<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
-------------- ----------------
Commission file number: 0-12541
SATELLITE INFORMATION SYSTEMS COMPANY
-------------------------------------
(Exact Name of small business issuer as Specified in its Charter)
Colorado 84-0899779
- ------------------- -----------------------
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification number
7464 Arapahoe Avenue, Suite B-17, Boulder, Colorado 80303
- --------------------------------------------------- ------------------
(Address of Principal Offices) (Zip Code)
Registrant's telephone number, including area code: (303) 449-0442
-----------------
---------------------------------------------------------------
(Former name, former address and dormer fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ X ] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 of 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 30, 1996, Registrant had 5,067,687 shares of common stock and
4,000,000 shares of Preferred Stock outstanding.
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<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 1996 (unaudited)
and June 30, 1996
Consolidated Statement of Operations for the Three Months
Ended September 30, 1996 and September 30, 1995 (unaudited)
Consolidated Statement of Cash Flows for the Three Months Ended
September 30, 1996 and September 30, 1995 (unaudited)
Note to Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page 4 Consolidated Balance Sheets at September 30, 1996
(unaudited) and June 30, 1996
Page 5 Consolidated Statement of Operations (unaudited) for the
Three Months Ended September 30, 1996 and September 30,
1995
Page 6 Consolidated Statement of Cash Flows (unaudited) for the
Three Months Ended September 30, 1996 and September 30,
1995
Page 7 Note to Financial Statements
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<TABLE>
SATELLITE INFORMATION SYSTEMS COMPANY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
------
September 30, June 30,
1996 1996
------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 44,600 $ 89,000
Money Market 802,200 -
Receivables:
Trade, less allowance for doubtful
accounts of $10,000 130,700 32,000
Other - 1,900
Inventory 90,300 21,900
Prepaid expenses and other 3,200 3,100
------------ ------------
Total current assets 1,071,000 147,900
PROPERTY AND EQUIPMENT
Computer equipment 486,500 439,400
Office furniture and equipment 45,900 44,300
Less accumulated depreciation (370,400) (358,500)
------------ ------------
Net property and equipment 162,000 125,200
SOFTWARE DEVELOPMENT COSTS
(net of accumulated amortization
of $2,076,100 and $2,032,900) 294,900 297,300
OTHER ASSETS 9,700 3,500
------------ ------------
TOTAL ASSETS $ 1,537,600 $ 573,900
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 136,500 $ 174,700
Accrued liabilities and other 54,900 179,900
Unearned revenue 299,100 193,500
------------ ------------
Total current liabilities 490,500 548,100
------------ ------------
MINORITY INTEREST 4,200 4,700
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, no par value;
100,000,000 shares authorized;
issued 4,000,000 shares;
liquidation preference 1,000,000 1,000,000 -
Common stock, no par value;
100,000,000 shares authorized;
issued 5,161,395 shares 1,931,400 1,931,400
Accumulated deficit (1,888,500) (1,910,300)
------------ ------------
Total stockholders' equity (deficit) 1,042,900 21,100
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,537,600 $ 573,900
=========== ===========
See accompanying notes to these financial statements.
/TABLE
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<TABLE>
SATELLITE INFORMATION SYSTEMS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Three Months
Ended September 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
NET REVENUES:
Software and related services $ 180,200 $ 219,600
Hardware 37,000 80,200
----------- -----------
217,200 299,800
COSTS AND EXPENSES:
Costs of sales 110,500 182,300
Operating, general and administrative 101,000 156,400
Depreciation and amortization 11,900 10,500
Other expense (income) (28,000) 2,200
Minority interest - -
----------- -----------
195,400 351,400
----------- -----------
NET INCOME (LOSS) $ 21,800 $ (51,600)
========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ 0.0 * $ (0.01)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,067,700 4,370,000
========= =========
* Less than $.01 per share.
See accompanying notes to these financial statements.
</TABLE>
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<TABLE>
SATELLITE INFORMATION SYSTEMS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Three Months
Ended September 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,800 $ (51,600)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 55,000 10,500
Settlement of Judgment (26,700) -
Sales Allowance - 6,600
Equipment for Services 25,800 -
Minority interest 500 2,200
Changes in operating assets and liabilities:
Receivables (96,800) 46,400
Inventories (68,400) -
Prepaid expenses and other (6,300) 8,900
Accounts payable (38,200) 15,900
Accrued liabilities and other (125,000) 105,700
Unearned revenue 105,600 (27,600)
---------- ----------
Net cash provided by operating activities (152,700) 117,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (48,700) (27,600)
Capitalized software development costs (40,800) (26,000)
---------- ----------
Net cash used in investing activities (89,500) (53,600)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock 1,000,000 -
---------- ----------
Net cash provided by financing activities 1,000,000 -
Net increase (decrease) in cash 757,800 63,400
---------- ----------
CASH AND CASH EQUIVALENTS,
at beginning of period 89,000 58,900
---------- ----------
CASH AND CASH EQUIVALENTS,
at end of period $ 846,800 $ 122,300
========= =========
See accompanying notes to these consolidated financial statements.
</TABLE>
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<PAGE>
SATELLITE INFORMATION SYSTEMS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to June 30, 1996 is Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES:
-----------------------------------------
General -
-------
Satellite Information Systems Company (SISCOM) was incorporated in the
State of Colorado on September 29, 1982. SISCOM currently operates as a
software development company that provides computer based products and
services to the electronic media and sports industry. On February 8,
1995, in the State of Colorado, Satellite Information Systems Company
formed a new subsidiary, without predecessor operations, called Event
Marketing Systems International, Inc. ("EMSI, Inc."). SISCOM holds 80% of
the outstanding stock of this new venture, with four other individuals
including, Michael J. Ellis, President of SISCOM, holding 5% each. EMSI,
Inc. markets and supports software solutions to the sports industry. The
consolidated financial statements include the accounts of SISCOM and its
80% owned subsidiary EMSI, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Unaudited Information -
---------------------
The balance sheet as of September 30, 1996 and the statements of
operations for the three months ended September 30, 1996 and 1995 were
taken from the Company's books and records without audit. However, in the
opinion of management, such information includes all adjustments
(consisting only of normal recurring accruals) which are necessary to
properly reflect the financial position of the Company as of September
30, 1996 and the results of operations for the three months ended
September 30, 1996 and 1995. The results of operations for the period
ended September 30, 1996, will not necessarily be indicative of the
operating results for the full year.
Unearned Revenue -
----------------
Unearned revenue primarily includes revenue received on deferred
maintenance contracts that has not been earned and amounts associated with
products delivered which are subject to a thirty (30) day money-back
guarantee from date of delivery. Unearned maintenance contract revenue is
amortized into revenue on a monthly basis over the life of the contract.
Reclassification -
----------------
Certain reclassifications have been made to 1995 balances to conform to
1996 presentations. Such reclassifications had no effect on net income
or loss.
Incorporation by Reference -
--------------------------
The Company has elected to incorporate by reference the financial
statement disclosures as included in its previously filed Form 10-KSB.
Reference should be made in reviewing this 10-QSB to the disclosures
contained in the Form 10-KSB dated September 24, 1996.
Certain disclosures related to the current period financial information
are included below.
2. STOCKHOLDERS' EQUITY:
--------------------
Preferred Stock -
---------------
On September 12, 1996 the Company finalized an agreement to sell 4,000,000
shares of newly issued convertible preferred stock to an investor for
$1,000,000. These shares carry a 7% non-cumulative dividend and are
convertible into the Company's common stock on a one-for-one basis
commencing the earlier of one year from the date of issuance or the
effective date of a registration statement registering for sale of the
shares of common stock issuable upon conversion of the Series A preferred
and ending three years from the date of issuance. No dividends will be
paid on the existing common stock, no distributions will be made on the
common stock, and no shares of common stock will be redeemed, retired, or
otherwise acquired for valuable consideration until all declared dividends
on the Series A have been paid or the Company has set aside sufficient
amount to pay them. The holders of the Series A will have voting rights
that are identical to the voting rights of holders of common stock. As
part of the sale of these shares, the purchaser shall have two
representatives on the Company's Board of Director's.
3. OTHER INCOME:
------------
At June 30, 1996 the company had included in accounts payable a liability
to a vendor which the Company was obligated to pay pursuant to an order of
judgment by default entered into in 1993. During the quarter the company
successfully negotiated a settlement on the remaining balance for a lump
sum payment resulting in $26,700 of other income.
<PAGE>
<PAGE>
PART I.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this report.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
During quarter ended September 30, 1996, SISCOM generated revenue of $217,200
with resulting net income of $21,800 as compared to revenue of $299,800 and
net loss of $(51,600) during the same quarter of fiscal 1995.
Revenue
- -------
The following table outlines the Company's revenue mix over the first fiscal
quarter.
<TABLE>
<CAPTION>
Quarter Ended September 30,
---------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C> <C> <C>
Product Sales
Software sales $ 68,600 32 $ 110,000 37
Hardware sales 37,000 17 79,000 26
Software Services 110,600 51 111,000 37
--------- ---- --------- ----
Total Revenue $ 217,200 100% $ 300,000 100%
========= ==== ========= ====
</TABLE>
Product Sales include the sale of proprietary software and computer hardware to
the broadcast and cable media markets and the sports industry. The Company's
principal product is NewsPro(-Registered Mark-), an electronic newsroom
management system, video logging and retrieval software for the broadcast and
sports industries.
Quarter ended September 30, 1996 software sales decreased $41,400 from the
quarter ended September 30, 1995. This decrease primarily was a result of the
discontinuation of Stadium Click Effects software sales.
SISCOM's hardware sales decreased from approximately $80,000 in the quarter
ended September 30, 1995 to $37,000 during the quarter ended September 30,
1996. The quarter ended September 30, 1995 hardware revenue included amounts
earned from sales of Stadium Click Effects products through it's subsidiary
EMSI. The company has curtailed sales along these line since last spring when
it's re-sale agreement for Stadium Click Effects between EMSI and a third party
software developer was terminated. The company continues to direct its
resources toward developing and selling higher margin video related software
products to its customers.
The Company continues to focus on providing quality software and services.
Gross margin on hardware, as discussed later, has traditionally been
significantly less than the gross margin on software and services. Management
believes that future hardware provider relationships and sales will offer the
Company both access to leading technology and leverage to expand the sale of
the Company's software products and services.
Management believes that SISCOM has consciously served a niche market of
specialized customers. Because of its minimal marketing efforts, the Company
has historically had to rely on revenues from a few substantial installations
to large customers such as the NBA. This reliance has resulted from the
Company's limited working capital rather than any limitations in the scope of
the potential markets and customers for the Company's products. However,
prospectively, management believes that the Company is not dependent on any one
customer as it continues to identify, develop and market solutions for existing
and new opportunities.
NewsPro(-Registered Mark-) maintenance revenue, is the primary component of
software services at 51% of total revenue for the quarter. The absolute dollar
amount of maintenance revenue remained relatively consistent in comparison with
the same quarter of the prior year.
Costs and Expenses
- ------------------
The following table outlines the cost of sales components for the first quarter
of fiscal 1997 and 1996.
<TABLE>
<CAPTION>
Quarter Ended September 30,
---------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C> <C> <C>
Hardware cost of sales $ 29,900 27% $ 69,000 38%
Direct labor and materials 37,500 34 46,000 25
Software Royalties - - 63,000 35
Other 43,100 39 4,000 2
--------- ---- --------- ----
Total Cost of Sales $ 110,500 100% $ 182,000 100%
========= ==== ========= ====
</TABLE>
Cost of sales and services includes components for hardware sales, direct labor
and materials used in the manufacture of software, royalties due under
distributor agreement to the developer of third party software products and
other expenses incurred to generate revenue. For the quarter ended September
30, 1996, cost of sales and services was 51% of total revenue compared with 61%
for the same period in the prior year. Gross margins were 49% in the first
quarter of fiscal 1997 and 39% in the same quarter of the prior fiscal year.
The increase in gross margin is primarily attributable to the change in sales
mix between hardware and software experienced by SISCOM over the period.
Software and related services have consistently had substantially higher
margins than hardware in the past. In the first quarter of fiscal 1997,
SISCOM had significantly less hardware revenue as compared to the first quarter
of the prior fiscal year, primarily as a result of the termination of its re-
sale agreement for Stadium Click Effects.
The cost of direct labor and materials includes employee hours spent contract
programming and installing, training, and supporting the Company's products as
well as any materials and supplies directly used in the process. The total
cost of direct labor decreased approximately $8,500 or 18% between quarter
ended September 30, 1996 and September 30, 1995. The decrease in direct labor
between the quarters was primarily due to the loss of one employee dedicated to
programming.
The software royalties component of cost of sales relates to the February 1995
distributor agreement between the third party developer and EMSI, Inc. for the
sale of Stadium Click Effects software. Under the terms of this agreement
EMSI, Inc., acting as the exclusive authorized distributor of Stadium Click
Effects, sublicenses the product directly to the customer and pays the
developer between 75% and 45% of the net licensing fee depending on the
specifics of each customer transaction. Therefore, as previously noted, the
termination of this third party agreement would result in the lack of
expenditure for software royalties in the first quarter of the current fiscal
year as compared to $63,000 in the same quarter the previous year.
Additionally, there has been a reclassification of amortization expense on
capitalized software creation costs into cost of sales. This treatment is
consistent with the period reported on in the annual Form 10-K.
Operating, general and administrative expenses for the quarter ended September
30, 1996 decreased by approximately $55,400 or 35% from the quarter ended
September 30, 1995. The majority of the decrease was due to a net decrease in
salaries, payroll tax expense and employee benefits between the quarters. This
decrease in personnel costs is attributable to the loss of two full-time
employee: one during the third quarter of fiscal 1996, and one in the first
quarter of the current year. There was an addition of one employee, very late
in the first quarter of the fiscal year, but final result was a net decrease in
the overall salaries and related expense. The overall decrease in operating
general and administrative expenses also includes a corresponding decrease in
the amount of cost allocated to the capitalization of software development from
the prior fiscal year. The decrease in capitalizable costs was approximately
$15,500 between the quarters ended September 30, 1996 and September 30, 1995.
Depreciation expense was $11,900 and $10,000 for the three months ended
September 30, 1996 and 1995, respectively. The increase is minimal between the
quarters, and is attributable to additions in the later part of the first
quarter to the property and equipment. The actual increase in the additions to
the property and equipment during the first quarter was $48,700 in comparison
to $27,600 in the same quarter in the previous year. The majority of the old
existing assets are fully depreciated.
Costs incurred in researching, designing and planning for the development of
new software are charged to operations in the year incurred. Such amounts
approximated $0 and $ 13,000 for the quarter ended September 30, 1996 and 1995,
respectively. The Company continued to emphasize business development during
the quarter ended September 30, 1996 however, the support of existing contracts
and business relationships provided the greatest return on expenditures.
Therefore, no expenditure toward research and design of new software was made
during the first quarter of the current year.
Net capitalized software development costs were $40,800 and approximately
$26,000 in the first quarter of the fiscal years 1997 and 1996 respectively.
The net increase of capitalized assets over the first quarter to the
additional number of hours and personnel dedicated to software development.
Management anticipates a continued emphasis on software development as it
responds to the ongoing requests of existing and new customers across markets.
Generally, the Company amortizes software development costs straight line over
three years.
LIQUIDITY AND CAPITAL RESOURCES - SEPTEMBER 30, 1996 (UNAUDITED) COMPARED TO
JUNE 30, 1996
- ----------------------------------------------------------------------------
SISCOM's current working capital surplus, which represents current assets minus
current liabilities increased during the three months ended September 30, 1996
to $580,500 from a deficit at year end of $(400,200). The primary increase
results from the closing on the sale of 4,000,000 shares of preferred stock
for $1,000,000. (see financial note 2) Another source was the increase in
unearned revenue, of $105,600 over the first quarter. The increase is
primarily attributable to the timing of annual renewals and reserving for
unearned income on progress billings. Additionally, the company generated net
income of $21,800 over the first quarter.
The Company's primary uses of cash and working capital during the quarter were
the purchase of fixed assets and inventory, of $48,700 and $68,400
respectively. The addition of capital assets included additions and upgrades
to the computer equipment used in software development and customer support.
Inventory additions represented purchases of equipment for work in progress on
existing purchase orders and contracts. In addition the company continues to
use working capital to add to their capitalized software creation costs.
Management believes that inflation has not had a material impact on its results
of operations.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor any of its management in their capacities as
such is the subject of any pending material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SATELLITE INFORMATION SYSTEMS COMPANY
Dated: November 19, 1996 By: /s/ Michael J. Ellis
------------------- ------------------------
Michael J. Ellis, President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 846,800
<SECURITIES> 0
<RECEIVABLES> 130,700
<ALLOWANCES> 10,000
<INVENTORY> 90,300
<CURRENT-ASSETS> 1,071,000
<PP&E> 532,400
<DEPRECIATION> 370,400
<TOTAL-ASSETS> 1,537,600
<CURRENT-LIABILITIES> 490,500
<BONDS> 0
0
1,000,000
<COMMON> 1,931,400
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,537,600
<SALES> 217,200
<TOTAL-REVENUES> 217,200
<CGS> 110,500
<TOTAL-COSTS> 195,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,800
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,800
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
