Introduction

The following discussion should be read in conjunction with the information contained in the audited consolidated financial statements and the related 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 fourth quarter of 2008. Management believes that this decline is temporary and that tonnage will increase in 2009 as the Postal Injection business continues to grow. As the Postal Injection business becomes an increasing percentage of total

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

The Company's strategy is to:

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

2. Expand the number of markets served that originate 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. and Europe

4. Use acquisitions of competitors as a means to increase market share

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

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

1. Reduction of administrative staff in Miami, FL

2. Consolidation of service facilities in Miami, FL

3. Outsourcing of IT development services

4. Use of part-time management personnel in lieu of full time

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

Given the conditions in international financial markets, which affect many companies, there can be no assurances of the Company's ability to raise additional capital through the issuance of debt or equity securities in order to reduce or eliminate the continuing negative cash flow.

On February 27, 2009 the Company acquired seventy percent of the common stock of Logistics Enterprises, Ltda ("LEL"), a Colombian company also engaged in wholesale mail distribution and related activities. The Company agreed to exchange 400,000 shares of the Company's common stock for the LEL shares and to make 25 monthly payments of $4,000 commencing one month after closing. The stock of SkyPostal has certain restriction on its sale, including an18 month lockup period. The Company also has the right to acquire the remaining 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 the preceding twelve months. Coincident with the acquisition, the Company entered into an employment agreement with the current CEO of LEL to serve as the general manager of Colombian operations for three years.

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

Critical Accounting Policies

Principles of Consolidation

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

The merger of a private operating company into a non-operating public shell corporation with nominal net assets typically results in the owners and management of the private company having actual or effective operating control of the combined company after the transaction, with shareholders of the former public shell continuing only as passive investors. The SEC staff's rules indicate that these transactions are to be capital transactions in substance, rather than business combinations. That is, the transaction is equivalent to the private company issuing stock for the net monetary assets of the shell corporation, accompanied by a recapitalization. The accounting is identical to that resulting from a reverse acquisition, except that no goodwill or other intangible assets should be recorded.

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

Loss Per Share

Basic loss per share is presented on the face of the audited condensed consolidated statements of operations. As provided by the Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," basic loss per share is calculated as the loss attributable to common stockholders divided by the weighted average number of shares outstanding during the periods. Diluted loss per share reflects the potential dilution that could occur from common shares issuable through stock options, stock grants and warrants. Basic and diluted earnings per share are the same during 2007 and 2008.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such estimates and assumptions impact, among others, the following: the amount of uncollectible accounts receivable, the amount to be paid for the settlement of liabilities related to cost of sales, the estimated useful lives for property and equipment and the value assigned to the warrants granted in connection with the various financing arrangements. Actual results could differ from those estimates.

Fair Values

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair-value measurements required under other accounting pronouncements. SFAS No. 157 does not change existing guidance as to whether or not an instrument is carried at fair value and is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position No. FAS 157-1 (FSP FAS 157-1), which excludes SFAS No. 13, "Accounting for Leases" and certain other accounting pronouncements that address fair value measurements 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 provides a one-year delayed application of SFAS No. 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). In October 2008, the FASB issued FASB Staff Position No. FAS 157-3, "Determining the Fair Value of 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 a financial asset is inactive. Specifically, FSP 157-3 clarifies how (1) management's internal assumptions should be considered in measuring fair value when observable data are not present, (2) observable market information from an inactive market should be taken into account, and (3) the use of broker quotes or pricing services should be considered in assessing the relevance of observable and unobservable data to measure fair value. The guidance in FSP 157-3 is effective immediately.

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

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

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

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

A financial instrument's level within the fair value hierarchy is based on 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 inputs and minimize the use of unobservable inputs when measuring fair value.

New Pronouncements

In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" which replaces SFAS 141, "Business Combinations" and supersedes other authoritative guidance. SFAS 141(R) broadens the scope of SFAS 141 and requires the acquisition method (SFAS 141 referred to as the purchase method) to be used on all events where a business obtains control over another business. As a result, SFAS 141(R) works to improve the comparability of information about business combinations presented. SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interests in the acquiree, and goodwill acquired in a business combination or a gain from a bargain purchase. SFAS 141(R) also requires the acquirer to disclose information that enables the users to evaluate the nature and financial effects of the business combination. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, with early adoption prohibited. The Company is evaluating the effect SFAS No. 141(R) will have on the Company's consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51", which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent's ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. The Company is evaluating the effect SFAS 160 will have on the Company's consolidated financial statements.

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

on Auditing Standards (SAS) No. 69, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." SFAS No. 162 is effective November 15, 2008. The implementation did not have a material effect on 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 the British pound in the second half of 2008, which affects the revenues of several large customers billed in the currency.

A breakdown of U.S. and foreign revenues for the years 2008 and 2007 are 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 to LAC-based customers. U.S. revenue declined due in large part to the general economic situation in the U.S. in the second half of 2008 that more than offset the 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 2007 are
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 2.6 percent in 2008 compared with the prior year, in part due to higher oil prices passed on by the Company's suppliers in the second and third quarters. The margin between revenue and delivery cost in dollar terms declined by 40.6 percent when compared with 2007, in part due to the lower margin on the Postal Injection business and the weakening British pound, as described above.

General and Administrative. This expense increased in 2008 compared to 2007 due to an increase in salaries and benefits related to the addition of senior management and administrative staff, additional legal and accounting expenses and additional insurance expense for a Directors and

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

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

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

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

Other Expenses



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



                                    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 expense declined in 2008 because the Company repaid a portion of its interest bearing debt and converted the remainder of interest bearing debt to common stock in the first half of 2008.

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

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

Net Income. The net loss in 2008 totaled $6,160,155, an increase of 33 percent over 2007, due to the increase in the Operating Loss, a significant portion 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.

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 with a 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 160,000 shares each quarter beginning April 1, 2008. The shareholder exercised its right to put on April 1, 2008 and July 1, 2008. The Company made two redemption 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, 2009 totaling $320,000 due to the Company's cash position. Although management believes that the shareholder will continue to exercise their put options until such time as the Company's stock is trading above $1 per share and there is sufficient trading and liquidity in the Company's stock to offer an alternative to the put, the Company does not plan to make such payments in the foreseeable future.

In 2007, the Company recorded a liability of $ 1,600,000 related to the redemption agreement with the shareholder in accordance with SFAS 150 - "Fair Value Measurement". At December 31, 2007, SkyPostal's stock price was valued at $.50 per share. Accordingly, a liability of $1,600,000 was recorded for the difference between the stock price at December 31, 2007 and the exercise price of each put option multiplied by the 3.2 million shares subject to the put. At June 30, 2008, the Company's stock price was $ 1.45 and the amount of the liability was adjusted to zero. The adjustment to the liability was determined using Level 1 type information. This adjustment of the liability resulted in a gain on the income statement of $1,520,000 based on the 3,040,000 shares that had not yet been redeemed under the agreement. In addition to this adjustment, as a result of the put of 160,000 shares in the second quarter of 2008, the Company also recorded 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 prior to the expiration of the put options on January 2, 2013, the Company will adjust the liability for the put based on the number of shares not yet redeemed multiplied by the difference between the Company's current stock price and the exercise price of the put option. The recording of such a liability would result in an equal amount of expense being charged to the statement of operations. At December 31, 2008, the Company's stock price was $.23 (using Level 1 type information) and consequently a liability related to the Redemption Agreement was recorded. Based on the remaining 2.88 million shares subject 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 entered into a Non-Compete Agreement with SkyPostal. Under this agreement the shareholder receives payments totaling $ 735,000 beginning April 1, 2008.

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

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

The Company did not make the payments under the Non-Compete Agreement at October 1, 2008 ($63,000) and January 1, 2009 ($59,500) and, given its current cash position, does not plan to make payments for the foreseeable future.

The unpaid balance of the liability 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

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

Liquidity

Summary

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

The following table summarizes the Company's Consolidated Statement of Cash 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 the net loss (after adjusting for the non-cash stock compensation expense), an increase in accounts receivables due to discontinuing the factoring of receivables and the increase in Intangibles and Other Assets largely due to the Non-Compete Agreement.

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

The cash provided by financing activities in 2008 was primarily due to the Company's Private Placement, which was used in part to pay off notes payable.

Financial Condition

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

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 factor with whom it has previously worked. Subject to satisfactorily completing due diligence, the Company 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 it does not represent a long term solution. The Company is exploring several other alternatives for financing and additional equity capital, as described below, but there can be no assurances that these efforts will be successful.

Private Placement

From March 7, 2008 through October 21, 2008, the Company sold 20,741,948 shares of its common stock for $10,370,974, or $.50 per share. The Company sold 80,000 shares for $40,000 in the fourth quarter of 2008. This Private Placement was arranged by Falcon Capital, LLP ("Falcon"). Mathijs van Houweninge, a Director of the Company, was the Managing Partner of Falcon until December 31, 2008 when he resigned. Falcon received a cash fee of 10% of the total funds raised and is granted warrants to purchase shares of the Company's common stock equal to 10% of the number of shares sold. Each warrant entitles the holder to purchase a share of the Company's common stock at an exercise price of $.50 during an exercise period of three years from the day a stock subscription agreement is paid in full. Falcon is entitled to receive approximately 2,000,000 warrants. A description of the use of proceeds as of December 31, 2008 is shown below.

. . .