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 September 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 September 30,1997
5,869,449
Transitional Small Business Disclosure Format:
YES: ______ NO: X
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
PAGE
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets:
As of September 30, 1997 (unaudited) and December 31, 1996 (audited) 3
Condensed Consolidated Statements of Operations (unaudited):
For the Three Months Ended September 30, 1997 and September 30, 1996;
for the Nine Months Ended September 30, 1997 and September 30, 1996;
and for the period from April 25, 1990 (Inception)to September 30, 1997 4
Condensed Consolidated Statements of Cash Flows (unaudited):
For the Nine Months Ended September 30, 1997 and September 30, 1996
and for the period from April 25, 1990 (Inception) to September 30,
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 11
ITEM 2. Changes in Securities 11
ITEM 3. Defaults Upon Senior Securities 11
ITEM 4. Submission of Matters to a Vote of Security Holders 11
ITEM 5. Other Information 11
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>3
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, 1997 December 31,
(Unaudited) 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 876,327 $ 402,588
Restricted cash 0 300,000
Prepaid and other current assets 139,540 68,944
Total current assets 1,015,867 771,532
Furniture and equipment (at cost) 73,277 73,277
Less accumulated depreciation 43,354 34,406
29,923 38,871
Other assets:
Investments in and advances to affiliated
companies 1,035,884 1,496,524
Goodwill, net of accumulated amortization of 14,304 29,841
$105,211 and $61,778, respectively
Other assets 0 2,292,409
1,050,188 3,818,774
Total assets 2,095,978 4,629,177
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 137,961 $ 960,277
Unearned revenue 400,000 400,000
Line of Credit 0 295,000
Accrued liabilities 285,055 607,070
Notes payable to stockholder 2,000 -
Convertible debentures 0 4,640,000
Total current liabilities 825,016 6,902,347
Stockholders' equity (deficit):
Preferred stock - -
Common stock 2,366 2,351
Capital in excess of par value 4,661,669 4,605,026
Warrants 112,500 112,500
Deficit accumulated during the
development stage (3,420,573) (6,908,046)
Treasury stock (85,000) (85,000)
Total stockholders' equity (deficit) 1,270,962 (2,273,169)
Total liabilities and stockholders'
equity (deficit) 2,095,978 4,629,177
</TABLE>
<PAGE>4
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended April 25, 1990
September 30, September 30, (Inception) to
1997 1996 1997 1996 September 30, 1997
<S> <C> <C> <C> <C> <C>
Revenue $ - $ 11,420 $ - $ 11,420 $ 161,420
Cost and operating expenses:
Cost of revenue - - - - 127,580
General and administrative 374,033 506,408 1,078,219 1,653,415 6,069,045
Research and development 85,474 109,329 294,836 846,208 2,254,292
459,507 615,737 1,373,055 2,499,623 8,450,917
Loss from operations (459,507) (604,317) (1,373,055) (2,488,203) (8,289,497)
Other income (expense):
Interest, net (52,304) (85,119) (317,054) (295,215) (750,840)
Equity in loss of investees, (39,974) - (39,974) - (371,776)
net
Gain on sale of investment - - - - 836,478
Gain (loss) on marketable (1,003,714) - 5,217,556 - 5,217,556
equity securities
Other, net - - - - (56,634)
(1,095,992) (85,119) 4,860,528 (295,215) 4,874,784
Income (loss) before (1,555,499) (689,436) 3,487,473 (2,783,418) (3,414,713)
provision for income
taxes and minority
interests
Provision for income taxes - 2,250 - 6,750 14,435
Loss before minority (1,555,499) (691,686) 3,487,473 (2,790,168) (3,429,148)
interests
Minority interests in income - - - - 8,575
(loss) of consolidated
subsidiaries
Net income (loss) ($1,555,499) $(691,686) $3,487,473 $(2,790,168) $(3,420,573)
Net loss per share (0.26) (0.12) 0.59 (0.49)
Weighted average number of 5,891,747 5,806,935 5,872,416 5,722,050
shares of common stock
</TABLE>
<PAGE>5
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended April 25, 1990
September 30, (Inception) to
1997 1996 September 30, 1997
<S> <C> <C> <C>
Net cash provided (used) in operating activities $ 2,353,675 $ (1,489,939) $ (2,460,464)
Cash flows from investing activities:
Proceeds from sale of investment 2,753,049 - 3,653,049
Purchase of fixed assets - (20,499) (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 - (2,453,347) (2,292,409)
Net assets of purchased subsidiaries - - (147,500)
Cash transferred from Fi-Tek IV, Inc. - - 156,648
pursuant to the merger and reorganization
Cash of divested subsidiary - - (277)
Purchase of patents - - (18,251)
Net cash provided (used) by investing activities 2,753,049 (2,473,846) 227,201
Cash flows from financial activities:
Proceeds from credit line 0 295,000 295,000
Restricted cash on credit line 300,000 - 0
Payments on credit line (295,000) (300,000) (295,000)
Issuance of debentures - 3,000,000 4,710,000
Issuance of common stock 15 999,956 3,153,531
Redemption of common stock warrants - - (19,490)
Stock issue costs - - (57,235)
Purchase of shares - - (5,000)
Payment of debentures (4,640,000) - (4,765,000)
Proceeds from stockholders' loans 2,000 - 295,000
Payment of stockholders' loans - - (202,216)
Net cash provided (used) by financing activities (4,632,985) 3,994,956 3,109,590
Net increase (decrease) in cash 473,739 31,171 876,327
Cash and cash equivalents, beginning of period 402,588 3,743 -
Cash and cash equivalents, end of period $ 876,327 $ 34,914 $ 876,327
</TABLE>
<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 September 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 for the Company for the nine months ended
September 30, 1997, does not reflect the Company's equity in income or
losses of E-SAT. The net equity in such income or losses is not
material to the Company's financial position at September 30, 1997, or
its results of operations for the three and nine months then ended.
On August 29, 1997, the Company received from EchoStar a letter of
intent that confirms the conditions upon which EchoStar will grant an
option to the Company to purchase shares of the common stock of E-SAT,
Inc. If the parties reach an agreement, the Company will own an option
to purchase from EchoStar sufficient shares to increase its ownership
percentage from 20% to 80.1% of the common stock of E-SAT.
The financial statements for the Company for the three and nine months
ended September 30, 1997, reflect the Company's equity in the losses of
Seimac Limited (Seimac) of $39,974 for the six months ended June 30,
1997. The Company was unable to obtain from Seimac financial
information for the three months ended September 30, 1997. The net
equity in such income or losses for the three months ended September
30, 1997, may not be material to the Company's financial position at
September 30, 1997, or its results of operations for the three and nine
months then ended. The Company's investment in Seimac as of September
30, 1997, was $578,072.
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.
<PAGE>7
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 OTHER ASSETS, continued
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 17, 1997, the Company and Loral formally completed
an agreement wherein the Company received a cash payment of
approximately $3.5 million from Loral in exchange for dismissals of
appeals by both parties.
The agreement provides that the Company returned the Continental stock
the Company acquired, that the Company acknowledge that all Continental
stock held by the Company owned is invalid, and that the Company has no
objection to the cancellation of that stock by Continental. The
parties to the agreement released one another from all present or
future claims connected with the allegations related to the action
which gave rise to the agreement. The agreement provides that the
Company cooperate with Loral in its request for information from the
Company concerning Continental. The Company will provide the
information requested without charge to Loral unless the Company can
establish that the cost of its reasonable cooperation, and other costs,
exceed the settlement amount.
The excess of the settlement payment over the Company's carrying value
for its interest in Continental of $1.2 million was recorded as a gain
on Marketable Equity Securities for the three months ended September
30, 1997.
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 were 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 Class A 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 classified 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).
On August 29, 1997, the Company completed an agreement with EchoStar to
retire three convertible debentures, Series A, Series B and Series C,
previously issued to EchoStar, in the aggregate principal amount of
$4,640,000 together with accrued interest of $722,810.69 and certain
legal fees and other expenses related to the transaction. In exchange
for EchoStar's retirement of the debt, the Company transferred back to
EchoStar 270,414 shares of EchoStar Class A common stock and made a
cash payment of approximately $936,000 from the proceeds of its
settlement with Loral. The value of the EchoStar shares was based on a
per share price of $16.57 which represents the closing bid price on
August 27, 1997, the date the parties initially agreed to the terms of
the transaction.
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. As of September 30,
1997, the $400,000 in milestone payments received are reported as
unearned revenue on the accompanying balance sheets.
<PAGE>8
DBS INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 August 29, 1997, the Company entered into an agreement with EchoStar
to liquidate the Company's convertible debentures payable to EchoStar.
The agreement called for the Company to pay the aggregate principal and
accrued interest that amounted to $4,640,000 and $722,810.69,
respectively. Payment was made by the Company when it transferred
270,414 shares of EchoStar Class A Common Stock. The deemed transfer
price was $16.57 per share. The balance of the payment was made in
cash. This transaction resulted in a loss of $2,535,131 in the quarter
ended September 30, 1997.
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 September 30, 1997, the Series D
Convertible Debentures, plus accrued interest, were paid in full.
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 was a security interest of 75,000 shares of
Company common stock. On September 30, 1997, the Series E Convertible
Debenture, plus accrued interest, was paid in full.
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. As of September 30, 1997, the bank
overdraft has been repaid, and the bridge loan is no longer necessary.
On May 5, 1997, the Company's president loaned the Company another
$2,000. The loan is classified on the balance sheet as note payable to
stockholder.
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>9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
On August 17, 1997, the Company and Loral Aerospace Holdings, Inc.
("Loral") formally executed an agreement wherein the Company received
approximately $3.5 million from Loral in exchange for dismissals of appeals by
both parties in the litigation concerning Continental Satellite Corporation.
(See Part II, Item 1, "Legal Proceedings")
On August 29, 1997 the Company completed an agreement with EchoStar
Communications Corporation ("EchoStar") to retire three convertible debentures,
Series A, Series B and Series C, previously issued to EchoStar, in the
aggregate principal amount of $4,640,000 together with accrued interest of
$722,810.69 and certain legal fees and other expenses related to the
transaction. In exchange for EchoStar's retirement of the debt, the Company
transferred back to EchoStar 270,414 shares of EchoStar Class A common stock
(the "EchoStar Shares") and made a cash payment of approximately $936,000 from
the proceeds of its settlement with Loral. The value of the EchoStar shares
was based on a per share price of $16.57 which represents the closing bid price
on August 27, 1997, the date the parties initially agreed to the terms of the
transaction.
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, (vii) gross proceeds of $4,747,501
from the sale of seven convertible debentures, (viii) $100,000 from the
issuance of a note and (ix) gross proceeds of approximately $3.5 million in
settlement of litigation concerning the Company's interest in Continental
Satellite Corporation. Additionally, the Company had an established line of
credit for $300,000 from Pacific Bank of Burlingame, California. As of
September 30,1997, the line of credit has been repaid and the credit facility
with Pacific Bank canceled.
Stockholders' equity at September 30,1997 was $1,270,962 compared to
stockholders' deficit of $2,273,169 at December 31, 1996. This increase is
attributed primarily to a net gain of approximately $3.7 million when the
Company completed an exchange of its DBSC shares for the EchoStar Shares in the
first quarter of 1997 (as reported in the statement of operations for the
quarter ended March 31, 1997) and subsequently divested (for approximately $4.4
million) as part of an August 29, 1997 agreement to repay all principal and
interest accrued on debentures held by EchoStar. During the nine months ended
September 30, 1997 the Company incurred approximately $200,000 of monthly
operating costs which further reduced stockholders' equity. Current operating
costs have been reduced significantly with the repayment of the Company's
debentures as well as the settlement of the Loral litigation. Operating
expenses for the remainder of the year are expected to average $90,000 per
month, which will continually act to reduce stockholders' equity in the absence
of the sale of additional equity.
The consolidated balance sheet as of September 30, 1997 reflects
$876,327 of cash and cash equivalents compared to $402,588 as of December
31, 1996. This increase is due to the receipt of proceeds from the Company's
settlement with Loral. While the Company has sufficient cash to meet its needs
in the near term, further resources will be needed to continue ongoing
development of the Company's wholly owned subsidiary, GEMS', automatic meter
reading ("AMR") business and the Company's operating activities. The
Company anticipates monthly expenses of approximately $90,000 to continue for
the balance of 1997. This includes approximately $55,000 per month for
operating expenses, $15,000 per month for legal and consulting expenses, and
$20,000 per month for GEMS' and E-SAT research & development. Accordingly,
while cash resources presently available to the Company are sufficient to
continue operations at their projected level through the end of 1997,
additional capital will be necessary to expand operations or continue current
operations into 1998. 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. 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. The Company has met the first four milestones of the contract and
has received $400,000 in cash. These funds are 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
<PAGE>10
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 September 30, 1997 were $2,095,978 compared to $4,629,177
at December 31, 1996. This decrease in assets is attributed to elimination of
the Company's interest in Continental Satellite Corporation based on the
settlement with Loral, as well as the return of 270,414 shares of EchoStar
Class A Common Stock as part of an agreement to redeem all of the Company's
debentures held by EchoStar. The largest components of total assets at
September 30, 1997 represent investments in and advances to affiliated
companies of $1,035,884 and cash of $876,327. This compares to December 31
,1996 when the largest components of total assets were Other Assets of
$2,292,409 (Continental Satellite Corporation)and Investments in and advances
to affiliated companies of $1,496,524. Advances to affiliated companies
decreased due to the elimination of the Company's interest in DBSC valued at
approximately $539,080 after a merger between EchoStar and DBSC in January
1997. (see the Company's 10-Q dated March 31, 1997.)
Net cash used in operating activities for the nine month period ended
September 30, 1997 was $2,063,438 compared to net cash used of $1,489,939 and
$6,877,577 since inception. There was net cash provided by investing
activities of $3,573,678 during the nine month period ended September 30, 1997,
compared to net cash used by investing activities of $2,473,846 for the nine
month period ended September 30, 1996, and net cash provided by investing
activities of $1,047,830 since inception. Net cash used by financing
activities was $1,036,501 for the nine months ended September 30, 1997 compared
to net cash provided by financing activities of $3,994,956 for the nine month
period ended September 30, 1996, and $6,706,074 since inception. The net cash
used by financing activities for the nine months ended September 30, 1997
resulted from cash repayment of debentures totaling $1,043,501, offset by a
loan to the Company.
RESULTS OF OPERATIONS
The Company remains in the development stage and did not generate any
significant revenues or net interest earnings in either the three month or
nine month periods ended September 30, 1997, or September 30, 1996. Revenues
from inception through September 30, 1997 were $161,420.
The Company's net loss for the three month period ended September 30, 1997
was $1,555,499, compared to $691,686 for the three month period ended September
30,1996; a net profit of $3,487,473 for the nine month period ended September
30, 1997 compared to a net loss of $2,790,168 for the nine month period ended
September 30,1996; and net loss of $3,420,573 since inception. The nine
month net profit was due to the net gain on marketable equity securities of
approximately $5.2 million offset by a $1.3 million loss from operations, and
$317,054 net interest expense for the nine month period ended September 30,
1997. Loss from operations was $459,507 for the three month period ended
September 30,1997, compared to a loss of $604,317 for the same three month
period ending September 30,1996, and $1,373,055 for the nine month period
ended September 30, 1997 compared to $2,488,203 for the nine month period ended
September 30, 1996. Total loss from operations from inception was $8,289,497.
General and administrative costs ("G&A") were $374,033 for the three month
period ended September 30,1997, compared to $506,408 in the same three month
period ended September 30,1996, and $1,078,219 for the nine month period ended
September 30, 1997 compared to $1,653,415 for the nine month period ended
September 30, 1996. Total G&A from inception through September 30, 1997 was
$6,069,045. Research and development costs associated with GEMS was $85,474
for the three month period ended September 30,1997 compared to $109,329 for the
three month period ended September 30,1996, and $294,836 for the nine month
period ended September 30, 1997 compared to $846,208 for the nine month period
ended September 30, 1996 and $2,254,292, since inception.
The Company's accumulated deficit at September 30, 1997 was $3,420,573
compared to $6,908,046 at December 31, 1996. This decrease was due to a onetime
gain on marketable securities of approximately $5.2 million and offset by the
loss from operations and interest expense of approximately $2.8 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.
<PAGE>11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On August 17, 1997 the Company formally completed a settlement agreement
with Loral Aerospace Holding, Inc. ("Loral"). Pursuant to the settlement
agreement, the Company received a cash settlement of approximately $3.5 million
from Loral in exchange for dismissals of any rights of appeal, by both the
Company and Loral, in connection with litigation concerning the ownership of
certain shares of Continental Satellite Corporation held by the Company. (See
the Company's Form 10-KSB for the year ended 12/31/96.)
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
The Company filed a report on Form 8-K on September 12, 1997 to announce
the Company's agreement with EchoStar Communications Corporation ("EchoStar")
redeeming all three convertible debentures held by EchoStar.
<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: November 14, 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 SEPTEMBER 30, 1997 FOR DBS INDUSTRIES, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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