U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________________ to ____________________
Commission File No. 0-28348
DBS INDUSTRIES, INC.
(Name of small business issuer in its charter)
Delaware 84-1124675
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Shoreline Highway, Suite 190AMill Valley, California 94941
- ---------------------------------------------------------- -----------
(Address of principal executive (Zip Code)
offices)
Issuer's telephone number: (415) 380-8055
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
par value $.0004 per share
<PAGE>2
Indicate by check mark whether the issuer (1) has 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 issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $ -0-.
As of March 19, 1999, the aggregate market value for the 8,169,420
shares of the common stock, par value $.0004 per share, held by non-affiliates
was approximately $38,294,156.
The number of shares outstanding of registrant's only class of Common
Stock, as of March 19, 1999, was 10,117,060 shares of its common stock, par
value $.0004 per share.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain exhibits required by Item 13 have been incorporated by reference
from the Company's previous Form 10-KSBs, Form 8-Ks, and its Registration
Statement on Form S-18.
Exhibit Index is located at Pages 27-28.
<PAGE>3
PART I
This discussion, other than the historical financial information, may
consist of forward-looking statements that involve risks and uncertainties,
including quarterly and yearly fluctuations in results, the timely availability
of new communication products, the impact of competitive products and services,
and the other risks described in the Company's SEC reports, including this
report. These forward-looking statements speak only as of the date hereof and
should not be given undue reliance. Actual results may vary significantly from
those projected.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
ITEM 1. BUSINESS
General
DBS INDUSTRIES, INC. ("DBSI" or the "Company") was formed August 3,
1989, under the laws of the State of Delaware. The Company is involved in
designing and developing a data messaging service utilizing low earth orbit
("LEO") satellites. DBSI is developing its business primarily through its 20%
interest in E-SAT, Inc., a Colorado corporation ("E-SAT") and through its
subsidiary, Newstar Limited ("Newstar") and to a lesser extent through its
second subsidiary, Global Energy Metering Service Inc. ("GEMS").
DBSI, through its wholly-owned subsidiary, Newstar, proposes to
construct, launch and operate a system (the "E-SAT System") utilizing six
non-voice, non-geostationary mobile ("Little LEO") satellites to provide
two-way, low-cost data messaging services worldwide. In March 1998, E-SAT was
granted a license by the Federal Communications Commission ("FCC") to develop
and operate the E-SAT System. (See "FCC Regulations".) DBSI's proposed
development of the E-SAT System is intended to utilize the FCC license granted
to E-SAT.
With the Company's technology, these Little LEO satellites are capable
of collecting and transmitting data at regular intervals from fixed devices such
as meters (i.e., electric/gas meters, vending machines, stream gauges, etc.) at
a cost substantially less than manually retrieving the information. Meters
equipped with the Company's Remote Terminal Units ("RTU") will allow Little LEO
satellites to retrieve data from the meters, store such data, and forward the
data at specified times to the earth station to be processed, validated and
delivered to the customer. The Company intends to provide data messaging
services for the energy industry including gas and electrical utilities and
water agencies, as well as for vending machines, heavy equipment usage, and
environmental monitoring, worldwide.
The Company's goal is to provide a low-cost data messaging services
using Little LEO satellites to enable businesses to economically gather data
from fixed devices located in remote and hard-to-access locations. With the
emergence of automatic meter reading ("AMR") and the deregulation of the utility
industry, one of the Company's target markets is the electric and natural gas
utilities, particularly their high-cost-to-read metering segment which
historically required such "meter reading" to be conducted by utility personnel.
This labor intensive activity presents logistical issues such as (i) significant
travel time to a meter site; (ii) rugged terrain; (iii) physical risk; (iv)
restricted sites; (v) environmental issues; and (vi) mis-reads requiring
additional site visits, all of which can contribute to higher costs for
utilities.
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Other target markets include vending machines, where numerous machines
could be monitored for stock and coin levels; heavy equipment usage, where heavy
equipment could be monitored worldwide for in-use time, mileage and maintenance
scheduling; and environmental monitoring, where plant waste discharge, streams,
lakes or air could be continuously monitored for pollutants, volume, etc.
The Company began its business operations by purchasing interests in
direct broadcast satellite licensees. The Company had an interest in Direct
Broadcast Satellite Corporation which was subsequently acquired by EchoStar
Communications Corporation ("EchoStar"). In addition, the Company had an
equitable interest in Continental Satellite Corporation. During 1997, the
Company sold its last indirect interest in a direct broadcast satellite licensee
and settled litigation involving its equitable interest in another direct
broadcast satellite licensee.
Prior to its involvement with E-SAT the Company was developing hardware
and software for data collection and transmission. The Company has conducted
proof-of-concept demonstrations with utility companies to determine the
effectiveness and viability of Little LEO satellites to collect and transmit
data from fixed devices. The Company has also been evaluating rocket and
satellite vendors in anticipation of acquiring an FCC license to operate a
Little LEO System. As a result of these efforts, the Company has identified
several potential prime contractors to construct the LEO satellites and a launch
service provider to lift the satellites into their intended orbit. (See
"Satellite Constellation".)
Ownership Interest in E-SAT
E-SAT was incorporated in 1994 and is owned 20% by the Company and 80%
by EchoStar. E- SAT was formed for the purpose of acquiring an FCC license to
develop, construct and operate its E-SAT satellite system. Since E-SAT's
formation, the Company has had conversations with EchoStar to restructure E-SAT
in order to allow the Company to acquire a majority interest in E-SAT. Another
structure under consideration is to have the Company's wholly-owned subsidiary,
Newstar, lease a portion or all of E-SAT's licensed transmission capacity.
Newstar would then assume full responsibility for the development, launching and
operation of the E-SAT System and the marketing of such transmission capacity
through joint ventures with other partners. In light of the recent satellite
construction and launch services agreements entered into by the Company, the
Company has been actively negotiating with EchoStar regarding the future
development rights of the FCC license and the E-SAT System. However, at this
time, no agreement has been entered into. No assurance can be given that the
Company will be able to purchase a majority interest in E-SAT or enter into a
leasing or other arrangement with E-SAT. Further, any proposed acquisition of a
majority interest in E-SAT will be subject to FCC approval. In the event that
the Company cannot acquire a majority interest in E-SAT or otherwise acquire the
rights to utilize E-SAT's FCC license, the Company will continue to have a
minority interest in E-SAT and be subjected to the limitations inherent in such
a position. Furthermore, the Company's percentage of ownership in E-SAT may be
subject to dilution if the Company cannot meet future funding requirements. No
assurance can be given that the Company will have sufficient resources to meet
the financial requirements of E-SAT to maintain its current equity interest in
E-SAT.
The total capital requirements for the E-SAT System's proposed data
transmission system, including the anticipated six satellites and other start up
costs, is estimated to be approximately $111 million. For the years ended
December 31, 1998 and 1997, the Company funded E-SAT expenses of $407,292 and
$385,671, respectively. These amounts represent greater than 20% of E-SAT's
total expenditures for those years and includes advances made on behalf of
EchoStar.
<PAGE>5
Little LEO Satellite Technology Development
The technology of using Little LEO satellites has been in existence for
over 40 years and has been used extensively in weather satellite applications
worldwide. The commercial use of Little LEO satellites is in its development
stage.
GEMS, a wholly-owned DBSI subsidiary, was formed in December 1994 to
develop commercial service applications utilizing Little LEO satellite
technology. A previous company, JPS Systems, Inc. ("JPS") had been working on
this technology and, in 1995, the business of JPS was consolidated with GEMS and
JPS was dissolved as a corporate entity. During the two years prior to
consolidation, JPS developed the basic technology of collecting and transmitting
data remotely by Little LEO satellites. JPS conducted a proof-of-concept trial
for Pacific Gas & Electric Co. in California, in which data from several natural
gas wellhead meters was collected and transmitted by Little LEO satellites to
the customer. This trial was completed in April 1995 and led to the development
of a plan for GEMS to provide automatic meter reading solutions for
hard-to-access meters owned by utility companies as well as collection and
transmission of data from other fixed devices. This plan is intended to provide
utility and petroleum industries worldwide with remote data collection and
transmission capabilities utilizing Little LEO satellite technology.
Subsequently, a series of proof-of-concept demonstrations were conducted in
conjunction with ABB Power T&D Company, Inc. ("ABB"), in which prototype
satellite radios (RTUS) and electric meters were installed at 34 electric
utilities in the continental U.S. and two international utility companies in
South America and Canada. Typical trial demonstrations lasted for a 30 day
period, and the demonstrations were completed in late 1997. These early trials
utilized the Argos System, a satellite location and data collection system
operated and controlled by the Centre National d'Etudes Spatiales (France) and
the National Oceanic and Atmospheric Administration ("NOAA").
The Company also had an agreement with North American CLS, Inc.
("NACLS"), which provided access to a limited amount of Little LEO satellite
capacity for trials of the Company's AMR applications utilizing the Argos
System. In 1996, GEMS received a purchase order for Little LEO transmitters that
could be used with the Argos System as part of its overall development of a
satellite transmitter integrated with an electronic utility meter from ABB. The
Company's agreement for use of the Argos System expired on December 31, 1997,
and in March 1998, NOAA established new criteria which limits future commercial
use of the Argos System which, effectively, prohibits the Company from using the
Argos System. The expiration of the NACLS agreement and the future limits on use
of the Argos System have caused GEMS and ABB to suspend the purchase order.
Although the Company and ABB intend to pursue the use of the LEO satellite
technology for use in ABB's meters, no assurances can be given that the purchase
order will be reinstated or whether the terms of any future purchase order will
be acceptable to the Company.
The E-SAT System
The Company is focusing its technology development on the E-SAT System.
The E-SAT System will consist of the following: six Little LEO satellites; a
Mission Control Center (to manage data flow); a Satellite Control Center (to
handle telemetry, tracking and control of the satellites); an Earth Station
(serving as the network control center); a Ground Support Network (to distribute
data to customers); and numerous RTU's (transmitting data to the satellites).
The E-SAT System has been designed to provide low cost messaging services
worldwide for use primarily by industrial/commercial customers. The E-SAT System
is optimized for the projected service markets and is intended to provide
low-cost and reliable service for those markets.
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The primary service of collection and transmission of data from fixed
devices such as meters located in remote locations is accomplished by periodic
readings of utility company meters over a wide geographical region by E-SAT's
satellites. An RTU, integrated with the utility meter, will electronically
transmit the relevant data in digital form to E-SAT's satellite which stores the
collected data to be forwarded to the Earth Station. The Mission Control Center
will provide overall operational control of the collection and retrieval of
data, and will interface with the Earth Station and the Satellite Control Center
which will provide overall operational control of the satellites. Based on the
current design, E-SAT estimates that its satellites will operate for a period of
five years. Although metropolitan and urban or suburban areas can benefit from
the E-SAT System, the E-SAT System will be especially advantageous in providing
meter reading functions in remote, rural and low population density areas,
eliminating the costly need of routine visits by utility personnel. Similar
advantages could be realized with numerous vending machines, residential propane
gas tanks or remote environmental monitoring.
The E-SAT System will be transmitting non-voice data in short data
transmissions and will not be designed for transmitting data that requires
real-time or near real-time communications. As a result, E- SAT's infrastructure
is expected to be simpler and less costly than those Little LEO systems offering
real-time data information services. The E-SAT System will also incorporate
emergency back-up systems.
CDMA/DSSS Technology
Due to the continuing growth of electrical and electronic equipment,
such as personal paging systems that incorporate wireless communication
technology, the radio frequency spectrum has become crowded or "noisy".
Commercial applications demand the communication system transmit data reliably
and accurately. This objective is harder to achieve with conventional solutions
because of numerous wireless systems creating more noise in the frequency bands
of operation. To minimize the impact of noise and interference on the data being
transmitted, the E-SAT System will implement Code Division Multiple
Access/Direct Sequence Spread Spectrum ("CDMA/DSSS") modulation techniques.
CDMA/DSSS will enable the E-SAT System to provide high functionality in a noisy
radio frequency environment and achieve those particular data transmission
objectives.
With most conventional modulation techniques, energy concentration is
maximized for a narrowband transmission channel. While narrowband solutions opt
for a single carrier channel, the transmitted signal must be strong enough to be
recognized over the background noise. Therefore, RTU's operating in a narrowband
technique must have relatively high power capability. CDMA/DSSS spreads the data
signal over the entire band of operations reducing the power required by an
E-SAT RTU to transmit data to a satellite. E-SAT is presently the only
commercial Little LEO system to implement CDMA/DSSS in its communications
protocol. The Company believes CDMA/DSSS is a strategic advantage over competing
systems to effectively transmit data messages.
In operation, the E-SAT System would assign each RTU with a unique and a
group identification number. All individual and group transmissions between the
RTU and the LEO satellite would be managed by the Mission Center based on a
predetermined schedule. The receiver on each E-SAT satellite will store the
incoming code stream over the entire frequency band of operation and forward
that code stream to the Earth Station as it passes over. Signal processing
performed at the Mission Center regenerates the original RTU data messages by
digitally rejecting unwanted background noise signals. This schedule would be
synchronized with the Satellite Control Center so that each satellite can
download collected data and receive new instructions as it passes over the Earth
Station. The total time of connectivity scheduled between a group of RTU's and a
satellite will be optimized by the number of RTU's in any particular group.
<PAGE>7
Satellite Constellation
The initial constellation to be launched in the E-SAT System will
consist of six satellites. The Company plans to initially launch three
satellites on a single launch vehicle in a circular, near polar orbit at an
altitude of approximately 550 miles and a 99 degree inclination angle. At this
altitude, there will be fourteen revolutions per satellite per day. After the
initial three satellites are deployed and become operational, and the system is
established, an additional three satellites will be deployed in a second near
polar orbital plane within FCC guidelines. The Little LEO satellites will be
almost constantly illuminated by the sun, thereby significantly reducing battery
usage. Supplemental battery power will be required only for power load leveling,
occasional brief eclipse periods and contingencies.
In August 1998, the Company and Matra Marconi Space France s.a. ("MMS")
entered into a non-binding memorandum of understanding to engage and appoint MMS
as prime contractor for the design, construction, delivery and launch support
services of six Little LEO satellites. Further, in August 1998, the Company and
SAIT Radio Holland SA ("SAIT") entered into a non-binding letter of intent to
explore an arrangement dealing with SAIT as the main contractor for the
engineering, development and provision of hardware and software for E-SAT's
RTU's. In the latter part of September 1998, the Company and MMS mutually agreed
to terminate their non-binding memorandum of understanding. The Company has
engaged SAIT to perform studies on antennas for the proposed RTU, develop and
test RTU prototypes, and assist in RTU design in anticipation of manufacturing
RTU's for the Company. The letter of intent with SAIT expired under its terms on
November 23, 1998. No assurance can be given that the Company and SAIT will
enter into a contract to manufacture the RTU.
On December 15, 1998, the Company and Alcatel Space Industries ("Alcatel")
entered into a Memorandum of Understanding ("MOU") and an Authority to Proceed
("ATP") pursuant to which Alcatel would become the prime contractor for the
design, construction and delivery into orbit of the E-SAT System satellites. The
Company and Alcatel are currently negotiating a definitive construction
agreement. Upon signing the MOU and ATP, the Company paid $1,000,000 to Alcatel
to commence project work. Subsequent to the 1998 year end, the Company made
additional payments of $500,000 each to Alcatel in January and February of 1999.
The MOU expired on March 15, 1999 while the ATP has been extended to April 15,
1999. In addition, both companies are continuing to negotiate a final contract.
Although the Company believes a definitive agreement will be reached with
Alcatel, there can be no assurance that such will be the case.
On March 31, 1999, the Company entered into a contract with Surrey
Satellite Technology Ltd. of the U.K. to design and construct the six satellites
for the E-SAT System.
The Company entered into a launch reservation agreement with Eurocket
Launch Services GmbH ("Eurockot"). The first three satellites, when constructed,
are expected to be launched on a single Eurockot launch vehicle. Under the terms
of the launch reservation agreement, Eurockot reserved for E-SAT a launch
opportunity on a launch vehicle at the Plesetzk, Russia launch site for two
dedicated, triple satellite launches. On March 31, 1999, the Company entered
into a formal launch service agreement with Eurockot.
Investment in Seimac Limited
In November 1995, the Company purchased a 20% equity ownership interest
in Seimac Limited ("Seimac"), a privately-held Canadian satellite radio design
and manufacturing company. On April 30, 1998, the Company sold its interest in
Seimac.
<PAGE>8
FCC Regulations
All commercial non-voice, non-geostationary mobile-satellite service
"NVNG-MSS" or "Little LEO" such as E-SAT's satellites in the U.S. are subject to
the regulatory authority of the FCC. Little LEO operators must obtain
authorization from the FCC to launch and operate their satellites and to provide
permitted services in assigned spectrum segments.
In November 1994, E-SAT filed an application with the FCC for a license
to develop a commercial Little LEO satellite system for data collection and
transmission. E-SAT was one of five applicants requesting approval for
essentially the same frequency band but proposing a different use. The five
applicants mutually agreed upon a spectrum sharing plan (the "Joint Proposal")
which requires the applicants to share an uplink and downlink frequency band
with other satellite systems. In October 1997, the FCC released a Report and
Order which concluded that with use of appropriate transmission techniques,
proper system coordination, the time-sharing of frequencies and the adoption of
the Joint Proposal, there was sufficient spectrum to license all five
applicants. Thereafter, E-SAT filed an amendment conforming its application to
the guidelines adopted by the FCC Report and Order which, ultimately, resulted
in the FCC's approval of E-SAT's application.
On March 31, 1998, the FCC approved E-SAT's application for a Little LEO
satellite license. Under the license, E-SAT is authorized to launch and operate
six Little LEO satellites to provide a two-way, low-cost messaging service in
the U.S. in the 148-148.905 MHz for service and feeder uplinks, and the
137.0725-137.9725 MHz frequency band for service and feeder downlinks. For its
uplink, E-SAT is licensed to utilize 500 kHz of contiguous spectrum in the
148-148.855 MHz band that is not shared with the other U.S. licensees. However,
some of this spectrum may be required to be operated co-frequency with the
French S-80 system, based on prior agreements between the U.S. and France. E-SAT
is licensed to utilize 148.855-148.905 MHz for feeder uplinks. E-SAT will
operate in the other 355 kHz of the 148- 148.905 MHz band on a co-frequency
basis with LEO One, Final Analysis and ORBCOMM. In the downlink direction, E-SAT
will operate in the band 137.0725-137.9275 MHz co-frequency with NOAA
satellites, ORBCOMM and Final Analysis. E-SAT is obligated to coordinate with
the other U.S. Little LEO licensees and NOAA, coordinate internationally and
engage in consultations as required by Article 14 of the INTELSAT Agreement and
Article 8 of the Inmarsat Convention.
Pursuant to E-SAT's license, unless extended by the FCC for good cause,
E-SAT must commence construction of the first two satellites by March 1999,
complete construction by March 2002 and launch by September 2002. The remaining
four satellites must commence construction by March 2001, complete construction
by March 2004 and launch by March 2004. The Company believes that the contract
with Surrey Satellite Technology, Ltd. represents the commencement of satellite
construction and satisfies the initial FCC requirement that satellite
construction commence on or before March 31, 1999. The Company is currently
negotiating with Alcatel for the design and development of the E-SAT satellites,
however, no contract has yet been entered into. (See "Satellite Constellation".)
In the event E-SAT fails to meet these and other specified conditions, absent
any modification of terms by the FCC, E-SAT could jeopardize its license with
the FCC.
International Regulations
The E-SAT System operates in frequencies that are allocated on an
international basis under the authority of the International Telecommunications
Union ("ITU"). The U.S., on behalf of various Little LEO service providers,
pursued international allocations of additional frequencies for use by Little
LEO systems. In addition to cooperation through the FCC, E-SAT will be required
to engage in international
<PAGE>9
coordination with respect to other satellite systems under the auspices of the
ITU. Further, E-SAT must receive operational authority called "landing rights"
from each of the foreign countries in which it proposes to provide services. The
Company intends to utilize international distributors or licensees of each
country to obtain such authority. In the event E-SAT is unable to obtain
authority to offer its service in a particular country or region, this may have
a material adverse affect on the Company's business plans and operations.
Potential Markets
The Company's goal is to provide low cost data messaging satellite
services worldwide using the Little Leo satellite technology. The Company
believes that E-SAT's two-way, low cost data messaging services will reduce
costs for customers by providing a more efficient and reliable retrieval of data
because the E-SAT System (i) has a lower infrastructure cost and (ii) transmits
data using CDMA/DSSS technology which provides greater capacity than channelized
systems and allows transmissions within the background noise in the radio
frequency environment. The Company should be able to offer its data messaging
services at a cost lower than manual retrieval systems or other Little LEO
satellite operators who may have much greater capital cost structures.
The Company's utility customer base is expected to be comprised of
investor owned utilities, rural electric membership co-operatives,
municipalities and other publicly owned utilities, electric holding companies,
meter data management agents, meter manufacturers, local public works agencies
and others that have dispersed operations and may require aggregate billing
services. This would include utility meter reading, tracking pipeline and
wellhead assets for the oil and gas industry and monitoring environmental and
agricultural effects on air and water. In particular, it is the rural and
hard-to-access meter segment that the Company will initially market its
services. The E-SAT System is also designed to provide remote communications to
stand-alone equipment, such as vending machines or heavy equipment. The Company
will develop communication products to integrate into metering equipment and
will provide a variety of services to include remote data collection,
validation, formatting and electronic delivery to the customer.
Competition
Competition in the communications industry is characterized by rapid
change with new technologies and entrants vying for a currently increasing
customer base. Industry participants are forming alliances and integrating
networks to provide a broad range of services to the marketplace. The
communications capabilities provided by the Little LEO industry will create a
low-cost source of global mobile data services. In addition to E-SAT, there are
three other FCC licensed commercial Little LEO satellite operators (Orbcomm,
LeoOne, and Final Analysis). A fifth Little LEO operator is Volunteers In
Technical Assistance ("VITA"), a non-profit organization established to transmit
humanitarian/emergency data and is not deemed to be a competitor to the Company.
The Company's competitors are all attempting to serve multiple markets
such as cargo and vehicle mobile asset tracking, monitoring and remote control
personal communications services, emergency services and transaction processing.
By choosing to address markets requiring near real time inter- connectivity,
E-SAT's competitors (excluding VITA) will launch a constellation of between 26
to 48 Little LEO satellites and will have many earth stations located throughout
the U.S. and the world. These Little LEO systems are much more costly and
complex as compared to the E-SAT System. The RTU designed for other Little LEO
operators are more expensive and require more power to operate than E-SAT's RTU.
The Company believes that a lower uplink power requirement for an E-SAT RTU will
give E-SAT a cost competitive advantage when targeting fixed device
applications.
<PAGE>10
A number of competitors are currently developing proposals to implement
AMR services at electric and natural gas utilities throughout the U.S. Other
proposed AMR technology solutions include terrestrial wireless radio
technologies such as Specialized Mobile Radio, Cellular and Multiple Address
Service licenses, unlicenced radios operating under Part 15 of the FCC
Regulations, and hard wired technologies such as telephone, fiber optics, cable
and power line carriers. While terrestrial wireless technology may be cost
effective in densely populated urban areas, it may not be cost effective to
implement in rural and hard-to-access areas; and it is in these niche market
locations that the Company intends to compete effectively by utilizing E-SAT's
Little LEO satellite technology.
Employees
As of December 31, 1998, the Company had nine full-time employees. The
Company considers its relationship with its employees to be good.
Risks Associated with Company's Developing Business
Due to the fact that the Company is in its development stage, there
exists a number of risks and challenges which will affect the Company's ability
to execute its business plans. These risks include the following:
The Company's primary business interests are reflected in its minority
interest (20%) in E-SAT, INC. The Company is currently negotiating with EchoStar
to restructure its interest in E-SAT's business. Unless and until this
restructuring is completed, the Company's business investments will be subject
to its minority interest in E-SAT and the control disadvantages which such a
minority position represents. In addition, if the Company were unable to obtain
a controlling interest in E-SAT's FCC license, the Company might be unable to
proceed with its current satellite construction and launch agreements. Any
cancellation of these contracts could result in substantial costs to the
Company.
The Company is in a development stage in which it is attempting to
design, construct and launch six (6) satellites utilizing a Little LEO satellite
constellation to service a customer base, neither of which is yet established.
Consequently, there is no assurance that the Company can overcome the many
technical challenges to establish the E-SAT System or that it will be able to
develop a sufficiently large customer base to be profitable.
The Company has yet to generate any gross revenue from operations, while
at the same time incurring substantial costs and expenses for development the
E-SAT System. Consequently, the Company will have to fund its capital needs from
outside sources, such as additional equity investments, loans, joint partnering,
etc. There is no assurance that such sources of capital will be available in the
future or will provide the levels of financing necessary to sustain the
Company's operations. A substantial shortfall in funding will delay or prevent
the completion and commercial operation of the E-SAT System, which will have a
material adverse effect on the Company's future success.
The construction, launch and implementation of the E-SAT satellites and
the E-SAT System are susceptible to numerous risks, including unscheduled
delays, technical problems, launch risks and potential malfunction or low
performance of the E-SAT System. The inability to successfully develop, deploy,
and operate the E-SAT System as planned would have a material adverse effect on
the Company's financial condition and results of operations.
<PAGE>11
The Company's business is subject to both U.S. and international
regulations and licensing. The Company is currently utilizing the FCC license
granted to E-SAT to operate the Little LEO satellite system. This license has
several conditions, including the need to commence construction of the first two
(2) satellites by March 1999, and the remaining four (4) satellites by March
2001. At year end, the Company had entered into preliminary agreements with a
prime contractor to build the Little LEO satellites, but no definitive agreement
had been reached. On March 31, 1999, the Company entered into a satellite
construction contract which the Company believes satisfies the first satellite
construction milestone under the FCC license. By letter dated April 8, 1999, the
Company notified the FCC of this achievement. Furthermore, the Company will need
to secure "landing rights' in various countries where it hopes to do business.
Failure to secure such foreign rights would preclude the Company from offering
its services in such countries which would adversely effect the Company's
anticipated results of operation.
ITEM 2. PROPERTIES
The Company and its subsubsidiaries have leased 3,287 square feet at a
monthly rate of $8,574, for their principal offices at 100 Shoreline Highway,
Suite 190A, Mill Valley, California, on a three year lease which expires on
March 1, 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings. In July 1998, a
complaint was filed in the Superior Court of California, County of Marin, by
Bridge Group (HK) International, Ltd. (the "Bridge Group") against the Company's
president, alleging that the Bridge Group was promised shares of the Company's
common stock. The Company agreed to indemnify its president for any damages or
settlement related to this lawsuit. Subsequent to the fiscal year end, this case
was settled by issuing 63,239 shares of the Company's common stock and paying
$15,000 to the Bridge Group.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of the Registrant's fiscal year.
Subsequent to the 1998 year end, 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 achieved.
<PAGE>12
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Price Range of Common Stock
The following table sets forth the high and low bids for the Company's
Common Stock during each quarter for the past two fiscal year ends as quoted on
the OTC Bulletin Board. The Company's trading symbol is "DBSS." Subject to
meeting The Nasdaq Stock Market, Inc. requirements, the Company intends to apply
to list its Common Stock on The Nasdaq SmallCap Market.
Common Stock
------------
Quarter Ended High Low
- -------------------- ---- ----
4.25 4.00
December 31, 1998 4.63 1.88
September 30, 1998 2.88 1.50
June 30, 1998 2.32 .50
March 31, 1998
December 31, 1997 1.38 .38
September 30, 1997 1.00 .53
June 30, 1997 1.94 .75
March 31, 1997 1.94 1.50
These quotations reflect inter-dealer prices, without retail markup,
mark-down or commission, and may not represent actual transactions.
As of December 31, 1998, the Company had 8,581,117 shares of Common
Stock outstanding and approximately 487 stockholders of record. This number does
not include stockholders who hold the Company's securities in street name.
Dividend Policy
The Company has not declared or paid any cash dividends since its
inception. The Company currently intends to retain future earnings, if any, for
use in the operation and expansion of the business. The Company does not intend
to pay any cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
The Company has historically recognized its operating costs and expenses
primarily through its twenty percent interest (20%) in E-SAT. However, effective
March 31, 1998, the Company started recognizing the expenditures for development
of the E-SAT System through the Company's
<PAGE>13
wholly-owned subsidiary, Newstar Limited. Newstar Limited will be the entity
primarily responsible for the construction, launch and operation of the E-SAT
Satellite System on behalf of the Company.
Plan of Operation
Throughout 1999, the Company plans to advance the development of the
E-SAT license by negotiating vendor agreements with the objectives of beginning
construction of the LEO satellites, securing a launch service provider, and
developing the ground support network. The plan includes a Research and
Development program to produce a low cost ASIC chip CDMA-DSSS RTU. The Company
plans to satisfy all milestone conditions expressed within the Little Leo
license issued by the FCC.
The Company plans to attract partners to the E-SAT project who would be
engaged in technical and marketing aspects to effectuate the business plan.
Technical and marketing personnel resources may be increased and will depend on
those resources provided by E-SAT partners.
The Company expects to satisfy its 1999 cash requirements by supplementing
its present cash base with the potential future exercise of previously issued
warrants and other outside sources of capital, in addition to attracting new
equity partners in the E-SAT project.
Results of Operations
Revenues
The Company remains in the development stage and did not generate any
revenues in either of the last two fiscal years ended December 31, 1998 or
December 31, 1997.
Cost and Operating Expenses
Cost and operating expenses for the year ended December 31, 1998, were
$2,995,848 as compared to $1,682,277 for the year ended December 31, 1997.
General and administrative expenses increased by approximately $726,500 to
$2,198,701 during the year ended December 31, 1998, compared to $1,472,162 spent
in the year ended December 31, 1997. This 50% increase in general and
administrative expenses was due primarily to approximately $350,000 in stock and
cash as settlement of a lawsuit against an officer of the Company, a
compensation expense of $159,000 relating to options for services provided by
consultants, and the expansion of the Company's business interests in Europe and
the U.S.
Research and development expenditures increased approximately $587,000
to $797,147 during the year ended December 31, 1998, compared to $210,115 spent
in the year ended December 31, 1997. This significant increase in research and
development was due primarily to the issuance of the E-SAT license in April 1998
and those increased engineering and design costs not capitalized by the Company
and associated with meeting the terms of the FCC license and the development of
the satellite system.
Other Income (Expense)
The Company experienced a non-operating loss of $296,045 for the year
ended December 31, 1998, compared to a gain of $4,831,994 for the year ended
December 31, 1997. During 1998, earned interest income was recognized on cash
received in connection with the sale of approximately 2.8 million units of the
Company at $2.00 per unit. Each unit consists of one share of Common Stock and a
warrant
<PAGE>14
to purchase one share of Common Stock at $3.00 per share. The interest income
was more than offset by losses in 1998 of $328,466 from the sale of investment
in Seimac and its equity interest in the results of operations of E-SAT. The
Company sold its interest in Seimac during 1998. During 1997, the Company
incurred interest expense of $308,094 relating to certain outstanding debentures
owed to EchoStar. During 1997, these debentures were exchanged for EchoStar
Common Stock that EchoStar held as collateral against such debentures. The
Company experienced a loss of approximately $1 million relating to this
exchange. The Company also incurred a loss of $80,975 attributed to its equity
interest in the results of operations of E-SAT and Seimac. These expenses/losses
were more than offset by a gain of approximately $6.2 million in the sale of
marketable securities.
Net Loss and Income
The Company's net loss for the year ended December 31, 1998, was
$3,293,493 compared to a net income of $3,068,917 for the year ended December
31, 1997. During 1997, the Company's net income was due primarily to a one-time
gain on sale of marketable equity securities of approximately $6.2 million
offset by operating and non-operating expenses.
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. The Company's
monthly expenses averaged approximately $325,000 per month during calendar year
1998 which included approximately $25,000 per month for operating, legal and
consulting expenses, and $70,000 per month for GEMS & E-SAT research &
development. However, expenses will continue to increase during 1999 with the
demands of developing the satellites for the E-SAT System and business
applications and additional capital will be necessary to expand operations or
continue current operations. Subsequent to the 1998 year end, the Company raised
$1.5 million in gross proceeds from a private placement of its Common Stock and
$7.5 million from the exercise of outstanding warrants. Further, the Company
made approximately $5.4 million in payments to several contractors subsequent to
December 31, 1998.
Traditionally, the Company has relied on equity and debt financings to
finance its operations. This financing was supplemented from the sale of the
Company's interest in entities that held direct broadcast satellite licenses.
The Company no longer has any interest in direct broadcast satellite licensees.
On April 30, 1998, the Company sold its interest in Seimac in exchange for
$200,000 in cash and $51,417 in forgiven debt.
During 1998, the Company conducted a private placement of up to 3
million units at $2.00/unit for an aggregate amount of $6 million with each unit
consisting of one share of Common Stock and one warrant to purchase one share of
Common Stock at $3.00 per share. The offering closed in October 1998, with the
Company selling 2.4 million units for gross proceeds of $4.8 million before
stock issuance costs of $442,500. However, the Company will need substantial
additional capital, an estimated $111 million over the next 24 months, to
construct and launch the satellites comprising the E-SAT System. Further, the
construction of the first two of the six planned satellites is required to
commence by March 1999 pursuant to the terms of the FCC license granted to
E-SAT. (See"FCC Regulations.")
The Company had cash and cash equivalents of $1,291,711 and $383,054 as
of December 31, 1998 and 1997, respectively. The Company had working capital of
$233,078 as of December 31, 1998. The Company had a negative working capital of
$411,185 as of December 31, 1997. Until the Company is able to develop,
construct and operate its E-SAT System and derive revenues therefrom, the
<PAGE>15
Company will continue to use cash obtained from outside sources for its
operations and development of the E-SAT System.
Net cash used in operating activities was $2,161,111 for the year ended
December 31, 1998, as compared to $2,972,153 for the year ended December 31,
1997. Net cash used in operating activities during 1998 as compared with the
prior year was a result of the 1998 loss of $3,293,493 as offset by certain
non-cash charges, a loss on sale of investment in Seimac and the equity in E-SAT
losses. Cash expenditures accelerated in the fourth quarter of 1998 as the
Company increased its level of development activity relating to the E-SAT System
which included a $1,000,000 payment to Alcatel. An increased level of
development costs is expected to continue into 1999. Also, in the fourth
quarter, the Company granted a request by two previous investors to refund
$800,000 of invested capital. Net cash used in operating activities was
$2,972,153 for the year ended December 31, 1997, which reflects an increase
compared to 1996, due to the payment of accounts payable which accrued during
1996 and were paid in 1997.
Net cash used in investing activities for the year ended December 31, 1998,
was $1,484,958. This net cash used represents the difference between the
proceeds from the divestiture of Seimac of $199,940 less the Company's advances
to E-SAT of $407,292 and approximately $1.2 million in progress payments
reflecting to satellite construction costs. Net cash provided by investing
activities was $4,183,565 in 1997 as the Company received proceeds of $3,573,677
in connection with its divestiture of its interest in Continental Satellite
Corporation.
Net cash provided by financing activities for the year ended December
31, 1998, was $4,554,726 compared to $1,230,994 used in financing activities for
the year ended December 31, 1997. Net cash provided by financing activities
during 1998 related to the net proceeds from the sale of units of common stock.
Net cash used in financing activities of $1,230,994 during 1997 related
primarily to the repayment of debentures in the amount of $1,043,445 and
stockholder's loans of $149,750.
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 was eligible to receive up to $500,000 towards
development costs upon meeting the milestone requirements of the contract. The
Company met the first four milestones of the contract and has received $400,000
in cash. Currently, the Company and ABB have suspended their development under
this agreement due to the expiration of the Company's agreement for the use of
the Argos System on December 31 1997, and the subsequent limits placed on future
commercial use of the Argos System. Therefore, such milestone payments could be
subject to refund, in whole or in part.
Factors Affecting Future Operating Results
Factors that could cause future results to differ materially from
historic results, include, in addition to other factors identified in this
report, the Company's ability to raise significant additional capital from
outside sources for the development of the E-SAT System, the availability of
capital on commercially acceptable terms, the completion of a commercially
viable E-SAT System, the dependence and uncertainty of utility companies or
other commercial customers to utilize such data messaging service, the reliance
on third parties for the advancement of the design, manufacturing and marketing
of the E-SAT System, satisfying the milestones of E-SAT's FCC license, the
fulfillment of contract obligations by suppliers and other third parties, the
availability of qualified personnel and equipment, delays in the receipt of or
failure to receive necessary governmental approvals, obtaining 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 the
Little LEO satellite technology, results of the Company's financing efforts and
marketing conditions, and other risk factors
<PAGE>16
related to the Company's business. 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.
Successfully addressing the factors discussed above is subject to
various risks described in this report, as well as other factors which generally
affect the market for stocks of development stage, high technology companies.
These factors could affect the price of the Company's stock and could cause such
stock prices to fluctuate over relatively short periods of time.
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 E-SAT System, the Company will be relying
on vendors to, among other things, manufacture the Little LEO satellites, launch
the Little LEO satellites, manufacture the RTU and build the E-SAT
infrastructure including the control stations which are Y2K compliant. The
Company has entered into contracts with several vendors to develop the E-SAT
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.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The response to this item is being submitted in a separate section of
this report beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE>17
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors, Executive Officers and Key Employees of the Company
The present directors, executive officers, and key employees of the
Company, their ages, positions held in the Company, and duration as such, are as
follows:
<TABLE>
<S> <C> <C> <C>
Name Position Age Period
- ----------------------- ------------------------------------ --------- --------------------------
Fred W. Thompson Chairman of the Board, President, 56 December 1992 - present
Chief Executive Officer, and
Chief Financial Officer November 1993 - present
Michael T. Schieber Director, Secretary 59 December 1992 - present
E. A. James Peretti Director, Chief Operating Officer 56 February 1996 - present
H. Tate Holt Director 47 February 1996 - present
Jerome W. Carlson Director 62 May 1997 - present
Jessie J. Knight, Jr. Director 48 February 1999 - present
Gregory T. Leger Executive Vice President March 1998 - present
Engineering
43
Frederick R. Vice President, Business 37 August 1995 - present
Skillman, Jr. Development
</TABLE>
The Company adopted staggered terms for its Board of Directors at its
1996 Annual Stockholders Meeting. Messrs. Thompson, Peretti and Knight will
serve until the 1999 annual meeting of stockholders or until their successors
have been elected; Mr. Carlson will serve until the 2000 annual meeting of
stockholders or until his successor has been elected; and Messrs. Schieber and
Holt will serve until the 2001 annual meeting of stockholders or until their
successors have been elected. The Board of Directors does not have a standard
arrangement for compensation, but has previously received, and will continue to
receive, stock options as compensation.
<PAGE>18
Business Experience
The following is a brief account of the education and business
experience during at least the past five years of each director, executive
officer, and key employee, indicating the principal occupation and employment
during that period, and the name and principal business of the organization in
which such occupation and employment were carried out.
Fred W. Thompson, serves as Chairman of the Board, President, and CEO of
the Company. He has over thirty years experience in the telecommunications
industry. From 1983 to 1986, Mr. Thompson managed Inter Exchange Consultants,
Inc., a company he founded, providing management, design and engineering
services for initial cellular telephone operations in New York City, San
Francisco, Los Angeles and other major cities in the U.S. From 1986 to 1990, Mr.
Thompson devoted his time to consulting on various telecommunication matters as
an independent contractor. His career of over 20 years with AT&T included
various management positions in the Long Lines Department, Western Electric
Company, Bell Labs and with several operating telephone companies. Mr. Thompson
received a BS degree in Electrical Engineering from California Polytechnic.
Michael T. Schieber, Director, has served as a Director of the Company
since December 1992. From 1987 to December 1992, Mr. Schieber was the Managing
Partner of Amador Telecommunications and since 1990 has been a partner in
Columbia Communications, both investors in nation-wide paging licenses. Mr.
Schieber also holds minority interests in two Illinois cellular telephone
licenses. He retired from the Department of Fisheries with the State of
Washington in May 1993 where he had served as a civil engineer since 1984. He is
also a retired Air Force Major and Command Pilot. Mr. Schieber received an MA
degree in International Relations and Government from the University of Notre
Dame, a BS in Engineering from the Air Force Academy, and a BA in Business from
The Evergreen State College.
E. A. James Peretti, Director, has served as Chief Operating Officer
since August 1998, and was appointed in February 1996, as President and Chief
Executive Officer of Global Energy Metering Service, Inc., a wholly-owned
subsidiary of DBSI. Previously, Mr. Peretti served as President of Westinghouse
Electric Supply Company (WESCO), a business unit of Westinghouse Electric Corp.
He also served as a Vice President and officer of Westinghouse Electric Corp.
During his 30 year tenure with WESCO, Mr. Peretti also held positions as Vice
President and General Manager of its Pacific Division. Mr. Peretti holds a BS
degree from Purdue University in Electrical Engineering and a MBA from the
University of Hawaii.
H. Tate Holt, Director, appointed in February 1996, is currently
President of Holt & Associates, a growth management consulting firm, and has
held that position since July 1990. Previously, from 1987 to 1990, Mr. Holt was
a Senior Vice President at Automatic Data Processing, Inc. in Roseland, New
Jersey and Santa Clara, California. Mr. Holt has over twenty years of experience
in various senior sales, marketing and general management positions with IBM,
Triad Systems, and ADP. He has participated in major restructuring and strategic
planning in these and other companies. Since 1990, Holt & Associates has
assisted its clients in developing and achieving aggressive growth targets, both
domestically as well as internationally. Mr. Holt is also an active director of
several private and publicly traded companies including Onsite Energy. Mr. Holt
holds an AB from Indiana University.
Jerome W. Carlson, Director, appointed in May 1997, is currently President
of Raljer, Inc., management consulting firm, and has held that position since
January 1995. Previously, from 1984 to 1995, Mr. Carlson was the Chief Financial
Officer, Vice President of Finance and Corporate Secretary for Triad Systems
Corporation in Livermore, California. Mr. Carlson has over twenty years
experience
<PAGE>19
in both finance and general management positions with Hewlett Packard. Since
1995 he has assisted a number of businesses in developing and achieving certain
strategic and tactical goals in their industries. Mr. Carlson is a director of
Valley Community Bank and Tri-Valley Business Council, as well as director and
advisor for several private companies. He holds a BS degree from the University
of California at Davis and an MBA from the Stanford Graduate School of Business.
Jessie J. Knight, Jr., Director, appointed in February 1999, was a
Commissioner of the California Public Utilities Commission from 1993 through
December 1998. Appointed by former Governor Peter Wilson, he was one of five
individuals responsible for economic and regulatory oversight of California's
$52 billion telecommunications, utility, trucking and rail industries. Before
his appointment to the Commission, he was Executive Vice-President of the San
Francisco Chamber of Commerce, responsible for international operations,
economic development and attracting businesses to San Francisco. He also served
as Vice-President, Marketing for the San Francisco Newspaper Agency, a $400
million publishing operation encompassing the San Francisco Chronicle and the
San Francisco Examiner. Mr. Knight is a director of Blue Shield of California
and has been nominated to serve on the board of directors of Avista, Inc. Mr.
Knight holds a BA degree from St. Louis University and an MBA from the
University of Wisconsin.
Gregory T. Leger, Executive Vice President Engineering, joined the
Company in March 1998. Mr. Leger is responsible for the design and construction
of the E-SAT System. Mr. Leger has over nine years' experience in engineering
systems, management, business planning, marketing and proposal preparation with
strong analytical and negotiating skills. Most recently and for the past five
years, Mr. Leger was employed by Seimac Limited, as its Product Development
Manager, where he combined business development activities with technical and
project leadership to provide customers with solutions encompassing electronics
data telemetry, software and packaging. Mr. Leger received his BS degree in
Physics at Dalhousie University, Canada, his MS degree in Oceanography at
Dalhousie University, and a degree in Master Space Systems Engineering at
Technical University of Delft, Netherlands.
Frederick R. Skillman, Jr., Vice President Business Development, joined
the Company in August 1995. Mr. Skillman manages the business case development
and oversees the marketing and the sales activities for the Company. Mr.
Skillman has been working in the utility industry for 14 years, with extensive
utility operating experience, contract administration, product development,
project management and direct line supervision. Prior to joining the Company,
Mr. Skillman worked for Pacific Gas & Electric ("PG&E") for eleven years. During
his tenure at PG&E, Mr. Skillman was an electrical engineer for the initial AMR
system installed for PG&E in Marin County, California. Mr. Skillman holds a BS
degree in Electrical Engineering from California Polytechnical State University,
and an MBA degree from the University of San Francisco.
Key Employees
While the following person did not serve as a director or executive
officer of the Company, he did serve as an executive officer of the Company's
subsidiary during 1998 and was considered to be a significant employee of that
subsidiary.
<PAGE>20
<TABLE>
<S> <C> <C> <C>
Name
Position Age Period
- ----------------------- ------------------------------------ --------- --------------------------
Randall L. Smith Executive vice-president, Chief 43 January 1996 - July 1998
Engineer,
Director of GEMS
President and Director of GEMS July 1995 - January 1996
President of JPS July 1993 - June 1995
</TABLE>
Randall L. Smith, Executive Vice President and Chief Engineer of Global
Energy Metering Service, Inc. joined the Company in July 1993 as President of
JPS Systems, Inc. Mr. Smith resigned from GEMS effective July 31, 1998.
Committees of the Board
The Board has an audit committee consisting of Messrs. Schieber, Carlson,
and Peretti, a nominating committee consisting of Messrs. Holt, Carlson and
Thompson, and a compensation committee consisting of Messrs. Holt, Schieber and
Carlson.
The primary functions of the audit committee is to review the scope and
results of audits by the Company's independent auditors, the Company's internal
accounting controls, non-audit services performed by the independent accountants
and the cost of accounting services.
The nominating committee assists in the process of officer and director
nominations.
The compensation committee administers the Company's various stock
option plans and approves compensation, remuneration and incentive arrangements
for officers of the Company.
Family Relationships
There are no family relationships between any director, executive
officer.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who own
more than 10% of the Company's Common Stock, to file reports of ownership on
Form 3 and changes in ownership on Form 4 or 5 with the Securities and Exchange
Commission (the "SEC"). Such executive officers, directors and 10% stockholders
are also required by SEC rules to furnish the Company with copies of all Section
16(a) forms they file. Based solely upon its review of copies of such forms
received by it, or on written representations from certain reporting persons
that no other filings were required for such persons, the Company believes that,
during the year ended December 31, 1998, its executive officers, directors and
10% stockholders complied with all applicable Section 16(a) filing requirements.
<PAGE>21
ITEM 10. EXECUTIVE COMPENSATION
Executive Compensation
The following table provides certain summary information concerning
compensation of the Company's Chief Executive Officer and each employee of the
Company or its subsidiaries who earned in excess of $100,000 for the year ended
December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Long-Term
Annual Compensation Compensation
Other Securities
Name and Annual Underlying All Other
Principal Position Year Salary Bonus Compensation(1) Options Compensation
- --------------------- ------ ---------------- -------- ---------------- -------------- ---------------
Fred W. Thompson 1998 $ 180,000 $20,000 $ 8,005 - 0 - $235,691(2)
Chief Executive 1997 $ 180,000(3) - 0 - $ 6,705 185,000
Officer 1996 $ 180,000(4) - 0 - $ 4,245 312,500
E.A. James Peretti 1998 $ 155,000 - 0 - $ 2,576 - 0 -
Chief Operating 1997 $ 155,000 - 0 - $ 3,732 150,000
Officer 1996 $ 155,000 - 0 - $ 971 375,000
Randall Smith 1998 $ 72,917 - 0 - $ 1,798 - 0 - $ 52,083 (5)
Former Executive VP 1997 $ 125,000 - 0 - $ 2,385 87,500
GEMS 1996 $ 125,000 - 0 - $ 2,216 125,500
Gregory T. Leger 1998 $ 93,230 $20,000 $ 1,914 125,000
Executive VP
Frederick R. Skillman, 1998 $ 110,000 - 0 - $ 2,512 - 0 -
Jr., Vice-President
- -------------------------------------------------------------------------------------
</TABLE>
(1) Consists entirely of payment of insurance premiums.
(2) Represents $27,691 of pay in lieu of vacation and $208,000 of
compensation deferred in 1996 and 1997.
(3) $80,000 paid in cash, $100,000 deferred pursuant to his employment
agreement.
(4) $72,000 paid in cash, $108,000 deferred pursuant to his employment
agreement.
(5) In July 1998, the Company agreed to a severance package with Mr.
Smith consisting of $125,000 in cash payments to be made through July
1999 (of which $52,083 was paid in 1998) and the immediate vesting of
all of Mr. Smith's unvested stock options.
Employment Agreements
Mr. Thompson entered into an employment agreement with the Company on April
18, 1996, effective January 1, 1996. His annual salary under the agreement is
$180,000, and includes non-qualified stock options to purchase 312,500 shares of
the Company's Common Stock. In October 1998, the Company
mb\work\dbsi\#5form10-ksb\4-13-99
<PAGE>22
paid Mr. Thompson the amount of $208,000 related to his previously deferred
compensation through December 31, 1997. The Company has maintained a key person
insurance policy on Mr. Thompson's life in the face amount of $2,000,000, and is
the sole beneficiary of such policy.
The Company also entered into an employment contract with E.A. James
Peretti, Chief Operating Officer of the Company and CEO of GEMS. Mr. Peretti's
agreement includes an annual salary of $155,000 and non-qualified stock options
to purchase 375,000 shares of Common Stock.
Effective March 1, 1998, the Company entered into a three-year
employment agreement with Mr. Gregory T. Leger to serve as Executive Vice
President Engineering. Under the employment agreement, Mr. Leger's annual salary
is $120,000. He also received $20,000 upon the execution of the agreement and
has the right to receive an additional $20,000 by March 31, 1999, as a bonus.
Mr. Leger also received an option to purchase 125,000 shares of DBSI Common
Stock subject to vesting requirements.
Stock Option Plans
The Company has established the 1998 Stock Option Plan (the "1998 Plan")
which was approved by the stockholders in May 1998 to serve as a vehicle to
attract and retain the services of key employees and to help such key employees
realize a direct proprietary interest in the Company. The 1998 Plan provides for
the grant of up to 500,000 non-statutory and incentive stock options. Under the
1998 Plan, officers, directors, consultants and employees of the Company will be
eligible for participation. The exercise price of any incentive stock option
granted under the 1998 Plan may not be less than 100% of the fair market value
of the Common Stock of the Company on the date of grant. The fair market value
for which an optionee may be granted incentive stock options in any calendar
year may not exceed $100,000. Shares subject to options under the 1998 Plan may
be purchased for cash. Unless otherwise provided by the Board, an option granted
under the Plan is exercisable for a term of ten years (or for a shorter period
up to ten years). The 1998 Plan is administered by the Board of Directors and
its Compensation Committee, which has discretion to determine optionees, the
number of shares to be covered by each option, the exercise schedule, and other
terms of the options. The 1998 Plan may be amended, suspended, or terminated by
the Board, but no such action may impair rights under a previously granted
option. Each option is exercisable only so long as the optionee remains employed
by the Company. No option is transferable by the optionee other than by will or
the laws of descent and distribution. As of December 31, 1998, options to
acquire 112,500 shares of Common Stock were outstanding.
The Company has established a 1996 Stock Option Plan (the "1996 Plan")
to serve as a vehicle to attract and retain the services of key employees and to
help such key employees realize a direct proprietary interest in the Company.
The 1996 Plan provided for the grant of up to 1,650,000 non-statutory and
incentive stock options of which 924,403 were outstanding as of December 31,
1998. Under the 1996 Plan, officers, directors, consultants and employees of the
Company are eligible for participation. The exercise price of any incentive
stock option granted under the 1996 Plan may not be less than 100% of the fair
market value of the Common Stock of the Company on the date of grant. The fair
market value for which an optionee may be granted incentive stock options in any
calendar year may not exceed $100,000. Shares subject to options under the 1996
Plan may be purchased for cash. Unless otherwise provided by the Board, an
option granted under the 1996 Plan is exercisable for a term of ten years (or
for a shorter period up to ten years). The 1996 Plan is administered by the
Board of Directors and its Compensation Committee, which has discretion to
determine optionees, the number of shares to be covered by each option, the
exercise schedule, and other terms of the options. The 1996 Plan may be amended,
suspended, or terminated by the Board, but no such action may impair rights
under a previously granted option. Each option is exercisable
<PAGE>23
only so long as the optionee remains employed by the Company. No option is
transferable by the optionee other than by will or the laws of descent and
distribution.
The Company also has developed three stock option plans to award certain
employees, directors, and consultants with the opportunity to purchase the
Company's Common Stock. Under the Company's 1993 Incentive Stock Option Plan
("1993 ISO Plan") options to purchase up to 69,644 shares of Common Stock were
issued to eligible employees. Under the Non-Qualified Stock Option Plan for
Non-Employee Directors ("Director's Plan") options to purchase up to 48,750
shares of Common Stock were granted to non-employee directors. Under the
Non-Qualified Stock Option Plan for Consultants ("Consultant's Plan") options to
purchase up to 14,625 shares of Common Stock were granted to certain
consultants. As of December 31, 1998, options to acquire 50,269, 42,500, and
14,625 shares of Common Stock were outstanding under the 1993 ISO Plan,
Director's Plan and Consultant's Plan, respectively.
OPTION GRANTS IN THE YEAR ENDED DECEMBER 31, 1998
INDIVIDUAL GRANTS
<TABLE>
<S> <C> <C> <C> <C>
Number of % of Total Options
Securities Granted to
Underlying Employees in Fiscal Exercise or Base
Name Options Granted Year 1998 Price ($/SHARE) Expiration
1998 Date
- --------------------- ------------------- --------------------- --------------------- ------------
Gregory T. Leger, 125,000 100% $.53 3/1/08
Executive
Vice-President
</TABLE>
FISCAL YEAR-END OPTION VALUE
<TABLE>
<S> <C> <C>
Number of Securities Value(s) of Unexercised In-the-
Underlying Unexercised Money Options/SARs at FY
Options/SARs at FY End (#) End ($)
Exercisable/Unexercisable Exercisable/Unexercisable
Name Options at December 31, 1998 Options at December 31, 1998
- -------------------------------- ------------------------------- --------------------------------
Fred W. Thompson, 312,612 / 204,388 $1,328,601/ $868,649
President, CEO
E. A. James Peretti, 350,000 / 175,000 $1,487,500 / $743,750
CEO GEMS
Gregory T. Leger 65,000 / 60,000 $276,250 / $255,000
Exec. VP
Frederick R. Skillman, Jr. 50,000 / 100,000 $212,500 / $425,000
VP
</TABLE>
(1) The value of unexercised in-the-money stock options is based on a
per share price of $4.25 as quoted on the OTC Bulletin Board on December
31, 1998.
<PAGE>24
Limitation of Liability and Indemnification Matters
The General Corporation Law of the State of Delaware permits
indemnification of directors, officers, and employees of Corporations under
certain conditions subject to certain limitations. Article XII of the Company's
certificate of incorporation states that the Company may provide indemnification
of its agents, including its officers and directors, to the maximum extent
permitted by the General Corporation Law. Article VI of the Bylaws provide that
the Company shall, to the maximum extent and in the manner permitted in the
Corporations Laws. Article VI of the Bylaws provide that the Company shall, to
the maximum extent and in the manner permitted in the Corporations Laws,
indemnify each of its agents, including its Officers, Directors, and employees,
against expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact any such person is or was an agent of the Company.
Directors Compensation
The Company reimburses directors for expenses incurred in connection
with attending Board meetings but does not pay directors's fees or other cash
compensation for services rendered as a director. In lieu of fees, the Company
grants to each non-employee director options to purchase 37,500 shares of Common
Stock upon first becoming a director and for each year of service successfully
completed, under a stock option plan as approved by a shareholder vote in 1996
and the 1998 Plan which allows an unspecified number of options to be awarded to
directors. Options are issued at the time of the Annual Shareholders Meeting and
vest over the next 12-month period.
Mr. Schieber was issued annual options for the purchase of 37,500 shares of
the Company's Common Stock in April, 1996, May, 1997, and May, 1998, at exercise
prices of $1.4375*, $0.60** and $2.1875, respectively. Mr. Holt was issued
options to purchase 37,500 shares of the Company's Common Stock upon becoming a
director in 1996 and issued annual options for the purchase of 37,500 shares of
the Company's Common Stock in April 1996, May, 1997, and May, 1998, at exercise
prices of $1.4375*, $0.60**, and $2.1875, respectively. Mr. Carlson was issued
options to purchase 37,500 shares of the Company's Common Stock upon becoming a
director in 1997 and issued annual options for the purchase of 37,500 shares of
the Company's Common Stock in May, 1997, and May, 1998, at exercise prices of
$0.60** and $2.1875, respectively. Subsequent to the 1998 year end, Mr. Knight
was issued options to purchase 37,500 shares of the Company's Common Stock upon
becoming a director in February 1999 at the exercise price of $5.50.
- -----------------------------------------------------------------------------
* Repriced 2/13/97 from $4.75 (vesting schedule)
** Repriced 2/23/98 from $1.00
- -----------------------------------------------------------------------------
During the early part of fiscal 1998, the market price of the Company's
Common Stock remained depressed due, in part, to regulatory delays, including a
delay in the approval of E-SAT's LEO satellite license application. As a result,
the Board of Directors voted to reprice certain stock options in February of
1998, which were held by non-employee directors. The repricing was done in an
effort to retain the Company's quality outside directors who had lost a
significant portion of their financial interest in the Company because their
options were "out of the money." In February 1998, the Company completed this
stock option repricing program for the Company's non-employee directors in which
stock options for 150,000 shares of Common Stock, originally issued with an
exercise price of $1.00 per share, were reissued with an exercise price of $0.60
per share, which approximated the fair market value on the date of repricing.
The Company maintained the original vesting schedules.
<PAGE>25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Principal Stockholders
The following table set forth certain information as of March 19, 1999,
with respect to the beneficial ownership of the Company's Common Stock for (i)
each director, (ii) all directors and officers of the Company as a group, and
(iii) each person known to the Company to own beneficially five percent (5%) or
more of the outstanding shares of the Company's Common Stock.
<TABLE>
<S> <C> <C>
Name and Address of Beneficially and
Beneficial Owner Record Owned(1) Percent of Class
- ------------------------------------------------ ------------------------ -----------------------
Fred W. Thompson 868,267(2) 8.3%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
Michael T. Schieber 353,989(3) 3.5%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
E.A. James Peretti 425,000(4) 4.0%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
H. Tate Holt 156,379(5) 1.5%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
Jerome W. Carlson 106,250(6) 1.0%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
37,500(7) 0.4%
Jessie J. Knight
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
Officers and Directors as a Group (6 persons) _________ _____
1,947,385 17.2% *
2,000,000(8) 18%
Astoria Capital Partners, L.P.
6600 Southwest 92nd Street, Suite 370
Portland, OR 97223
Microcap Partners, L.P. 500,000(8) 4.8%
6600 Southwest 92nd Street, Suite 370
Portland, OR 97223
</TABLE>
* Total percentage amount does not reflect rounding of individual ownership
percentages.
<PAGE>26
(1) The persons named in the table have sole voting or investment power
with respect to all of the Common Stock shown as beneficially owned by
them, subject to community property laws where applicable and the
information contained in the footnotes to this table.
(2) Includes (i) 15,418 shares held by Mr. Thompson; (ii) 474,558 shares
held in Thompson 1996 Revocable Trusts; and (iii) options to purchase
312,500 shares at $0.531 per share expiring January 1, 2006, and 4,125
and 61,666 shares of Common Stock exercisable at $0.584 per share and
expiring December 31, 2000 and December 31, 2002, respectively.
(3) Includes (i) 215,625 shares held jointly with spouse, Arlene
Schieber, (ii) 6,505 held solely by Mr. Schieber, (iii) 3,075 held
solely by Ms. Schieber, of which shares Mr. Schieber disclaims
beneficial ownership, and (iv) options to purchase 13,750, 12,534 and
37,500 shares of Common Stock all exercisable at $1.4375 per share which
expire on February 15, 2005, February 15, 2006 and April 30, 2006,
respectively, and options to purchase 27,500 shares of Common Stock
exercisable at $0.60 per share which expire May 13, 2007, and options to
purchase 37,500 shares of Common Stock at $2.1875 which expire on May
12, 2008.
(4) Options to purchase 375,000 and 50,000 shares of Common Stock
exercisable at $0.531 per share, and expiring January 1, 2006 and
December 31, 2007, respectively.
(5) Includes (i) 21,488 shares held solely by Mr. Holt, and (ii) options
to purchase 7,808 and 75,000 shares of Common Stock all exercisable at
$1.4375 per share which expire December 31, 2006 and April 30, 2006,
respectively, and options to purchase 20,833 shares of Common Stock
exercisable at $0.60 per share which expire May 13, 2007, and options to
purchase 37,500 shares of Common Stock at $2.1875 per share which expire
May 12, 2008.
(6) Includes 37,500 shares held by Mr. Carlson, options to purchase
37,500 shares of Common Stock exercisable at $0.60 per share which
expire May 13, 2007, and options to purchase 37,500 shares of Common
Stock at $2.1875 per share which expire May 12, 2008.
(7) Options to purchase 37,500 shares of Common Stock exercisable at
$5.50 per share which expire February 19, 2009.
(8) Of the shares of Common Stock beneficially owned, one-half
represent outstanding shares of Common Stock held and the remaining
one-half represent shares of Common Stock that may be acquired pursuant
to Warrants.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997 and 1998, the Company has not been a party to any
transaction, proposed transaction, or series of transactions in which the amount
involved exceeds $60,000, and in which, to the knowledge of the Company any
director or executive officer, nominee, five percent beneficial security holder,
or any member of the immediate family of the foregoing persons have or will have
a direct or indirect material interest. Subsequent to December 31, 1998, the
Company indemnified its president relating to a lawsuit filed against the
president. (See Item 3, "Legal Proceedings.")
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Financial Statements
The following Financial Statements pertaining to the Company are filed
as part of this report:
Report of Independent Accountants F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4 to F-9
Consolidated Statements of Cash Flows F-10 to F-11
Notes to Consolidated Financial Statements
F-12 to F-25
<PAGE>27
Exhibits
The following Exhibits are filed with or incorporated by reference into
this report:
<TABLE>
<S> <C>
*(2.1) Plan and Agreement of Reorganization, dated September 30, 1992, entered into
with DBS Industries, Inc. Network, Inc. and certain of its Shareholders which
was previously filed in, and is hereby incorporated by reference to, the
Company's Current Report on Form 8-K, date of report, December 2, 1992.
*(3.0) Certificate of Incorporation, which was previously filed in, and is hereby
incorporated by reference to, the Company's Registration Statement on Form S-
18, No. 33-31868-D, effective May 11, 1990.
*(3.1) Bylaws, which was previously filed in, and is hereby
incorporated by reference to, the Company's Registration Statement
on Form S-18, No 33-31868-D,effective May 11, 1990.
*(3.2) Restated Certificate of Incorporation, as adopted on August 8, 1996.
*(4.1) Form of Unit Warrant Agreement, which was previously filed in, and is hereby
incorporated by reference to, the Company's Registration Statement on Form S-
18, No. 33-31868-D, effective May 11, 1990.
*(4.2) Specimen Stock Certificate.
*(10.6) 1993 Incentive Stock Option Plan for DBS Industries, Inc.
*(10.7) 1993 Non-Qualified Stock Option Plan for Non-Employee Directors of DBS
Industries, Inc.
*(10.8) 1993 Non-Qualified Stock Option Plan for Consultants of DBS Industries, Inc.
*(10.20) AXION Royalty Agreement incorporated by reference to the
Company's Current Report on Form 8-K dated May 16, 1994.
DBS Industries, Inc. $3,000,000, Three Year Convertible Debenture Series B
*(10.24) due January 12, 1999, incorporated by reference to the Company's Current
Report on Form 8-K dated February 1, 1996.
*(10.25) Memorandum of Understanding between ABB Power T&D Company, Inc. and
Global Energy Metering Service, Inc. dated February 9, 1996.
*(10.26) Stock Purchase Agreement between Seimac Limited and DBS Industries, Inc.,
comprised of Common Stock Exchange Agreement and Shareholders
Agreement both dated December 13, 1995.
<PAGE>28
*(10.27) DBS Industries, Inc. $1,000,000 Three Year Convertible Debenture, Series A
due July 1, 1998.
*(10.30) DBS Industries, Inc. $640,000 Three Year Convertible Debenture, Series C,
due December 31, 1999.
*(10.31) Employment Agreement between Fred W. Thompson and the Company, dated
April 18, 1996.
*(10.32) Employment Agreement between Randall L. Smith and GEMS (the Company's
subsidiary), dated March 1, 1996.
*(10.33) Employment Agreement between E.A. James Peretti and GEMS (the
Company's subsidiary) dated April 18, 1996.
*(10.34) 1996 Stock Option Plan.
*(10.36) 1998 Stock Option Plan
**(10.37) Memorandum of Understanding Between DBS Industries and Matra Marconi Space.
**(10.38) Letter of Intent with SAIT-Radio Holland SA
**(10.39) Purchase Agreement with Astoria Capital, L.P. and Microcap Partners, L.P.
**(10.40) Warrant Agreement with Astoria Capital, L.P. and Microcap Partners, L.P.
***(10.41) Employment Agreement between Gregory T. Leger and DBS Industries, Inc.
**(21.1) List of Subsidiaries of DBS Industries, Inc.
</TABLE>
* Previously filed in, and incorporated by reference to,
Form 10-KSB for Fiscal Years July 31, 1993, July 31, 1994,
July 31, 1995, and December 31, 1995, and December 31, 1996.
** Submitted with this Form 10-KSB.
*** Previously filed with Registration Statement on Form SB-2 filed on
Novemeber 30, 1998.
Reports on Form 8-K
None.
<PAGE>29
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: April 13, 1999 DBS INDUSTRIES, INC.
By: /s/ FRED W. THOMPSON
------------------
Fred W. Thompson,
President
In accordance with the Securities Exchange Act of 1934, this Annual
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
- -------------------------------- ------------------------------- ---------------
/s/ FRED W. THOMPSON President, Chairman April 13,1999
- --------------------- Principal Executive Officer,
Fred W. Thompson Principal Financial Officer
/s/ E.A. JAMES PERETTI Director April 13, 1999
- ----------------------
E.A. James Peretti
/s/ MICHAEL T. SCHIEBER Director, Secretary April 13, 1999
- -----------------------
Michael T. Schieber
/s/ JEROME W. CARLSON Director April 13, 1999
- ----------------------
Jerome W. Carlson
/s/ H. TATE HOLT Director April 13, 1999
- ----------------------
H. Tate Holt
Jessie J. Knight Director ____________
<PAGE>F-1
REPORT OF INDEPENDENT ACCOUNTANTS
February 5, 1999, except for Note 14,
as to which the date is April 8, 1999
To the Board of Directors and Stockholders of
DBS Industries, Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations of stockholders' equity, and of cash flows
present fairly, in all material respects, the financial position of DBS
Industries, Inc. and Subsidiaries (a development stage company) as of December
31, 1998 and 1997, and the results of their operations and their cash flows for
the years then ended and for the period from April 25, 1990 (date of inception)
to December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion expressed
above.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company has incurred losses and negative cash flows
from operating activities since inception and will require additional financing.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans as to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
\s\ PricewaterhouseCoopers LLP
San Francisco, California
<PAGE>F-2
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
December 31, December 31,
1998 1997
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,291,711 $ 383,054
Prepaid and other current assets 71,138 119,265
-------------- ---------------
Total current assets 1,362,849 502,319
-------------- ---------------
Furniture and equipment (at cost) 65,516 73,277
Less accumulated depreciation 42,989 47,828
-------------- ---------------
22,527 25,449
-------------- ---------------
Other assets:
Investments and advances 851,490 1,248,649
Goodwill, net of accumulated amortization of
$87,428 and $81,864, respectively 3,562 9,126
Satellite Construction Costs 1,272,083 -
-------------- ---------------
2,127,135 1,257,775
-------------- ---------------
Total assets $ 3,512,511 $ 1,785,543
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 240,240 $ 152,485
Customer advances 400,000 400,000
Accrued liabilities 489,531 145,019
Deferred compensation - 216,000
-------------- ---------------
Total current liabilities 1,129,771 913,504
-------------- ---------------
Commitments (Notes 8 and 14)
Stockholders' equity
Common stock, $0.0004 par value; 20,000,000 shares
authorized; 8,581,117 and 5,882,928 issued and outstanding at
December 31, 1998 and 1997, respectively 3,452 2,373
Capital in excess of par value 8,511,410 4,681,295
Warrants 1,085,500 112,500
Deficit accumulated during the development stage (7,132,622) (3,839,129)
Treasury stock (51,562 shares as of December 31, 1998 and
1997) (85,000) (85,000)
-------------- ---------------
Total stockholders' equity 2,382,740 872,039
-------------- ---------------
Total liabilities and stockholders' equity $ 3,512,511 $ 1,785,543
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>F-3
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C>
April 25, 1990
(Inception) to
December 31, December 31,
1998 1997 1998
---- ---- -----
Revenue $ - $ - $ 161,420
---------- ----------- -------------
Cost and operating expenses:
Cost of revenue - - 127,580
General and administrative 2,198,701 1,472,162 8,661,689
Research and development 797,147 210,115 2,966,718
------------ --------- -------------
2,995,848 1,682,277 11,755,987
----------- ----------- --------------
Loss from operations (2,995,848) (1,682,277) (11,594,567)
----------- ----------- --------------
Other income (expense):
Interest, net 32,421 (308,094) (709,459)
Equity in loss of investees, net (100,143) (80,975) (512,920)
Gain (loss) on sale of
investments (228,323) 5,221,063 5,829,218
Other, net - - (56,634)
-------------------------------- ------------
(296,045) 4,831,994 4,550,205
------------ ----------- ---------
Income (loss) before provision
for income taxes and minority interests (3,291,893) 3,149,717 (7,044,362)
Provisions for income taxes 1,600 80,800 96,835
------------ ------------- ---------------
Income (loss) before minority
interests (3,293,493) 3,068,917 (7,141,197)
Minority interests in income of
consolidated subsidiaries - - 8,575
----------------------------------------------
Net income (loss) $(3,293,493) $3,068,917 $ (7,132,622)
============ ========== =============
Basic net income (loss) per share $ (0.47) $ 0.527
=========== ==========
Diluted net income (loss) per share $ (0.47) $ 0.49
=========== ==========
Weighted average number of shares
of common stocks, basic $6,979,818 $5,863,261
=========== ==========
Weighted average number of shares
of common stocks, diluted $6,979,818 $6,235,144
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>F-4
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Common Stock Accumulated
--------------- Capital in During the Total
Par Excess of Treasury Development Stockholders'
Shares Value Par Value Warrants Stock Stage Equity
------- ----- --------- -------- ------- ------------- -------------
Balance at December 31, 1990, of DBSN as restated
pursuant to the merger on December 2, 1992 301,000 $ 12 $ 46,375 - - $ (219,990) $ (173,495)
Stock issue costs for the twelve months ended
December 31, 1991 - - (15,774) - - - (15,774)
Net loss for the twelve months ended
December 31, 1991 - - - - - (115,339) (115,339)
--------- ----- --------- ------- ------- ---------- ---------
Balance at December 31, 1991 1,065,500 426 202,650 - - (335,329) (132,253)
Issuance of common stock for cash at
$.01 to $1.00 per share 1,317,290 527 538,998 - - - 539,525
Issuance of common stock for professional
services at $.01 to $.10 per share 214,240 86 12,338 12,424
Issuance of common stock in payment of
stockholder loans: June 1992 at $.01 per share 230,000 92 2,208 - - - 2,300
Net loss for the seven months ended July 31, 1992 - - - - - (90,750) (90,750)
--------- ----- --------- ------- ------- ---------- ---------
Balance at July 31, 1992 2,827,030 1,131 756,194 - - (426,079) 33,1246
Shares of Fi-Tek IV, Inc. from August 3, 1989
(inception) through December 2, 1992 817,540 327 155,450 - - - 155,777
Issuance of common stock for cash at $.01 to
$3.20 per share 1,313,926 527 998,088 - - - 998,615
Issuance of common stock for interest at $5.00
per share 10,000 4 4,996 - - - 5,000
Issuance of common stock for JPS common stock on
September 11, 1992, at $.80 per share 61,447 24 49,134 - - - 49,158
Issuance of common stock for professional services
on September 11, 1992, at $.10 per share 6,679 3 665 - - - 668
Issuance of common stock in exchange for DBSC
common stock on October 9, 1992, at $2.00 per
share 6,375 2 12,748 - - - 12, 750
</TABLE>
<PAGE>F-5
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Common Stock Accumulated
--------------- Capital in During the Total
Par Excess of Treasury Development Stockholders'
Shares Value Par Value Warrants Stock Stage Equity
------- ----- --------- -------- ------- ------------- -------------
Redemption of 97,450 common stock warrants on
October 2, 1992, at $8.00 per share - - (19,490) - - - (19,490)
Issuance of common stock on December 2, 1992, at
closing of acquisition of DBSN as a finder's fee
at $.0004 per share 25,000 10 - - - - 10
Issuance of common stock for Axion common stock
during March 1993 at $1.60 per share 50,000 20 79,980 - - - 80,000
Issuance of common stock for DBSC common stock
on July 2, 1993, at $1.60 per share 133,307 53 213,238 - - - 213,291
Stock issue costs for the period from August 1,
1992 through July 31, 1993 - - (6,374) - - - (6,374)
Net loss for the twelve months ended July 31, 1993 - - - - - (755,040) (755,040)
--------- ----- -------- ------ ------ ----------- ------------
Balance at July 31, 1993 5,251,303 2,101 2,244,629 - - (1,181,119) 1,065,611
Issuance of common stock for cash at $4.00 per
share(August 1993 through April 1994 102,257 41 411,943 - - - 411,984
Stock issued in exchange for 46% of JPS stock on
November 19, 1993 3,379 1 10,137 - - - 10,138
Stock issued for professional services:
January 28, 1994, at $3.60 per share 5,331 2 19,188 - - - 19,190
July 29, 1994, at $2.00 per share 3,833 2 7,663 - - - 7,665
Stock issued due to exercise of warrants, at
$2.00 per share (March and April 1994) 2,500 1 4,999 - - - 5,000
Stock issued for interest on July 31, 1994, at $2.00
per share 1,000 - 2,000 - - - 2,000
Purchase of shares of common stock on January 28,
1994, at $3.20 per share (1,563) - - - (5,000) - (5,000)
</TABLE>
<PAGE>F-6
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Common Stock Accumulated
--------------- Capital in During the Total
Par Excess of Treasury Development Stockholders'
Shares Value Par Value Warrants Stock Stage Equity
------- ----- --------- -------- ------- ------------- -------------
Reacquisition of common stock pursuant to sale of
investment in Axion in May 1994, at $1.60 per
share (50,000) - - - (80,000) - (80,000)
Net loss for the twelve months ended
July 31, 1994 - - - - - (26,909) (26,909)
--------- ----- --------- ----- --------- ----------- ----------
Balance at July 31, 1994 5,318,039 2,148 2,700,559 (85,000) (1,208,028) 1,409,679
Stock issued for services:
November 30, 1994, at $1.88 per share 10,000 4 18,796 - - - 18,800
May 15, 1995, at $2.00 per share 10,724 4 21,443 - - - 21,447
July 15, 1995, at $1.60 per share 11,373 5 18,192 - - - 18,197
Net loss for the twelve months ended July 31, 1995 - - - - - (1,284,558) (1,284,558)
-------- ------ -------- ----- -------- ----------- -----------
Balance at July 31, 1995 5,350,136 2,161 2,758,990 - (85,000) (2,492,586) 183,565
Issuance of common stock for 1% JPS common
stock on September 21, 1995 at $1.20 per
share 9,450 4 11,336 - - - 11,340
Issuance of common stock for 20% Seimac Limited
common stock on December 13, 1995 at $4.00 per
share 165,519 66 662,010 - - - 662,076
Issuance of common stock for professional
services at $5.60 per share 2,934 1 16,427 - - - 16,428
Net loss for the five months ended December 31,
1995 - - - - - (662,877) (662,877)
Balance at December 31, 1995 5,528,039 2,232 3,448,763 - (85,000) (3,155,463) (210,532)
Warrants issued on January 13, 1996,
to purchase 75,000 shares of common stock
for services rendered
at an exercise price of $7.30 per share - - - 112,500 - - 112,500
Issuance of common stock for cash:
January 15, 1996, at $4.00 per share, less
noncash issuance cost of $63,900 200,000 80 736,020 - - - 736,100
February 15, 1996, at $5.20 per share, less
noncash issuance cost of $19,999 38,462 15 179,988 - - - 180,003
Stock issued for services:
January 1 - June 30, 1996, at $3.75 per shares 22,743 9 85,277 - - - 85,286
August 15, 1996, at $4.80 per share 6,018 2 28,884 - - - 28,886
September 21, 1996, at $5.60 per share 4,821 2 26,996 - - - 26,998
July 1 - December 31, 1996, at $2.00 per shares 7,605 3 15,207 - - - 15,210
Placement fee associated with January 15 and
February 15, 1996, issuances settled through
issuance of common stock 19,821 8 83,891 - - - 83,899
</TABLE>
<PAGE>F-7
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Common Stock Accumulated
--------------- Capital in During the Total
Par Excess of Treasury Development Stockholders'
Shares Value Par Value Warrants Stock Stage Equity
------- ----- --------- -------- ------- ------------- -------------
Net loss for the twelve months ended
December 31, 1996 - - - - - (3,752,583) (3,752,583)
---------- ------ ---------- --------- -------- ------------ -----------
Balance at December 31, 1996 5,827,509 2,351 4,605,026 112,500 (85,000) (6,908,046) (2,273,169)
Stock issued for services:
January 31, 1997, at $1.69 per share 5,088 2 8,586 - - - 8,588
February 14, 1997, at $1.75 per share 4,701 2 8,225 - - - 8,227
February 28, 1997, at $2.00 per share 7,918 3 15,834 - - - 15,837
March 31, 1997, at $1.63 per share 302 - 491 - - - 491
April 10, 1997, at $2.00 per share 7,500 3 14,997 - - - 15,000
April 30, 1997, at $1.50 per share 332 - 498 - - - 498
June 30, 1997, at $1.13 per share 14,578 6 16,394 - - - 16,400
July 9, 1997, at $0.75 per share 15,000 6 11,244 - - - 11,250
Net income for the twelve months ended
December 31, 1997 - - - - - 3,068,917 3,068,917
------- ----- -------- ------- ------ ---------- -----------
</TABLE>
<PAGE>F-8
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Common Stock Accumulated
--------------- Capital in During the Total
Par Excess of Treasury Development Stockholders'
Shares Value Par Value Warrants Stock Stage Equity
------- ----- --------- -------- ------- ------------- -------------
Balance at December 31, 1997 5,882,928 2,373 4,681,295 112,500 (85,000) (3,839,129) 872,039
Common Stock issued for cash, on
April 16, 1998, at
$2.00 per share 102,000 41 203,959 - - - 204,000
Common Stock issued upon exercise of options, on
June 11, 1998, at $1.44 per share 12,500 5 17,964 - - - 17,969
Common Stock issued (voided) in connection with
services rendered:
February 12, 1998, at $0.53 per share 26,209 10 13,906 - - - 13,916
April 1, 1998, at $3.25 per share 10,000 4 32,496 - - - 32,500
May 14, 1998, at $3.75 per share 13,646 6 51,168 - - - 51,174
May 14, 1998, at $3.75 per share (22,743) (9) (85,277) - - - (85,286)
Common Stock issued for cash in August and
September 1998 at $2.00 per share net of
issuance costs of $485,826 2,800,000 1,120 5,113,054 - - - 5,114,173
Common Stock issued upon exercise of options 17,202 6 9,128 - - - 9,134
$0.53 per share
Fair value of Common Stock warrants committed to
representing stock issuance costs (973,000) 973,000 - - 0
Fair value of options granted in connection with
services rendered 159,000 - - - 159,000
Common Stock issued for exercise of options $.60 per
share 10/1/98 37,500 15 22,485 - - - 22,500
Common Stock returned to investees at $2.00
share in October 1998 (400,000) (160) (799,840) - - - (800,000)
Common Stock issued upon exercise of options
per share in October 1998 94,375 38 50,075 - - - 50,113
Common Stock issued representing stock issuance
costs 7,500 3 14,997 - - - 15,000
</TABLE>
<PAGE>F-9
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Common Stock Accumulated
--------------- Capital in During the Total
Par Excess of Treasury Development Stockholders'
Shares Value Par Value Warrants Stock Stage Equity
------- ----- --------- -------- ------- ------------- -------------
- - - - - (3,293,493) (3,293,493)
Net loss for the year ended December 31, 1998
--------- ----- --------- -------- ------- ------------ -----------
Balance at December 31, 1998 8,581,117 $3,452 $8,511,41 $1,085,500 $(85,000) $(7,132,622) $2,382,740
========= ======= ========== ========== ========== ============ ==========
</TABLE>
<PAGE>F-10
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
April 25, 1990
Year Ended (Inception) to
December 31, December 31
------------ -----------
1998 1997 1998
---- ---- ----
Reconciliation of net income
(loss) to net cash used in
operating activities:
Net income (loss) $(3,293,493) $3,068,917 $(7,132,622)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 73,122 126,989 431,256
Minority interest's share of net loss - - (8,575)
Noncash charges 573,999 76,293 1,084,545
Equity in loss of investees, net 100,143 80,875 529,972
Loss (gain) on sale of investments 228,323 (5,221,063) (5,829,218)
Allowance for losses on advances 216,932 - 216,932
Common stock issued as payment for
interest - - 7,000
Decrease (increase) in accounts
receivable and other assets 48,127 (50,320) (51,934)
Increase (decrease) in accounts payable
and accrued liabilities (108,264) (1,053,843) 405,240
Increase in customer advances - 400,000
------------------- -------------------- -------------
Net cash used in operating activities (2,161,111) (2,972,153) (9,947,404)
Cash flows from investing activities:
Proceeds from sale of investment 199,940 - 1,099,940
Proceeds from Loral settlement - 3,573,677 3,573,677
Purchase of fixed assets (5,523) - (111,047)
Satelite construction payments (1,272,083) - (1,272,083)
Organization costs - - (28,526)
Advances to officer - - (31,187)
Purchase of interest in Continental - (2,292,409)
Investments and advances (407,292) 309,888 (1,208,726)
Net assets of purchased subsidiaries - - (147,500)
Cash transferred from Fi-Tek IV, Inc.
pursuant to the merger and reorganization
Cash of divested subsidiary - - 156,648
Purchase of patents - - (277)
Proceeds from repayment of advances to - - (18,251)
affiliate - -
Restricted cash on credit line 152,500
Net cash provided by (used in) investing - 300,000 300,000
---------- ----------- ------------
activities
($1,484,958) $4,183,565 $ 172,759
---------- ---------- -----------
</TABLE>
<PAGE>F-11
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
April 25, 1990
Year Ended (Inception) to
December 31, December 31
------------ -----------
1998 1997 1998
---- ---- ----
Cash flows from financing activities:
Repayment of borrowing under credit line - (295,000) (300,000)
Issuance of debentures - 107,501 4,817,501
Issuance of common stock 4,997,226 - 8,150,742
Redemption of common stock warrants - - (19,490)
Stock issue costs (442,500) - (499,735)
Purchase of shares - - (5,000)
Payment of debentures - (1,043,445) (1,168,445)
Proceeds from stockholders' loans - 149,750 442,750
Payment of stockholders' loans - (149,750) (351,967)
-------------- ------------------ ------------
Net cash provided by (used in) financing
activities 4,554,726 (1,230,994) 11,066,356
------------- ------------- ------------
Net increase (decrease) in cash 908,657 (19,534) 1,291,711
Cash and cash equivalents, beginning of
period 383,054 402,588 -
-------------- ------------------ ------------
Cash and cash equivalents, end of period $ 1,291,711 383,054 $ 1,291,711
============== ================ =============
Supplemental Disclosures of Cash Flow
information:
Interest $ - $ 11,456 $ 57,651
============== =============== =============
Income taxes $ 4,265 $ 1,600 $ 20,220
============== =============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>F-12
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
These consolidated financial statements include the accounts of DBS
Industries, Inc. (the "Company"), and its wholly-owned subsidiaries, Global
Energy Metering Service, Inc. ("GEMS"), and Newstar Limited ("Newstar").
Intercompany transactions and balances have been eliminated in consolidation.
The Company was organized as a Delaware corporation on August 3, 1989.
Since inception the Company has been in the development stage. The Company's
current business plan is to develop a low earth orbit satellite constellation
through its subsidiary Newstar and through proposed licensing arrangements with
its 20% investor, E-SAT. The Company's 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 as reflected in these financial statements.
Accordingly, the Company has relied primarily upon obtaining equity capital and
debt financing to support its operations.
The Company does not expect revenue to exceed costs and expenses in 1999
and, accordingly, will continue to incur losses and negative cash flows from
operating activities. To address financing needs, the Company is pursuing
various financing alternatives. These circumstances raise substantial doubt
about the Company's ability to continue as a going concern. During fiscal 1998,
the Company raised approximately $5 million from the sale of shares of Common
Stock. During the first quarter of 1999, the Company raised approximately $9
million from warrant exercises and sale of shares of common stock. However, the
Company will need substantial additional capital, at least $100 million, to
construct its proposed E-SAT satellite constellation. Such financing is likely
to result in a significant dilution in the equity interests of the current
stockholders. The construction of the first two of the six planned satellites is
required to commence by April 1999 pursuant to the terms of the Federal
Communications Commission (FCC) license granted to E-SAT. As discussed in Note
14, the Company notified the FCC that it has entered into a construction
contract on March 31, 1999. These financial statements do not reflect any
adjustments that might result from the outcome of this uncertainty.
GEMS is a Delaware corporation in the development stage whose primary
activity is the development of satellite and radio systems for use in automating
the control and distribution of gas and electric power by utility companies.
The Company's investments in E-SAT Corporation, in which the Company has
an ownership interest of 20%, are accounted for using the equity method. The
Company's investment in EchoStar Communication Inc. (EchoStar) and interest in
Continental Satellite Corporation were disposed of during 1997 (see Notes 3 and
6) and its interest in Seimac Limited was disposed of during 1998 (see Note 3).
In January 1998, the Company created Newstar Limited, a wholly-owned
subsidiary organized under the Laws of the Republic of Bermuda.
<PAGE>F-13
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hereafter, unless otherwise specified, all references to the "Company"
include DBS Industries, Inc. and its wholly-owned subsidiaries.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all money market instruments and other highly
liquid investments with original maturities of three months or less to be cash
equivalents.
Depreciation and Amortization
Furniture and equipment are depreciated over the estimated useful lives
of the assets ranging from five to seven years using the straight-line method of
depreciation. When assets are disposed of, the related cost and accumulated
depreciation are removed from the books and the resulting gain or loss is
recognized in the year of disposal.
Goodwill
Goodwill is amortized using the straight-line method over five years.
Amortization expense charged to operations for the years ended December 31, 1998
and 1997, was $36,513 and $20,715, respectively.
Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. Under SFAS
No. 109, deferred income tax liabilities and assets are determined based on the
difference between the financial reporting amounts and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future.
Such amounts are based on enacted tax laws and rates in effect for the years in
which the differences are expected to affect taxable income, net operating loss
and tax credit carryforwards. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
<PAGE>F-14
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Earnings (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which establishes standards for computing and
presenting earnings (loss) per share. Under the new standards, basic earnings
per share is computed based on the weighted average number of common shares
outstanding and excludes any potential dilution; diluted earnings per share
reflects diluted effects of all outstanding common stock equivalents. Options to
purchase 2,044,156 shares of common stock with exercise prices ranging from
$0.40 to $5.60 were outstanding as of December 31, 1998, and were excluded from
the loss per share calculation for the year ended December 31, 1998, as they
have the effect of decreasing loss per share. Options and warrants to purchase
1,418,233 shares of common stock with exercise prices from $.40 to $5.60 were
outstanding as of December 31, 1997, and were included in the earnings per share
calculation for the year ended December 31, 1997.
Recently Issued Accounting Pronouncements
In March 1997, SFAS No. 129, Disclosure of Information About Capital
Structure, was issued and has been implemented by the Company. In June 1997,
SFAS No. 130, Reporting Comprehensive Income and SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information were issued and are effective
for the year ended December 31, 1998. The Company has not implemented SFAS Nos.
130 and 131 as their provisions are not applicable to the Company's operations.
Reclassifications
Certain prior period balances have been reclassified to conform to the
current year's presentation. Such reclassifications had no impact on net loss or
stockholders' equity as previously reported.
NOTE 3. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES
Following is a summary of the Company's significant investment
activities:
Direct Broadcasting Satellite Corporation (DBSC)
DBSC is one of nine permittees of the Federal Communications Commission
(FCC) for Direct Broadcast Satellite (DBS) services. As of December 31, 1996,
the Company owned approximately 25% of the common stock of DBSC. The Company
accounted for its investment using the equity method.
<PAGE>F-15
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
stockholders would be entitled to receive at their option, $7.99 in cash or
.67417 shares of EchoStar common stock for each of the 973,148 DBSC shares not
already owned by EchoStar. At December 31, 1996, the Company owned 401,107
shares of the common stock of DBSC. The requisite government approvals were
obtained and the merger consummated on January 8, 1997. On January 23, 1997, the
Company elected to exchange all of its 401,107 DBSC shares for 270,414 shares of
EchoStar common stock which was valued at $25.00 per share as of January 8,
1997, the effective date of the merger. In connection with this transaction, the
Company recorded a gain of approximately $6.2 million in its first quarter of
1997.
On August 29, 1997, the Company transferred the 270,414 shares back to
EchoStar in exchange for the retirement of certain debentures and recognized a
loss on such transfer of approximately $2.3 million due to a decline in the
market value in the EchoStar stock.
E-SAT Corporation (E-SAT)
In October 1994, the Company and EchoStar formed E-SAT for the purpose
of filing with the FCC for a license to operate a low earth orbit satellite
system. E-SAT filed with the FCC on November 16, 1994. The Company holds a 20%
interest in E-SAT. The Company's total investments in E-SAT were $127,265 as of
December 31, 1998 and 1997. The investment is accounted for using the equity
method. The Company's equity in losses of E-SAT for the years ended December 31,
1998 and 1997, were $134,524 and $66,469, respectively. The equity in losses for
the year ended December 31, 1997 was recorded in December 1997, when financial
information became available. As of December 31, 1998, the Company had a
receivable of $724,225 from EchoStar which represents the excess of advances to
date to E-SAT in excess of its proportionate 20% share of its investee's
financing requirements.
On March 31, 1998, the Federal Communications Commission approved E-SAT's
application for a low earth orbit satellite license. E-SAT is required to meet
certain milestones and other covenants in order to maintain its license.
Seimac Limited
On November 30, 1995, the Company acquired 232,829 shares representing
20% of the voting shares of common stock of Seimac Limited, a Canadian company,
pursuant to a stock purchase and exchange agreement in exchange for 165,519
shares of common stock of the Company, valued at $662,010. The Company's
investment of $662,010 was $464,255 in excess of the Company's proportionate
share of the net book value of Seimac as of November 30, 1995. This excess is
being amortized over a period of five years. The amortization of this excess
book value amounted to $30,949 and $92,851 for the years ended December 31, 1998
and 1997. This investment is accounted for using the equity method.
<PAGE>F-16
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997, the Company has recorded
its proportionate share of Seimac Limited's net (loss) income of $34,381 and
$(14,506), respectively.
On April 30, 1998, the Company sold its entire interest consisting of
232,829 Seimac shares in exchange for $200,000 in cash and $51,417 in forgiven
debt. The Company recorded a loss of approximately $228,000 in connection with
this transaction.
Continental Satellite Corporation (Continental)
On January 12, 1996, the Company entered into a stock purchase agreement
with a third party (the Seller) to acquire 72,030 shares of common stock of
Continental in exchange for approximately $2,300,000 in cash. A $50,000 advance
was paid to the seller in December 1995. Continental has received one of the
nine DBS licenses awarded by the FCC.
In connection with this agreement, the Company issued a three-year, Series
B convertible debenture to EchoStar on January 12, 1996, for proceeds of
$3,000,000.
On January 22, 1996, Loral Aerospace Holdings, Inc., a Continental
common shareholder (the plaintiff), filed a complaint in the Superior Court of
the State of California against Continental and its stockholders alleging that
the common shares purchased by the Company were improperly issued and,
therefore, should be voided. On May 16, 1996, the Court ruled that the
Continental shares were invalidly issued. However, the Court also ruled that the
Company was not without equitable remedy and allowed the Company to commence an
action against Loral.
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 return 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 give rise to the agreement.
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 sale
of investment for the year ended December 31, 1997.
NOTE 4. SATELLITE 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
<PAGE>F-17
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contractor for the design, construction and launch services for the Company's
planned low earth orbit satellites. The Company and Alcatel are negotiating a
definitive agreement. Upon signing of the MOU, the Company made a $1 million
advance payment to Alcatel (See Note 14).
During the construction of the E-SAT System, the Company is capitalizing
all contruction costs. Included in Satellite contruction are approximately
$270,000 in engineering and other costs incurred in connection with the design
of the satellites and the $1 million advance to Alcatel for design services.
NOTE 5. 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. 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. As of December 31, 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 6. LINE OF CREDIT
The Company maintained a $300,000 line of credit with a bank. The line
was collateralized by a $300,000 certificate of deposit. As of December 31,
1996, the Company had outstanding borrowings of $295,000 under this line of
credit. As of December 31, 1997, $295,000 had been repaid and the credit
facility was discontinued.
NOTE 7. CONVERTIBLE DEBENTURES
On July 1, 1995, the Company issued Convertible Debenture 1995 Series A to
EchoStar, the majority shareholder of E-SAT, and received $1,000,000 in proceeds
in August 1995. Interest on the debt accrued, and was payable, quarterly at
prime plus 2% for a period of three years. As collateral for the loan, EchoStar
held a security interest in 125,000 shares of DBSC 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
were similar to those of the Series A Convertible Debenture discussed above. As
collateral for the loan, EchoStar had a security interest in 72,030 shares of
common stock of Continental and 200,000 shares of common stock of DBSC 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 were
similar to those of the Series A Convertible Debentures discussed above. As
collateral for the loan, EchoStar held a security interest in the remaining
76,107 shares of common stock of DBSC held by the Company.
<PAGE>F-18
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 29, 1997, the Company completed an agreement with EchoStar to
retire three convertible debentures, Series A, Series B, and Series C, with
accrued interest of $722,811 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 (Note 3). The value of the EchoStar shares was determined
based on a per share price of $16.57 which represented the closing bid price on
August 27, 1997, the date the parties initially agreed to the terms of the
transaction.
NOTE 8. COMMITMENTS
Operating Leases
The Company and its wholly-owned subsidiaries lease their facilities
under noncancelable operating leases which run concurrently and expire in March
2000. Minimum future rental payments under the leases, are as follows:
Year Ending December 31,
-----------------------------
1999 102,891
2000 17,149
------------
$ 120,040
============
Total rent expense was $82,615 and $66,592 for the years ended December
31, 1998 and 1997, respectively.
Other
In July 1998, the Company's president was named as a defendant in a
lawsuit filed by a firm claiming that it was promised shares of the Company's
Common Stock. In March 1999, the Company settled this matter by issuing 63,239
shares of the Company's Common Stock, valued at approximately $324,000, and
paying $15,000 in cash to the plaintiff.
In July 1998, the Company agreed to a severance package with one of its
former employees which consists of $125,000 in cash payments to be made through
July 1999 and the acceleration of vesting of all of the former employee's
unvested options.
Refer to Note 14 for certain contract commitments.
<PAGE>F-19
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCKHOLDERS' EQUITY
Common Stock
The Company's Certificate of Incorporation, as amended in May 1997,
authorizes the issuance of 20,000,000 shares of common stock with a par value of
$.0004 per share. Each record holder of common stock is entitled to one vote for
each share held on all matters properly submitted to the stockholders for their
vote. Cumulative voting for the election of directors is not permitted by the
Certificate of Incorporation.
Preferred Stock
The Company's Certificate of Incorporation, as amended in May 1997,
authorizes the issuance of 5,000,000 shares of preferred stock with par value of
$.0004 per share. The Board of Directors of the Company is authorized to issue
preferred stock from time to time in series and is further authorized to
establish such series, to fix and determine the variations in the relative
rights and preferences as between the series, and to allow for the conversion of
preferred stock into common stock. No preferred stock has been issued by the
Company as of December 31, 1998.
Equity Transactions With Non-Employees
On January 13, 1996, the Company issued warrants for the purchase of
75,000 shares of the Company's Common Stock at an exercise price of $7.30. On
December 31, 1997, the Company replaced these with new warrants at an exercise
price of $1.44. These warrants were issued for services rendered and are
exercisable through January 2006. As of December 31, 1997, none of these
warrants have been exercised.
On July 9, 1997, the Company issued warrants for the purchase of 200,000
shares of the Company's Common Stock at an exercise price of $0.50 per share.
These warrants were issued in connection with a $100,000 short-term loan made by
a stockholder of the Company. As of December 31, 1997, the loan had been repaid.
In April 1998, the Company granted options to two consulting firms to
purchase 400,000 and 300,000 shares of the Company's Common Stock at prices of
$1.45 and $1.50 per share, respectively. These options have terms of five years
and vest over a one year period.
In June 1998, the Company issued 102,000 shares of its Common Stock at a
price of $2.00 per share. In connection with this stock offering, the Company
issued warrants to purchase 102,000 shares of the Company's Common Stock at an
exercise price of $3.00 per share through June 30, 2001.
During the six months ended December 31, 1998, the Company issued
2,800,000 units each consisting of a share of Common Stock at a price of $2.00
per share and a warrant to purchase a share of common stock at an exercise price
of $3.00. In connection with this stock offering, the Company
<PAGE>F-20
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
incurred the following stock issuance costs: (i) cash payments of $442,500, (ii)
7,500 shares of Common Stock with a fair value of $15,000, and (iii) warrants to
purchase 728,000 shares of the Company's Common Stock at exercise prices varying
from $1.50 to $3.00. The fair value of such warrants amounted to $973,000 and
was recorded as a separate element of the Company's equity.
In October 1998, at the request of two stockholders due to changes in
their financial condition, the Company rescinded stock purchase agreements
relating to 400,000 units and refunded $800,000 in proceeds to the two
stockholders.
Under the terms of the above stock offering, the Company registered such
shares and warrants in December 1998.
Equity Transactions With Employees
In February 1996, the Company adopted the 1996 Stock Option Plan
(the 1996 Plan) to consolidate its three existing plans. In May 1998, the
Company adopted the 1998 Stock Option Plan ("the 1998 Plan"), which provides for
the issuance of a maximum of 500,000 shares of the Company's Common Stock.
Provisions of the 1996 and 1998 Plans are substantially similar to those of the
earlier plans. The overall purpose of the 1996 and 1998 Plans is to advance the
long-term interest of the Company by motivating its employees, directors and
consultants with the opportunity to obtain an equity interest in the Company and
to attract and retain such persons upon whose judgments the success of the
Company largely depends.
Eligible employees, directors, and consultants can receive options to
purchase shares of the Company's Common Stock at a price generally not less than
100% and 85% of the fair market value of the common stock on the date of the
grant of incentive stock options and nonstatutory stock options, respectively.
The options granted under the 1996 and 1998 Plans are exercisable over a maximum
term of ten years from the date of grant and generally vest over (i) one year in
the case of directors and consultants, and (ii) up to a five-year period in the
case of employees. Shares sold under the 1996 and 1998 Plans are subject to
various restrictions as to resale.
<PAGE>F-21
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to activity under these plans is set forth
below:
<TABLE>
<S> <C> <C> <C> <C>
Outstanding Options and Warrants
Weighted
Average
Number of Price Per Aggregate Exercise
Shares Share Price Price
------------- ------------ ------------ ---------
Balance, December 31, 1996 1,180,116 $0.40-$6.00 5,793,591 4.91
Granted 1,373,843 $0.53-$1.44 980,835 0.71
Exercised - - - -
Terminated (1,135,726) $0.40-$6.00 (5,502,778) 4.83
------------- --------------
Balance, December 31, 1997 1,418,233 $0.40-$5.60 1,271,648 0.90
Granted 787,500 $0.53-$2.19 614,380 0.78
Exercised (161,577) $0.53-$1.44 (99,722) 0.617
Terminated - - - -
--------------- -------------
Balance, December 31, 1998 2,044,156 $0.40-$5.60 $ 1,786,306 0.87
=========== =============
</TABLE>
The following table summarizes information with respect to stock options
and warrants outstanding at December 31, 1998:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options and Warrants Outstanding Options and Warrants Exercisable
---------------------------------- --------------------------------
Weighted Average
Remaining Weighted Weighted Average
Range of Number Contractual Life Average Exercise Number Exercise
Exercise Price Outstanding (years) Price Exercisable Price
- -------------- ------------ ----------------- ------------------- ------------- ----------
$0.53-$1.44 1,856,372 7.76 $0.65 1,379,140 $0.69
$1.60-$2.80 149,375 8.44 $2.24 105,797 2.26
$3.00-$5.60 38,409 7.06 $5.23 38,409 5.23
---------- ------------
2,044,156 1,523,346
========== ===========
</TABLE>
The following information concerning the Company's stock option plans is
provided in accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). The Company accounts for
such plans in accordance with APB No. 25 and related interpretations.
The weighted average fair value of the options and warrants granted or
modified for the years ended December 31, 1997 and 1998 was $0.90 and $0.68
respectively. The fair value of each stock option is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:
<PAGE>F-22
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1998 1997
----------- -----------
Risk free interest rate 5.7% 5.7%
Expected life 7.3 years 8.2 years
Volatility 227% 80%
Dividend yield - -
The following pro forma net income (loss) information has been prepared
following the provisions of SFAS No. 123:
December 31, December 31,
1997 1998
----------------- ----------------
Net income (loss) As Reported $(3,293,493) $3,068,917
Pro forma $(3,713,942) $1,793,791
Net income (loss) As Reported $(0.47) $0.49
per share Pro forma $(0.53) $0.29
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.
In December 1997, the Company completed a second voluntary stock option
repricing program in which approximately 1,135,726 stock options, originally
issued with an exercise price of $1.44 per share were reissued with exercise
prices ranging from $0.53 to $0.58 per share. These repriced options are
generally exercisable over four years and the Company has maintained the vesting
schedule from the original grants.
NOTE 10. RELATED PARTY TRANSACTIONS
In January 1997, the Company began to defer payment of a portion of all
future compensation of the Company's president. The deferred compensation
balance was $216,000 as of December 31, 1997. In October 1998, the Company paid
its president the amount of $246,000 related to his deferred compensation
through September 1998. The president also received a cash bonus of $20,000 in
connection with his efforts in securing the E-SAT license.
<PAGE>F-23
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 28, 1997, the Company's president provided a bridge loan to the
Company for $47,750 representing collateral funds pledged to Pacific Bank for
the Company's bank overdraft. As of December 31, 1997, both the bank overdraft
and the bridge loan have been repaid.
During 1997, the Company borrowed $100,000 under a loan agreement with a
stockholder. Borrowings under the agreement were unsecured and bore interest at
8% per annum. All borrowings and accrued interest were repaid as of December 31,
1997.
Refer to Notes 3 and 7 for disclosures regarding related party transactions
with EchoStar.
NOTE 11. INCOME TAXES
The provision for income taxes for all periods presented relates to
current minimum taxes.
The estimated tax effect of significant temporary differences and
carryforwards that gave rise to deferred income tax assets as of December 31,
1998 and 1997, is as follows:
<TABLE>
<S> <C> <C> <C> <C>
1998 1997
------------------------- -------------------------
Federal State Federal State
------------- ----------- ------------- -----------
Deferred tax assets:
Net operating loss carryforwards $1,785,000 $ 305,000 $ 706,000 $ 108,000
Research and development credit
carryforwards 115,000 - 95,000 -
Excess of tax over book basis of investments,
deferred compensation, and other 10,000 1,500 12,000 2,000
------------- ----------- ------------- -----------
Deferred tax assets 1,910,000 306,500 813,000 110,000
Valuation allowance (1,910,000) (306,500) (813,000) (110,000)
------------- ----------- ------------- -----------
Net deferred tax assets $ $ - $ - $ -
============= ============ ============ ===========
</TABLE>
Due to the uncertainty of realization, a valuation allowance has been
provided to offset the net deferred tax assets. The increase (decrease) in the
valuation allowance was approximately $1,293,500 and ($1,411,000) during the
years ended December 31, 1998 and 1997, respectively. The provision for income
taxes differs from the amount which would arise by applying the combined
statutory income tax rate of approximately 40% due to changes in the deferred
tax valuation allowance.
As of December 31, 1998, the Company has net operating loss carryforwards
of approximately $5,250,000 and $5,000,000 for federal income tax purposes and
California state franchise tax purposes, respectively. The Company has also
research and development credit carryforwards of $115,000 and $0 for federal
income tax purposes and California state franchise tax purposes, respectively.
Such carryforwards expire in varying amounts between 1998 and 2018.
<PAGE>F-24
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of changes enacted by the 1986 Tax Reform Act, utilization
of net operating loss and tax credit carryforwards may be limited due to equity
transactions occurring on or after May 6, 1986.
NOTE 12. RISKS AND UNCERTAINTIES
The Company periodically maintains cash balances at banks in excess of
the Federal Deposit Insurance Corporation insurance limit of $100,000.
NOTE 13. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES
During the years ended December 31, 1998 and 1997, the following noncash
activities occurred:
o In April 1998, the Company granted options to two consulting
firms to purchase 700,000 shares of the Company's Common Stock.
The Company recorded a compensation charge of $159,000 in
connection with this transaction during 1998.
o The Company issued 728,000 warrants to purchase shares of Common
Stock to certain individuals for services rendered in connection
with the placement of the September 1998 sales of the Company's
Common Stock. These warrants were valued at $973,000 and were
offset against the proceeds.
o During 1997, the Company issued 55,419 of its shares of Common
Stock to certain individuals in consideration for services
rendered. These shares were valued at $76,293.
o On January 23, 1997, the Company elected to exchange all of its
401,107 DBSC shares for 270,414 shares of EchoStar common stock
which were valued at approximately $539,000 and $6,760,000,
respectively.
o On August 29, 1997, the Company settled all principal and accrued
interest balances outstanding under its convertible debentures,
in exchange for 270,414 shares of EchoStar common stock
and a cash payment of approximately $936,000.
NOTE 14. SUBSEQUENT EVENTS
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.
<PAGE>F-25
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2.8 million unit offering
discussed above.
Under the terms of the MOU signed with Alcatel, the Company made additional
payments totaling $1 million in January and February 1999. The ATP was extended
to April 15, 1999. The Company and Alcatel are negotiating a definitive
agreement.
On March 31, 1999, the Company signed construction and launch contracts
with two European entities and made advance payments of $4.4 million. Total
payments under such cancellable contracts will amount to approximately $47
million through January 2001.
On April 8, 1999, the Company notified the FCC that it has entered into
a construction contract for the first two satellites of the E-SAT System on
March 31, 1999.
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
10-KSB FOR THE PERIOD ENDED DECEMBER 31, 1998 FOR DBS INDUSTRIES AND IS
QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,291,711
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,362,849
<PP&E> 65,516
<DEPRECIATION> 42,989
<TOTAL-ASSETS> 3,512,511
<CURRENT-LIABILITIES> 1,129,771
<BONDS> 0
0
0
<COMMON> 3,452
<OTHER-SE> 2,379,288
<TOTAL-LIABILITY-AND-EQUITY> 3,512,511
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,995,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (32,421)
<INCOME-PRETAX> (3,291,893)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (296,045)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,293,493)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
