service largely using outsourcedtransportation via international commercial airlines and local in-countrydelivery companies, private postal services and national postal services insome countries. Under an agreement with Deutsche Post’s DHL Global Mail, itprovides mail distribution service to all countries in Europe. SkyPostaloperates a facility in Miami, FL for the sorting and consolidating of mail forshipment to specific countries in Latin America. It also operates a facilityestablished in 2008 at Newark Airport that receives mail destined to Europe andLatin America. It outsources its mail sorting facility in London, whichprocesses mail originating in Europe. By combining its expertise ininternational logistics with its outsourced network of in-country privatepostal services, SkyPostal is one of only a few companies that can reliablydeliver international mail in a time defined period to the ultimate recipientin Latin America at substantial costs below the international applicablepostage of the origin country.

 

SkyPostal generates revenue based on the tonnage of mail delivered,measured in kilograms, based on the distance to deliver, contract terms forcommitted annual tonnage or service and volume discounts. SkyPostal manages itsbusiness based on where the mail originates or the source of the mail.

 

The industry is characterized by the frequent use of outsourcedservices or sub-contractors for transport, sorting and delivery. Transport anddelivery service costs are to a significant degree affected by the market pricefor petroleum, such as in 2008.

 

In June 2008, the Company organized a subsidiary, SkyShopLogistics, Inc. (“SkyShop”), to begin offering a new service under thename PuntoMio. The new service enables non-U.S. resident internet shoppers touse SkyShop as their mailing address for U.S. e-commerce websites. In October 2008,the Company launched the service. There were no material revenues at the dateof this filing.

 

In July 2008 the Company entered into a contract with DeutschePost’s DHL Global Mail subsidiary whereby certain types of mail are deliveredby DHL Global Mail to European countries at a fixed cost and commission toSkyPostal (“Postal Injection”).

 

Competition

 

International wholesale mail delivery is intensely competitive andincludes the U.S. Postal Service and many of the postal administrations inLatin America, many wholesale companies that typically focus on specificgeographic markets and smaller wholesalers that typically serve a singlecountry. National postal administrations also provide similar services thatcompete with the Company. Many of these companies are better capitalized thanthe Company, which may enable them to increase market share in periods ofeconomic downturn and higher petroleum prices.

 

Suppliers

 

The Company uses over eighty suppliers, including airlines for linehaul, national postal administrations, and other mail distribution companies.Two of the Company’s largest and most well known suppliers are Tampa Airlines,a subsidiary of Avianca Airlines, a Colombian airline, and DHL Global Mail, asubsidiary of Deutsche Post.

 

Regulation

 

The delivery of international mail is regulated by treaty, theUniversal Postal Convention, and by local laws in each country. The ways andmethods by which the Company operates are limited in certain circumstances bythese regulations.

 

4

----

Table of Contents

 

Research and Development

 

The Company is developing a GPS equipped proprietary PDA to be used toassign a geophysical address to a descriptive address and thus facilitate thelocation of a mail recipient in Latin America. Such a device may enable theCompany to develop one of the few databases of addresses in Latin America,which would improve mail delivery by providing automatic confirmation ofdelivery without a signature.  Thesedatabases may have potential to rent to direct marketers.  Expenditures on the PDA project totaled$170,000 in 2008 and $161,792 in 2007. The amount in 2008 was capitalized asProperty and Equipment on the balance sheet and in 2007 the amount was expensedas General and Administrative Expense.

 

Employees

 

At December 31, 2008 the Company had 33 full-time employees, ofwhich 31 were located in Miami, FL, one was located in Newark, NJ and one wasbased outside the U.S.  The Company alsomakes use of independent IT consultants to handle routine and programming needsfor SkyPostal and SkyShop.

 

**ITEM 1A          RISKFACTORS**

 

An investment in the Company’s common stock is speculative and involvesa high degree of risk. You should carefully consider the risks described belowand the other information in this report before purchasing any shares of theCompany’s common stock. The risks and uncertainties described below are not theonly ones facing the Company. Additional risks and uncertainties may alsoadversely impair the Company’s business operations.  Such factors may have a significant impact onits business, operating results, liquidity and financial condition. As a resultof the identified risk factors, actual results could differ materially fromthose projected in any forward-looking statements. Additional risks anduncertainties not presently known to the Company, or that are currentlyconsidered to be immaterial, may also impact the Company’s business, operatingresults, liquidity and financial condition. If any such risks occur, theCompany’s business, operating results, liquidity and financial condition couldbe materially affected in an adverse manner. In addition, the trading price ofthe Company’s stock, when and if a market develops for the Company’s stock,could decline.

 

**Risks Related to the Company**

 

As shown in the accompanying consolidatedfinancial statements, the Company has incurred recurring losses from operationsand as of December 31, 2008 the accumulated deficit was $20,035,500. As ofDecember 31, 2008, the Company’s current liabilities exceeded its currentassets by approximately $746,000. Cash flow from operations has been negativefor each quarter of 2008. These factors raise substantial doubt about theCompany’s ability to continue as a going concern, which was the opinionincluded in the report of SkyPostal’s independent registered public accountingfirm in the financial statements for the year ended December 31, 2008,which are included herein.

 

The Company’s cash position at December 31, 2008 was $309,455. TheCompany has arranged a line of credit of $1,200,000 with a factor with whom ithas previously worked. Subject to satisfactorily completing due diligence, theCompany can borrow up to eighty percent of the value of eligible receivables.This line may provide cash to the Company for a certain period of time but itdoes not represent a long term solution. The Company is exploring several otheralternatives for financing and additional equity capital but there can be noassurances that these efforts will be successful. Management has alsoidentified opportunities to lower operating and administrative costs andincrease revenue in an effort to reduce the current negative cash flow.  These measures include payroll reduction,deferral of salary for senior executives, implementation of programs toincrease efficiency of sorting operations and curtailment of general expenses.It is not expected 

 

5

----

Table of Contents

 

that the efforts to lower operating and administrative costs will besufficient to achieve a positive cash flow.

 

The Company relies on its relationships with major state owned andprivate postal operators and cannot be assured that these relationships will besustained, in which event its revenue and any profitability would be reduced.SkyPostal has agreements with government postal services, such as the Frenchpostal service and Deutsche Post’s DHL Global Mail, to deliver commercial mailinto the LAC. SkyPostal also delivers mail to the LAC for a number of largeinternational mail consolidators. The agreements may generally be cancelled on30 days notice and do not require any minimum quantities of mail to bedelivered. There can be no guarantee that the level of future mail to be deliveredfrom current clients will continue. A material decrease in tonnage from any ofSkyPostal’s major mailers, or the loss of any of its larger clients, wouldreduce its revenue and any profitability. In addition, to the extent that newclients are added, whether following the loss of existing clients or otherwise,the Company may incur substantial start-up expenses in initiating services tonew clients.

 

The Company’s growth may be dependent on its ability to completeacquisitions and integrate the operations of acquired businesses, in theabsence of which its revenue would be reduced from anticipated levels. TheCompany expects that a significant portion of its growth may be achievedthrough acquisitions of other private postal delivery companies and its growthstrategy includes such acquisitions. The Company may not be able to makeacquisitions in the future and any acquisitions that are made may not besuccessful. Furthermore, future acquisitions may have a material adverse effectupon operating results, particularly in periods immediately following theconsummation of those transactions while the operations of the acquiredbusinesses are being integrated into the Company’s operations.  Additionally, the Company’s ability to makeany future acquisitions may depend upon obtaining additional financing, and theCompany may not be able to obtain additional financing on acceptable terms orat all. To the extent that the Company seeks to acquire other businesses inexchange for its common stock, fluctuations in the stock price could have amaterial adverse effect on its ability to complete acquisitions. Achieving thebenefits of acquisitions depends on the timely, efficient and successfulexecution of a number of post-acquisition events, including integrating the businessof acquired companies into the Company’s purchasing programs, distributionnetwork, marketing programs and reporting and information systems. The Companymay not be able to successfully integrate acquired companies’ operations orpersonnel, or realize the anticipated benefits of the acquisition.  The Company’s ability to integrateacquisitions may be adversely affected by many factors, including the size ofthe business acquired and the allocation of its limited management resourcesamong various integration efforts. While the Company’s corporate plans call forthe acquisition of additional businesses, managing growth may be difficult andthe actual growth rate may decline, thereby reducing revenue and increasingexpenses.

 

The Company’s growth has placed and will continue to place significantdemands on administrative, operational and financial resources, and the Companymay not be able to successfully integrate the operations of acquired businesseswith its existing operations, which could have a material adverse effect on thebusiness and its ability to grow. To the extent that its customer base and itsservices continue to grow, this growth will place a significant demand on itsmanagerial, administrative, operational and financial resources. Future performanceand results of operations will depend in part on its ability to successfullyimplement enhancements to its business management systems and to adapt thosesystems as necessary to respond to changes in the business.

 

6

----

Table of Contents

 

The Company is dependent for success on a few key executive officers,including Albert P. Hernandez. Its inability to retain those officers wouldimpede its growth strategy, which would have a negative impact on the businessand the value of your investment.

 

The Company’s success is largely dependent on the skills, experienceand efforts of Albert P. Hernandez, its Chief Executive Officer, and other keyexecutive officers. The loss of one or more of the Company’s executive officerscould have a material adverse effect upon its growth strategy and futurebusiness development, and therefore the value of your investment. The Companymaintains a key man life insurance policy on Mr. Albert Hernandez, theCEO. Additionally, any failure to attract and retain qualified employees in thefuture could also negatively impact the Company’s business strategy.

 

Negative economic and political developments in the LatinAmerican-Caribbean region may reduce the Company’s revenue and anyprofitability. A large portion of the Company’s services are completed in LAC.As a result, the Company’s financial condition, results of operations andbusiness may be negatively affected by the general condition of LAC’s regionaleconomy, any devaluation of local currencies as compared to the US Dollar, aswell as inflation, interest rates, regulation, taxation, social instability andother political, social and economic developments in the LAC region. Any ofthese events could reduce its revenue and any profitability.

 

Currency fluctuations or the devaluation and depreciation of localcurrencies could limit the Company’s ability to convert those currencies intoUS Dollars or reduce the amount of US Dollars received upon currencyconversions. The Company bills certain of its European customers in BritishPounds and incurs operating expenses in some LAC currencies.

 

Severe devaluation or depreciation of the currencies of countries inthe LAC region may also result in governmental intervention, as has resulted inVenezuela, or disruption of international foreign exchange markets. This maylimit the Company’s ability to transfer or convert those currencies into USDollars and other currencies. To the extent that a foreign governmentinstitutes restrictive exchange control policies in the future, the Company’sability to transfer or convert foreign currencies into US Dollars may belimited.

 

The price of crude oil has been steadily increasing since 2002 and mostdramatically in the second quarter of 2008. The price of crude increased fromapproximately $90 per barrel in January 2008 to approximately $140 perbarrel in July 2008 according to the Energy Information Administration.This steep increase in prices affected the worldwide transportation industry,including the Company’s key air service providers (line haul).

 

The Company believes that its cost of line haul will continue toincrease if petroleum prices continue to rise, that it may not be able to passon a portion or all of these costs to its customers and that the margin betweenrevenue and delivery cost per kilogram may decline. Any of these outcomes maynegatively affect profitability, the ability of the Company to cover its fixedexpenses, cash flow, earnings per share and the price of the Company’s stock,if and when a market develops.

 

**Risks Relating to the Company’s Securities**

 

Insiders have substantial control over the Company, and they coulddelay or prevent a change in its corporate control even if its otherstockholders wanted it to occur. Accordingly, these insiders may be able to control all matters requiringstockholder approval, including the election of directors and approval of significantcorporate transactions. This could delay or prevent an 

 

7

----

Table of Contents

 

outside party from acquiring or merging with the Company even if itsother stockholders wanted it to occur.

 

The Company may need to raise additional funds in the future. Ifadditional funds are raised through the issuance of equity or convertible debtsecurities, the percentage ownership of the current stockholders of the Companywill be reduced, stockholders may experience additional dilution and suchsecurities may have rights, preferences and privileges senior to those of thecommon stock and may have covenants that impose restrictions on the Company’soperations.

 

If the Company fails to remain current on its reporting requirements,it could be removed from the OTC Bulletin Board which would limit the abilityof broker dealers to sell its securities and the ability of stockholders tosell their securities in the secondary market.

 

Companies trading on the OTC Bulletin Board must be reporting issuersunder Section 12 of the Securities Exchange Act of 1934, as amended, andmust be current in their reports under Section 13, in order to maintainprice quotation privileges on the OTC Bulletin Board. If the Company fails toremain current on its reporting requirements, it could be removed from the OTCBulletin Board. As a result, the market liquidity for the Company’s securitiescould be severely affected and limit the ability of broker-dealers to sell theCompany’s securities and the ability of stockholders to sell their securitiesin the secondary market. In addition, the Company may be unable to getre-listed on the OTC Bulletin Board, which may have an adverse material effecton the Company.

 

Any market that develops in shares of the Company’s common stock willbe subject to the penny stock regulations and restrictions, which could impairliquidity and make trading difficult.

 

SEC Rule 15g-9, as amended, establishes the definition of a “pennystock” as any equity security that has a market price of less than $5.00 pershare or with an exercise price of less than $5.00 per share, subject to alimited number of exceptions. It is likely that the Company’s shares will beconsidered to be penny stock for the immediately foreseeable future. Thisclassification severely and adversely affects the market liquidity for itscommon stock.

 

For any transaction involving a penny stock, unless exempt, the pennystock rules require that a broker or dealer approve a person’s account fortransactions in penny stock and the broker or dealer receive from the investora written agreement to the transaction setting forth the identity and quantityof the penny stock to be purchased. To approve a person’s account fortransactions in penny stock, the broker or dealer must obtain financialinformation and investment experience and objectives of the person and make areasonable determination that the transactions in penny stock are suitable forthat person and that that person has sufficient knowledge and experience infinancial matters to be capable of evaluating the risks of transactions inpenny stock.

 

The broker or dealer must also deliver, prior to any transaction in apenny stock, a disclosure schedule required by the SEC relating to the pennystock market, which, in highlight form, sets forth:

 

·              the basis on which the broker ordealer made the suitability determination, and

·              that the broker or dealer receiveda signed, written agreement from the investor prior to the transaction.

 

Disclosure also has to be made about the risks of investing in pennystock in both public offerings and in secondary trading and commissions payableto both the broker-dealer and the registered representative, current quotationsfor the securities and the rights and remedies available to an investor incases of fraud in penny stock transactions. Finally, monthly statements must besent 

 

8

----

Table of Contents

 

disclosing recent price information for the penny stock held in theaccount and information on the limited market in penny stock.

 

Because of these regulations, broker-dealers may not wish to engage inthe above-referenced necessary paperwork and disclosures and/or may encounterdifficulties in their attempt to sell shares of the Company’s common stock,which may affect the ability of selling stockholders or other holders to selltheir shares in any secondary market and have the effect of reducing the levelof trading activity in any secondary market. These additional sales practiceand disclosure requirements could impede the sale of the Company’s securities,if and when its securities become publicly traded. In addition, the liquidityfor the Company’s securities may decrease, with a corresponding decrease in theprice of the Company’s securities. The Company’s shares, in all probability,will be subject to such penny stock rules for the foreseeable future andits stockholders will, in all likelihood, find it difficult to sell theirsecurities.

 

The market for penny stock has experienced numerous frauds and abusesthat could adversely impact investors in the Company’s stock. OTC BulletinBoard securities are frequent targets of fraud or market manipulation, bothbecause of their generally low prices and because OTC Bulletin Board reportingrequirements are less stringent than those of the stock exchanges or NASDAQ.

 

Patterns of fraud and abuse include:

 

·              Control of the market for thesecurity by one or a few broker-dealers that are often related to the promoteror issuer;

·              Manipulation of prices throughprearranged matching of purchases and sales and false and misleading pressreleases;

·              “Boiler room” practices involvinghigh pressure sales tactics and unrealistic price projections by inexperiencedsales persons;

·              Excessive and undisclosed bid-askdifferentials and markups by selling broker-dealers; and

·              Wholesale dumping of the samesecurities by promoters and broker-dealers after prices have been manipulatedto a desired level, along with the inevitable collapse of those prices withconsequent investor losses.

 

The market price of the Company’s common stock may be volatile.

 

The market price of the Company’s common stock will likely be highlyvolatile, as is the stock market in general, and the market for OTC BulletinBoard quoted stocks in particular. Some of the factors that may materiallyaffect the market price of the Company’s common stock are beyond the Company’scontrol, such as changes in financial estimates by industry and securitiesanalysts, announcements made by the Company’s competitors or sales of theCompany’s common stock. These factors may have a material adverse affect on themarket price of the Company’s common stock, regardless of the Company’sperformance.

 

In addition, the public stock markets have experienced extreme priceand trading volume volatility. This volatility has significantly affected themarket prices of securities of many companies for reasons frequently unrelatedto the operating performance of the specific companies. These broad marketfluctuations may adversely affect the market price of the Company’s commonstock.

 

The Company has never paid any cash dividends on its common stock anddoes not anticipate paying any cash dividends on its common stock in theforeseeable future, so any return on

 

9

----

Table of Contents

 

investment may be limited to the value of the Company’s stock. TheCompany plans to retain any future earnings to finance growth.

 

Future sales of the Company’s common stock may depress its stock price.

 

Sales of a substantial number of shares of the Company’s common stockby significant stockholders into the public market could cause a decrease inthe market price of the Company’s common stock.

 

Failure to achieve and maintain effective internal controls inaccordance with Section 404 of the Sarbanes-Oxley Act of 2002 couldprevent the Company from producing reliable financial reports or identifyingfraud. In addition, shareholders could lose confidence in the Company’sfinancial reporting, which could have an adverse effect on its stock price.

 

Effective internal controls are necessary for the Company to providereliable financial reports and effectively prevent fraud, and a lack ofeffective controls could preclude the Company from accomplishing these criticalfunctions. The Company will be required to document and test its internalcontrol procedures in order to satisfy the requirements of Section 404 ofthe Sarbanes-Oxley Act of 2002, which requires annual management assessments ofthe effectiveness of the Company’s internal controls over financial reportingand a report by its independent registered public accounting firm addressingthese assessments. The Company has recently hired a full time CorporateController to augment its internal control procedures and expand its accountingstaff, but there is no guarantee that these efforts will be adequate.

 

During the course of the Company’s testing, it may identifydeficiencies that the Company may not be able to remediate in time to meet thedeadline imposed by the Sarbanes-Oxley Act for compliance with the requirementsof Section 404. In addition, if the Company fails to maintain the adequacyof its internal accounting controls, as such standards are modified, supplementedor amended from time to time, the Company may not be able to ensure that it canconclude on an ongoing basis that it has effective internal controls overfinancial reporting in accordance with Section 404. Failure to achieve andmaintain an effective internal control environment could cause the Company toface regulatory action and also cause investors to lose confidence in itsreported financial information, either of which could have an adverse effect onthe Company’s stock price.

 

**ITEM 1B                UNRESOLVEDSTAFF COMMENTS**

 

None.

 

**ITEM 2                   PROPERTIES**

 

The Company rents three office space/warehouse facilities, as describedbelow.

 
| ** ** | ** ** | **Description**       | ** ** | **Location** | ** ** | **Size   Sq. Ft.** | ** ** | **Monthly   Rental $** | ** ** | **Lease   Expiration** |
|------------|------------|-----------------------|------------|--------------|------------|------------------------------|------------|----------------------------------|------------|-----------------------------|
| **1**      |       | SkyPostal  Operations |       | Miami, FL    |       | 16,700                       |       | 10,762                           |       | Jun-09                      |
| **2**      |       | SkyShop  Operations   |       | Miami, FL    |       | 10,000                       |       | 7,579                            |       | Aug-13                      |
| **3**      |       | Newark Hub            |       | Newark, NJ   |       | 5,000                        |       | 3,797                            |       | Jun-10                      |

 

The Company is considering to consolidate all of its Miami operationsin one location when the SkyPostal agreement expires in June 2009.

 

10

----

Table of Contents

 

**ITEM 3           LEGAL PROCEEDINGS**

 

On September 18, 2008, the Company entered into a Media ServicesAgreement with Crosscheck Media Services and Comm Holdings, Inc. (“CHI”)to produce and send out a direct mail information newsletter.  The total cost of the mailing would be$575,000, which per the agreement would be paid by CHI. On September 18,2008 the Company, in error requested William F. Doran, the escrow agent, tomake a deposit of $150,000 to Crosscheck Media. To date the mailing has not been produced or sent out.  As a result, the Company has requested arefund of its deposit that was incorrectly paid to Crosscheck Media. Theagreement with Crosscheck calls for arbitration at the facilities of theAmerican Arbitration Association. In March 2009 Crosscheck was notified bythe Company of its request to begin arbitration proceedings.

 

**ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

There were no matters submitted to a vote of our security holdersduring the fourth quarter of the year ended December 31, 2008.

 

**PART II**

 

**ITEM 5           MARKET FOR REGISTRANT’S COMMON EQUIT**Y

 

**Market Information**

 

Until April 2008 there was no public market in the Company’ssecurities. There is only a very limited public trading market for oursecurities since then under the symbol “SKPN.OB”. At the close of business on March 15,2009, there were 65,999,664 shares of our common stock issued and outstanding thatwere held by approximately 275 stockholders of record. The following table setsforth the high and low closing sales prices for our common stock as quoted byOTC Bulletin Board for the periods indicated:

 
| ** **              | ** ** | **Share Price** | ** ** |
|-------------------------|------------|----------------------|------------|
| **Quarter Ending** | ** ** | **Low**              | ** ** | **High** | ** ** |
| MAR 31 2008             |       | nm                   |       | nm |   |
| JUN 30 2008             |       | $                    | 0.90       |   | $ | 1.46 |   |
| SEP 30 2008             |       | $                    | 1.05       |   | $ | 1.50 |   |
| DEC 31 2008             |       | $                    | 0.15       |   | $ | 1.20 |   |

 

**Dividends**

 

Holders of our common stock are entitled to receive dividends when andif declared by our Board of Directors out of funds legally available. We,however, have never paid any cash dividends and do not anticipate paying anycash dividends in the foreseeable future. Instead we intend to retain anyfuture earnings to support the development and growth of our business. We mayconsider payment of dividends at some point in the future, but the declarationof dividends is at the discretion of the Board of Directors, and there is noassurance that dividends will be paid at any time. Our Board of Directors willmake any such future determination as to the payment of dividends at itsdiscretion, and its determination will depend upon our operating results,financial condition and capital requirements, general business conditions andsuch other factors that the Board of Directors considers relevant.

 

11

----

Table of Contents

 

**Securities Authorized For Issuance Under Equity Compensation Plans**

 

At December 31, 2008, under plans approved by the Board ofDirectors, the Company had outstanding to management, employees and Directorsstock grants common stock, as shown below.

 

**Equity Compensation Plan Information**

 
| **Plan  Category**                                              | ** ** | **Number  of   securities to be   issued upon   exercise of   outstanding   options, warrants****and****rights** | ** ** | **Weighted-average    exercise price of   outstanding   options, warrants   and rights** | ** ** | **Number  of   securities   remaining   available for   future issuance   under equity   compensation   plans (excluding   securities   reflected in   column (a))** |
|-----------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Equity compensation****plans approved by security  holders**  |       | 0                                                                                                                |       | 0                                                                                        |       | 0                                                                                                                                                                    |
| ** **                                                      |       |                                                                                                             |       |                                                                                     |       |                                                                                                                                                                 |
| **Equity compensation plans not  approved by security holders** |       | 1,384,136                                                                                                        |       | $                                                                                        | 0.76       |                                                                                                                                                                 | 0 |
|                                                                 |            |                                                                                                                  |            |                                                                                          |            |                                                                                                                                                                      |  |

 

The stock grants typically vest over a two year period.

 

**ITEM 6.          SELECTED FINANCIAL DATA**

 

Not required for smaller reporting companies

 

**ITEM 7.          MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Introduction**

 

The following discussion should be read in conjunction with theinformation contained in the audited consolidated financial statements and therelated notes thereto, appearing elsewhere herein.

 

**Overview**

 

Tonnage increased in each of the seven quarters through September 30,2008 on a trailing twelve month basis but declined modestly in the fourthquarter of 2008. Management believes that this decline is temporary and thattonnage will increase in 2009 as the Postal Injection business continues togrow. As the Postal Injection business becomes an increasing percentage oftotal

 

12

----

Table of Contents

 

revenues, revenue per kilogram will increase but the gross marginpercentage will decline as this lower margin business becomes an increasingpercentage of revenue.

 

The Company’s strategy is to:

 

1.               Expand the number of mail aggregatorcustomers who require outbound mail delivery services to LAC and Europe

2.               Expand the number of markets served thatoriginate outbound mail to LAC

3.               Expand the number of customers in LAC,such as magazine publishers, that have outbound mail destined for the U.S. andEurope

4.               Use acquisitions of competitors as ameans to increase market share

5.               Increase tonnage to achieve bettereconomies of scale in operating costs and to negotiate better pricing fromsuppliers, such as airlines and local delivery companies

 

Given the limited cash position of the Company, as described in ITEM 1ARISK FACTORS, the Company has initiated and plans to initiate further measuresto reduce expenses and improve cash flow, that may include the following:

 

1.               Reduction of administrative staff inMiami, FL

2.               Consolidation of service facilities inMiami, FL

3.               Outsourcing of IT development services

4.               Use of part-time management personnel inlieu of full time

5.               Re-negotiating of contracts with certainkey suppliers for better pricing and/or payment terms

 

Given the conditions in international financial markets, which affectmany companies, there can be no assurances of the Company’s ability to raiseadditional capital through the issuance of debt or equity securities in orderto reduce or eliminate the continuing negative cash flow.

 

On February 27, 2009 the Company acquired seventy percent of thecommon stock of Logistics Enterprises, Ltda (“LEL”), a Colombian company alsoengaged in wholesale mail distribution and related activities. The Companyagreed to exchange 400,000 shares of the Company’s common stock for the LELshares and to make 25 monthly payments of $4,000 commencing one month afterclosing. The stock of SkyPostal has certain restriction on its sale, includingan18 month lockup period. The Company also has the right to acquire theremaining thirty percent shareholding in LEL at any time after March 1,2011, based on a formula determined in part by LEL’s pre-tax earnings for thepreceding twelve months. Coincident with the acquisition, the Company enteredinto an employment agreement with the current CEO of LEL to serve as thegeneral manager of Colombian operations for three years.

 

The acquisition of LEL, in part, will make it possible for the Companyto consolidate its service facilities in Miami, further reduce staff in Miamiand enable the Company to make greater use of Avianca Airlines to service its customerbase in Latin America at lower operating costs. The acquisition also makes itpossible for the Company to achieve certain competitive advantages with respectto delivery times to Latin America.

 

**Critical Accounting Policies**

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accountsof SkyPostal Networks, Inc. and its wholly-owned subsidiaries.Intercompany transactions and balances have been eliminated in consolidation.

 

13

----

Table of Contents

 

The merger of a private operating company into a non-operating publicshell corporation with nominal net assets typically results in the owners andmanagement of the private company having actual or effective operating controlof the combined company after the transaction, with shareholders of the formerpublic shell continuing only as passive investors. The SEC staff’s rules indicatethat these transactions are to be capital transactions in substance, ratherthan business combinations. That is, the transaction is equivalent to theprivate company issuing stock for the net monetary assets of the shellcorporation, accompanied by a recapitalization. The accounting is identical tothat resulting from a reverse acquisition, except that no goodwill or otherintangible assets should be recorded.

 

Accordingly, for accounting purposes, SkyPostal is treated as theacquirer and the historical financial statements presented herein are those ofSkyPostal.

 

Loss Per Share

 

Basic loss per share is presented on the face of the audited condensedconsolidated statements of operations. As provided by the Statement ofFinancial Accounting Standards (“SFAS”) No. 128, “Earnings per Share,”basic loss per share is calculated as the loss attributable to commonstockholders divided by the weighted average number of shares outstandingduring the periods. Diluted loss per share reflects the potential dilution thatcould occur from common shares issuable through stock options, stock grants andwarrants.  Basic and diluted earnings pershare are the same during 2007 and 2008.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity withU.S. GAAP requires management to make estimates and assumptions that affect theamounts reported in the consolidated financial statements and accompanyingnotes. Such estimates and assumptions impact, among others, the following: theamount of uncollectible accounts receivable, the amount to be paid for thesettlement of liabilities related to cost of sales, the estimated useful livesfor property and equipment and the value assigned to the warrants granted inconnection with the various financing arrangements. Actual results could differfrom those estimates.

 

Fair Values

 

In September 2006, the FASB issued SFAS No. 157, “Fair ValueMeasurements,” which defines fair value, establishes a framework for measuringfair value, and expands disclosures about fair-value measurements requiredunder other accounting pronouncements. SFAS No. 157 does not changeexisting guidance as to whether or not an instrument is carried at fair valueand is effective for financial statements issued for fiscal years beginningafter November 15, 2007, and interim periods within those fiscal years. InFebruary 2008, the FASB issued FASB Staff Position No. FAS 157-1 (FSPFAS 157-1), which excludes SFAS No. 13, “Accounting for Leases” andcertain other accounting pronouncements that address fair value measurementsunder SFAS No. 13, from the scope of SFAS 157. In February 2008, theFASB issued FASB Staff Position No. 157-2 (FSP 157-2), which provides aone-year delayed application of SFAS No. 157 for nonfinancial assets andliabilities, except for items that are recognized or disclosed at fair value inthe financial statements on a recurring basis (at least annually). In October 2008,the FASB issued FASB Staff Position No. FAS 157-3, “Determining the FairValue of a Financial Asset in a Market That Is Not Active” (FSP 157-3), whichclarifies the application of SFAS No. 157 when the market for a financialasset is inactive. Specifically, FSP 157-3 clarifies how (1) management’sinternal assumptions should be considered in measuring fair value when observabledata are not present, (2) observable market information from an inactivemarket should be taken into account, and (3) the use of broker quotes orpricing services should be considered in assessing the relevance of observableand unobservable data to measure fair value. The guidance in FSP 157-3 iseffective immediately.

 

14

----

Table of Contents

 

SFAS No. 157 defines “fair value” as the price that would bereceived to sell an asset or paid to transfer a liability in an orderlytransaction between market participants in the principal market, or if noneexists, the most advantageous market, for the specific asset or liability atthe measurement date (referred to as an exit price). SFAS No. 157establishes a fair value hierarchy that prioritizes the inputs to valuationtechniques used to measure fair value. The three levels of the fair valuehierarchy under SFAS No. 157 are:

 

Level 1 - Quoted prices (unadjusted) in active markets for identicalassets or liabilities at the measurement date.

 

Level 2 - Inputs other than quoted prices included in Level 1 that areobservable for the asset or liability, either directly or indirectly, forsubstantially the full term of the asset or liability.

 

Level 3 - Prices or valuation techniques that require inputs that areboth significant to the fair value measurement and unobservable.

 

A financial instrument’s level within the fair value hierarchy is basedon the lowest level of input that is significant to the fair value measurement.SFAS No. 157 requires the Company to maximize the use of observable inputsand minimize the use of unobservable inputs when measuring fair value.

 

**New Pronouncements**

 

In December 2007, the FASB issued SFAS No. 141(R), “BusinessCombinations” which replaces SFAS 141, “Business Combinations” and supersedesother authoritative guidance. SFAS 141(R) broadens the scope of SFAS141 and requires the acquisition method (SFAS 141 referred to as the purchasemethod) to be used on all events where a business obtains control over anotherbusiness. As a result, SFAS 141(R) works to improve the comparability ofinformation about business combinations presented. SFAS 141(R) establishesprinciples and requirements for how an acquirer recognizes and measures in itsfinancial statements the identifiable assets acquired, the liabilities assumed,any noncontrolling interests in the acquiree, and goodwill acquired in abusiness combination or a gain from a bargain purchase. SFAS 141(R) alsorequires the acquirer to disclose information that enables the users toevaluate the nature and financial effects of the business combination.SFAS 141(R) applies prospectively to business combinations for whichthe acquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008, with early adoptionprohibited. The Company is evaluating the effect SFAS No. 141(R) will have onthe Company’s consolidated financial statements.

 

In December 2007,the FASB issued SFAS No. 160, “Noncontrolling Interests in ConsolidatedFinancial Statements — an amendment of Accounting Research Bulletin No. 51”,which establishes accounting and reporting standards for ownership interests insubsidiaries held by parties other than the parent, the amount of consolidatednet income attributable to the parent and to the noncontrolling interest,changes in a parent’s ownership interest and the valuation of retainednoncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160also establishes reporting requirements that provide sufficient disclosuresthat clearly identify and distinguish between the interests of the parent andthe interests of the noncontrolling owners. The Company is evaluating theeffect SFAS 160 will have on the Company’s consolidated financial statements.

 

In May 2008,the FASB issued SFAS No. 162, “The Hierarchy of Generally AcceptedAccounting Principles.” The new standard is intended to improve financialreporting by identifying a consistent framework, or hierarchy, for selectingaccounting principles to be used in preparing financial statements that arepresented in conformity with U.S. generally accepted accounting principles(GAAP) for nongovernmental entities. Prior to the issuance of SFAS 162, GAAPhierarchy was defined in the American Institute of Certified Public Accountants(AICPA) Statement 

 

15

----

Table of Contents

 

on AuditingStandards (SAS) No. 69, “The Meaning of Present Fairly in Conformity WithGenerally Accepted Accounting Principles.”  SFAS No. 162 is effectiveNovember 15, 2008. The implementation did not have a material effecton its financial statements.

 

**Operating Results**

 

Revenue

 

The revenues for the years 2008 and 2007 are shown below.

 
| ** **       | ** ** | **Twelve Months Ended December 30** | ** ** | **Change** | ** ** |
|------------------|------------|---------------------------------------------------------|------------|------------|------------|
| ** **       | ** ** | **2008**                                                | ** ** | **2007**   | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| **NET REVENUES** |       | $                                                       | 9,078,365  |       | $          | 8,696,145 |   | $ | 382,220 |   | 4.4 | % |
|                  |            |                                                         |            |            |            |  |  |  |  |  |  |  |

 

Revenues for the year ending December 31, 2008 totaled $9,078,365, an increase of 4.4 percent compared with the same period in 2007.Kilograms delivered in 2008 increased by 3.8 percent compared with 2007.Revenue per kilogram declined by 1.4 percent, in part due to a weakening of theBritish pound in the second half of 2008, which affects the revenues of severallarge customers billed in the currency.

 

A breakdown of U.S. and foreign revenues for the years 2008 and 2007are shown below.

 
| ** **  | ** ** | **Twelve Months Ended December 31** | ** ** | **Change** | ** ** |
|-------------|------------|---------------------------------------------------------|------------|------------|------------|
| ** **  | ** ** | **2008**                                                | ** ** | **2007**   | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| **Region**  |       |                                                    |       |       |       |   |   |   |   |
| **U.S.**    |       | $                                                       | 4,501,992  |       | $          | 6,400,071 |   | $ | (1,898,079 | ) | -29.7 | % |
| **Foreign** |       | 4,576,373                                               |       | 2,296,074  |       | 2,280,299 |   | 99.3 |   |
| **Total**   |       | $                                                       | 9,078,365  |       | $          | 8,696,145 |   | $ | 382,220 |   | 4.4 | % |

 

Foreign revenue increased in 2008 due to an increase in sales toLAC-based customers. U.S. revenue declined due in large part to the generaleconomic situation in the U.S. in the second half of 2008 that more than offsetthe 23 percent increase in U.S. revenue in the first half of 2008.

 

Operating Expenses

 

The operating expenses and operating losses for the years 2008 and 2007are shown below

 
| ** **                     | ** ** | **Twelve Months Ended December 31** | ** ** | **Change** | ** ** |
|--------------------------------|------------|---------------------------------------------------------|------------|------------|------------|
| ** **                     | ** ** | **2008**                                                | ** ** | **2007**   | ** ** | **Amount** | ** ** | **Percent** | ** ** |
|                           |       |                                                    |       |       |       |   |   |   |   |
| **OPERATING EXPENSES**         |       |                                                    |       |       |       |   |   |   |   |
| **Cost of Delivery**           |       | $                                                       | 8,056,868  |       | $          | 6,976,947 |   | $ | 1,079,921 |   | 15.5 | % |
| **General and Administrative** |       | 4,604,087                                               |       | 3,242,420  |       | 1,361,667 |   | 42.0 |   |
| **Stock Based Compensation**   |       | 1,549,631                                               |       | 283,965    |       | 1,265,666 |   | 445.7 |   |
| **Factoring Fees**             |       | 92,036                                                  |       | 296,104    |       | (204,068 | ) | (68.9 | ) |
| **TOTAL OPERATING EXPENSES**   |       | 14,302,622                                              |       | 10,799,436 |       | 3,503,186 |   | 32.4 |   |
| ** **                     |       |                                                    |       |       |       |   |   |   |   |
| **OPERATING LOSS**             |       | $                                                       | (5,224,257 | )          | $          | (2,103,291 | ) | $ | (3,120,966 | ) | 148.4 | % |

 

Cost of Delivery. This expense increased on a per kilogram basis by 2.6percent in 2008 compared with the prior year, in part due to higher oil pricespassed on by the Company’s suppliers in the second and third quarters. Themargin between revenue and delivery cost in dollar terms declined by 40.6percent when compared with 2007, in part due to the lower margin on the PostalInjection business and the weakening British pound, as described above.

 

General and Administrative. This expense increased in 2008 compared to2007 due to an increase in salaries and benefits related to the addition ofsenior management and administrative staff, additional legal and accountingexpenses and additional insurance expense for a Directors and

 

16

----

Table of Contents

 

Officers policy and a key man policy on the Chief Executive Officer.Certain of these additional expenses were incurred in connection with thecompliance requirements of publicly traded companies.

 

Stock Based Compensation. The Company compensates certain employees,directors and an advisor through the grant of restricted shares of commonstock. In general, these non-vested shares vest over 1-2 years and are subjectto the employees, directors and advisor continuing service to the Company. Thecost of non-vested shares is determined using the fair value of the Company’scommon stock on the date of grant. The compensation expense is recognized overthe vesting period. The required disclosures related to the Company’s stock-basedemployee compensation plan are included in Note 12 of the Notes to ConsolidatedFinancial Statements. Effective January 1, 2006, the Company adopted SFAS No. 123R,Share-Based Payment, using the modified prospective transition method. Themodified prospective transition method was applied to new awards, to anyoutstanding awards, and to awards that were forfeited after January 1,2006. The Company did not issue any awards prior to January 1, 2006.

 

Factoring Fees. This expense declined in 2008 as compared with 2007because the Company did not use the factoring facility in the second half of2008.

 

Operating Loss. The operating loss in 2008 increased due to lowermargin between revenue and delivery cost, higher general and administrativeexpense and the non-cash expense of stock-based compensation.

 

Other Expenses

 

Other expenses and the net loss for the years 2008 and 2007 are shownbelow.

 
| ** **                                                                  | ** ** | **Twelve Months Ended December 31** | ** ** | **Change** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|
| ** **                                                                  | ** ** | **2008**                                                | ** ** | **2007**   | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| **OTHER EXPENSES/(INCOME)**                                                 |       |                                                    |       |       |       |   |   |   |   |
| **Interest**                                                                |       | $                                                       | 385,200    |       | $          | 564,130 |   | $ | (178,930 | ) | (31.7 | )% |
| **Excess of value of put options over the  estimated fair value of shares** |       | 617,600                                                 |       | 1,600,000  |       | (982,400 | ) | (61.4 | ) |
| **Other**                                                                   |       | (66,902                                                 | )          | 351,302    |       | (418,204 | ) | (119.0 | ) |
| **TOTAL OTHER EXPENSES/(INCOME)**                                           |       | 935,898                                                 |       | 2,515,432  |       | (1,579,534 | ) | (62.8 | ) |
| ** **                                                                  |       |                                                    |       |       |       |   |   |   |   |
| **NET INCOME/(LOSS)**                                                       |       | $                                                       | (6,160,155 | )          | $          | (4,618,723 | ) | $ | (1,541,432 | ) | (33.4 | )% |

 

Interest.  Interest expensedeclined in 2008 because the Company repaid a portion of its interest bearingdebt and converted the remainder of interest bearing debt to common stock inthe first half of 2008.

 

Put Option. This non-cash expense arose due to the fair market valueadjustments to the put liability in 2008.

 

Other Expense. This income arose in 2008 due to the gains from paymentsunder the Redemption Agreement .

 

Net Income. The net loss in 2008 totaled $6,160,155, an increase of 33percent over 2007, due to the increase in the Operating Loss, a significantportion of which is attributable to the non-cash stock compensation expense.

 

Earnings Per Share

 

Earnings per share for the years 2008 and 2007 are shown below.

 

17

----

Table of Contents

 
| WEIGHTED AVERAGE SHARES OUTSTANDING: |       |           |       |           |       |
|--------------------------------------|------------|----------------|------------|----------------|------------|
| Basic                                |       | 47,162,919     |       | 24,350,389     |       |
| Effect of dilutive shares            |       | —         |       | —         |       |
| Diluted                              | ** ** | **47,162,919** | ** ** | **24,350,389** | ** ** |
|                                 |       |           |       |           |       |
| NET INCOME/(LOSS) PER SHARE:         |       |           |       |           |       |
| Basic                                | ** ** | **$**          | **(0.13**  | **)**          | **$**      | **(0.19** | **)** |
| Diluted                              | ** ** | **$**          | **(0.13**  | **)**          | **$**      | **(0.19** | **)** |

 

**Contractual Obligations**

 

Redemption Agreement

 

On April 1, 2007, SkyPostal agreed to a mandatory redemption witha shareholder of 3,200,000 shares of common stock at a price per share of$1.00, wherein the shareholder has the right to put to SkyPostal up to 160,000shares each quarter beginning April 1, 2008. The shareholder exercised itsright to put on April 1, 2008 and July 1, 2008. The Company made tworedemption payments of $ 160,000 each in the second and third quarters of 2008,which were recorded as additions to treasury stock. The Company did notmake two redemption payments on October 1, 2008 and January 1, 2009totaling $320,000 due to the Company’s cash position. Although managementbelieves that the shareholder will continue to exercise their put options untilsuch time as the Company’s stock is trading above $1 per share *and* there is sufficient trading and liquidity in the Company’sstock to offer an alternative to the put, the Company does not plan to makesuch payments in the foreseeable future.

 

In 2007, the Company recorded a liability of $ 1,600,000 related to theredemption agreement with the shareholder in accordance with SFAS 150 — “FairValue Measurement”. At December 31, 2007, SkyPostal’s stock price wasvalued at $.50 per share. Accordingly, a liability of $1,600,000 was recordedfor the difference between the stock price at December 31, 2007 and theexercise price of each put option multiplied by the 3.2 million shares subjectto the put. At June 30, 2008, the Company’s stock price was $ 1.45 and theamount of the liability was adjusted to zero. The adjustment to the liabilitywas determined using Level 1 type information. This adjustment of the liabilityresulted in a gain on the income statement of $1,520,000 based on the 3,040,000shares that had not yet been redeemed under the agreement.  In addition to this adjustment, as a resultof the put of 160,000 shares in the second quarter of 2008, the Company alsorecorded a non-cash gain of $80,000 during the second quarter of 2008.

 

If the Company’s stock price is valued at less than $1 per share priorto the expiration of the put options on January 2, 2013, the Company willadjust the liability for the put based on the number of shares not yet redeemedmultiplied by the difference between the Company’s current stock price and theexercise price of the put option. The recording of such a liability wouldresult in an equal amount of expense being charged to the statement ofoperations. At December 31, 2008, the Company’s stock price was $.23(using Level 1 type information) and consequently a liability related to theRedemption Agreement was recorded. Based on the remaining 2.88 million sharessubject to the put, a long term liability of $2,217,600 was recorded at December 31,2008.

 

Non-Compete Agreement

 

Coincident with the redemption agreement, the shareholder also enteredinto a Non-Compete Agreement with SkyPostal. Under this agreement theshareholder receives payments totaling $ 735,000 beginning April 1, 2008.

 

Payments are made on a quarterly basis and the first and secondpayments were made in the second and third quarters of 2008.  The Non-Compete Agreement was recorded as anintangible

 

18

----

Table of Contents

 

asset on the balance sheet and amortized over the term of the agreementwith an offsetting liability to recognize the cumulative future payments.

 

The Company did not make the payments under the Non-Compete Agreementat October 1, 2008 ($63,000) and January 1, 2009 ($59,500) and, givenits current cash position, does not plan to make payments for the foreseeablefuture.

 

The unpaid balance of the liability according to the year of scheduledpayment is shown below:

 
| **Annual Payment Schedule   Year** | ** ** | **Amount** | ** **  |
|---------------------------------------------------|------------|------------|-------------|
| 2008                                              |       | $          | 63,000      |   |
| 2009                                              |       | 217,000    |        |
| 2010                                              |       | 161,000    |        |
| 2011                                              |       | 105,000    |        |
| 2012                                              |       | 49,000     |        |
| 2013                                              |       | 3,500      |        |
| **Total**                                         |       | **$**      | **598,500** |   |

 

As of March 15, 2009 the Company has failed to make payments underthe Redemption Agreement and Non-Compete Agreement totaling $442,500. Theamount of unpaid payments is expected to increase throughout 2009.

 

**Liquidity**

 

Summary

 

For the twelve month period ended December 31, 2008, cashincreased by $308,604 compared to an increase of $114 during 2007.

 

The following table summarizes the Company’s Consolidated Statement ofCash Flows:

 
| ** **                                              | ** ** | **Twelve Months Ended December 31** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                              | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| **Net cashed provided (used) by operating  Activities** | ** ** | ** **                                              | ** ** | ** ** | ** ** |
| Operating activities                                    |       | $                                                       | (6,738,556 | ) | $ | (2,084,506 | ) |
| Investing Activities                                    |       | (239,224                                                | )          | (13,912 | ) |
| Financing activities                                    |       | 7,286,384                                               |       | 2,098,532 |   |
|                                                         |            |                                                         |            |  |  |  |  |

 

The cash used by operating activities in 2008 was primarily due to thenet loss (after adjusting for the non-cash stock compensation expense), anincrease in accounts receivables due to discontinuing the factoring ofreceivables and the increase in Intangibles and Other Assets largely due to theNon-Compete Agreement.

 

The cash used by investing activities in 2008 was primarily due to thedevelopment expenses for the Company’s PDA that were capitalized in 2008.

 

The cash provided by financing activities in 2008 was primarily due tothe Company’s Private Placement, which was used in part to pay off notespayable.

 

Financial Condition

 

The Company’s cash position at December 31, 2008 was $309,455. Asof December 31, 2008, the Company had no indebtedness for borrowed money,but as described in ITEM 7 Contractual

 

19

----

Table of Contents

 

Obligations, the Company has failed to make scheduled payments totaling$442,500 due to a shareholder.

 

The Company has arranged a line of credit of $1,200,000 with a factorwith whom it has previously worked. Subject to satisfactorily completing duediligence, the Company can borrow up to eighty percent of the value of eligiblereceivables. This line may provide cash to the Company for a certain period oftime but it does not represent a long term solution. The Company is exploringseveral other alternatives for financing and additional equity capital, asdescribed below, but there can be no assurances that these efforts will besuccessful.

 

Private Placement

 

From March 7, 2008 through October 21, 2008, the Company sold20,741,948 shares of its common stock for $10,370,974, or $.50 per share. TheCompany sold 80,000 shares for $40,000 in the fourth quarter of 2008. ThisPrivate Placement was arranged by Falcon Capital, LLP (“Falcon”). Mathijs vanHouweninge, a Director of the Company, was the Managing Partner of Falcon untilDecember 31, 2008 when he resigned. Falcon received a cash fee of 10% ofthe total funds raised and is granted warrants to purchase shares of theCompany’s common stock equal to 10% of the number of shares sold. Each warrantentitles the holder to purchase a share of the Company’s common stock at anexercise price of $.50 during an exercise period of three years from the day astock subscription agreement is paid in full. Falcon is entitled to receiveapproximately 2,000,000 warrants. A description of the use of proceeds as of December31, 2008 is shown below.

 
| **Use of Proceeds**                                  | ** ** | **Amount** | ** ** |
|----------------------------------------------------------------|------------|------------|------------|
| Payment of accounts payable and operating  expenses            |       | $          | 6,490,237  |   |
| Repayment of loans and notes from  stockholders                |       | 438,317    |       |
| Repayment of other loans and notes                             |       | 932,355    |       |
| Exercise of put option and non-compete  payments               |       | 456,500    |       |
| Listing and private placement related  expenses                |       | 1,553,565  |       |
| Escrow deposit in connection with investor  relations services |       | 500,000    |       |
| Total                                                          |       | $          | 10,370,974 |   |

 

On January 28, 2009 the Company executed an engagement letter withFalcon International Consulting Limited, a company related to Falcon, underwhich Falcon would, on a best efforts basis, raise $2 million through the saleof new shares of common stock of the Company at $.10 per share (“2009 PrivatePlacement”). As of March 15, 2009, the Company had received $950,500 forthe purchase of 9,505,000 shares of common stock. There can be no assurancesthat the Company will be able to raise a total of $2 million through theprivate placement. Falcon’s compensation for services is a cash fee equal toten percent of the cash received by the Company plus one share of registeredcommon stock for each ten shares sold.

 

With the current levels of negative monthly cash flow, managementbelieves that the proceeds from the 2009 Private Placement may not besufficient to cover the Company’s cash flow requirements for 2009. The Companyexpects to cover any shortfall in cash flow in 2009 by using the line of creditfrom the factor. The Company currently does not anticipate making any of thepayments in 2009 called for in the Non-Compete Agreement or the RedemptionAgreement.

 

**Capital Expenditure**

 

In 2008, capital expenditures totaled $239,224, which includes $170,000in capitalized expense for the development of the Company’s PDA (ITEM 1Research and Development). In 2007, capital expenditure totaled $13,912.

 

20

----

Table of Contents

 

**ITEM 8.              FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board ofDirectors and

Stockholders ofSkyPostal Networks, Inc.

 

We have audited theaccompanying consolidated balance sheets of SkyPostal Networks, Inc. (the “Company”)as of December 31, 2008 and 2007 and the related consolidated statementsof operations, changes in stockholders’ deficit and cash flows for the yearsended December 31, 2008 and 2007. The Company’s management is responsiblefor these consolidated financial statements. Our responsibility is to expressan opinion on these consolidated financial statements based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudits to obtain reasonable assurance about whether the financial statements arefree of material misstatement. The Company is not required to have, nor were weengaged to perform, an audit of its internal control over financial reporting.Our audits included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the company’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade 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, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of SkyPostal Networks, Inc.as of December 31, 2008 and 2007, and the results of its consolidatedoperations and its cash flows for the year ended in conformity with accountingprinciples generally accepted in the United States of America.

 

The accompanyingconsolidated financial statements have been prepared assuming that the Companywill continue as a going concern. As discussed in Note 1 to the consolidatedfinancial statements, the Company has suffered recurring losses fromoperations, has a deficiency in working capital and has a net capitaldeficiency that raise substantial doubt about its ability to continue as agoing concern. Management’s plans in regard to these matters are also describedin Note 1. The consolidated financial statements do not include any adjustmentsthat might result from the outcome of this uncertainty.

 

March 31,2009

 

F-1

----

Table of Contents

 

**SKYPOSTAL NETWORKS, INC.**

 

----

 

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,

 
| ** **                                                                                    | ** ** | **2008**       | ** **    | **2007**       | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------|---------------|----------------|------------|
| **ASSETS**                                                                                    | ** ** | ** **     | ** **    | ** **     | ** ** |
| CURRENT ASSETS                                                                                |       |           |          |           |       |
| Cash                                                                                          |       | $              | 309,455       |           | $          | 851 |   |
| Accounts receivable, net                                                                      |       | 1,498,995      |          | 635,277        |       |
| Prepaid expenses and other                                                                    |       | 177,968        |          | 107,834        |       |
| TOTAL CURRENT ASSETS                                                                          |       | 1,986,418      |          | 743,962        |       |
|                                                                                          |       |           |          |           |       |
| DUE FROM STOCKHOLDER                                                                          |       | 69,569         |          | 40,687         |       |
| PROPERTY AND EQUIPMENT, net                                                                   |       | 329,788        |          | 138,018        |       |
| INTANGIBLES AND OTHER ASSETS                                                                  |       | 1,295,286      |          | 232,873        |       |
| **TOTAL ASSETS**                                                                              | ** ** | **3,681,061**  | ** **    | **1,155,540**  | ** ** |
|                                                                                          |       |           |          |           |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY  (DEFICIT)**                                      | ** ** | ** **     | ** **    | ** **     | ** ** |
| **LIABILITIES**                                                                               | ** ** | ** **     | ** **    | ** **     | ** ** |
| CURRENT LIABILITIES                                                                           |       |           |          |           |       |
| Accounts payable and accrued liabilities                                                      |       | 2,125,108      |          | 3,680,500      |       |
| Curent portion of amount due on non-compete  agreement                                        |       | 280,000        |          | —         |       |
| Current portion of notes payable                                                              |       | —         |          | 4,022,729      |       |
| Customer deposits                                                                             |       | —         |          | 12,831         |       |
| Current portion of due to stockholders                                                        |       | 7,200          |          | 135,975        |       |
| Current portion of put option payable                                                         |       | 320,000        |          | —         |       |
| TOTAL CURRENT LIABILITIES                                                                     |       | 2,732,308      |          | 7,852,035      |       |
| NON-COMPETE AGREEMENT, less current portion                                                   |       | 318,500        |          | —         |       |
| DUE TO STOCKHOLDERS, less current portion                                                     |       | —         |          | 329,542        |       |
| NOTES PAYABLE, less current portion                                                           |       | —         |          | 97,054         |       |
| EXCESS OF VALUE OF PUT OPTIONS OVER THE  ESTIMATED FAIR VALUE OF SHARES, less current portion |       | 1,897,600      |          | 1,600,000      |       |
| **TOTAL LIABILITIES**                                                                         | ** ** | **4,948,408**  | ** **    | **9,878,631**  | ** ** |
|                                                                                          |       |           |          |           |       |
| **COMMITMENTS AND CONTINGENCIES (NOTE 13)**                                                   | ** ** | ** **     | ** **    | ** **     | ** ** |
|                                                                                          |       |           |          |           |       |
| **STOCKHOLDERS’ EQUITY (DEFICIT)**                                                       | ** ** | ** **     | ** **    | ** **     | ** ** |
| Common stock                                                                                  |       | 56,735         |          | 25,131         |       |
| Additional paid-in capital                                                                    |       | 19,031,418     |          | 5,127,123      |       |
| Accumulated deficit                                                                           |       | (20,035,500    | )             | (13,875,345    | )          |
| Treasury Stock                                                                                |       | (320,000       | )             | —         |       |
| **TOTAL STOCKHOLDERS’ DEFICIT**                                                          | ** ** | **(1,267,347** | **)**         | **(8,723,091** | **)**      |
| **TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  (DEFICIT)**                                | ** ** | **$**          | **3,681,061** | ** **     | **$**      | **1,155,540** | ** ** |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

F-2

----

Tableof Contents

 

**SKYPOSTAL NETWORKS, INC.**

 

----

 

CONSOLIDATED STATEMENTS OFOPERATIONS

FOR THE YEARS ENDED DECEMBER31,

 
| ** **                                                              | ** ** | **2008**       | ** ** | **2007**       | ** ** |
|-------------------------------------------------------------------------|------------|----------------|------------|----------------|------------|
| NET REVENUES                                                            |       | $              | 9,078,365  |           | $          | 8,696,145 |   |
|                                                                    |       |           |       |           |       |
| OPERATING EXPENSES                                                      |       |           |       |           |       |
| Cost of Delivery                                                        |       | 8,056,868      |       | 6,976,947      |       |
| General and Administrative                                              |       | 4,604,087      |       | 3,242,420      |       |
| Stock Based Compensation                                                |       | 1,549,631      |       | 283,965        |       |
| Factoring Fees                                                          |       | 92,036         |       | 296,104        |       |
| TOTAL OPERATING EXPENSES                                                |       | 14,302,622     |       | 10,799,436     |       |
|                                                                    |       |           |       |           |       |
| OPERATING LOSS                                                          |       | (5,224,257     | )          | (2,103,291     | )          |
|                                                                    |       |           |       |           |       |
| OTHER EXPENSES/(INCOME)                                                 |       |           |       |           |       |
| Interest                                                                |       | 385,200        |       | 564,130        |       |
| Excess of value of put options over the  estimated fair value of shares |       | 617,600        |       | 1,600,000      |       |
| Other                                                                   |       | (66,902        | )          | 351,302        |       |
| TOTAL OTHER EXPENSES/(INCOME)                                           |       | 935,898        |       | 2,515,432      |       |
|                                                                    |       |           |       |           |       |
| NET LOSS                                                                |       | $              | (6,160,155 | )              | $          | (4,618,723 | ) |
|                                                                    |       |           |       |           |       |
| WEIGHTED AVERAGE SHARES OUTSTANDING:                                    |       |           |       |           |       |
| Basic                                                                   |       | 47,162,919     |       | 24,350,389     |       |
| Effect of dilutive shares                                               |       | —         |       | —         |       |
| Diluted                                                                 | ** ** | **47,162,919** | ** ** | **24,350,389** | ** ** |
|                                                                    |       |           |       |           |       |
| NET LOSS PER SHARE:                                                     |       |           |       |           |       |
| Basic                                                                   | ** ** | **$**          | **(0.13**  | **)**          | **$**      | **(0.19** | **)** |
| Diluted                                                                 | ** ** | **$**          | **(0.13**  | **)**          | **$**      | **(0.19** | **)** |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

F-3

----

Table of Contents

 

**SKYPOSTAL NETWORKS, INC.**

 

----

 

CONSOLIDATED STATEMENTS OFCHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER31, 2008 AND 2007

 
| ** **                                              | ** ** | ** **     | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **      | ** ** | ** **   | ** ** | ** **     | ** ** |
|---------------------------------------------------------|------------|----------------|------------|------------|------------|----------------|------------|-----------------|------------|--------------|------------|----------------|------------|
| ** **                                              | ** ** | ** **     | ** ** | **Common** | ** ** | **Paid-In**    | ** ** | **Accumulated** | ** ** | **Treasury** | ** ** | ** **     | ** ** |
| ** **                                              | ** ** | **Shares**     | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **Deficit**     | ** ** | **Stock**    | ** ** | **Total**      | ** ** |
| BALANCES AT DECEMBER 31, 2006                           |       | 25,131,215     |       | 24,833     |       | 3,262,320      |       | (9,256,622      | )          | —       |       | (5,969,469     | )          |
| Net loss                                                |       | —         |       | —     |       | —         |       | (4,618,723      | )          | —       |       | (4,618,723     | )          |
| Stock compensation                                      |       | —         |       | 37         |       | 502,929        |       | —          |       | —       |       | 502,966        |       |
| Stock issued for license agreement                      |       | —         |       | 42         |       | 142,758        |       | —          |       | —       |       | 142,800        |       |
| Conversion of debt and account payable to  common stock |       | —         |       | 219        |       | 1,219,116      |       | —          |       | —       |       | 1,219,335      |       |
| BALANCES AT DECEMBER 31, 2007                           |       | 25,131,215     |       | 25,131     |       | 5,127,123      |       | (13,875,345     | )          | —       |       | (8,723,091     | )          |
| Net loss                                                |       |           |       |       |       | —         |       | (6,160,155      | )          | —       |       | (6,160,155     | )          |
| Sale of common stock through private  placement         |       | 20,741,948     |       | 20,662     |       | 10,350,312     |       | —          |       | —       |       | 10,370,974     |       |
| Stock compensation                                      |       | 3,604,354      |       | 3,605      |       | 881,852        |       | —          |       | —       |       | 885,457        |       |
| Stock compensation (nonvested shares)                   |       |           |       | —     |       | 934,992        |       | —          |       | —       |       | 934,992        |       |
| Conversion of debt to common stock                      |       | 7,107,147      |       | 7,107      |       | 2,992,177      |       | —          |       | —       |       | 2,999,284      |       |
| Conversion of accounts payable to common  stock         |       | 200,000        |       | 200        |       | 99,800         |       | —          |       | —       |       | 100,000        |       |
| Warrants issued                                         |       |           |       | —     |       | 188,144        |       | —          |       | —       |       | 188,144        |       |
| Warrants exercised                                      |       |           |       | —     |       | 10,613         |       | —          |       | —       |       | 10,613         |       |
| Private placement transaction costs                     |       | 30,000         |       | 30         |       | (1,553,595     | )          | —          |       | —       |       | (1,553,565     | )          |
| Treasury stock                                          |       | (320,000       | )          | —     |       | —         |       | —          |       | (320,000     | )          | (320,000       | )          |
| BALANCES AT DECEMBER 31, 2008                           | ** ** | **56,494,664** | ** ** | **56,735** | ** ** | **19,031,418** | ** ** | **(20,035,500** | **)**      | **(320,000** | **)**      | **(1,267,347** | **)**      |

 

F-4

----

Table of Contents

 

**SKYPOSTAL NETWORKS, INC.**

 

----

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER31,

 
| ** **                                                                     | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net loss                                                                       |       | $          | (6,160,155 | )          | $          | (4,618,723 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:   |       |       |       |       |       |
| Depreciation and amortization                                                  |       | 164,284    |       | 69,769     |       |
| Bad debt expense                                                               |       | 89,003     |       | 89,293     |       |
| Stock compensation                                                             |       | 1,543,632  |       | 502,966    |       |
| Revaluation of put option liability                                            |       | 617,600    |       | 1,600,000  |       |
| Changes in assets and liabilities                                              |       |       |       |       |       |
| Increase in accounts receivable                                                |       | (952,721   | )          | (346,759   | )          |
| (Increase) decrease in prepaids and other  assets                              |       | (70,134    | )          | (32,832    | )          |
| (Increase) decrease in due from  stockholders                                  |       | (21,682    | )          | 6,281      |       |
| (Increase) in intangible and other assets                                      |       | (444,243   | )          | (90,073    | )          |
| (Decrease) in accounts payable and accrued  liabilities                        |       | (1,491,309 | )          | 1,022,847  |       |
| Increase (decrease) in customer deposits                                       |       | (12,831    | )          | (287,275   | )          |
| Net cash used by operating activities                                          |       | (6,738,556 | )          | (2,084,506 | )          |
|                                                                           |       |       |       |       |       |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                      |       | (239,224   | )          | (13,912    | )          |
| Capital expenditure                                                            |       | (239,224   | )          | (13,912    | )          |
| Net cash used in investing activities                                          |       |       |       |       |       |
|                                                                           |       |       |       |       |       |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                      |       |       |       |       |       |
| Issuance of capital stock                                                      |       | 8,817,409  |       | —     |       |
| Purchase of Treasury Stock                                                     |       | (320,000   | )          | —     |       |
| Warrants exercised                                                             |       | 10,613     |       | —     |       |
| Due to affiliates                                                              |       | (465,517   | )          | 37,858     |       |
| Notes payable, net                                                             |       | (619,621   | )          | 2,060,674  |       |
| Payment on non-compete                                                         |       | (136,500   | )          |       |       |
| Net cash provided by financing activities                                      |       | 7,286,384  |       | 2,098,532  |       |
| **Net increase (decrease) in cash and cash  equivalents**                      |       | 308,604    |       | 114        |       |
| **Cash and cash equivalents, beginning of  period**                            |       | 851        |       | 737        |       |
| **Cash and cash equivalents, end of period**                                   | ** ** | $          | 309,455    | ** ** | $          | 851 | ** ** |
|                                                                           |       |       |       |       |       |
| **Supplemental Disclosures of Cash Flow  Information:**                        | ** ** |       | ** ** |       | ** ** |
| Cash paid during the period for:                                               |       |       |       |       |       |
| Interest                                                                       |       | $          | 260,675    |       | $          | 379,516 |   |
|                                                                           |       |       |       |       |       |
| **Supplemental Disclosures of Non-Cash  Transactions**                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accrued stock compensation converted into equity                               |       | $          | 276,817    |       | $          | 502,966 |   |
| Trade accounts payable converted into  common stock                            |       | 100,000    |       | 54,890     |       |
| Accrued interest from notes payable  converted to equity                       |       | 312,734    |       | —     |       |
| Notes payable converted into equity, net of  bridge loan interest amortization |       | 2,874,694  |       | 1,064,445  |       |
| Warrants exercised and issued but unpaid                                       |       | —     |       | —     |       |
| Warrants issued with bridge loans                                              |       | 188,144    |       | —     |       |
| Common stock issued for license agreement                                      |       | —     |       | 142,800    |       |
| Conversion of due to stockholders to common  stock                             |       | —     |       | 100,000    |       |
| Note payable executed for Non-Compete Agreement                                | ** ** |       | 750,000    | ** ** | ** ** | **—** | ** ** |

 

F-5

----

Table of Contents

 

**NOTE1.****      ****ORGANIZATION**

 

**Organization**

 

OnApril 15, 2008, Omega United, Inc. (“Omega”) entered into and closedan 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 commonstock 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”).Unless otherwise indicated herein or the context otherwise requires, allreferences to “SkyPostal,” and the “Company,” are to SkyPostal Networks, Inc.and subsidiaries.

 

SkyPostal,incorporated in the State of Nevada, was established to create a new standardfor “time defined” mail delivery in the Americas. The Company’s purpose is tofocus on high volume mail distribution in Latin America and the Caribbean(LAC). The Company’s headquarters are located in Miami, Florida.

 

TheCompany believes that it is the largest private mail network in LAC offeringEuropean Postal administrations and mail consolidators in Europe and the UnitedStates, an alternative to the Latin public postal services, providing betterservice at lower prices with proprietary technology. The Company offerstime-defined, secure intelligent mail delivery solutions via an establishedprivate messenger network, and solves a vast market need for reliable andaffordable mail delivery service.

 

InJune 2008, the Company activated a subsidiary, SkyShop Logistics, Inc.(“SkyShop”), to begin offering a new service. The new service enables non-U.S.resident internet shoppers to use SkyShop as their mailing address for U.S.e-commerce websites. In October 2008, the Company launched the serviceunder the brand name Punto Mio.com. There were no material revenues during2008.

 

**Basis of Presentation and Management’s Plan**

 

Asshown in the accompanying consolidated financial statements, the Company hasincurred recurring losses from operations and as of December 31, 2008 theaccumulated deficit was $20,035,500. As of December 31, 2008, the Company’scurrent liabilities exceeded its current assets by approximately $746,000. Cashflow from operations has been negative for each quarter of 2008. These factorsraise substantial doubt about the Company’s ability to continue as a goingconcern.

 

TheCompany hopes to increase the current revenue levels by focusing on expandingits services to other regions and through the acquisition of private maildelivery services in the LAC region. The Company did not complete anyacquisitions in 2008 due in part to its inability to secure the necessaryfinancing to close such transactions.

 

F-6

----

Tableof Contents

 

TheCompany has initiated and plans to initiate further measures to reduce expensesand improve cash flow, that may include the following:

 

· Reduction of administrative staff in Miami,FL

· Consolidation of service facilities inMiami, FL

· Outsourcing of IT development services

· Use of part-time management personnel inlieu of full time

· Re-negotiating of contracts with certain keysuppliers for better pricing and/or payment terms

 

Managementbelieves these factors will contribute towards increasing revenues andachieving profitability in the future. However, there can be no assurance thatthe Company will be able to raise sufficient capital, increase its revenuelevels or complete any mergers or acquisitions, which would enable the Companyto meet its liabilities or continue operations without additional support. Theconsolidated financial statements do not include any adjustments that might benecessary if the Company is unable to continue as a going concern.

 

During2008, the Company raised $8,817,409, net of listing and transaction costs, throughthe sale of new shares of common stock (NOTE 14). The sale of shares wasarranged by Falcon Capital, LLP (“Falcon”). The funds were used to pay accountspayable and operating expenses, repay loans to shareholders and third partiesand pay fees due to Falcon, attorneys and auditors.

 

OnJanuary 28, 2009 the Company executed an engagement letter with anaffiliate of Falcon under which Falcon would, on a best efforts basis, raise capitalthrough the sale of new shares of common stock of the Company (NOTE 15).

 

**NOTE 2.**       **SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

**Management Use of Estimates**

 

Thepreparation of consolidated financial statements in conformity with U.S. GAAPrequires management to make estimates and assumptions that affect the amountsreported in the consolidated financial statements and accompanying notes. Suchestimates and assumptions impact, among others, the following: the amount ofuncollectible accounts receivable, the amount to be paid for the settlement ofliabilities related to cost of sales, the estimated useful lives for propertyand equipment and the value assigned to the warrants granted in connection withthe various financing arrangements. Actual results could differ from thoseestimates.

 

**Principles of Consolidation**

 

Theaccompanying consolidated financial statements include the accounts of SkyPostalNetworks, Inc. and its wholly-owned subsidiaries. Intercompanytransactions and balances have been eliminated in consolidation.

 

Themerger of a private operating company into a non-operating public shellcorporation with nominal net assets typically results in the owners andmanagement of the private company having actual or effective operating controlof the combined company after the transaction, with shareholders of the formerpublic shell 

 

F-7

----

Tableof Contents

 

continuingonly as passive investors. The SEC staff’s rules indicate that thesetransactions are to be capital transactions in substance, rather than businesscombinations. That is, the transaction is equivalent to the private companyissuing stock for the net monetary assets of the shell corporation, accompaniedby a recapitalization. The accounting is identical to that resulting from areverse acquisition, except that no goodwill or other intangible assets shouldbe recorded.

 

Accordingly,for accounting purposes, SkyPostal is treated as the acquirer and thehistorical financial statements presented herein are those of SkyPostal.

 

**Cash**

 

Cash primarily consists ofdemand deposits in interest and non-interest bearing accounts. The carryingamount of these deposits approximates their fair value. The Company’s balancesmaintained may, at times, exceed available depository insurance limits. As of December 31,2008 and 2007, the Company did not hold any balances in excess of availabledepository limits.

 

As of December 31,2007, overdraft balances classified as liabilities amounted to $164,092.

 

**Accounts Receivable**

 

Accountsreceivable are uncollateralized customer obligations due under normal tradeterms requiring payment within 30 days from the invoice date. Accountsreceivable are recorded at the stated amount of the transactions with theCompany’s customers. The allowance for doubtful accounts is the Company’s bestestimate of the amount of probable credit losses in the Company’s existingaccounts receivable. The Company determines the allowance based on the customer’screditworthiness, their payment history and the amount currently past due. Allbalances are reviewed individually for collectability. Accounts receivable arecharged off against the allowance after all means of collection have beenexhausted. Accounts receivable are recorded at the invoice amount net ofallowance.

 

OnOctober 1, 2008 the Company renewed an agreement (“Current Agreement”) tosell, on an ongoing basis, selected trade accounts receivable to a third party,subject to satisfactorily completing due diligence,. The receivables are soldwith full recourse until the buyer issues its credit approval and assumes oraccepts the credit risk of the purchased account. The buyer is responsible forservicing the receivables. The sales of the receivables were accounted forunder Statement of Financial Accounting Standards (SFAS) No. 140,*Accounting forTransfers and Servicing of Financial Assets and Extinguishment of Liabilities.*Atthe time of the sales of its receivables, the Company receives an initialadvance of 80% of the net invoice amount and the remaining 20% is received,less any fees incurred to collect the entire invoice, at collection completion.

 

F-8

----

Table of Contents

 

**Property and Equipment**

 

Propertyand equipment are stated at cost less accumulated depreciation andamortization. Depreciation of office and computer equipment, furniture andfixtures, computer software and warehouse equipment is calculated using thestraight-line method over the estimated useful life of the asset generallyranging from three to seven years. Leasehold improvements are amortized overthe shorter of their estimated useful lives or the related lease term,commencing the month after the asset is placed in service. The costs of repairand maintenance are expensed when incurred, while expenditures for improvementsthat significantly add to the productive capacity or extend the useful life ofan asset are capitalized.

 

**Capitalized Software Development Costs**

 

Researchand development costs are expensed as incurred. Software and PDA developmentcosts incurred subsequent to establishing technological feasibility through thegeneral release of the software products are capitalized, within property andequipment, in accordance with Statement of Position (SOP) 98-1, *Accounting for the Costs of Computer Software Developed or Obtained forInternal Use*. Technological feasibility is demonstrated by thecompletion of a working model. Capitalized costs are amortized on astraight-line basis over three years which is the estimated useful life of thesoftware product. Unamortized software development costs were approximately$231,000 and $61,000 as of December 31, 2008 and 2007, respectively, andare included in property and equipment, net. During 2007, the Company incurredapproximately $204,000 in software development costs that were expensed andincluded in other expenses in the Statements of Operations. In 2008 the Companyincurred approximately $170,000 in software development costs that werecapitalized on the balance sheet as part of Property and Equipment.

 

***Impairmentof Long-Lived Assets***

*** ***

In accordance with SFAS No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets*, long-lived assets, such as property andequipment, are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. Recoverability of assets to be held and used is measured by acomparison of the carrying amount of an asset to estimated undiscounted futurecash flows expected to be generated by the asset. If the carrying amount of anasset exceeds its estimated future cash flows, an impairment charge isrecognized by the amount by which the carrying amount of the asset exceeds thefair value of the asset.

 

Assets to be disposed ofwould be separately presented in the balance sheet and reported at the lower ofthe carrying amount or fair value less costs to sell, and are no longerdepreciated. The assets and liabilities of a disposal group classified as heldfor sale would be presented separately in the appropriate asset and liabilitysections of the balance sheet.

 

**Revenue Recognition**

 

Revenue is recognized upon delivery of a letter or a package inaccordance with Emerging Issues Task Force 91-9, *Revenue and Expense Recognition for Freight Servicein Process.*

 

F-9

----

Tableof Contents

 

**Cost of Delivery**

 

Cost of Delivery iscomprised of postage, export line haul costs, clearance costs, and handdelivery costs.

 

**Stock Based CompensationPlan**

 

Effective January 1, 2006 the Company adopted SFAS No. 123(R),*Share-Based Payment* (SFAS No. 123(R)),using the modified prospective transition method. Accordingly, stock-basedcompensation expense for awards granted prior to, but not yet vested, as of January 1,2006, is recorded as if the fair value method required for pro forma disclosureunder SFAS No. 123 *Accounting forStock-Based Compensation* were in effect for expense recognitionpurposes, adjusted for estimated forfeitures. For stock-based awards grantedafter January 1, 2006, we have recognized compensation expense based onthe estimated grant date fair value method using the Lattice option pricingmodel prior to April 2008 and the Black-Scholes option pricing modelthereafter. For these awards, we have recognized compensation expense using astraight-line amortization method (prorated). SFAS No. 123(R) requiresthat stock-based compensation expense be based on awards that are ultimatelyexpected to vest, after considering estimated forfeitures. For the fiscal yearsended December 31, 2008 and 2007, the estimated forfeitures were zero. TheCompany did not issue any awards under a stock based compensation plan prior to2006.

 

**Acquisition of List ofAccounts and Subsequent Disposal**

 

OnAugust 16, 2007, the Company entered into an Asset Purchase Agreement (the“Purchase Agreement”) with an unrelated company (the “Seller”). As part of thePurchase Agreement, the Company agreed to acquire a list of accounts (the “List”)and certain assets for $1,000, assume certain leases and retain certainemployees of the Seller. Subsequent to the acquisition, the Company continuesto use the List but terminated the employees and cancelled one of the leasesassumed.  The costs incurred amounted toapproximately $278,000 and were accounted for in accordance with SFAS No. 146,*Accounting for Costs Associated with Exit orDisposal Activities*, and are included in operating expenses in thestatements of operations.

 

**Income Taxes**

 

Income taxes areaccounted for under the asset and liability method. Deferred tax assets andliabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases and operating loss and taxcredit carry forwards. Deferred tax assets and liabilities are measured usingenacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. The effecton deferred tax assets and liabilities of a change in tax rates is recognizedin income in the period that includes the enactment date.

 

F-10

----

***Table of Contents***

 

**Intangibles**

 

Intangibles are included in intangibles andother assets on the balance sheet.  Intangibles include trademarks,non-compete and license agreements stated at cost less accumulatedamortization. These assets are amortized on a straight-line basis over theestimated future periods to be benefited (5-7 years).  The Company reviewsthe recoverability of intangible assets based primarily upon an analysis ofundiscounted cash flows expected to be generated from the acquired assets. Inthe event the expected future net cash flows should become less than thecarrying amount of the assets, an impairment loss will be recorded in theperiod such determination is made, based on the fair value of the relatedassets.

 

**Fair Value Measurements**

 

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements*, which definesfair value, establishes a framework for measuring fair value, and expandsdisclosures about fair-value measurements required under other accountingpronouncements. SFAS No. 157 does not change existing guidance as towhether or not an instrument is carried at fair value and is effective forfinancial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years. In February 2008, theFASB issued FASB Staff Position No. FAS 157-1 (FSP FAS 157-1), whichexcludes SFAS No. 13, *Accounting for Leases*and certain other accounting pronouncements that address fair valuemeasurements under SFAS No. 13, from the scope of SFAS 157. In February 2008,the FASB issued FASB Staff Position No. 157-2 (FSP 157-2), which providesa one-year delayed application of SFAS No. 157 for nonfinancial assets andliabilities, except for items that are recognized or disclosed at fair value inthe financial statements on a recurring basis (at leastannually).  The adoption did not have a material impacton the financial statements.

 

In October 2008, the FASB issued FASBStaff Position No. FAS 157-3, *Determining the Fair Valueof a Financial Asset in a Market That Is Not Active* (FSP 157-3),which clarifies the application of SFAS No. 157 when the market for afinancial asset is inactive. Specifically, FSP 157-3 clarifies how (1) management’sinternal assumptions should be considered in measuring fair value whenobservable data are not present, (2) observable market information from aninactive market should be taken into account, and (3) the use of broker quotesor pricing services should be considered in assessing the relevance ofobservable and unobservable data to measure fair value. The guidance in FSP157-3 is effective immediately.

 

SFAS No. 157 defines “fair value” as theprice that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants in the principal market,or if none exists, the most advantageous market, for the specific asset orliability at the measurement date (referred to as an exit price). SFAS No. 157establishes a fair value hierarchy that prioritizes the inputs to valuationtechniques used to measure fair value. The three levels of the fair valuehierarchy under SFAS No. 157 are:

 

Level 1 - Quoted prices (unadjusted) inactive markets for identical assets or liabilities at the measurement date.

 

F-11

----

Table of Contents

 

Level 2 - Inputs other than quoted pricesincluded in Level 1 that are observable for the asset or liability, eitherdirectly or indirectly, for substantially the full term of the asset orliability.

 

Level 3 - Prices or valuation techniques thatrequire inputs that are both significant to the fair value measurement andunobservable.

 

A financial instrument’s level within thefair value hierarchy is based on the lowest level of input that is significantto the fair value measurement. SFAS No. 157 requires the Company tomaximize the use of observable inputs and minimize the use of unobservableinputs when measuring fair value.

 

**Recently Issued AccountingStandards**

 

In December 2007, the FASB issued SFAS No. 141(R),*Business Combinations* which replacesSFAS 141, “Business Combinations” and supersedes other authoritative guidance.SFAS 141(R) broadens the scope of SFAS 141 and requires theacquisition method (SFAS 141 referred to as the purchase method) to be used onall events where a business obtains control over another business. As a result,SFAS 141(R) works to improve the comparability of information aboutbusiness combinations presented. SFAS 141(R) establishes principlesand requirements for how an acquirer recognizes and measures in its financialstatements the identifiable assets acquired, the liabilities assumed, anynoncontrolling interests in the acquiree, and goodwill acquired in a businesscombination or a gain from a bargain purchase. SFAS 141(R) also requiresthe acquirer to disclose information that enables the users to evaluate thenature and financial effects of the business combination. SFAS 141(R) appliesprospectively to business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after December 15,2008, with early adoption prohibited. The Company is determining the effect theadoption of this pronouncement will have on the consolidated financialstatements for an acquisition (NOTE 15).

 

In December 2007, the FASB issued SFAS No. 160,*Noncontrolling Interests in Consolidated FinancialStatements — an amendment of Accounting Research Bulletin No. 51*which establishes accounting and reporting standards for ownership interests insubsidiaries held by parties other than the parent, the amount of consolidatednet income attributable to the parent and to the noncontrolling interest,changes in a parent’s ownership interest and the valuation of retainednoncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160also establishes reporting requirements that provide sufficient disclosuresthat clearly identify and distinguish between the interests of the parent andthe interests of the noncontrolling owners. SFAS 160 is effective as of thebeginning of fiscal years beginning after December 15, 2008. The Companyis evaluating the effect SFAS 160 will have on the Company’s consolidatedfinancial statements.

 

In May 2008, the FASBissued SFAS No. 162, *The Hierarchy of GenerallyAccepted Accounting Principles*. The new standard is intended toimprove financial reporting by identifying a consistent framework, orhierarchy, for selecting 

 

F-12

----

Tableof Contents

 

accounting principles to beused in preparing financial statements that are presented in conformity withU.S. generally accepted accounting principles (GAAP) for nongovernmentalentities. Prior to the issuance of SFAS 162, GAAP hierarchy was defined in theAmerican Institute of Certified Public Accountants (AICPA) Statement onAuditing Standards (SAS) No. 69, “The Meaning of Present Fairly inConformity With Generally Accepted Accounting Principles.”  SFAS No. 162is effective November 15, 2008.  The implementation did not have amaterial effect on its financial statements.

 

**RECLASSIFICATIONS**

 

Certain items on the 2007financial statements have been reclassified to conform to the 2008presentation.

 

**NOTE 3.**       **CONCENTRATIONOF REVENUES**

 

TheCompany had net sales of approximately $2,571,559 to three customers, whichindividually approximated 13%, 8% and 7% of total net sales for the year ended December 31,2008. 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 theyear ended December 31, 2007.

 

**NOTE 4.**       **ACCOUNTSRECEIVABLE**

 

Accounts receivable, net, consisted of the following at December 31:

 
| ** **                            | ** ** | **2008** | ** **    | **2007**   | ** ** |
|---------------------------------------|------------|----------|---------------|------------|------------|
| Accounts receivable                   |       | $        | 1,535,243     |       | $          | 662,038 |   |
| Factored receivables                  |       | —   |          | 844,175    |       |
| Advances received                     |       | —   |          | (717,474   | )          |
| Less: Allowance for doubtful accounts |       | (36,248  | )             | (153,462   | )          |
|                                  |       |     |          |       |       |
| Accounts receivable, net              | ** ** | **$**    | **1,498,995** | ** ** | **$**      | **635,277** | ** ** |

 

**NOTE 5.**       **PROPERTYAND EQUIPMENT, NET**

 

Property and equipment, net, consisted of thefollowing at December 31,

 
| ** **                     | ** ** | **2008** | ** **  | **2007**   | ** ** |
|--------------------------------|------------|----------|-------------|------------|------------|
| Office and computer equipment  |       | $        | 150,732     |       | $          | 124,439 |   |
| Computer software              |       | 435,448  |        | 265,449    |       |
| Furniture and fixtures         |       | 43,811   |        | 21,756     |       |
| Warehouse equipment            |       | 57,449   |        | 44,041     |       |
| Leasehold improvements         |       | 1,755    |        | 1,755      |       |
|                           |       |     |        |       |       |
|                           |       | 689,195  |        | 457,440    |       |
|                           |       |     |        |       |       |
| Less: Accumulated depreciation |       | (359,407 | )           | (319,422   | )          |
|                           |       |     |        |       |       |
| ** **                     | ** ** | **$**    | **329,788** | ** ** | **$**      | **138,018** | ** ** |

 

F-13

----

Table of Contents

 

Depreciationexpense was $47,454 and $69,769 for the years ended December 31, 2008 and2007, respectively.

 

**NOTE 6.**       **INTANGIBLESAND OTHER ASSETS**

 

Intangiblesand other assets include the assets shown below.

 
| **Intangibles and Other Assets** | ** ** | **2008**  | ** ** | **2007** | ** ** |
|-------------------------------------------------|------------|-----------|------------|----------|------------|
| Deposit                                         |       | $         | —     |     | $          | 30,000 |   |
| Escrow Deposit(a)(b)                            |       | 376,975   |       | —   |       |
| Security Deposit                                |       | 78,093    |       | 27,698   |       |
| Trade Mark                                      |       | 79,248    |       | 32,375   |       |
| Non-Compete Agreement                           |       | 735,000   |       | —   |       |
| License Agreement                               |       | 142,800   |       | 142,800  |       |
|                                            |       | 1,412,116 |       | 232,873  |       |
|                                            |       |      |       |     |       |
| Less: Accumulated Amortization                  |       | (116,830  | )          | —   |       |
|                                            |       |      |       |     |       |
|                                            |       | $         | 1,295,286  |     | $          | 232,873 |   |

 

(a)       As acondition of the Securities Exchange (NOTE 1) the Company entered into anunderstanding with Omega United’s principle shareholders to set up an escrowfund of $500,000 to be used for investor relations during the 12 monthsfollowing the reverse merger with Omega. In 2008, the Company incurred $123,025in investor relations expenses that reduced the escrow deposit balance and werecharged to the Consolidated Statement of Operations.

 

(b)       Aspart of the investor relations, on September 18, 2008, the Company enteredinto a Media Services Agreement with Crosscheck Media Services and CommHoldings, Inc. (“CHI”) toproduce and send out a direct mail information newsletter.  The total cost of the mailing would be$575,000, which per the agreement would be paid by CHI. On September 18,2008 the Company, in error requested William F. Doran, the escrow agent, tomake a deposit of $150,000 to Crosscheck Media. To date the mailing has not been produced or sent out.  As a result, the Company has requested arefund of its deposit that was incorrectly paid to Crosscheck Media. Theagreement with Crosscheck calls for arbitration at the facilities of theAmerican Arbitration Association. In March 2009 Crosscheck was notified bythe Company of its request to begin arbitration proceedings.

 

F-14

----

Table of Contents

 

TheNon-Compete Agreement and the License Agreement are amortized using thestraight-line method over their estimated useful lives of seven and five yearsrespectively.

 

**NOTE7.****                                ****RELATEDPARTY TRANSACTIONS**

** **

**Due to Stockholders**

 

AtDecember 31, 2008 Due to Stockholders totaled $7,200. During 2008 theCompany paid down a portion of the balance of Due to Stockholders from theproceeds of a private placement (NOTE 14). Due to stockholders consisted of thefollowing at December 31,

 
| ** **                                                                                                                                                                                        | ** ** | **2008** | ** ** | **2007**   | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|------------|------------|
|                                                                                                                                                                                              |       |     |       |       |       |
| Two unsecured notes payable bearing 4%  interest. During 2007, $60,000 of the notes were converted into 117,647  shares of the Company at $0.51 per share. (a)                                    |       | $        | —     |       | $          | 60,000 |   |
|                                                                                                                                                                                              |       |     |       |       |       |
| 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.  (a) |       | —   |       | 11,000     |       |
|                                                                                                                                                                                              |       |     |       |       |       |
| Unsecured notes payable bearing no  interest. (a)                                                                                                                                                 |       | —   |       | 61,975     |       |
|                                                                                                                                                                                              |       |     |       |       |       |
| Unsecured note payable bearing 4% interest.  (a)                                                                                                                                                  |       | —   |       | 30,000     |       |
|                                                                                                                                                                                              |       |     |       |       |       |
| Unsecured note payable bearing no interest.  (a)                                                                                                                                                  |       | —   |       | 76,296     |       |
|                                                                                                                                                                                              |       |     |       |       |       |
| Unsecured notes payable bearing 4% interest.  During 2007, $15,000 of one of the notes was converted into 29,412 shares of  the Company at $0.51 per share. (a)                                   |       | —   |       | 193,246    |       |
|                                                                                                                                                                                              |       |     |       |       |       |
| Unsecured note payable bearing 10% interest  and having no maturity date. (b)                                                                                                                     |       | 7,200    |       | 33,000     |       |
|                                                                                                                                                                                              |       |     |       |       |       |
|                                                                                                                                                                                              |       | 7,200    |       | 465,517    |       |
|                                                                                                                                                                                              |       |     |       |       |       |
| Less current maturities                                                                                                                                                                           |       | —   |       | (135,975   | )          |
|                                                                                                                                                                                              |       |     |       |       |       |
| ** **                                                                                                                                                                                        | ** ** | **$**    | **7,200**  | ** ** | **$**      | **329,542** |   |

 

F-15

----

Tableof Contents

 

----

(a) repaidfrom Private Placement (NOTE 14) during 2008; (b) partially repaid fromPrivate Placement during 2008

 

**NOTE 8.****                                ****NOTESPAYABLE**

 

As of December 31, 2008 the Company hadno outstanding notes payable. During 2008 the Company converted  $2,992,177 of various forms of notes payable into7,107,147 shares of common stock at prices ranging from $.35-$.50 per share.Other notes payable were repaid from the proceeds of the Private Placement ofcommon stock (NOTE 14).

 

Notes payable consisted of the following at December 31,

 
| ** **                                                                                                                                                                                                                                                         | ** ** | **2008** | ** **                                                                                 | **2007**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|--------------------------------------------------------------------------------------------|------------|------------|
| Various unsecured notes bearing 10%  interest. At December 31, 2007, the notes plus accrued interest of  $233,423 were convertible into 3,418,975 shares of common stock of the  Company from $0.51 to $0.75 per share. (a)                                   |       | $        | —                                                                                     |       | $          | 1,632,300 |   |
|                                                                                                                                                                                                                                                               |       |     |                                                                                       |       |       |
| Various convertible notes bearing 10%  interest. These notes had 1,036,720 warrants attached and were secured by the  Company’s uncollateralized accounts receivables. (a)                                                                                    |       | —   |                                                                                       | 974,250    |       |
|                                                                                                                                                                                                                                                               |       |     |                                                                                       |       |       |
| Note payable that bears interest at 18%.  This note was secured by 333,333 of the Company’s shares of one of the  stockholders. (a)                                                                                                                           |       | —   |                                                                                       | 200,000    |       |
|                                                                                                                                                                                                                                                               |       |     |                                                                                       |       |       |
| Secured note payable with discounted  interest of $31,220, in the amount of $332,220. The note was secured by  1,500,000 of Company shares of one of the stockholders. The note carried  100,000 warrants for the purchase of the Company’s common stock. (c) |       | —   |                                                                                       | 332,220    |       |
|                                                                                                                                                                                                                                                               |       |     |                                                                                       |       |       |
| Various unsecured notes payable that bear  interest at 18%. (b)                                                                                                                                                                                                    |       | —   |                                                                                       | 492,738    |       |
|                                                                                                                                                                                                                                                               |       |     |                                                                                       |       |       |
| Unsecured notes payable that bear interest  at 48%. (b)                                                                                                                                                                                                            |       | —   |                                                                                       | 300,000    |       |
|                                                                                                                                                                                                                                                               |       |     |                                                                                       |       |       |
| Unsecured note payable that bears interest  at 10%. (b)                                                                                                                                                                                                            |       | —   |                                                                                       | 97,054     |       |
|                                                                                                                                                                                                                                                               |       |     |                                                                                       |       |       |
| Unsecured note payable that bears interest  at 18% (b)                                                                                                                                                                                                             |       | —   |                                                                                       | 60,000     |       |
|                                                                                                                                                                                                                                                               |       |     |                                                                                       |       |       |
| Unsecured note payable that bears interest  at 18% (b)                                                                                                                                                                                                             |       | —   |                 | 31,221     |       |
|                                                                                                                                                                                                                                                               |       |     |                                                                                       |       |       |
|                                                                                                                                                                                                                                                               |       | —   |                                                                                       | 4,119,783  |       |
| Less current maturities                                                                                                                                                                                                                                            |       | —   |                                                                                       | (4,022,729 | )          |
| ** **                                                                                                                                                                                                                                                         | ** ** | **$**    | **—**                                                                                 | ** ** | **$**      | **97,054** | ** ** |

 

(a) Convertedto common stock in 2008 (b) repaid in 2008 (c) partially repaid and aportion converted to common stock in 2008

 

Interestexpense for the years ended December 31, 2008 and 2007 was approximately$385,000 and $564,000 respectively.

 

F-16

----

Tableof Contents

 

**NOTE 9.****                                ****EXCESS OF VALUE OF PUTOPTIONS OVER THE ESTIMATED FAIR VALUE OF SHARES**

 

Asof December 31, 2007, the Company had 3,200,000 shares of common stockoutstanding that were granted put options as part of a Sale Option Agreementdated April 1, 2007 between the Company and a shareholder (“RedemptionAgreement”). These options have an exercise price of $1.00 per share and may beexercised 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.

 

AtDecember 31, 2007, the Company’s stock was valued at $0.50 per share.Accordingly, a liability of $1,600,000 was recorded for the difference betweenthe stock price at December 31, 2007 and the exercise price times thenumber of shares.  The liability is adjustedbased on the Company’s stock price at the end of each reporting period. Thedetermination of the put liability as of December 31, 2007 and December 31,2008 is shown below.

 
| ** **              | ** ** | **Shares Subject to Put** | ** ** | **Share Value** | ** ** | **Put Liability  per share** | ** ** | **Balance** | ** ** |
|-------------------------|------------|------------------------------------------|------------|----------------------|------------|----------------------------------------|------------|-------------|------------|
|                    |       |                                     |       |                 |       |                                   |       |        |       |
| December 31,  2007 |       | 3,200,000                                |       | $                    | 0.50       |                                   | $          | 0.50        |       | $ | 1,600,000 |   |
|                    |       |                                     |       |                 |       |                                   |       |        |       |
| December 31,  2008 |       | 2,880,000                                |       | $                    | 0.23       |                                   | $          | 0.77        |       | $ | 2,217,600 |   |

 

Thefollowing table presents the Company’s financial assets that are measured atfair value on a recurring basis as of December 31, 2008 and 2007, for eachfair value hierarchy level.

 
| ** **           | ** ** | **2008**         | ** ** | **2007**         | ** ** |
|----------------------|------------|------------------|------------|------------------|------------|
| ** **           | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| Put Option Liability |       | $                | 2,217,600  |             | —     |   | — |   | $ | 2,217,600 |   | $ | — |   | — |   | 1,600,000 |   | $ | 1,600,000 |   |
|                      |            |                  |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Theshare price at December 31, 2007 was determined using the price of theshares being sold through a private placement at December 31, 2007 as anactive market did not exist at the time before the Company engaged in theSecurities Exchange.

 

Anyshares that are repurchased are recorded as treasury stock at the cost of theshares at the time of repurchase. In 2008 the Company repurchased 320,000shares on the scheduled dates of the put and recorded an addition to treasurystock of $320,000.

 

Onor about October 1, 2008, the Company received a notice of put for 160,000shares but elected not to make the payment of $160,000 due to its current cashposition. This liability and payments for 2009 are recorded on the balancesheet as a current liability.

 

**Note 10.****                                  ****NON-COMPETEAGREEMENT**

 

Coincidentwith the Redemption Agreement described in Note 8, the shareholder also enteredinto a Non-Compete Agreement with SkyPostal. Under this agreement 

 

F-17

----

Table of Contents

 

theshareholder receives quarterly payments totaling $ 735,000 beginning April 1,2008. The Non-Compete Agreement was recorded as an intangible asset on thebalance sheet and is amortized over seven years with an offsetting liability torecognize the cumulative nominal value of future payments. Due to its cashposition, the Company failed to make a scheduled payment of $63,000 under theNon-Compete Agreement in October 2008.

 

Theunpaid balance of the liability under the Non-Compete Agreement as of December 31,2008 according to the year of scheduled payment is shown below.

 
| **Annual Payment Schedule  Year** | ** ** | **Amount** | ** **  |
|---------------------------------------------|------------|------------|-------------|
| 2008                                        |       | $          | 63,000      |   |
| 2009                                        |       | 217,000    |        |
| 2010                                        |       | 161,000    |        |
| 2011                                        |       | 105,000    |        |
| 2012                                        |       | 49,000     |        |
| 2013                                        |       | 3,500      |        |
| **Total**                                   | ** ** | **$**      | **598,500** | ** ** |

 

Theamount of liability shown above for 2008 and 2009 totaling $280,000 is recordedas a current liability on the balance sheet as of December 31, 2008. Theamount due in the years 2010-2013 totaling $318,500 is recorded as a long termliability on the balance sheet.

 

**NOTE 11.****                         ****INCOMETAXES**

 

The actual income taxexpense for 2008 and 2007 differs from the statutory tax expense for the year(computed by applying the U.S. federal corporate tax rate of 34% to incomebefore provision for income taxes) as follows:

 
| ** **                                     | ** ** | **2007**  | ** ** | **Effective  Tax Rate** | ** ** | **2008** | ** ** | **Effective  Tax Rate** | ** ** |
|------------------------------------------------|------------|-----------|------------|------------------------------|------------|----------|------------|------------------------------|------------|
|                                           |       |      |       |                         |       |     |       |                         |       |
| Federal taxes at statutory rate                |       | $         | (2,094,453 | )                            | 34.00      | %        | $          | (1,570,366                   | )          | 34.00 | % |
| State income taxes, net of federal tax benefit |       | (176,977  | )          | 2.87                         |       | (92,783  | )          | 2.00                         |       |
| Other permanent differences                    |       | 436,815   |       | (7.09                        | )          | 727,195  |       | (15.74                       | )          |
| Change in valuation allowance                  |       | 1,834,615 |       | (29.78                       | )          | 935,954  |       | (20.26                       | )          |
|                                           |       |      |       |                         |       |     |       |                         |       |
| Total                                          |       | $         | —     |                         | 0.00       | %        | $          | —                       |       | 0.00 | % |

 

F-18

----

Tableof Contents

 

TheCompany’s deferred tax assets are as follows:

 
| ** **                      | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|---------------------------------|------------|------------|------------|------------|------------|
| ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Deferred tax assets:            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Depreciation and other          |       | $          | 98,216     |       | $          | 168,947 |   |
| Allowance for doubtful accounts |       | 13,640     |       | 57,748     |       |
| Net operating loss carryover    |       | 6,152,133  |       | 4,202,679  |       |
|                            |       |       |       |       |       |
| Total                           |       | 6,263,989  |       | 4,429,374  |       |
| Less: Valuation allowance       |       | (6,263,989 | )          | (4,429,374 | )          |
| ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net deferred tax asset          | ** ** | **$**      | **—** | ** ** | **$**      | **—** | ** ** |

 

As of December 31, 2008, the Company has available approximately$16,300,000 of operating loss carryforwards, which may be used in the futurefilings of the Company’s tax returns to offset future taxable income for UnitedStates income tax purposes. Net operating losses expire beginning in the year2022. As of December 31, 2008 and 2007, the Company has determined thatdue to the uncertainty regarding profitability in the near future, a 100%valuation allowance is needed with regards to the deferred tax assets. Changesin the estimated tax benefit that will be realized from the tax losscarryforwards and other temporary differences will be recognized in thefinancial statements in the years in which those changes occur.

 

Under the provisions of the Internal Revenue Code Section 382, anownership change is deemed to have occurred if the percentage of stock owned byone or more 5-percent shareholders has increased, in the aggregate, by morethan 50 percentage points over the lowest percentage of stock owned by saidshareholders at any time during a three year testing period.  Once anownership change is deemed to have occurred under Section 382, alimitation on the annual utilization of net operating loss (NOL) carryforwardsis imposed and therefore, a portion of the tax loss carryforwards would besubject to the limitation under Section 382.  SkyPostal Networks, Inc. acquisitionof SkyPostal, Inc. on April 15, 2008 (see Note 1) resultedin an ownership change pursuant to Section 382.  After applying theapplicable limitations and applying other appropriate adjustments, the combinedfederal and state net operating loss is approximately $ 12,970,000, asof  April 15, 2008, the merger date .

 

**NOTE12.****                         ****STOCKCOMPENSATION PLANS**

** **

**Employee Stock Options**

 

Priorto 2008, employees of the Company had options to purchase shares of the Company’scommon stock under an employee stock option plan (the “Plan”). Under the Plan,the total number of shares authorized was 6,000,000, of which 5,862,594 weregranted in 2007. The Company recognized compensation expense based on theestimated grant date fair value method using the Lattice option pricing model,adjusted for estimated forfeitures. There were no forfeitures during 2007. TheCompany calculated the fair value of each option award on the date of grantusing the Lattice option pricing model. The per share average fair value ofstock options granted to employees and a  consultant during the year endedDecember 31, 2007 was $0.11. For the year ended December 31, 2007,the Company recognized compensation expense of approximately $284,000, relatedto the adoption of SFAS No. 123(R). At December 31, 2007,unrecognized compensation cost related to unvested stock-based awards totaledapproximately $300,000. There is no longer any compensation cost to berecognized under the previous stock option plan.

 

F-19

----

Tableof Contents

 

**Stock Grant Plan**

 

As a condition of the Securities Exchange in 2008 (NOTE 1), the Companyagreed to cancel the Stock Option Plan and replace it with a new Stock GrantPlan, which in part involved the exchange of stock options for shares of commonstock. The Company has agreed to compensate certain employees, directors and anadvisor through the grant of restricted shares of common stock.  In general, these non-vested shares vest over2-3 years and are subject to the employees, directors and advisor continuingservice to the Company. The cost of non-vested shares is determined using thefair value of the Company’s common stock on the date of grant. The compensationexpense is recognized over the vesting period.

 

Employee Stock Grants.  The Boardof Directors of the Company agreed on April 15, 2008 to grant to certainemployees shares of common stock at $ .50 per share. The shares are governed bya two year vesting schedule wherein all shares are forfeited if the employeeresigns prior to April 15, 2009 and a twelve month lock up period beginningon the grant date. Shares totaling 230,000 were forfeited during 2008.

 

Director Grants.TheBoard of Directors approved in May and June 2008 a grant to each of fournon-executive directors and one employee director 135,000 shares of commonstock. These shares vest over a two year schedule and are subject to certainclaw back rights and sale restrictions.

 

Advisor Grants.  On April 5,2008, the Company granted 350,000 shares of common stock to an advisor inconsideration for certain advisory services. These shares vest over a threeyear period and were subject to certain claw back rights and sale restrictions.These shares were forfeited in December 2008.

 

A summary of the status of the Company’s non-vested stock grants, as ofDecember 31, 2008, and changes during the year ended December 31,2008, is shown below.

 
| ** **                          | ** ** | ** ** | ** ** | **Weighted**                  | ** ** | ** **          | ** ** |
|-------------------------------------|------------|------------|------------|-------------------------------|------------|---------------------|------------|
| ** **                          | ** ** | ** ** | ** ** | **Average Grant-**       | ** ** | ** **          | ** ** |
| ** **                          | ** ** | ** ** | ** ** | **Date Fair Value** | ** ** | ** **          | ** ** |
| ** **                          | ** ** | **Shares** | ** ** | **(per share)**          | ** ** | **Fair Value** | ** ** |
|                                |       |       |       |                          |       |                |       |
| Nonvested at December 31, 2007 |       | —     |       | —                        |       |                |       |
| Awarded                             |       | 2,289,136  |       | $                             | 0.73       |                | $          | 1,677,818 |   |
| Vested                              |       | (325,000   | )          |                          |       | (340,250            | )          |
| Forfeited                           |       | (580,000   | )          | 0.50                          |       | (290,000            | )          |
| Nonvested at December 31, 2008 |       | 1,384,136  |       | $                             | 0.76       |                | $          | 1,047,568 |   |

 

F-20

----

Table of Contents

 

In 2008 the Company recognized $934,992 in employee stock compensationexpense related to the employee stock grants.

 

**Securities Exchange**

 

As a condition of the Securities Exchange, Albert Hernandez, theCompany’s Chief Executive Officer, and A.J. Hernandez, Albert Hernandez’ sonand the Company’s Chief Financial and Chief Operating Officer, agreed toexchange their stock options and unpaid salary and benefit amounts for vestedshares of common stock valued at $.245 per share. The details of theseexchanges are shown below:

 
| ** **       | ** ** | **Exchanged**          | ** ** | **Common Shares** | ** ** |
|------------------|------------|------------------------|------------|------------------------|------------|
| ** **       | ** ** | **Unpaid Salary** | ** ** | **Benefits**           | ** ** | **Options** | ** ** | **Received** | ** ** | **Value** | ** ** |
|             |       |                   |       |                   |       |   |   |   |   |   |   |
| Albert Hernandez |       | $                      | 166,667    |                   | $          | 14,000 |   | 2,311,440 |   | 1,757,943 |   | $ | 430,696 |   |
|             |       |                   |       |                   |       |   |   |   |   |   |   |
| A.J. Hernandez   |       | 125,000                |       | 20,000                 |       | 2,226,154 |   | 1,596,411 |   | 391,121 |   |
|             |       |                   |       |                   |       |   |   |   |   |   |   |
| Total            |       | $                      | 291,667    |                   | $          | 34,000 |   | 4,537,594 |   | 3,354,354 |   | $ | 821,817 |   |

 

Another son of Albert Hernandez, employed by the Company, agreed toexchange 400,000 stock options for 200,000 shares of common stock. Certainadvisors and consultants agreed to exchange 925,000 stock options and 100,000warrants for 50,000 shares of common stock.

 

**NOTE13.****                         ****COMMITMENTSAND CONTINGENCIES**

 

**Operating Leases**

 

TheCompany has a non-cancellable operating lease that expires in 2009 for itscurrent headquarters location in Miami, FL. Rental expense under this lease was$135,661and $122,492 forthe years ended December 31, 2008 and 2007, respectively.

 

InJune 2008, the Company entered into a non-cancellable five year operatinglease in Miami, FL for the operations of Punto Mio. Rental expense under thislease in 2008 totaled $37,896.

 

F-21

----

Tableof Contents

 

InAugust 2008, the Company entered into a non-cancellable six monthsub-lease, which has month to month extensions through July 1, 2009, foroffice/warehouse space in Carlstadt, NJ. Rental expense under this agreement in2008 was $15,189.

 

Thefuture minimum rental payments under these leases for the years subsequent to December 31,2008 are as follows:

 
| 2009  |   | $      | 125,255 |   |
|-------|--------|--------|---------|--------|
| 2010  |   | 66,656 |    |
| 2011  |   | 68,282 |    |
| 2012  |   | 71,013 |    |
| 2013  |   | 48,588 |    |
| Total |   | $      | 379,794 |   |

 

**Litigation**

 

TheCompany may become a party to various claims, legal actions and complaintsarising in the ordinary course of business. In the opinion of management, therewere no matters that would have a material adverse effect on the financialcondition of the Company as of December 31, 2008 and 2007.

 

**NOTE14.****                         ****COMMONSTOCK**

 

Thenumber of shares of common stock, par value $.001, authorized, issued andoutstanding at December 31, 2008 and 2007 is shown below:

 
| ** **      | ** ** | **2008**    | ** ** | **2007**   | ** ** |
|-----------------|------------|-------------|------------|------------|------------|
| **Authorized**  |       | 150,000,000 |       | 50,000,000 |       |
|            |       |        |       |       |       |
| **Issued**      |       | 56,814,664  |       | 16,131,215 |       |
|            |       |        |       |       |       |
| **Outstanding** |       | 56,494,664  |       | 16,131,215 |       |

 

Thenumber of shares of preferred stock, par value $.001, authorized, issued andoutstanding at December 31, 2008 and 2007 is shown below:

 
| ** **                 | ** ** | **2008**   | ** ** | **2007** | ** ** |
|----------------------------|------------|------------|------------|----------|------------|
| **Authorized**             |       | 50,000,000 |       | —   |       |
|                       |       |       |       |     |       |
| **Issued and outstanding** |       | —     |       | —   |       |

 

TheCompany has outstanding 2,197,166 warrants, each of which entitles the holderto purchase one share of common stock for $.50. The warrants may be exercisedthrough March 1, 2011. Approximately 1,680,000 of the warrants werereceived by Falcon Capital, LLP as partial compensation in connection with thePrivate Placement as described below.

 

F-22

----

Tableof Contents

 

FromMarch 7, 2008 through October 21, 2008, the Company sold 20,741,948shares of its common stock for $10,370,974 or $.50 per share (the “PrivatePlacement”). The Private Placement was arranged by Falcon Capital, LLP (“Falcon”).Mathijs van Houweninge, a Director of the Company, was the Managing Partner ofFalcon until December 2008 when he resigned. Falcon received a cash fee of10% of the total funds raised and is granted warrants to purchase shares of theCompany’s common stock equal to 10% of the number of shares sold, as describedabove. The value of these warrants had no net effect on paid-in-capital during2008 as the increase in paid-in-capital from issuance is offset by a reductionin paid-in-capital as the Falcon fees are charged directly to paid-in-capital.

 

In2008, in connection with a bridge loan of $600,000 the Company granted the noteholders warrants valued at $188,144. At note issuance the value of the warrantswas treated as a reduction in the loan payable balance on the balance sheet andwhen the loan was repaid in full, the value of the warrants was credited topaid-in-capital.

 

During2008 the Company converted accounts payable with a balance of $100,000 into200,000 shares of common stock at a price per share of $.50.

 

OnJanuary 15, 2007, the Company converted $54,890 of trade payables due toan unrelated third party into 91,483 shares of the Company’s common stock at$0.60 per share.

 

OnJuly 1, 2007, a non executive director was granted 65,000 shares of theCompany’s common stock representing a portion of total compensation as providedin a one year financial consulting agreement expiring May 31, 2008. Theshares were valued at $0.60 per share. As part of this agreement, the nonexecutive director was also granted options to purchase 925,000 shares of theCompany’s common stock at $0.60 per share (NOTE 12).

 

OnJuly 1, 2007, a member of management, as part of his compensation package,was granted 300,000 shares of the Company’s common stock representing acompensation bonus. The shares were valued at $0.60 per share.

 

OnSeptember 1, 2007, a delivery service partner of the Company was granted420,000 shares of the Company’s common stock at $0.34 per share asconsideration for the service partner entering into an exclusive serviceagreement with the Company and as partial consideration for convertingoutstanding invoices due by the Company to the service partner into apromissory note in the amount of $276,659. As of December 31, 2007, therewas approximately $143,000 recorded as an intangible asset in the accompanyingbalance sheets. The promissory note was paid off on November 15, 2007.

 

OnSeptember 14, 2007, a convertible note holder converted two promissorynotes amounting to $1,000,000 and $64,445 in accrued interest into 2,087,146shares of the Company’s common stock at a conversion price of $0.51 per share.

 

F-23

----

Tableof Contents

 

**NOTE 15.****                         ****SUBSEQUENTEVENTS**

 

OnJanuary 28, 2009, the Company executed an engagement letter with FalconInternational Consulting Limited, a company affiliated with Falcon, under whichFalcon would, on a best efforts basis, raise capital through the sale of newshares of common stock of the Company at $.10 per share. As of March 15,2009, the Company had received $950,500 for the purchase of 9,505,000 shares ofcommon stock. As of March 15, 2009 Falcon had earned fees of approximately$95,000 payable in cash and shares of common stock totaling approximately95,000.

 

OnJanuary 1, 2009 the Company failed to make payments of $160,000 and$59,500 under the Redemption Agreement and the Non-compete Agreementrespectively. Total unpaid payments under these agreements as of March 15,2009 are shown below.

 
| ** **            | ** ** | **Agreement**  | ** ** |
|-----------------------|------------|----------------|------------|
| ** **            | ** ** | **Redemption** | ** ** | **Non-compete** | ** ** |
| **Payment Date** | ** ** | **Agreement**  | ** ** | **Agreement** | ** ** |
|                  |       |           |       |   |   |
| October 1, 2008       |       | $              | 160,000    |   | 63,000 |   |
|                  |       |           |       |   |   |
| January 1, 2009       |       | 160,000        |       | 59,500 |   |
|                  |       |           |       |   |   |
|                  |       | $              | 320,000    |   | 122,500 |   |

 

 

OnFebruary 27, 2009 the Company acquired seventy percent of the common stockof Logistics Enterprises, Ltda (“LEL”), a Colombian company also engaged inwholesale mail distribution and related activities. The Company agreed toexchange 400,000 shares of the Company’s common stock for the LEL shares and tomake 25 monthly payments of $4,000 commencing one month after closing. Thestock of SkyPostal has certain restriction on its sale, including an 18 monthlockup period. The Company also has the right to acquire the remaining 30percent shareholding in LEL at any time after March 1, 2011, based on aformula determined in part by LEL’s pre-tax earnings for the preceding twelvemonths. Coincident with the acquisition, the Company entered into an employmentagreement with the current CEO of LEL to serve as the general manager ofColombian operations for three years. The acquisition was not material to theCompany.

 

InFebruary 2009 Falcon and the Company agreed to exchange approximately456,000 warrants earned but unissued for 100,000 shares of common stock.

 

F-24

----

 

**ITEM 9.****                                     CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

21

----

Table of Contents

 

**ITEM 9A(T).         CONTROLS AND PROCEDURES**

 

**Disclosure Controls and Procedures**

 

We maintain a system of disclosure controls and procedures that aredesigned to provide reasonable assurance that information required to bedisclosed by us in reports that we file and submit under the Exchange Act isrecorded, processed, summarized, and reported within the time periods specifiedby the SEC’s rules and forms. Disclosure controls also are designed toreasonably assure that such information is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate, to allow timely decisions regarding required disclosure.

 

Disclosure controls include components of internal control overfinancial reporting, which consists of control processes designated to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements in accordance with GAAP. Our management,under the supervision and with the participation of the Chief Executive Officerand Chief Financial Officer, evaluated the effectiveness of the design andoperation of our disclosure controls and procedures (as defined in Rule 13a-15(e) ofthe Exchange Act), as of the end of December 31, 2008, the period coveredby this Annual Report.

 

Based on their evaluation of our disclosure controls and procedures,our Chief Executive Officer and the Chief Financial Officer concluded that ourdisclosure controls and procedures were not effective as of December 31,2008, the end of the period covered by this report because of the materialweakness in internal controls over financial reporting.

 

Due to the material weaknesses, our management performed additionalanalyses and other post-closing procedures including reviewing all significantaccount balances and disclosures in the consolidated financial statementscontained in this Annual Report to ensure our consolidated financial statementsare in accordance with GAAP. Accordingly, management believes that theconsolidated financial statements included in this Annual Report fairlypresent, in all material respects, our financial condition, results ofoperations, and cash flows for all periods presented.

 

**Internal Controls Over Financial Reporting**

 

**Management’s Report on Internal Control Over Financial Reporting**

 

Our management is responsible for establishing and maintaining adequateinternal control over financial reporting. Our internal control over financialreporting is a process designed under the supervision of our Chief ExecutiveOfficer and Chief Financial Officer to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of our financialstatements for external reporting purposes in accordance with GAAP. Internalcontrol over financial reporting includes those policies and procedures that (i) pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of our assets; (ii) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in

 

22

----

Table of Contents

 

accordance with GAAP, and that receipts and expenditures are being madeonly in accordance with authorizations of our management and directors; and (iii) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of our assets that could have a materialeffect on the interim or annual consolidated financial statements.

 

Because of its inherent limitations, internal control over financialreporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that thedegree of compliance with policies or procedures may deteriorate.

 

Our management, under the supervision of and with the participation ofour Chief Executive Officer and Chief Financial Officer, evaluated theeffectiveness of our internal control over financial reporting as of December 31,2008 based on the criteria set forth by the Committee of Sponsor Organizationsof the Treadway Commission (COSO) in the Internal Control-Integrated Framework.

 

A material weakness is a control deficiency, or combination of controldeficiencies, that results in more than a remote likelihood that a materialmisstatement of the annual or interim financial statements will not beprevented or detected. Management identified the following control deficienciesthat represent material weaknesses in our internal control over financialreporting as of December 31, 2008**:**

 

· We did notmaintain a sufficient depth of personnel with an appropriate level ofaccounting knowledge, experience and training in the selection and applicationof GAAP commensurate with financial reporting requirements. Historically, wehave lacked staff with experience pertaining to GAAP and SEC regulations. Thiscontrol deficiency could result in material misstatements of significantaccounts and disclosures that would result in a material misstatement to ourinterim or annual consolidated financial statements that would not be preventedor detected. Accordingly, management has determined that this controldeficiency constitutes a material weakness.

 

**·**We did not adequatelyinform and educate employees of our standards and expectations of integrity andethical values which includes (but is not limited to) guidelines and policiesthat address sexual harassment, conflicts of interest, confidential informationand trust regulations as well as the Foreign Corrupt Practices Act. We did notactively engage employees on these matters in a way that ensures they not onlyunderstand the guidelines and polices established but also know how they are tobe integrated into business practices that foster good corporate citizenship.

 

23

----

Table of Contents

 

· We did notmaintain effective control over certain spreadsheets utilized in the period-endfinancial reporting process. Specifically, we lacked effective controls relatedto the completeness, accuracy, validity, and security (restricted access anddata security) of consolidation spreadsheet schedules that report revenue,expenses, assets, liabilities and stockholders’ equity. This control deficiencydid not result in audit adjustments to the 2008 interim or annual consolidatedfinancial statements. This control deficiency could result in a materialmisstatement of the aforementioned accounts or disclosures that would result ina material misstatement to our interim or annual consolidated financialstatements that would not be prevented or detected. Accordingly, management hasdetermined that this control deficiency constitutes a material weakness.

 

· We did notmaintain effective controls over access to and maintenance of financial data.Specifically, financial and non-financial data is stored on non-networkedlaptops and hard drives instead of a central data storage site at our headquarterslocation. Furthermore, management lacks data retention policies and processesthat ensure the security and availability of current and historic data. Thiscontrol deficiency did not result in audit adjustments to the 2008 interim orannual consolidated financial statements; however, this control deficiencycould result in a material misstatement of our interim or annual consolidatedfinancial statements that would not be prevented or detected. Accordingly,management has determined that this control deficiency constitutes a materialweakness.

 

· We did notmaintain effective controls over the design and maintenance of the headquartersgeneral ledger application. Inadequate maintenance of the headquarters generalledger is manifest in the lack of change management policies, absence of datamaintenance plans, and absence of backup/recovery procedures. Furthermore,ongoing monitoring of security and access control is absent. This controldeficiency did not result in audit adjustments to the 2008 interim or annualconsolidated financial statements. Accordingly, management has determined thatthis control deficiency constitutes a material weakness.

 

· We did notmaintain effective controls over segregation of duties. Specifically, certainkey financial accounting and reporting personnel had an expansive scope ofduties that allowed for the creation, review, approval and processing offinancial data without independent review and authorization for preparation ofconsolidation schedules and resulting financial statements and relateddisclosures. This control deficiency did not result in audit adjustments to our2008 interim or annual consolidated financial statements. However, this controldeficiency could result in a material misstatement of significant accounts ordisclosures that would result in a material misstatement to our interim orannual consolidated financial statements that would not be prevented ordetected. Accordingly, management has determined that this control deficiencyconstitutes a material weakness.

 

24

----

Table of Contents

 

Because of these material weaknesses, management concluded that we didnot maintain effective internal control over financial reporting as of December 31,2008, based on the criteria in Internal Control-Integrated Framework issued byCOSO.

 

Management has undertaken procedures in order to conclude thatreasonable assurance exists regarding the reliability of financial reportingand the preparation of the consolidated financial statements contained in thisannual report. Accordingly, management believes that the consolidated financialstatements included in this Form 10-K fairly present, in all material respects,our financial position, results of operations, and cash flows for the periodspresented.

 

This annual report does not include an attestation report of ourregistered public accounting firm regarding internal control over financialreporting. Management’s report was not subject to attestation by our registeredpublic accounting firm pursuant to temporary rules of the SEC that permitus to provide only management’s report in this Annual Report.

 

**ITEM 9B.               OTHER INFORMATION**

 

The following information was filed in a Form 8-K with the SECduring the fourth quarter of 2008:

 

· On October 31,2008 Michael Knorr resigned as executive vice president of the Company.

· On November 30,2008 Clement Harary, the Company’s Chief Financial Officer, resigned his positionto pursue other interests.  There were nodisagreements between the Company and Mr. Harary on any accounting issuesor other policies or practices. A.J. Hernandez, the Company’s Chief OperatingOfficer, assumed the CFO responsibilities.

· On December 1,2008 the Company announced the expansion of Punto Mio, its internet shoppingfacilitator, to the Middle East.

· On December 3, 2008, theCompany announced an agreement between the Company and Banco Santander Rio toco-market Punto Mio in Argentina.

 

**PART III**

 

**ITEM 10.               DIRECTORS, EXECUTIVE OFFICERS ANDCORPORATE GOVERNANCE**

 

**Directors and Executive Officers**

 

Set forth below are our directors and executive officers, their ages,their positions with the Company, their business experience during the pastfive years or more, and additional biographical data.

 

25

----

Table of Contents

 
| **Name**              | ** ** | **Age** | ** ** | **Position**                                |
|-----------------------|------------|---------|------------|---------------------------------------------|
| Albert Hernandez      |       | 60      |       | Chairman and Chief Executive Officer        |
| AJ Hernandez          |       | 38      |       | Chief Financial and Chief Operating Officer |
| Chris Weber           |       | 61      |       | Director of European Operations             |
| David Fineman         |       | 63      |       | Director                                    |
| Florian Schubauer     |       | 30      |       | Director                                    |
| Jose Misrahi          |       | 51      |       | Director                                    |
| Mathijs van Houwening |       | 42      |       | Director                                    |

 

*A.J. Hernandez is the son of Albert Hernandez.*

 

*Albert P. Hernandez*has served as the ChiefExecutive Officer and Chairman of the Board of the Company since its inception.Prior to that time, from 2002 to March 2008, he served as the ChiefExecutive Officer of SkyPostal, Inc. From 1972 to 2002 he served invarious executive positions with companies in the logistics business, includingSky Courier Network which was sold to Airborne Express in 1988 and SkyNetWorldwide Express which was sold to a division of Lan Chile Airlines in 2001.

 

*A.J. Hernandez* has served as the Chief  Operating Officer of the Company since itsinception and as the Chief Financial Officer since December 2008. From2001 until March 2008 he served as the Chief Operating Officer of SkyPostal, Inc.From 1993 to 2001 he served in executive positions with SkyBox Services, Inc.,a company providing a US address facility to enable upscale Latin Americanresidents to receive mail, catalogues and Internet purchases via a mailwarehouse facility in Miami, Florida.

 

*Christian J. Weber* has been responsible forall of sales and service in Europe for SkyPostal since 2002. From 1981 to 2002he was Managing Director of SkyNet Worldwide Express and SkyMail UK, Ltd.,international delivery companies.

 

*Mathijs van Houweninge* has served as aDirector of the Company since its inception. From 2005 to December 2008 heserved as a partner in Falcon. From 1990 to 2003 he served in executivepositions in a software consultancy company that he eventually sold to Orvidaof Holland. He is a member of the Board of Cyber City, USA and a member of theAdvisory Board Private Equity for Triodos, The Netherlands.

 

*S. David Fineman* has served as a Directorof the Company since its inception. He is currently the Senior Partner ofFineman, Krekstein & Harris, a law firm in Philadelphia, Pennsylvania,and has been since 1998. From 1995 to 2004 he served on the Board of Governorsof the U.S. Postal Service and served as Chairman from 2001 to 2004.

 

26

----

Table of Contents

 

*Florian M. Schuhbauer*has served as a Director of the Company since its inception. In 2006he founded NG Outsourcing, Inc., a consulting and investment boutique, andjoined General Capital Group. He became a partner of General Capital Group in2008. From 2002 to 2006 he served in executive positions at Deusche Post AG,including Chief Financial Officer and Executive Vice President of DHL GlobalMail U.S. operations. He previously served in trading and equity researchpositions at Dresdner Bank/Dresdner Kleinwort Benson from 1994-1999.

 

*JoseMisrahi*has served as a Director of the Company since its inception. Since 2006 he hasbeen the Chief Financial Officer of Facey Commodity Company Limited, amulti-national company operating in 29 countries. From 2003 to 2006, Mr. Misrahiwas a Managing Director of Vaupen Financial Advisors, a boutique investmentbank. From 1992 to 2002, he served as Vice President, Finance for the Cisnerosgroup of companies, a $3 billion multinational group with extensive media andcommunications holdings.

 

**ITEM 11.               EXECUTIVE COMPENSATION**

 

The information called for by this Item will be contained in theCompany’s definitive Proxy Statement with respect to the Company’s 2009 AnnualMeeting of Stockholders to be filed pursuant to Regulation 14A under theSecurities Exchange Act of 1934, and is incorporated herein by reference tosuch information.

 

**ITEM 12.               SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

**Security Ownership of Management and Certain Beneficial Owners**

 

The following table sets forth as of December 31, 2008, certaininformation regarding the beneficial ownership of our outstanding common stockby (i) each person known to us to beneficially own more than 5% of ourcommon stock, (ii) each Named Executive Officer, (iii) each of ourDirectors and (iv) all of such Directors and officers as a group. Exceptas otherwise indicated, the persons named in the table below have sole votingand investment power with respect to all of the common shares owned by them.

 

27

----

Table of Contents

 
| ** **                                                              | ** ** | **Beneficial Ownership** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------|------------|
| **Name and Address (1)**                                 | ** ** | **Shares**                    | ** ** | **%** | ** ** |
| **Directors and Named Executive Officers (a)** | ** ** | ** **                    | ** ** | ** ** | ** ** |
| Albert P. Hernandez                                                     |       | 3,907,851                     |       | 6.67 | % |
| A.J. Hernandez                                                          |       | 3,886,058                     |       | 6.64 | % |
| Christian J. Weber                                                      |       | 435,000                       |       | 0.74 | % |
| Mathijs van Houweninge (b)                                              |       | 135,000                       |       | 0.23 | % |
| S. David Fineman (b)                                                    |       | 135,000                       |       | 0.23 | % |
| Florian M. Schuhbauer (b)                                               |       | 135,000                       |       | 0.23 | % |
| Jose Misrahi (b)                                                        |       | 135,000                       |       | 0.23 | % |
| All current executive officers and  directors as a group (7 persons)    |       | 8,768,909                     |       | 14.98 | % |
|                                                                    |       |                          |       |   |   |
| **Beneficial Owners of More than 5%**                                   |       |                          |       |   |   |
| Holston Investments, BVI                                                |       | 7,626,780                     |       | 13.03 | % |
| Albert P. Hernandez                                                     |       | 3,907,851                     |       | 6.67 | % |
| A.J. Hernandez                                                          |       | 3,886,058                     |       | 6.64 | % |
| Cede & Co                                                      |       | 3,051,386                     |       | 5.21 | % |

 

----

(1) The addressof all Directors is care of the Company at the address shown on the cover ofthis filing

(a) All sharesof Executive Officers and Directors are subject to a “lock up” which restrictsthe sale of shares until October 15, 2009

(b) The sharesof these Directors are subject to monthly vesting over three years from thedate of grant except 300,000 shares held by Mr. Weber

 

**Compliance with Section 16(a) of the Exchange Act**

 

No Named Executive Officer or Director failed to file a Form 3, Form 4or Form 5 during 2008.

 

**Code of Ethics**

 

Effective June 9, 2008, the Board of Directors adopted a Code ofBusiness Conduct and Ethics that applies to all of our employees, officers anddirectors, including our principal executive officer, principal financialofficer and principal accounting officer. The code consists of basic standardsof business practice as well as professional and personal conduct. The codeprovides guidance in how to uphold these standards. The code is filed as Exhibit 12.1to this 10-K filing.

 

28

----

Table of Contents

 

**ITEM 13.               CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS AND DIRECTOR INDEPENDENCE**

 

**Agreements with Falcon Capital and its Affiliates**

 

Mathijs van Houweninge, a Director of the Company, was a partner ofFalcon Capital until December 2008. In March 2008 and February 2009the Company entered into agreements with Falcon to engage their services toraise capital through the sale of new shares in the amounts of $10,000,000 and$2,000,000 respectively. In each transaction Falcon is entitled to a cash feeequal to ten percent of the amount received by the Company and certain equityconsideration. Under the March 2008 agreement Falcon earned cash fees of approximately$1.26 million and under the February 2009 agreement approximately $95,000.Under the March 2008 agreement Falcon earned approximately 2,136,000warrants to purchase shares of the Company’s common stock at an exercise priceof $ .50 during an exercise period of three years from the day a stocksubscription agreement is paid in full. Under the February 2009 agreementFalcon will earn one new share of common stock for each ten shares sold, and asof March 15, 2009 approximately 95,000 shares have been earned.

 

In February 2009 Falcon requested and the Company agreed toexchange approximately 456,000 warrants earned but unissued for 100,000 sharesof common stock.

 

**Director Independence**

 

As of the date of this Annual Report, the Company does not havesecurities listed on a national securities exchange or in an inter-dealerquotation system. As such, there is no requirement that a majority of themembers of our Board of Directors be independent. Under these standards, adirector is not “independent” if he has certain specified relationships withthe company or any other relationships that, in the opinion of the Board, wouldinterfere with his exercise of independent judgment as a Director. With Mr. vanHouweninge’s resignation from Falcon on December 31, 2008, under suchstandards, as of December 31, 2008 a majority of the members of the Boardof Directors are independent.

 

The Board of Directors has established several committees to assist itin fulfilling its responsibilities:

 

· the AuditCommittee (comprised of Messrs. Misrahi, Schuhbauer, and Fineman);

· the CompensationCommittee (comprised of Messrs. Schuhbauer, Misrahi, and van Houweninge);

· the Governance andNominating Committee (comprised of Messrs. Fineman, Schubauer, vanHouweninge and A.P. Hernandez)

 

All of the members of the committees are nominated by the Governanceand Nominating Committee and appointed by the Board of Directors. Members ofthese committees are elected annually at the Board of Directors’ meetingfollowing the annual meeting of stockholders.

 

29

----

Table of Contents

 

**ITEM 14.         PRINCIPAL ACCOUNTING FEES AND SERVICES**

 

The firm of Morrison, Brown, Argiz and Farra, LLP, an independentregistered public accounting firm (“MBAF”), has served as our auditors for thefiscal years ending December 31, 2008 and 2007.

 

**Audit and Non-Audit Fees**

 

The following table presents fees for professional audit servicesrendered by MBAF for the audit of our annual financial statements for the yearended December 31, 2008 and fees billed for other services rendered byMBAF during the 2008.

 

| **Services**                                | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
| Fees for annual audit and quarterly reviews |       | $        | 162,700    |     | $          | 46,200 |   |
| Review of SEC filings                       |       | 26,745   |       | —   |       |
| Tax and other matters                       |       | 6,400    |       | 7,500    |       |
| Total                                       |       | $        | 195,845    |     | $          | 53,700 |   |

 

**Audit Committee Pre-Approval Policies and Procedures**

 

Consistent with SEC policies regarding auditor independence, the AuditCommittee has responsibility for appointing, setting compensation andoverseeing the work of the independent auditor. In recognition of thisresponsibility, the Audit Committee established a policy to pre-approve allaudit and permissible non-audit services provided by the independent auditor.

 

**PART IV**

 
| **ITEM 15.** | **EXHIBITS  AND FINANCIAL STATEMENT SCHEDULES** |
|--------------|-------------------------------------------------|
|         |                                            |   |
| 12.1         |                                            | Code Of  Ethics For Senior Management |
| 31.1         |                                            | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive  Officer |
| 31.2         |                                            | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial  Officer |
| 32.1         |                                            | Certification under Section 906 of the Sarbanes-Oxley Act (18  U.S.C. Section 1350) |

 

30

----

Tableof Contents

 

**SIGNATURES**

 

Inaccordance with the requirements of the Exchange Act, the registrant causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

 
|                      |   | SkyPostal  Networks, Inc.                     |
|---------------------------|--------|----------------------------------------------------|
|                      |   |                                               |
|                      |   |                                               |
| Date:March 31,  2009 |   | /s/  Albert Hernandez                              |
|                      |   |                                               |
|                      |   |   Albert  Hernandez                      |
|                      |   |   Chief  Executive Officer and President |
|                      |   |                                               |
|                      |   |                                               |
| Date:March 31,  2009 |   | /s/  A J Hernandez                                 |
|                      |   |                                               |
|                      |   |   A  J Hernandez                         |
|                      |   |   Chief  Financial Officer               |

 

31

----