UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997
Commission file no. 0-28348
DBS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1124675
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Shoreline Highway, Suite 190A
MILL VALLEY, CA. 94946 (415) 380-8055
(Address of principal executive offices) (Zip Code) (Registrant's
telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Securities Shares Outstanding
Common Stock, $.0004 Par Value as of June 30,1997
5,854,449
Transitional Small Business Disclosure Format:
YES: ______ NO: X
<PAGE>1
INDEX
PART I - FINANCIAL INFORMATION
PAGE
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets:
As of June 30, 1997 (unaudited) and December 31, 1996 (audited) 2
Condensed Consolidated Statements of Operations (unaudited):
For the Three Months Ended June 30, 1997 and June 30, 1996
and for the period from April 25, 1990 (Inception) to June 30,
1997 3
Condensed Consolidated Statements of Cash Flows (unaudited):
For the Three Months Ended June 30, 1997 and June 30, 1996
and for the period from April 25, 1990 (Inception) to June 30,
1997 4
Notes to Condensed Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 10
ITEM 2. Changes in Securities 10
ITEM 3. Defaults Upon Senior Securities 10
ITEM 4. Submission of Matters to a Vote of Security Holders 10
ITEM 5. Other Information 11
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>2
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 1997 December 31,
Current assets: (Unaudited) 1996
Cash and cash equivalents $ 1,415 $ 402,588
Restricted cash 300,000 300,000
Prepaid and other current assets 85,060 68,944
___________ ____________
Total current assets 386,475 771,532
___________ ____________
Furniture and equipment (at cost) 73,277 73,277
Less accumulated depreciation 40,616 34,406
___________ ____________
32,661 38,871
___________ ____________
Other assets:
Investments in and advances to
affiliated companies 920,506 1,496,524
Goodwill, net of accumulated amortization of
$62,407 and $61,778 respectively 28,583 29,841
Other assets including restricted equity
securities in EchoStar Communications
(FMV $4,225,219) 6,521,128 2,292,409
___________ ____________
7,470,217 3,818,774
Total assets $7,889,353 $4,629,177
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $1,123,292 $ 960,277
Unearned revenue 400,000 400,000
Line of credit 300,000 295,000
Accrued liabilities 988,730 607,070
Notes payable to stockholder 49,750
Convertible debentures 4,747,501 4,640,000
__________ _________
Total current liabilities 7,609,273 6,902,347
__________ _________
Stockholders' equity (deficit):
Preferred stock - -
Common stock 2,360 2,351
Capital in excess of par value 4,650,425 4,605,026
Warrants 112,500 112,500
Unrealized loss on marketable equity
securities (2,535,131) -
Deficit accumulated during the development
stage (1,865,074) (6,908,046)
Treasury stock (85,000) (85,000)
_________ _________
Total stockholders' equity (deficit) 280,080 (2,273,169)
_________ _________
Total liabilities and stockholders'
equity (deficit) $ 7,889,353 $ 4,629,177
========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>3
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
April 25, 1990
Three Months Ended Six Months Ended (Inception) to
June 30, June 30, June 30,
1997 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C>
Revenue $ - $ - $ - $ - $ 161,420
___________ __________ _________ ___________ ___________
Cost and operating expenses:
Cost of revenue - - - - 127,580
General and administrative 335,594 402,716 704,186 1,147,007 5,695,012
Research and development 91,225 267,637 209,362 736,879 2,168,818
___________ __________ _________ ___________ ___________
426,819 670,353 913,548 1,883,886 7,991,410
___________ __________ _________ ___________ ___________
Loss from operations (426,819) (670,353) (913,548) (1,883,886) (7,829,990)
___________ __________ _________ ___________ ___________
Other income (expense):
Interest, net (136,735) (125,954) (264,750) (210,096) (698,536)
Equity in loss of investees,
net - - - - (331,802)
Gain on sale of investment - - - - 836,478
Gain on marketable equity
securities - - 6,221,270 - 6,221,270
Other, net - - - - (56,634)
___________ __________ _________ ___________ ___________
(136,735) (125,954) 5,956,520 (210,096) 5,970,776
___________ __________ _________ ___________ ___________
Income (loss) before
provision for income
taxes and minority
interests (563,554) (796,307) 5,042,972 (2,093,982) (1,859,214)
Provision for income taxes - - - 1,600 14,435
___________ _________ _________ _________ _________
Income (loss) before
minority interests (563,554) (796,307) 5,042,972 (2,095,582) (1,873,649)
Minority interests in income
(loss) of consolidated
subsidiaries - - - - 8,575
___________ _________ _________ _________ _________
Net income (loss) $ (563,554) $(796,307) $5,042,972 $(2,095,582) $(1,865,074)
=========== ========= ========== =========== ===========
Net income (loss) per
share $ (0.10) $ (0.14) $ 0.86 $ (0.37)
=========== ========= ========== ===========
Weighted average number of
shares of common stock 5,872,805 5,772,548 5,862,591 5,710,017
=========== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>4
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development State Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
April 25, 1990
Six Months Ended (Inception) to
June 30, June 30,
1997 1996 1997
<S> <C> <C> <C>
Net cash used in operating activities $ (563,424) $ (1,449,097) $ (5,377,563)
___________ _____________ ____________
Cash flows from investing activities:
Proceeds from sale of investment - - 900,000
Purchase of fixed assets - (20,500) (105,524)
Organization costs - - (28,526)
Investment to affiliates - - (896,811)
Advances to affiliates - - (214,511)
Proceeds from affiliate advances - - 152,500
Advances to officer - - (31,187)
Purchase of investments - (2,345,543) (2,292,409)
Net assets of purchased subsidiaries - - (147,500)
Cash transferred from Fi-Tek IV, Inc. -
pursuant to the merger and
reorganization - - 156,648
Cash of divested subsidiary - - (277)
Purchase of patents - - (18,251)
_________ _________ _________
Net cash used by investing activities 0 (2,366,043) (2,525,848)
_________ _________ _________
Cash flows from financing activities:
Proceeds from credit line 5,000 160,000 300,000
Restricted cash on credit line - - (300,000)
Payments on credit - (300,000) -
Issuance of debentures 107,501 3,000,000 4,817,501
Issuance of common stock - 999,956 3,153,516
Redemption of common stock warrants - - (19,490)
Stock issue costs - - (57,235)
Purchase of shares - - (5,000)
Payment of debentures - - (125,000)
Proceeds from stockholders' loans 49,750 - 342,750
Payment of stockholders' loans - - (202,216)
__________ _________ _________
Net cash provided by financing
activities 162,251 3,859,956 7,904,826
__________ _________ _________
Net increase (decrease) in cash (401,173) 44,816 1,415
Cash and cash equivalents,
beginning of period 402,588 3,743 -
__________ _________ _________
Cash and cash equivalents,
end of period $ 1,415 $ 48,559 $ 1,415
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>5
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 UNAUDITED INTERIM FINANCIAL STATEMENTS
The information presented in these condensed consolidated financial
statements of DBS Industries, Inc. (DBSI or the Company) and its wholly
owned subsidiary, Global Energy Metering Services, Inc., (the subsidiary)
is unaudited. These condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern. Since
inception, the Company has devoted substantially all of its efforts to
developing its business. The Company has therefore incurred substantial
losses and negative cash flows from operating activities. To address
financing needs, the Company is pursuing various financing alternatives.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not reflect
any adjustments that might result from the outcome of this uncertainty.
The financial statements include all adjustments consisting of only normal
recurring adjustments which are, in the opinion of management, necessary
to present fairly the condensed consolidated financial position of DBSI at
June 30, 1997, and condensed consolidated results of operations and cash
flows for the interim periods reported. The results of operations for the
interim period presented are not necessarily indicative of expected
results for the full fiscal year.
Certain information and footnote disclosures normally contained in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes contained in DBSI's 1996 Annual Report to
Shareholders.
NOTE 2 EQUITY IN INCOME & LOSSES OF INVESTEES
The financial statements of the Company for the six months ended June 30,
1997 do not reflect the Company's equity in income or losses of ESAT
Corporation, or Seimac Limited. The net equity in such income or losses
is not material to the Company's financial position at June 30, 1997, or
its results of operations for the three and six months then ended.
NOTE 3 OTHER ASSETS
On January 12, 1996, the Company acquired 72,030 shares of the common
stock of Continental Satellite Corporation (Continental) for approximately
$2.3 million from the seller of the shares. On January 22, 1996, a
Continental shareholder, Loral Aerospace Holdings Inc., filed a lawsuit in
the Superior Court in and for the County of Santa Clara, State of
California, alleging that the shares issued to the seller and acquired by
the Company should be voided as they were invalidly issued. On May 16,
1996, the court ruled that the Continental shares issued to the seller and
purchased by the Company were invalidly issued. However, the court ruled
that the Company was not without remedy and allowed the Company to
commence an action against Loral Aerospace Holdings Inc.
On April 21, 1997, the Superior Court of Santa Clara County awarded the
Company damages of approximately $4.1 million, plus 50 percent annual
interest. On August 13, 1997, both parties reached an agreement wherein
the Company will receive a cash payment of approximately $3.5 million from
Loral in exchange for dismissals of appeals by both parties.
<PAGE>6
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 OTHER ASSETS, continued
On December 21, 1995, DBSC and EchoStar agreed to a merger, subject to
government approval. Under the terms of the merger agreement, (1) both
parties agreed to merge DBSC into a wholly owned subsidiary of EchoStar,
and (2) DBSC shareholders will be entitled to receive at their option,
$7.99 in cash or .67417 shares of EchoStar common stock for each of the
973,148 DBSC shares not already owned by EchoStar. At December 31, 1996,
the Company owned 401,107 shares of the common stock of DBSC. The
requisite government approvals were obtained and the merger consummated on
January 8, 1997. On January 23, 1997, the Company elected to exchange all
of its 401,107 DBSC shares for 270,414 shares of EchoStar common stock
which was valued at $25.00 per share as of January 8, 1997, the effective
date of the merger. In connection with this transaction, the Company
recorded a gain of $6,221,270 in the three month period ended March 31,
1997. In accordance with Statement of Financial Accounting Standards No.
115 (Accounting For Certain Investments In Debt And Equity Securities),
the Company classifies this investment as "available for sale," and
therefore recorded the unrealized loss as of June 30, 1997, of $2,535,131
as a separate component of stockholders' equity (deficit).
NOTE 4 UNEARNED REVENUE
The Company's wholly owned subsidiary, Global Energy Metering Services,
Inc. (GEMS), is party to a contract to deliver 10,000 satellite radio
units. The purchase order is for $1.2 million and under the terms of the
purchase order, GEMS would receive a total of $500,000 in advance payments
on the contract, based on certain milestone achievements. These milestone
payments are refundable if the contractee does not qualify GEMS' automatic
meter reading system, tentatively scheduled for the third quarter, 1997.
As of June 30, 1997, the $400,000 in milestone payments received are
reported as unearned revenue on the accompanying balance sheets.
NOTE 5 CONVERTIBLE DEBENTURES
On July 1, 1995, the Company issued Convertible Debenture 1995 Series A to
the majority shareholder of E-SAT, EchoStar, and received $1,000,000 in
proceeds pursuant to this issuance in August 1995. Interest on the debt
accrues, and is payable, quarterly at prime plus 2% for a period of three
years. Collateral for the loan is a security interest in 84,271 shares of
EchoStar common stock and 2,000 shares of E-SAT common stock held by the
Company.
On January 12, 1996, the Company issued a three-year Series B Convertible
Debenture to EchoStar for proceeds of $3,000,000. Interest terms are
similar to those of the Series A Convertible Debenture discussed above.
Collateral for the loan is a security interest in 72,030 shares of common
stock of Continental and 134,834 shares of common stock of EchoStar held
by the Company.
On December 5, 1996, the Company issued a three-year Series C Convertible
Debenture to EchoStar for proceeds of $640,000. Interest terms are
similar to those of the Series A Convertible Debentures discussed above.
Collateral for the loan is a security interest in the remaining 51,309
shares of common stock of EchoStar held by the Company.
On April 1, 1997, the Company issued one-year Series D Convertible
Debentures to private investors for proceeds of $32,501. Interest terms
are similar to those of the Series A Convertible Debentures discussed
above. Approximately 18,572 shares of Company common stock are being used
as collateral.
On May 8, 1997, the Company issued a one-year Series E Convertible
Debenture to a private investor for proceeds of $75,000. Interest terms
are similar to those of the Series A Convertible Debentures. Collateral
for the loan is a security interest of 75,000 shares of Company common
stock.
<PAGE>7
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 CONVERTIBLE DEBENTURES, continued
The Company classified all borrowings under the above convertible
debentures as current liabilities due to the Company's default in
connection with the required quarterly payment of accrued interest.
NOTE 6 RELATED PARTY TRANSACTIONS
On April 28, 1997, the Company's president made a bridge loan to the
Company for $47,750 which was a personal guarantee to Pacific Bank for the
Company's bank overdraft. On May 5, 1997, the Company's president loaned
the Company another $2,000.
NOTE 7 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1997, Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" was issued and is
effective for the Company's year ending December 31, 1997. In June 1997,
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" and Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of An Enterprise and Related Information"
were issued and are effective for the year ending December 31, 1998. The
Company has not determined the impact of the implementation of these
pronouncements.
<PAGE>8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
On August 12, 1997, the Company and Loral Aerospace Holdings, Inc.
("Loral") executed an agreement wherein the Company will receive approximately
$3.5 million from Loral in exchange for dismissals of appeals by both parties
in the litigation concerning Continental Satellite Corporation ("Continental").
LIQUIDITY AND CAPITAL RESOURCES
The Company has been in the development stage since its inception and has
not recognized any significant revenues or capital resources other than the
receipt, of (i) a minimal amount of inside capitalization funds at its
inception, (ii) net proceeds in the amount of $166,175 from its public
offering, (iii) gross proceeds of $70,000 from a sale of debentures, (iv)
subscriptions representing gross proceeds of $2,024,588 in connection with
five private placements of common stock, (v) gross proceeds of $342,750 from
bridge loans made by the Company's president and two shareholders, (vi)
gross proceeds of $1,056,500 from the sale of the Company's interest in the
stock of a company holding a DBS license, and (vii) gross proceeds of
$4,747,501 from the sale of a seven convertible debentures. Additionally, the
Company has an established line of credit for $300,000 from Pacific Bank,
Burlingame, California, collateralized by a restricted cash deposit in the
amount of $300,000. As of June 30, 1997, $300,000 was drawn from this
credit facility. Subsequent to June 30, 1997 a loan of $100,000 was made to
the company.
Stockholders' equity for the six month period ended June 30,1997 was
$280,080 compared to stockholders' deficit of $2,273,169 at December 31,
1996. This increase is attributed primarily to a gain of approximately $6.2
million for the 270,414 shares of EchoStar Communications Corporation
("EchoStar") received by the company on January 8, 1997 in exchange for the
Company's shares of Direct Broadcast Satellite Corporation ("DBSC") in
connection with the merger of DBSC and EchoStar as reported in the Company's
statement of operations for the quarter ended March 31, 1997. Due to
fluctuations in the trading price of the EchoStar stock, this gain has been
offset by a net unrealized loss on those marketable securities, in addition to
the Company's continuing cost of operations. As of June 30, 1997, the closing
price for EchoStar shares was approximately $15.63 per share. Based on that
closing price, the fair market value of the Company's EchoStar shares amounted
to approximately $4.2 million representing a net unrealized loss of
approximately $2.5 million when compared to the fair market value at
January 8,1997. The Company continues to incur approximately $300,000 of
monthly operating costs which will continually act to reduce stockholders'
equity in the absence of the sale of additional equity.
The consolidated balance sheet as of June 30, 1997 reflects $1,415 of
cash and cash equivalents compared to $402,588 as of December 31, 1996.
The Company has raised cash from the issuance of approximately $107,000 in
new convertible debentures and a bridge loan of approximately $48,000 from an
officer of the Company and, subsequent to June 30, 1997, the issuance of a
promissory note in the amount of $100,000. The Company intends to continue
the issuance of debentures, secured with the Company's stock as a primary
source of fundraising to meet its continuing cash needs. Cash will
continue to be used by the Company for the ongoing development of GEMS'
automated meter reading ("AMR") business and the Company's operating
activities. The Company anticipates monthly expenses of approximately $300,000
to continue for the balance of 1997. This includes approximately $90,000 per
month for operating expenses, $60,000 per month for legal and consulting
expenses, and $150,000 per month for GEMS' research & development. Accordingly,
cash resources presently available to the Company are not sufficient to
continue operations at their projected level, and additional capital will be
necessary to continue current operations or to further expand operations. No
assurances can be given that additional capital financing will be available
when required or if it will be on terms favorable to the Company. Although the
Company is expected to receive approximately $3.5 million in settlement with
Loral, see "Legal Proceedings," it is not clear what the legal and consulting
costs will be necessary and advisable for maintaining the Company's interest in
FCC licenses and in pursuing pending FCC applications. The Company expects the
development of a low earth orbit satellite transmitter, scheduled for
completion by the end of 1997 to cost approximately $650,000, of which
approximately $550,000 has already
<PAGE>9
been expended as of June 30, 1997. The Company does not expect its automated
meter reading operations to produce any significant revenue in 1997 or become
profitable until 1999 at the earliest, and no assurance can be given as to this
estimate. Beginning in July 1996, the Company began to receive milestone
payments under the terms of a $1.2 million purchase order for 10,000 satellite
radio units. Under this agreement, the Company is
eligible to receive up to $500,000 towards development costs upon meeting the
milestone requirements of the contract. As of June 30, 1997, the Company has
met the first four milestones of the contract and has received $400,000 in
cash. These funds are currently classified as unearned revenue, and all such
milestone payments are subject to refund if the Company fails to meet certain
development and delivery milestones.
Unless and until the Company is able to raise additional capital or
become profitable through its subsidiary's automated meter reading operations,
the Company's liquidity and capital resources will continue to be depleted.
Historically, the Company has funded its operations and obligations through the
private placement of equity securities and convertible debentures. The Company
may continue to fund its commitments through these financing methods. However,
no assurances can be given that the Company will be able to raise the necessary
capital to meet its commitments. In the event the Company is unable to raise
the necessary capital, its business objectives will be adversely affected.
Total assets at June 30, 1997 were $7,889,353 compared to $4,629,177 at
December 31, 1996. The largest components of total assets represent other
assets of $6,521,128 including $4,225,219 in restricted securities, and
investments in and advances to affiliated companies of $920,506. This compares
to other assets of $2,292,409, and investments in and advances to affiliated
companies of $1,496,524 at December 31, 1996. Other assets increased with the
receipt of the 270,414 EchoStar shares, valued at approximately $4.2 million
at June 30, 1997, also causing investments in and advances to affiliated
companies to decrease due to the elimination of the Company's interest in DBSC
valued at approximately $539,080.
Net cash used in operating activities for the six month period ended June
30, 1997 was $608,832 compared to $1,449,097 at June 30, 1996 and $5,377,563
from inception. There was no Net cash used by investing activities during the
six month period ended June 30,1997, compared to $2,366,043 for the six month
period ended June 30, 1996, and $2,525,848 since inception. Cash flows from
financing activities were $207,659 for the six months ended June 30, 1997
compared to $3,859,956 for the six month period ended June 30, 1996, and
$7,950,233 since inception and resulted from the issuance of Debentures and a
loan from an officer of the Company.
RESULTS OF OPERATIONS
The Company remains in the development stage and did not generate any
revenues or net interest earnings in either the three month or six month
periods ended June 30, 1997, or June 30, 1996. Revenues from inception
through June 30, 1997 were $161,420.
The Company's net loss for the quarter ended June 30, 1997 was $563,554,
compared to $796,307 for the three month period ended June 30,1996; a net
profit of $5,042,972 for the six month period ended June 30, 1997 compared to a
net loss of $2,095,582 for the six month period ended June 30,1996; and net
loss of $1,865,074 since inception. The six month net income was due to the
net unrealized gain on marketable equity securities of approximately $6.2
million offset by a $913,548 loss from operations, and $264,750 net interest
expense for the six month period ended June 30, 1997. Loss from operations was
$426,819 for the quarter ended June 30, 1997, compared to a loss of $670,353
for the same quarter ended June 30, 1996, and $913,548 for the six month
period ended June 30, 1997 compared to $1,883,886 for the six month period
ended June 30, 1996. Total loss from operations from inception was $7,829,990.
General and administrative costs ("G&A") were $335,594 for the quarter ended
June 30, 1997, compared to $402,716 in the same quarter ended June 30, 1996,
and $704,186 for the six month period ended June 30, 1997 compared to
$1,147,007 for the six month period ended June 30, 1996. Total G&A from
inception through June 30, 1997 was $5,695,012. Research and development
costs associated with GEMS was $91,225 for the quarter ended June 30, 1997
compared to $267,637 for the quarter ended June 30, 1996, and $209,362 for the
six month period ended June 30, 1997 compared to $736,879 for the six month
period ended June 30, 1996 and $2,168,818, since inception.
<PAGE>10
The Company's accumulated deficit at June 30, 1997 was $1,865,074
compared to $6,908,046 at December 31, 1996. This decrease was due to a onetime
gain on marketable securities of approximately $6.2 million and offset by the
loss from operations and interest expense of approximately $1.2 million. The
accumulated deficit will continue to increase unless and until the Company
generates revenues from the operations of GEMS in such amounts so as to cover
the Company's expenses. Revenues substantial enough to make the Company
profitable are not expected to be generated until 1999, and no assurances can
be given as to that estimate. The Company has been devoting a substantial
amount of its financial and personnel resources toward developing the Company's
AMR business.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On January 12, 1996, the Company acquired 72,030 shares of common stock of
Continental which the Company believed represented an approximate 34% interest
in Continental Satellite Corporation ("Continental"). The Company acquired the
72,030 shares of common stock of Continental from Intraspace Corporation for
approximately $2.3 million pursuant to a stock
purchase agreement.
On January 22, 1996, Loral Aerospace Holding, Inc. ("Loral") filed a
complaint in the Superior Court of the State of California in and for the
County of Santa Clara (No. CV755366) against Continental and its shareholders.
The complaint seeks declaratory relief to declare that rescission by
Continental of a share certificate issued to Loral is invalid, that a meeting
of Continental's shareholders was not properly noticed and therefore the
meeting and the actions taken at such meeting were invalid, that Loral should
be deemed a 51% shareholder of Continental in accordance with a prior judgment
involving Loral and Continental, that certain shares issued by Continental,
including the 72,030 shares of common stock issued to Intraspace and
subsequently purchased by the Company, were improperly issued and should be
voided, and that a constructive trust should be imposed on 51% of the common
stock issued to defendant shareholders. The Company was not named as a
defendant in the complaint.
On May 16, 1996, the judge ruled in favor of Loral's claim that all shares
of Continental issued on or after September 15, 1995, including the 72,030
shares of common stock issued to Intraspace Corporation and sold to the
Company, were invalid. The judge based his decision upon the fact that
Continental did not obtain proper shareholder approval to amend its Articles of
Incorporation to increase the number of shares of common stock that may be
issued. However, the judge further stated that Intraspace Corporation and the
Company were not necessarily without an equitable remedy for their
contributions to Continental.
The trial of the equitable issues in the action concluded on April 21,
1997. Thereafter, the Court entered a judgment in favor of the Company running
jointly and severally against Loral and Continental in the amount of $4.116
million plus compounded interest at the rate of fifty percent (50%) per annum
from the date of judgment until fully paid.
On August 17, 1997, the parties reached an agreement wherein the Company
would receive approximately $3.5 million from Loral in exchange for dismissals
of any rights of appeal by the parties.
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
<PAGE>11
Item 5. Other Information.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995.
With the exception of historical facts stated herein, the matters discussed in
this report are "forward looking" statements that involve risks and
uncertainties that could cause actual results to differ materially from
projected results. Such "forward looking" statements include, but are not
necessarily limited to, statements regarding anticipated levels of future
revenue and earning from the operations of the Company, and its wholly owned
subsidiary Global Energy Metering Service, Inc. (collectively the "Company"),
projected costs and expenditures relating to the Company's interest in direct
broadcasting satellite ("DBS") technology and development of its automated
meter reading ("AMR") business, the availability of future debt and equity
capital on commercially reasonable terms, costs and consulting costs in
connection with FCC licenses and permits. Factors that could cause actual
results to differ materially, include, in addition to other factors identified
in this report, the availability of capital on commercially acceptable terms,
the completion of a commercially viable AMR service, the dependence and
uncertainty of utility companies to utilize such an AMR service, the reliance
on third parties for the advancement of the design, manufacturing and marketing
of the service, the fulfillment of contract obligations by suppliers and other
third parties, challenges to the Company's investments in DBS licensees and
permitees, the availability of qualified personnel and equipment, delays in the
receipt of or failure to receive necessary governmental approvals, permits and
licenses or renewals thereof, risks and uncertainties relating to general
economic and political conditions, both domestically and internationally,
changes in the law and regulations governing the Company's activities in both
AMR and DBS technology, results of the Company's financing efforts and
marketing conditions, and other risk factors related to the Company's AMR
business and DBS investments. Readers of this report are cautioned not to put
undue reliance on "forward looking" statements which are, by their nature,
uncertain as reliable indicators of future performance. The Company disclaims
any intent or obligation to publicly update these "forward looking" statements,
whether as a result of new information, future events, or otherwise.
Item 6. Exhibits and Reports on Form 8-k
None
<PAGE>12
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DBS INDUSTRIES, INC.
DATE: August 19, 1997 By: FRED W. THOMPSON
Fred W. Thompson, President,
Chief Executive Officer and
Chief Financial Officer
(Principal Executive Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
10-QSB FOR THE PERIOD ENDED JUNE 30, 1997 FOR DBS INDUSTRIES, INC. AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,415
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 386,475
<PP&E> 73,277
<DEPRECIATION> 40,616
<TOTAL-ASSETS> 7,889,353
<CURRENT-LIABILITIES> 7,609,273
<BONDS> 0
0
0
<COMMON> 2,360
<OTHER-SE> 4,762,925
<TOTAL-LIABILITY-AND-EQUITY> 7,889,353
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 913,548
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 264,750
<INCOME-PRETAX> 5,042,972
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,042,972
<DISCONTINUED> 0
<EXTRAORDINARY> 6,221,270
<CHANGES> 0
<NET-INCOME> 5,042,972
<EPS-PRIMARY> .86
<EPS-DILUTED> .86
</TABLE>
