U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended September 30,
1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _______ to
_______
COMMISSION FILE NUMBER 0-28348
DBS INDUSTRIES, INC.
(Exact name of small business issuer 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
(Address of principal executive offices)
(415) 380-8055
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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: Common Stock, $.0004 Par Value
Shares Outstanding as of September 30, 1999: 14,345,427
Transitional Small Business Disclosure Forma Yes: [ ] No x
<PAGE>ii
<TABLE>
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INDEX
PAGE
PART I - FINANCIAL INFORMATION...............................................................1
ITEM 1. Financial Statements..............................................................1
Condensed Consolidated Balance Sheets:
As of September 30, 1999 (unaudited) and December 31, 1998 (audited).........................1
Condensed Consolidated Statements of Operations (unaudited):
For the Three Months and Nine Months Ended September 30, 1999 and September 30, 1998
and for the period from April 25, 1990 (Inception) to September 30, 1999.....................2
Condensed Consolidated Statements of Cash Flows (unaudited):
For the Nine Months Ended September 30, 1999 and September 30, 1998
and for the period from April 25, 1990 (Inception) to September 30, 1999.....................3
Notes to Condensed Consolidated Financial Statements.........................................4
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................7
PART II - OTHER INFORMATION.................................................................11
ITEM 5. Other Information............................................................11
ITEM 6. Exhibits and Reports on Form 8-K.............................................11
</TABLE>
<PAGE>1
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
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September 30,
1999 December 31,
(Unaudited) 1998
--------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,205,454 $ 1,291,711
Prepaid and other current assets 57,711 71,138
--------------- -------------
Total current assets 1,263,165 1,362,849
--------------- -------------
Furniture and equipment (at cost) 83,027 65,516
Less accumulated depreciation 51,840 42,989
--------------- -------------
31,187 22,527
--------------- -------------
Other assets:
Investments and advances 2,368,677 851,490
Goodwill, net of accumulated amortization of
$89,314 and $87,428 respectively 1,676 3,562
Satellite construction costs 13,164,729 1,272,083
--------------- -------------
15,535,082 2,127,135
--------------- -------------
Total assets $ 16,829,434 $ 3,512,511
=============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,337,776 $ 240,240
Customer advances 400,000 400,000
Accrued liabilities 78,517 489,531
--------------- -------------
Total current liabilities 1,816,293 1,129,771
--------------- -------------
Stockholders' equity:
Common stock 5,757 3,452
Capital in excess of par value 26,826,924 8,511,410
Warrants 1,194,136 1,085,500
Note receivable from shareholder (60,000) -
Deferred stock compensation (1,594,226) -
Deficit accumulated during the development stage (11,274,450) (7,132,622)
Treasury stock (85,000) (85,000)
--------------- -------------
15,013,141 2,382,740
--------------- -------------
Total liabilities and stockholders' equity $ 16,829,434 $ 3,512,511
=============== =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>2
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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April 25, 1990
Three Months Ended Nine Months Ended (Inception) to
September 30, September 30, September 30,
1999 1998 1999 1998 1999
-------------- -------------- -------------- --------------- ----------------
Revenue $ - $ - $ - $ - $ 161,420
-------------- -------------- -------------- --------------- ----------------
Cost and operating expenses:
Cost of revenue - - - - 127,580
Marketing and sales 297,791 - 297,791 - 297,791
General and administrative 743,384 688,424 2,420,183 1,339,069 11,081,872
Research and development 455,606 198,358 814,830 545,772 3,781,548
Non-cash stock compensation 710,477 - 710,477 - 710,477
-------------- -------------- -------------- --------------- ----------------
2,207,258 886,782 4,243,281 1,884,841 15,999,268
-------------- -------------- -------------- --------------- ----------------
Loss from operations (2,207,258) (886,782) (4,243,281) (1,884,841) (15,837,848)
-------------- -------------- -------------- --------------- ----------------
Other income (expense):
Interest, net 25,804 9,211 101,453 11,405 (608,006)
Equity in loss of investees, net - (6,733) - (100,143) (512,920)
Gain (loss) on sale of investment - - - (228,323) 5,829,218
Other, net - - - - (56,634)
-------------- -------------- -------------- --------------- ----------------
25,804 2,478 101,453 (317,061) 4,651,658
-------------- -------------- -------------- --------------- ----------------
Loss before provision for income
taxes and minority interests (2,181,454) (884,304) (4,141,828) (2,201,902) (11,186,190)
Provision for income taxes - - - - 96,835
-------------- -------------- -------------- --------------- ----------------
-------------- -------------- -------------- ---------------
Loss before minority interests (2,181,454) (884,304) (4,141,828) (2,201,902) (11,283,025)
Minority interests in income of
consolidated subsidiaries - - - - 8,575
-------------- -------------- -------------- --------------- ----------------
Net loss $ (2,181,454) $ (884,304) $ (4,141,828) $ (2,201,902) $ (11,274,450)
============== ============== ============== =============== ================
Net loss per share, basic and diluted $ (0.15) $ (0.13) $ (0.33) $ (0.35)
============== ============== ============== ===============
Weighted average number of
shares of common stock,
basic and diluted 14,266,067 6,857,472 12,665,510 6,220,861
============== ============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>3
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
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April 25, 1990
Nine Months Ended (Inception) to
September 30, September 30,
1999 1998 1999
--------------- -------------- ---------------
Net cash used in operating activities $ (2,004,167) $ (1,205,423) $ (11,951,571)
--------------- -------------- ---------------
Cash flows from investing activities:
Proceeds from sale of investment - 199,940 1,099,940
Proceeds from Loral settlement - - 3,573,677
Purchase of fixed assets (17,511) (3,720) (128,558)
Satellite construction payments (11,892,646) - (13,164,729)
Organization costs - - (28,526)
Advances to officers and shareholders (60,000) - (91,187)
Purchase of interest in Continental - - (2,292,409)
Investments and advances (1,517,187) (407,292) (2,725,913)
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)
Proceeds from repayment of advances to affiliate - - 152,500
Restricted cash on credit line - 300,000
--------------- -------------- ---------------
Net cash used in investing activities (13,487,344) (211,072) (13,314,585)
--------------- -------------- ---------------
Cash flows from financing activities:
Repayment of borrowing under credit line - - (300,000)
Issuance of debentures - - 4,817,501
Issuance of common stock 15,559,354 5,781,103 23,710,096
Redemption of common stock warrants - - (19,490)
Stock issue costs (154,100) (442,500) (653,835)
Purchase of shares - - (5,000)
Payment of debentures - - (1,168,445)
Proceeds from stockholders' loans - - 442,750
Payment of stockholders' loans - - (351,967)
--------------- -------------- ---------------
Net cash provided by financing activities 15,405,254 5,338,603 26,471,610
Net increase (decrease) in cash (86,257) 3,922,108 1,205,454
Cash and cash equivalents, beginning of period 1,291,711 383,054 -
--------------- -------------- ---------------
Cash and cash equivalents, end of period $ 1,205,454 $ 4,305,162 $ 1,205,454
=============== ============== ===============
Supplemental disclosures:
Noncash activities:
Amortization of deferred compensation to employees $ 710,500
Value of warrants granted to non-employees $ 300,250
Value of warrants representing stock issue costs $ 270,000
Amortization of options granted to non-employees $ 416,000
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>4
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(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 subsidiaries, Global Energy Metering Services, Inc., and
Newstar Limited (the subsidiaries), is unaudited.
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, 1999 and condensed consolidated
results of operations and cash flows for the interim periods
reported. The results of operations for the 1999 interim period
presented are not necessarily indicative of expected results for the
full 1999 fiscal year.
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 financial
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.
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 1998 Annual
Report to Shareholders.
NOTE 2 EQUITY IN INCOME & LOSSES OF INVESTEES
E-SAT Corporation
In October 1994, the Company and Echostar Communications, Inc. formed
E-SAT for the purpose of filing with the Federal Communications
Commission for a license to operate a low earth satellite system.
E-SAT filed a license application with the Federal Communications
Commission on November 16, 1994. In April 1998, the FCC formally
approved E-SAT's application. The Company holds a 20% interest in
E-SAT and Echostar holds the remaining 80%. The Company's total
investments in and advances to E-SAT were $851,490 as of September
30, 1999. The investment is accounted for using the equity method.
On July 30, 1999, the Company entered into an agreement with Echostar
under which it will receive 60.9% of E-SAT's shares from Echostar in
exchange for rights to use up to 20% of the satellite capacity of the
E-SAT system by Echostar. As a result of this transaction, the
Company will own 80.9% of the E-SAT shares. This share purchase
agreement is subject to approval by the FCC. In connection with the
negotiations of the share purchase agreement with EchoStar, the
Company has entered into a service contract with a consultant for a
minimum of $1.5 million in fees. As of September 30, the Company had
paid $1,517,187 on this contract and capitalized such costs in the
E-SAT investment account.
<PAGE>5
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 SATELLITE CONSTRUCTION COSTS
During the construction of the E-SAT System, the Company is
capitalizing all design, engineering and construction costs. On
December 15, 1998, the Company and Alcatel Space Industries
("Alcatel") entered into a Memorandum of Understanding and
authorization to proceed ("MOU") pursuant to which Alcatel would
become the General Contractor for the design, construction and launch
services for the Company's planned low earth orbit satellites. Upon
signing of the MOU, the Company made a $1 million advance payment to
Alcatel and, in January and February 1999, the Company made
additional payments totaling $1 million.
On March 31, 1999, the Company signed construction and launch
contracts with two European entities and made advance payments of
$7.8 million in April 1999 and $2.8 million in July 1999. Total
payments under these cancelable contracts will amount to
approximately $47 million through January 2001. On April 8, 1999, the
Company notified the FCC that it had entered into a construction
contract for the first two satellites of the E-SAT System.
In July 1999, the Company and its two European contractors reached
agreements under which $3.2 million of the required milestone
payments due in July 1999 totaling $4.8 million were deferred to yet
to be agreed upon dates.
NOTE 4 CUSTOMER ADVANCES
The Company's wholly owned subsidiary, Global Energy Metering
Services, Inc. (GEMS), is party to a contract to deliver 10,000
satellite radio units. Under the terms of the $1.2 million 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, 1998, this
purchase order had been suspended by both parties due to the
Company's limited access to the Argos System. The $400,000 in
milestone payments received are reported as customer advances on the
accompanying balance sheet. These milestone payments could be subject
to refund in whole or in part.
NOTE 5 NET LOSS PER SHARE
The Company presents net loss per share in accordance with Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share,
whereby basic net loss per share is computed based on the
weighted-average number of common shares outstanding and excludes any
potential dilution. Diluted net loss per share does not include
common stock equivalents due to their antidilutive effect. Options
and warrants to purchase 5,273,012 shares of common stock with
exercise prices from $.39 to $5.60 were outstanding as of September
30, 1999 and were excluded from the loss per share calculation for
the quarter and the nine month periods then ended as they have the
effect of decreasing loss per share. Options and warrants to purchase
6,018,531 shares of common stock with exercise prices from $.40 to
$5.60 were outstanding as of September 30, 1998 and were excluded
from the loss per share calculation for the quarter and nine month
periods then ended as they have the effect of decreasing loss per
share.
<PAGE>6
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 EQUITY TRANSACTIONS
In January and February 1999, the Company received proceeds of
approximately $1.45 million from the exercise of options and
warrants.
In February 1999, the Company issued 500,000 units each consisting of
a share of Common Stock at a price of $3.00 per share and a warrant
to purchase a share of Common Stock at an exercise price of $4.00.
Sale of these units resulted in gross proceeds to the Company of $1.5
million.
In March 1999, the Company received proceeds of approximately $7.5
million from the exercise of warrants to purchase 2.5 million shares
of the Company's Common Stock issued in connection with the unit
offering discussed above.
During April 1999, the two European contractors purchased 1,666,667
shares of the Company's Common Stock for a total of $5 million in
cash.
Also in April 1999, the Company received proceeds of $30,000 from the
exercise of options to purchase 20,000 shares of the Company's Common
Stock.
In August 1999, the Company received proceeds of $79,650 from the
exercise of options to purchase 150,000 shares of the Company's
Common Stock.
Subsequent to December 31, 1998, the Company solicited stockholder
approval to increase the number of authorized shares of Common Stock
from 20,000,000 to 50,000,000. The requisite stockholder approval was
obtained.
In August and September 1999, the Company granted options to purchase
1,913,106 shares of the Company's Common Stock at exercise prices
ranging from $0.39 to $2.81 to several employees and service
providers. Some of the exercise prices were below the fair market
value of the Common Stock at the time of grant, resulting in deferred
stock compensation of approximately $2.7 million. This amount is
being amortized over the vesting periods of the granted options. As a
consequence, $710,477 was recognized as non-cash stock compensation
expense during the three months ended September 30, 1999.
NOTE 7 SUBSEQUENT EVENT
On October 8, 1999, the Company and Alcatel entered into an agreement
under which Alcatel will serve as prime contractor for the
construction of the Company's low earth orbit satellite
communications system. This agreement becomes effective upon the
Company's payment of $14.1 million to Alcatel within 40 days from
October 8, 1999.
<PAGE>8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
DBS Industries, Inc. ("DBSI" or the "Company") intends to provide
worldwide two-way data and messaging service using a commercial low earth orbit
("Little LEO") satellite-based network communications system called the NewStar
System. DBSI intends to market its services to industrial customers who do not
need "real time" access to information but instead need information on a daily,
weekly, or monthly basis. The NewStar System will be based on the Federal
Communications Commission ("FCC") license held by E-SAT, Inc. ("E-SAT"), in
which DBSI currently has a 20% interest. DBSI designed this system and it is
currently under construction by DBSI's prime contractor, Alcatel Space
Industries ("Alcatel"). On July 31, 1999, we signed a contract with EchoStar
which has agreed to transfer to us, subject to the approval of the FCC, an
additional 60.1% of the ownership in E-SAT, in exchange for the right to use
20% of the NewStar System's communications capacity. Assuming the change in
control is approved by the FCC, DBSI will own 80.1% in E-SAT, the holder of the
FCC license.
During the three months ended September 30, 1999, DBSI began to actively
market its proposed data and messaging services through its subsidiary, NewStar
Ltd. NewStar has recently hired five new employees and it is currently working
on certain industry studies and reports, and meeting with potential joint
venture partners and customers.
Results of Operations
Revenues
DBSI remains in the development stage and did not generate any revenues
in either the three or nine months ended September 30, 1999, or September 30,
1998.
Cost and Operating Expenses
Cost and operating expenses for the three months ended September 30,
1999, were $2,207,258 as compared to $886,782 for the three months ended
September 30, 1998. During the three months ended September 30, 1999, cost and
operating expenses increased primarily in marketing and sales, research and
development, and non-cash stock compensation. This increase is a result of the
Company devoting substantial amounts of its financial and personnel resources on
developing and marketing its satellite- based network communications system.
Cost and operating expenses for the nine months ended September 30, 1999, were
$4,243,281 as compared to $1,884,841 for the nine months ended September 30,
1998. G & A expenses for the three months ended September 30, 1999, were
$743,384 as compared to $688,424 for the three-month period ended September 30,
1998, and $2,420,183 for the nine months ended September 30, 1999, as compared
to $1,339,069 for the nine months ended September 30, 1998.
During the three months ended September 30, 1999, DBSI began to market
NewStar's proposed data and messaging services. For the three months ended
September 30, 1999, DBSI incurred marketing and sales expenses of $297,791
related primarily to the activation of NewStar, Ltd. for which five new
employees were hired, including a new president, H. Tate Holt, a director of
DBSI.
Further, in order to attract and retain personnel, the Company granted
options to purchase 1,913,106 shares of Common Stock at exercise prices ranging
<PAGE>8
from $0.39 to $2.81 to several employees and service providers. Some of the
exercise prices were below the fair market value of the Common Stock at the time
of grant, resulting in deferred stock compensation of approximately $2.7
million. This amount is being amortized over the vesting periods of the granted
options, and as a result, $710,477 was recognized as non-cash stock compensation
expense during the three months ended September 30, 1999. No similar expenses
were incurred during 1998.
Research & development expenses increased to $455,606 for the three
months ended September 30, 1999, as compared to $198,358 for the three months
ended September 3, 1998, and to $814,830 for the nine months ended September 30,
1999, as compared to $545,772 for the nine months ended September 30, 1998. The
increase was related to costs on the NewStar System and to the implementation of
satellite construction contracts.
DBSI expects that its G & A expenses and its marketing and sales
expenses will continue to increase as the Company hires additional
administrative and marketing personnel to support its satellite- based network
communications system. In this regard, during October 1999, DBSI hired Stanton
C. Lawson as its new Senior Vice President of Finance, and Randy Stratt as its
new Senior Vice President, General Counsel.
Other Income (Expense)
During the nine months ended September 30, 1999, DBSI earned net
interest income of $101,453 on cash received in connection with the Company's
fund-raising efforts through the exercise of warrants and options as well as
other equity transactions totaling approximately $15.4 million. During the nine
months ended September 30, 1998, DBSI earned interest income of $11,405.
For the nine months ended September 30, 1998, DBSI had a loss in its
investee, Seimac Limited, of $100,143, and incurred a loss of $228,323 on the
subsequent sale of DBSI's 20% interest in Seimac Limited.
Net Loss
DBSI's net loss for the three-month period ended September 30, 1999, was
$2,181,454 compared to $884,304 for the three-month period ended September 30,
1998. Net loss for the nine months ended September 30, 1999, was $4,141,828
compared to a net loss of $2,201,902 for the nine-month period ended September
30, 1998.
Liquidity and Capital Resources
The Company has been in the development stage since its inception and
has not generated any significant revenues from operations. Excluding non-cash
compensation expense, the Company's monthly expenses averaged approximately
$390,000 per month during the third quarter of 1999 which included approximately
$300,000 per month for operating, legal and consulting expenses, and $90,000 per
month for research & development relating to the NewStar System. The Company
anticipates that expenses will continue to increase during 1999 and 2000 with
the construction of the satellites for the NewStar System (and contractual
obligations related to such development) and the development of business
applications of the NewStar System. Additional capital will be necessary to
expand operations or continue current operations. During the nine months ended
September 30, 1999, the Company raised $15.5 million in gross proceeds from a
<PAGE>9
private placement of its Common Stock and $30,000 from the exercise of
outstanding options. The Company made approximately $11.9 million in payments to
several contractors during the nine months ended September 30, 1999, in
connection with the construction and launch of the satellites for the NewStar
System.
Traditionally, the Company has relied on equity and debt financings to
fund its operations. This financing was supplemented from the sale of the
Company's interest in entities that held direct broadcast satellite licenses.
The Company has sold all of its interests in direct broadcast satellite
licensees. DBSI expects that the aggregate cost to construct and launch the
NewStar System into commercial service will be approximately $120.0 million of
which approximately $67.0 million will be required over the next 15 months.
Approximately $11.9 in construction and launch costs had been spent through
September 30, 1999. The satellite construction and launch contracts require
periodic progress payments throughout the term of the contracts. Anticipated
periodic progress payments through December 31, 1999, will amount to
approximately $16.1 million. Failure to maintain these contracts would adversely
affect our ability to construct the NewStar System. In order to finance the
construction of the NewStar System and to provide the Company working capital
until construction can be completed, DBSI has engaged an international
investment bank to assist it in raising capital through the issuance of bonds to
finance construction, launch and deployment of the NewStar System. In addition,
DBSI is seeking to raise up to $20.0 million through the issuance of common
stock for working capital.
The Company had cash and cash equivalents of $1,205,454 and $4,305,162
as of September 30, 1999 and 1998, respectively. The Company had working capital
(deficit) of $(553,128) as of September 30, 1999, compared to a working capital
of $3,300,170 as of September 30, 1998. Until the Company is able to develop,
construct and operate its NewStar System and derive revenues therefrom, the
Company will continue to use cash obtained from outside sources for its
operations and development of its data services business.
Net cash used in operating activities was $2,004,167 for the nine months
ended September 30, 1999, as compared to $1,205,423 for the nine months ended
September 30, 1998. Net cash used in operating activities increased during the
nine months ended September 30, 1999, as compared with the same period last
year, as a result of increased cash expenditures as the Company expanded its
development activity relating to the NewStar System. This increased level of
development costs is expected to continue through the launch of the satellites
in 2001.
Net cash used in investing activities for the nine months ended
September 30, 1999, was $13,487,344. This net cash used represents approximately
$11.9 million in progress payments relating to satellite construction costs and
approximately $1.5 million in investments and advances. Net cash used in
investing activities was $211,072 for the nine months ended September 30, 1998,
and was comprised of investments in and advances to E-SAT of approximately
$400,000 offset by net proceeds from the sale of the Company's 20% interest in
Seimac Limited of $199,940.
Net cash used in financing activities for the nine months ended
September 30, 1999, was $15,405,254, compared to $5,338,603 for the nine months
ended September 30, 1998. Net cash used in financing activities during 1999 was
primarily attributed to net proceeds from the sale of units of common stock for
$1.5 million, exercise of warrants for $7.5 million, the sale of common stock to
two European contractors for $5 million, and the exercise of options by
directors, officers and employees of the Company, as well as other non-employee
grants. Net cash provided was offset by stock issue costs of approximately
$154,000 in the nine month period ended September 30, 1999.
<PAGE>10
The Company continues to carry a liability of $400,000 for customer
advances stemming from a 1996 development agreement that was subsequently
suspended in 1997, prior to completion. Under the terms of the agreement, the
Company may be required to refund these payments in whole or in part.
(See: Notes to Condensed Consolidated Financial Statements, Note 4.)
Risks and Uncertainties Affecting Future Operating Results
"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 subsidiaries
including NewStar Limited (collectively the "Company"), projected costs and
expenditures relating to the Company's interest in low earth orbiting satellites
("NewStar System") technology and development of its automated meter reading
("AMR") business and the fact that the Company has reached an agreement, subject
to the approval of the FCC, with EchoStar for the transfer from EchoStar to DBSI
a controlling interest in E-SAT, which owns the FCC license. Currently, EchoStar
owns 80% of E-SAT. On July 31, 1999, we signed a Stock Purchase Agreement with
EchoStar in which has agreed to transfer to us, subject to the approval of the
FCC, an additional 60.1% of the ownership in E-SAT, in exchange for the right to
use 20% of the NewStar System's communications capacity. Assuming the change in
control is approved by the FCC, we will own 80.1% in E-SAT, the holder of the
FCC license. Other factors, in addition to those identified in this report,
which could affect future results would include: (i) the Company's ability to
raise significant additional debt and equity capital from outside sources for
the development of the NewStar System and the availability of such capital on
commercially acceptable terms; (ii) the completion of a commercially viable
NewStar System and AMR service; (iii) the dependence and uncertainty of
commercial customers to utilize the Company's AMR service; (iv) the reliance on
third parties for the design, manufacturing and marketing of the NewStar System;
(v) satisfying the milestones of the FCC license granted to E-SAT and
construction contracts; (vi) the fulfillment of contract obligations by
suppliers and other third parties and the availability of qualified personnel
and equipment; (vii) delays in the receipt of or failure to receive necessary
governmental approvals or obtaining permits and licenses or renewals thereof.
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.
Successfully addressing the factors discussed above is subject to
various risks described in this report, as well as other factors such as 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 the Little LEO satellite technology, results of the
Company's financing efforts and marketing conditions, and other risk factors
related to the Company's business set forth in the Company's registration
statement on Form SB-2, SEC File No. 333-77687 which was declared effective on
June 1, 1999. These factors could affect the price of the Company's stock and
could cause such stock prices to fluctuate significantly over relatively short
periods of time.
<PAGE>11
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's, or its suppliers' and customers' computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. In the Company's assessment, because the Company's and its
subsidiaries' information systems are primarily comprised of recently purchased
personal computers and software, the Company does not believe that the Year 2000
Issue will materially affect its operations.
In addition, in developing the NewStar System, the Company will be
relying on vendors to, among other things, manufacture the Little LEO
satellites, launch the Little LEO satellites, manufacture the remote terminal
units and build the NewStar System infrastructure including the satellite
control stations which are Y2K compliant. The Company has entered into contracts
with several vendors to develop the NewStar System, and an assessment has been
made as to their Year 2000 compliance. As part of ongoing contract negotiations,
the Company will request and determine the vendors' Year 2000 readiness. In the
event that it is determined that a key vendor will not be Year 2000 compliant,
this may have an adverse effect on the Company's business plans.
PART II. OTHER INFORMATION
Item 5. Other Information.
On October 8, 1999, DBSI signed a contract with Alcatel Space Industries
of Toulouse, France, for the final design, construction, and delivery to the
launch site of our constellation of six Little LEO satellites, using Surrey
Satellite Technology Limited, of Guildford-Surrey, United Kingdom, as a
subcontractor, and for the final design, construction and delivery of the ground
infrastructure, including the gateway earth station, mission center, satellite
control center, ground communications network, and the ground based transceivers
to be installed into fixed assets such as electric utility meters. The total
contract price for the end-to-end system is $88.5 million, which does not
include launch and insurance costs of approximately $30 million. This contract
becomes effective upon the Company's payment to Alcatel of $14.1 million within
40 days of the signing of the agreement.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27.1 Financial Data Schedule
<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: October 27, 1999 By:/s/ FRED W. THOMPSON
--------------------
Fred W. Thompson
President
By:/s/ STANTON C. LAWSON
----------------------
Stanton C. Lawson
Chief Financial Officer
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 1999 FOR DBS INDUSTRIES, INC. AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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