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 March 31, 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 April 30, 1997
5,833,204
Transitional Small Business Disclosure Format:
YES: ______ NO: X
<PAGE>2
INDEX
PART I - FINANCIAL INFORMATION
PAGE
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets:
As of March 31, 1997 (unaudited) and December 31, 1996 (audited) 3
Condensed Consolidated Statements of Operations (unaudited):
For the Three Months Ended March 31, 1997 and March 31, 1996
and for the period from April 25, 1990 (Inception) to March 31,
1997 4
Condensed Consolidated Statements of Cash Flows (unaudited):
For the Three Months Ended March 31, 1997 and March 31, 1996
and for the period from April 25, 1990 (Inception) to March 31,
1997 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
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 10
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
<PAGE>3
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 December
1997 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 0 $ 402,588
Restricted cash 300,000 300,000
Prepaid and other current assets 86,600 68,944
------------- ------------
Total current assets 386,600 771,532
------------- ------------
Furniture and equipment (at cost) 73,277 73,277
Less accumulated depreciation 37,581 34,406
------------- ------------
35,696 38,871
------------- ------------
Other assets:
Investments in and advances to
affiliated companies 912,649 1,496,524
Goodwill, net of accumulated amortization of
$61,778 and $61,149 respectively 29,212 29,841
Other assets including restricted equity
securities in EchoStar Communications
7,839,396 2,292,409
------------- -----------
8,781,257 3,818,774
------------- -----------
Total assets $ 9,203,553 $ 4,629,177
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank overdraft $ 44,110 $ -
Accounts payable 934,883 960,276
Unearned revenue 400,000 400,000
Line of Credit 295,000 295,000
Accrued liabilities 753,066 607,070
Convertible debentures 4,640,000 4,640,000
---------- ----------
Total current liabilities 7,067,059 6,902,346
---------- ----------
Stockholders' equity (deficit):
Preferred stock - -
Common stock 2,355 2,351
Capital in excess of par value 4,625,022 4,605,026
Warrants 112,500 112,500
Net unrealized loss on marketable equity
securities (1,216,863) -
Deficit accumulated during the development
stage (1,301,520) (6,908,046)
Treasury stock (85,000) (85,000)
---------- ----------
Total stockholders' equity (deficit) 2,136,494 (2,273,169)
Total liabilities and stockholders'
equity (deficit) $ 9,203,553 $ 4,629,177
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>4
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended April 25, 1990
March 31 (Inception) to
March 31,
1997 1996 1997
Revenue $ - $ - $ 161,420
--------- --------- -------------
Cost and operating expenses:
Cost of revenue - - 127,580
General and administrative 368,592 744,291 5,359,418
Research and development 118,137 469,242 2,077,593
--------- --------- ------------
486,729 1,213,533 7,564,591
--------- --------- ------------
Loss from operations (486,729) (1,213,533) (7,403,171)
--------- --------- ------------
Other income (expense):
Interest, net (128,015) (84,142) (561,801)
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)
--------- --------- -----------
6,093,255 (84,142) 6,107,511
--------- --------- -----------
Profit before provision for
income taxes and minority
interests 5,606,526 (1,297,675) (1,295,660)
Provision for income taxes - 1,600 14,435
--------- --------- ----------
Profit (loss) before
minority interests 5,606,526 (1,299,275) (1,310,095)
Minority interests in income
(loss) of consolidated
subsidiaries - - 8,575
---------- ----------- -----------
Net income (loss) $5,606,526 $(1,299,275) $(1,301,520)
========== =========== ===========
Net income (loss) per share $ 0.95 $ (0.23)
========== ===========
Weighted average number of
shares of common stock 5,892,447 5,697,188
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>5
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Three Months Ended April 25, 1990
March 31 (Inception) to
March 31,
1997 1996 1997
Net cash used in operating activities $( 466,698) $(1,294,940) $ (5,280,836)
---------- ---------- ------------
Cash flows from investing activities:
Proceeds from sale of investment - - 900,000
Purchase of fixed assets - (19,483) (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 - (2,292,409) (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 - (2,311,892) (2,525,848)
--------- --------- ---------
Cash flows from financing activities:
Bank overdraft 44,110 - 44,110
Proceeds from credit line - - 295,000
Restricted cash on credit line - - (300,000)
Issuance of debentures - 3,000,000 4,710,000
Issuance of common stock 20,000 1,000,002 3,173,516
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 - - 293,000
Payment of stockholders' loans - - (202,217)
--------- --------- ---------
Net cash provided by financing activities 64,110 4,000,002 7,806,684
--------- --------- ---------
Net increase (decrease) in cash (402,588) 393,170 -
Cash and cash equivalents,
beginning of period 402,588 3,743 -
--------- --------- --------
Cash and cash equivalents,
end of period $ - $ 396,913 $ -
========== ========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>6
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 March 31, 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 three months ended
March 31, 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 March 31, 1997, or its results of operations for the
three 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. It is not known at this time whether or not an
appeal will be filed by Loral Aerospace Holdings Inc.
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
<PAGE>7
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: OTHER ASSETS, continued
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 has recorded a gain of $6,221,270. 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 March 31, 1997, of $1,216,863 as a
separate component of shareholders' 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 March 31,
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. Again,
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.
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.
<PAGE>8
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: EMPLOYEE STOCK OPTIONS
In February 1997, the Company completed a stock option repricing
program in which 1,119,646 stock options, originally issued with
exercise prices ranging from $1.60 to $6.00 per share, were reissued
with an exercise price of $1.44 per share, which approximated fair
market value.
<PAGE>9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
On January 8, 1997, the merger between Direct Broadcasting Satellite
Corporation ("DBSC") and EchoStar Communications Corporation ("EchoStar")
was formally completed. The Company owned approximately 25% of the
outstanding shares of DBSC at December 31, 1996 and as a result of the
merger now owns 270,414 shares of EchoStar Class A Common Stock ("EchoStar
Shares"). The EchoStar Shares are currently pledged as security for certain
of the Company's debentures and are, therefore, held in an escrow account.
EchoStar (NASDAQ symbol: DISH) stock closed at approximately $25.00 per
share on January 8, 1997 when the merger was completed, resulting in a net
gain to the Company of approximately $6.2 million. On March 31, 1997,
EchoStar stock closed at approximately $20.50 per share. The decrease in
value of approximately $1.2 million is reflected on the Company's
consolidated balance sheet in the stock holders' equity (deficit) section.
Subsequent to March 31, 1997, the closing per share price of EchoStar
stock has fluctuated to a low of $12.12 per share, on May 19, 1997, and no
assurances can be given that future fluctuations in the price will
not further decrease the value of the EchoStar Shares.
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, prior to
the DBSC and EchoStar merger, 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 $293,000 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 $4,640,000 from the sale of a
three 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 March 31, 1997, $295,000 was drawn from this credit facility.
Subsequent to March 31, 1997, the Company placed approximately $107,000 in
additional convertible debentures secured by 140,858 shares of the
Company's common stock held in escrow for the benefit of the debenture
holders.
Stockholders' equity rose to $2,136,494 at March 31,1997 compared to
stockholders' deficit of $2,273,169 at December 31, 1996. This increase
resulted from the DBSC merger with EchoStar which was completed on January
8, 1997 and the Company's subsequent receipt of the EchoStar Shares in
exchange for its DBSC shares. The Company recorded a gain of approximately
$6.2 million based on the fair market value of DISH as of January 8, 1997.
The gain is reported in the statement of operations for the quarter ended
March 31, 1997. Subsequent to the receipt of shares of EchoStar on January
8, 1997, the trading price of EchoStar has fluctuated. As of March 31,
1997, the closing price for EchoStar shares was $20.50 per share. Based on
that closing price, the fair market value of the Company's EchoStar shares
amounted to $5,543,487 at March 31, 1997. The fair market value at March
31, 1997 represents a net unrealized loss of approximately $1,216,863 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 March 31, 1997 reflects no cash
and cash equivalents compared to $402,588 as of December 31, 1996. The
Company has created working capital 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. 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'
automatic 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 expand operations or continue
current operations. No assurances can be given that additional capital
financing will be available when required or it if will be on terms favorable
to the Company. Although the Company has been awarded approximately $4.2
million in its lawsuit against Loral, it is not clear what ongoing legal
costs will be necessary in order to collect or defend its judgment in the
event of an appeal, see "Legal Proceedings," as well as the legal and
consulting costs deemed advisable to maintain its interest in FCC licenses
and pursue pending FCC applications. The Company expects the development of
a low earth orbit satellite transmitter scheduled for completion in mid 1997
to cost approximately $650,000, of which approximately $550,000 has already
been expended as of March 31, 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 ca
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 March 31, 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 March 31, 1997 were $9,203,553 compared to $4,629,177
at December 31, 1996. The largest components of total assets represent
other assets of $7,839,396 including $5,543,487 in restricted securities,
and investments in and advances to affiliated companies of $912,649. 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 270,414 EchoStar shares, valued at
approximately $5.5 million at March 31, 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 three month period ended
March 31, 1997 was $466,698, compared with $1,294,940 for the three month
period ended March 31, 1996, and $5,280,836 for the period from inception
through March 31, 1997, and reflects an increase in accrued liabilities
(approximately $145,000) offset slightly by a decrease in accounts payable
and an increase in prepaid accounts.
There was no net cash used in investing activities at March 31, 1997,
compared to $2,311,892 for the three month period ended March 31, 1996.
Cash flows from financing activities were $64,110 at March 31, 1997
and resulted from the issuance of common stock in exchange for services
provided to the Company of $20,000 and a bank overdraft of $44,110.
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 period ended
March 31, 1997, or March 31, 1996. Revenues from inception through March
31, 1997 were $161,420.
The Company's net profit for the three month period ended March 31,
1997 was $5,606,526, compared to a net loss of $1,299,275 for the three
month period ended March 31, 1996 and net loss of $1,301,520 since
inception. This profit was due to the net unrealized gain on marketable
equity securities of approximately $6.2 million offsetting a $486,729 loss
from operations, and $128,015 net interest expense for the period. Loss
from operations was $486,729 for the three month period ending March 31,
1997, compared to a loss of $1,213,533 for the same three month period
ending March 31, 1996 due to a slowing of operating and research &
development costs incurred by the Company. Total loss from operations from
inception was $7,403,171. General and administrative costs ("G&A") were
$368,592 for the three month period ended March 31, 1997, compared with
$744,291 in the same three month period ended March 3, 1996. Total G&A
from inception through March 31, 1997 was $5,359,418. Research and
development costs associated with GEMS was $118,137 for the three month
period ended March 31, 1997 compared to $469,242 for the three month period
ended March 31, 1996 and $2,077,593 since inception.
The Company's accumulated deficit at March 31, 1997 decreased to
$1,301,520 from $6,908,046 at December 31, 1996 due to a onetime gain on
marketable securities of approximately $6.2 million and 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.
<PAGE>10
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").
Continental has a conditional construction permit to construct and launch
DBS satellites in two orbital locations which will thereafter entitle it to
receive one of the nine DBS licenses awarded or to be awarded by the FCC.
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, are 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 although the
Company's shares in Continental were invalid, Intraspace Corporation and
the Company were not necessarily without an equitable remedy for their
contributions to Continental.
The trial of the equitable issues in this action concluded on April 21,
1997. Thereafter, the Court entered an oral decision that the Company is
entitled to a judgment 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. The Court based its decision upon its finding that the equities of
the circumstances, including the unjust enrichment of Loral and
Continental, warranted such an equitable award to the Company.
However, the judgment has not yet been reduced to a written statement of
decision, as required by California law, and it is not currently known
whether either party will appeal the decision and, if appealed, whether the
award will be upheld. If the award is unchallenged and is satisfied in
full, the Company will no longer have an interest in Continental.
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.
"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, legal costs related to the litigation with Loral 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>11
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: MAY 20, 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 MARCH 31, 1997 FOR DBS INDUSTRIES, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
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0
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