UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-QSB
-------------------------
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934 for the quarterly period
ended March 31, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934 for the transition period
from _______ to ________
Commission File No. 0-28348
DBS INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 84-1124675
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941
(Address of principal executive offices)
(415) 380-8055
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Securities: Common Stock, $.0004 Par Value
Shares Outstanding as of April 30, 2000: 14,460,557
Transitional Small Business Disclosure Format: Yes: No: X
--- ---
<PAGE>
INDEX
PAGE
PART I - FINANCIAL INFORMATION.................................................1
ITEM 1. Financial Statements.................................................1
Condensed Consolidated Balance Sheets:
As of March 31, 2000 (unaudited) and December 31, 1999.........................1
Condensed Consolidated Statements of Operations (unaudited):
For the Three Months Ended March 31, 2000 and March 31, 1999
and for the period from April 25, 1990 (Inception) to March 31, 2000...........2
Condensed Consolidated Statements of Cash Flows (unaudited):
For the Three Months Ended March 31, 2000 and March 31, 1999
and for the period from April 25, 1990 (Inception) to March 31, 2000 ..........3
Notes to Condensed Consolidated Financial Statements.........................4-7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................8-11
PART II - OTHER INFORMATION...................................................12
ITEM 1. Legal Proceedings....................................................12
ITEM 2. Recent Sales in Unregistered Securities..............................12
ITEM 4. Submission of Matters to a Vote of Security Holders..................12
ITEM 6. Exhibits and Reports on Form 8-K.....................................12
ii
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2000 1999
(Unaudited)
----------- ------------
Current assets:
Cash and cash equivalents $ 351,574 $ 282,945
Prepaid and other current assets 80,336 114,439
------------ ------------
Total current assets 431,910 397,384
------------ ------------
Furniture and equipment, net 46,321 48,211
Investments, advances and other 2,369,989 2,370,618
Satellite construction costs 12,108,320 12,072,873
Deferred stock offering costs 673,500 673,500
------------ ------------
15,198,130 15,165,202
------------ ------------
Total assets $ 15,630,040 $ 15,562,586
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 363,277 $ 478,334
Customer advances 400,000 400,000
Accrued liabilities 973,273 460,577
------------ ------------
Total current liabilities 1,736,550 1,338,911
------------ ------------
Stockholders' equity:
Preferred stock, $0.0004 par value; 5,000,000
shares authorized; 29,564 issued and
outstanding at March 31, 2000 12 --
Common stock, $0.0004 par value; 50,000,000
shares authorized; 14,453,958 and
14,354,911 issued and outstanding at
March 31, 2000 and December 31, 1999,
respectively 5,801 5,762
Capital in excess of par value 27,921,481 26,968,174
Warrants 1,885,096 1,890,436
Note receivable from stockholder (60,000) (60,000)
Deferred stock-based compensation (1,285,303) (1,532,582)
Deficit accumulated during the development
stage (14,573,597) (13,048,115)
------------ ------------
Total stockholders' equity 13,893,490 14,223,675
------------ ------------
Total liabilities and stockholders'
equity $ 15,630,040 $ 15,562,586
============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
1
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
April 25, 1990
Three Months Ended (Inception) to
March 31, March 31,
2000 1999 2000
------------- ------------- -------------
Revenue $ -- $ -- $ 161,420
------------ ------------ ------------
Cost and operating expenses:
Cost of revenue -- -- 127,580
Marketing and sales 362,500 -- 1,285,123
General and administrative 987,833 898,042 13,710,432
Research and development 174,707 220,601 4,186,721
------------ ------------ ------------
1,525,040 1,118,643 19,309,856
------------ ------------ ------------
Loss from operations (1,525,040) (1,118,643) (19,148,436)
------------ ------------ ------------
Other income (expense):
Interest, net 1,279 12,369 (594,844)
Equity in loss of investees, net -- -- (512,920)
Gain on sales of investments -- -- 5,829,218
Other, net (1,721) -- (58,355)
------------ ------------ ------------
(442) 12,369 4,663,099
------------ ------------ ------------
Loss before provision
for income taxes and
minority interests (1,525,482) (1,106,274) (14,485,337)
Provision for income taxes -- -- (96,835)
------------ ------------ ------------
Loss before minority interests (1,525,482) (1,106,274) (14,582,172)
Minority interests in income of
consolidated subsidiaries -- -- 8,575
------------ ------------ ------------
Net loss $ (1,525,482) $ (1,106,274) $(14,573,597)
============ ============ ============
Basic net loss per share $ (0.11) $ (0.11)
============ ============
Diluted net loss per share $ (0.11) $ (0.11)
============ ============
Weighted average number of
shares of common stock, basic 14,378,881 9,632,620
=========== ============
Weighted average number of
shares of common stock, diluted 14,378,881 9,632,620
=========== ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
April 25, 1990
Three Months Ended (Inception) to
March 31, March 31,
2000 1999 2000
------------ ------------- -------------
<S> <C> <C> <C>
Reconciliation of net loss to net cash
used in operating activities
Net loss $ (1,525,482) $ (1,106,274) $(14,573,597)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,502 2,749 450,477
Minority interest's share of net loss -- -- (8,575)
Noncash charges -- -- 1,084,545
Amortization of stock-based compensation 247,279 -- 1,205,034
Issuance of options and warrants
for services rendered -- 28,859 774,298
Issuance of common stock in connection
with litigation settlement -- 324,391 324,391
Equity in loss of investees, net -- -- 529,972
Gain on sales of investments -- -- (5,829,218)
Loss on disposal of equipment 1,721 -- 1,721
Allowance for losses on advances -- -- 216,932
Common stock issued as payment for interest -- -- 7,000
Decrease (increase) in accounts receivable and
other assets 34,103 13,675 (61,132)
Increase (decrease) in accounts payable and
accrued liabilities 408,389 (492,475) 1,018,304
Increase in customer advances -- -- 400,000
------------ ------------ ------------
Net cash used in operating activities (830,488) (1,229,075) (14,459,848)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of investment -- -- 1,099,940
Proceeds from Loral settlement -- -- 3,573,677
Purchase of furniture and equipment (2,704) -- (148,145)
Satellite construction costs (35,447) (1,066,342) (12,108,320)
Organization costs -- -- (28,526)
Advances to officer -- (60,000) (91,187)
Purchase of interest in Continental -- -- (2,292,409)
Investments, advances and other -- -- (2,726,807)
Net assets of purchased subsidiaries -- -- (147,500)
Cash transferred from Fi-Tek IV, Inc.
pursuant to the merger and reorganization -- -- 156,648
Cash of divested subsidiary -- -- (277)
Purchase of patents -- -- (18,251)
Proceeds from repayment of advances to affiliate -- -- 152,500
Restricted cash on credit line -- -- 300,000
------------ ------------ ------------
Net cash used in investing activities (38,151) (1,126,342) (12,278,657)
------------ ------------ ------------
Cash flows from financing activities:
Repayment of borrowing under credit line -- -- (300,000)
Issuance of debentures -- -- 4,817,501
Issuance of preferred and common stock 1,021,902 10,449,705 24,413,199
Redemption of common stock warrants -- -- (19,490)
Stock issue costs (84,634) (79,725) (738,469)
Purchase of shares -- -- (5,000)
Payment of debentures -- -- (1,168,445)
Proceeds from stockholders' loans -- -- 442,750
Payment of stockholders' loans -- -- (351,967)
------------ ------------ ------------
Net cash provided by financing activities 937,268 10,369,980 27,090,079
------------ ------------ ------------
Net increase in cash and cash equivalents 68,629 8,014,563 351,574
Cash and cash equivalents, beginning of period 282,945 1,291,711 --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 351,574 $ 9,306,274 $ 351,574
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 UNAUDITED INTERIM FINANCIAL STATEMENTS
--------------------------------------
The information presented in these condensed consolidated
financial statements of DBS Industries, Inc. (DBSI or the Company)
and its wholly owned subsidiaries, Global Energy Metering Services,
Inc. and NewStar Limited (the subsidiaries), is unaudited.
The financial statements include all adjustments consisting of
only normal recurring adjustments which are, in the opinion of
management, necessary to present fairly the condensed consolidated
financial position of DBSI at March 31, 2000 and condensed
consolidated results of operations and cash flows for the interim
periods reported. The results of operations for the 2000 interim
period presented are not necessarily indicative of expected results
for the full 2000 fiscal year.
These condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern. Since
inception, the Company has devoted substantially all of its efforts
to developing its business. The Company has therefore incurred
substantial losses and negative cash flows from operating activities.
To address financing needs, the Company is pursuing various financing
alternatives. These factors raise substantial doubt about the
Company's ability to continue as a going concern. These financial
statements do not reflect any adjustments that might result from the
outcome of this uncertainty.
Certain information and footnote disclosures normally
contained in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. The condensed consolidated financial statements should be
read in conjunction with the financial statements and notes contained
in DBSI's 1999 Annual Report to Shareholders.
NOTE 2 INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES
---------------------------------------------------
E-SAT, Inc. (E-SAT)
In October 1994, the Company and EchoStar Communications, Inc.
formed E-SAT for the purpose of filing with the Federal
Communications Commission (FCC) for a license to operate a low earth
satellite system. E-SAT filed a license application with the FCC on
November 16, 1994. The Company holds a 20% interest in E-SAT. The
Company's total investments in and advances to E-SAT and EchoStar
Communications were $2,369,989 as of March 31, 2000. The investment
is accounted for using the equity method.
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.
On April 8, 1999, the Company notified the FCC that it had
entered into a construction contract for the first two satellites of
the E-SAT system on March 31, 1999.
On July 30, 1999, the Company entered into an agreement with
EchoStar under which it will receive 60.1% of E-SAT's shares from
EchoStar in exchange for consideration, including the grant of rights
to use up to 20% of the satellite capacity of the E-SAT system by
EchoStar. As a result of this transaction, the Company will own 80.1%
of the E-SAT shares. This transfer of control agreement is subject to
4
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
approval by the FCC, which was formally requested by the Company and
EchoStar on May 2, 2000.
NOTE 3 SATELLITE CONSTRUCTION COSTS
----------------------------
During the construction of the System, the Company is
capitalizing all design, engineering, launch and construction costs.
Such costs amounted to approximately $12.1 million as of March 31,
2000.
On December 15, 1998, the Company and Alcatel Space Industries
("Alcatel") entered into a Memorandum of Understanding and
authorization to proceed ("MOU") pursuant to which Alcatel would
become the General Contractor for the design, construction and launch
services for the Company's planned low earth orbit satellites. Upon
signing of the MOU, the Company made a $1 million advance payment to
Alcatel.
In January and February 1999, the Company made additional
payments to Alcatel totaling $1 million.
On March 31, 1999, the Company signed construction and launch
contracts with Surrey Satellite Technology Limited ("Surrey") and
Eurockot, respectively, and made advance payments of $9.8 million in
1999. During the quarter ended March 31, 2000 the Company made an
additional payment of $50,000. Total payments under these cancelable
contracts will amount to approximately $47 million through January
2001. In July 1999, the Company, Surrey and Eurockot reached
agreements under which $3.2 million of the required milestone
payments due in July 1999 totaling $4.8 million were deferred to yet
to be agreed upon dates.
On October 8, 1999, the Company and Alcatel entered into an
agreement under which Alcatel will serve as prime contractor for the
construction of the Company's low earth orbit satellite
communications system. This agreement becomes effective upon the
Company's payment of $14.1 million to Alcatel.
NOTE 4 CUSTOMER ADVANCES
-----------------
The Company's wholly-owned subsidiary, Global Energy Metering
Services, Inc. (GEMS), is party to a contract to deliver 10,000
satellite radio units. 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 when the Argos System became
unavailable. The $400,000 in milestone payments received is reported
as customer advances on the accompanying balance sheet. These
milestone payments could be subject to refund in whole or in part.
5
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 NET LOSS PER SHARE
------------------
Basic net income (loss) per share is computed based on the
weighted average number of common shares outstanding and excludes any
potential dilution. Diluted net income per share reflects diluted
effects of all outstanding common stock equivalents. Options, and
warrants to purchase 6,034,797 shares of common stock with exercise
prices from $0.39 to $5.60 were outstanding as of March 31, 2000 and
were excluded from the loss per share calculation for the three month
period then ended as they have the effect of decreasing loss per
share. Options and warrants to purchase 3,607,906 shares of common
stock with exercise prices from $0.53 to $5.60 were outstanding as of
March 31, 1999 and were excluded from the loss per share calculation
for the quarter then ended as they have the effect of decreasing loss
per share.
NOTE 6 EQUITY TRANSACTIONS
-------------------
Preferred Stock
The Company's Certificate of Incorporation, as amended in
1999, authorizes the issuance of 5,000,000 shares of preferred stock
with par value of $0.0004 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. As of March 31, 2000, 29,564 preferred
shares were issued and outstanding.
Common Stock
The Company's Certificate of Incorporation, as amended in
1999, authorizes the issuance of 50,000,000 shares of common stock
with a par value of $0.0004 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.
Equity Transactions With Non-Employees
During the three months ended March 31, 2000, the Company
issued 29,564 shares of the Company's Preferred Stock in exchange for
gross proceeds of $886,920 in cash. Each share of preferred stock is
convertible, at the election of the holder, into ten shares of the
Company's Common Stock at a conversion price based upon a $3.00 per
common share price, or the average trading price of the common stock
within a specified period if the common stock is trading at less than
$3.00 per share.
In January 2000, the Company issued 4,687 shares of the
Company's Common Stock, valued at $10,750, to one of the Company's
directors for services rendered, prior to being appointed to the
Board, under a consulting agreement.
In March 2000, the Company received proceeds of approximately
$134,000 from the exercise of warrants and options to purchase 93,870
shares of the Company's Common Stock.
6
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Equity Transactions With Employees
In January 2000, the Company received approximately $900 from
the sale of stock to employees pursuant to the 1999 Employee Stock
Purchase Plan.
NOTE 7 SUBSEQUENT EVENTS
-----------------
In April 2000, the Company received proceeds of approximately
$3,000 from the exercise of options to purchase 5,500 shares of the
Company's Common Stock.
In April 2000, the Company issued 6,333 shares of the
Company's Preferred Stock in exchange for gross proceeds of $189,990.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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.
GENERAL
DBS Industries, Inc. ("DBSI" or "We" or the "Company") is a
telecommunications company dedicated to providing low-cost satellite-to-Internet
data messaging to and from remote locations. DBSI is the only company currently
licensed by the Federal Communications Commission (through the E-SAT license) to
provide commercial two-way data messaging using Code Division Multiple Access
technology and low-earth-orbiting satellites operating below the 1Ghz frequency
range. We expect to begin providing our data messaging services, currently
marketed under the "NewStar" name, during 2002.
PLAN OF OPERATIONS
Throughout fiscal 2000, we plan to continue the deployment of our
license and the construction of our system, subject to our success in raising
adequate financing.
We established a dedicated marketing and sales group in 1999 and plan
to increase our marketing activities during fiscal 2000.
We seek to satisfy our fiscal 2000 cash requirements by raising new
equity and debt capital, as well as by seeking the exercise of previously issued
third-party warrants and stock options. Through April 30, 2000, we committed to
issue 35,897 shares of the Company's preferred stock in exchange for gross
proceeds of $1,076,910 in cash.
REVENUES
The Company remains in the development stage and did not generate
revenues in either the quarter ended March 31, 2000 or March 31, 1999.
OPERATING EXPENSES
Total operating expenses for the quarters ended March 31, 2000 and
1999, were $1,525,040 and $1,118,643 respectively. These costs are related to
marketing and sales expenses, general and administrative expenses, and research
and development expenses.
8
<PAGE>
Marketing and Sales Expenses
- ----------------------------
Marketing and sales expenses are primarily the costs of personnel
(including non-cash stock compensation) and travel. Marketing and sales expenses
for the quarter ended March 31, 2000 were $362,500 (23.7% of operating
expenses). No marketing and sales expenses were incurred for the quarter ended
March 31, 1999. This increase is due to the establishment of our dedicated
marketing and sales group in June, 1999 and included non-cash compensation of
approximately $57,000.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses include the costs of finance,
legal, administrative and general management functions of DBSI. General and
administrative expenses for the quarters ended March 31, 2000 and 1999 were
$987,833 (64.8% of operating expenses), and $898,042 (80.3% of operating
expenses) respectively. The increase of $89,791 to $987,833 during the quarter
ended March 31, 2000, compared to $898,042 in the quarter ended March 31, 1999
was primarily due to increased personnel related costs of $117,000, non-cash
compensation of approximately $177,000 and consulting fees of $114,000, netted
against a decrease in the cost of options for services provided by consultants
of approximately $350,000.
Research and Development Expenses
- ---------------------------------
Research and development expenses represent non-capitalized costs
incurred to develop our system. Research and development expenses for the
quarters ended March 31, 2000 and 1999 were $174,707 (11.5% of operating
expenses), and $220,601 (19.7% of operating expenses) respectively. The decrease
of $45,894 to $174,707 during the quarter ended March 31, 2000, compared to
$220,601 in the quarter ended March 31, 1999 was primarily due to a decrease in
consulting expenses by $103,000 and a decrease in travel expenses by $35,000,
offset by an increase in personnel cost of $74,000 and non-cash compensation of
approximately $13,000.
Non-Cash Stock Compensation
- ---------------------------
In order to attract and retain personnel, we have granted options to
purchase 1,913,106 shares of Common Stock at exercise prices ranging from $0.39
to $2.81 to several employees and service providers. Some of the exercise prices
were below the fair market value of the Common Stock at the time of grant,
resulting in deferred stock compensation of $2,490,337. This amount is being
amortized over the vesting periods of the granted options, and as a result,
$247,279 was recognized as non-cash stock compensation expense in the quarter
ended March 31, 2000 in the relevant expense category as described above. No
similar expenses were incurred in the quarter ended March 31, 1999.
Other Income (Expense)
- ----------------------
We experienced a non-operating loss of $442, consisting of net interest
income of $1,279 and a loss on the disposal of equipment of $1,721 for the
quarter ended March 31, 2000, a decrease of $12,811 over net interest earned of
$12,369 for the quarter ended March 31, 1999. The reduction in net interest
income for the quarter ended March 31, 2000 was due to the reduction of cash and
cash equivalents.
Net Loss
- --------
Our net loss for the quarter ended March 31, 2000, was $1,525,482
compared to a net loss for the quarter ended March 31, 1999 of $1,106,274.
During the first quarter of 2000, we incurred $362,500 in marketing and sales
expenses, which were not present during the first quarter of 1999.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has been in the development stage since its inception and
has not recognized any significant revenues. Our monthly expenses averaged
approximately $508,000 per month during the first quarter of 2000 which included
approximately $121,000 per month for marketing and sales, approximately $329,000
per month for operating, legal and consulting expenses and approximately $58,000
per month for E-SAT research & development. However, expenses will continue to
increase during fiscal 2000 with the demands of increased efforts in both
systems and business development. Additional capital will be necessary to expand
operations or continue current operations.
Traditionally, we have relied on equity and debt placements to finance
our operations. This financing was supplemented from the sale of our interest in
entities that held direct broadcast satellite licenses. We no longer have any
interest in direct broadcast satellite licensees.
During the quarter ended March 31, 2000, we received proceeds from the
sale of common and preferred stock totaling approximately $1,022,000 before
stock issuance costs of approximately $85,000. These transactions included a
private placement of 29,564 shares of the Company's preferred stock at $30 per
share for an aggregate amount of $886,920 before stock issuance costs of
$84,634; and proceeds in the amount of approximately $134,000 from the exercise
of 93,870 options and warrants. The Company also received approximately $900
from the sale of stock to employees pursuant to the 1999 Employee Stock Purchase
Plan. These proceeds were used primarily to fund our satellite construction
costs and investing activities.
We had cash and cash equivalents of $351,574 and $9,306,274 as of March
31, 2000 and 1999 respectively. We had negative working capital of $1,304,640 as
of March 31, 2000 compared to working capital of $8,727,069 as of March 31,
1999. Until we are able to develop, construct and operate the NewStar System and
derive revenues therefrom, we must continue to raise cash from outside sources
for operations and for the development of the NewStar System.
Net cash used in operating activities for the quarter ended March 31,
2000, was $830,488. This resulted from a net loss of $1,525,482 offset primarily
by (1) non-cash stock compensation of $247,279, (2) an increase in accounts
payable of $408,389 arising from increased marketing and general administrative
expenses and (3) a decrease in prepaid and other current assets of $34,103 due
to a reduction in prepaid insurance and employee receivables. Net cash used in
operating activities for the quarter ended March 31, 1999 was $1,229,075.
Net cash used in investing activities for the quarter ended March 31,
2000, was $38,151. This was a decrease of $1,088,191 over the same period ended
March 31, 1999. Approximately $35,000 of the net cash used in investing
activities during the quarter ended March 31, 2000 was related to satellite
construction payments made to our satellite contractors in Europe.
Net cash provided by financing activities for the quarter ended March
31, 2000, was $937,268 compared to $10,369,980 for the same period ended March
31, 1999. Net cash provided by financing activities during the quarter ended
March 31, 2000 was related primarily to the net proceeds from the sale of units
of preferred stock and the exercise of options and warrants by our stockholders.
In 1996, we received milestone payments under the terms of a $1.2
million purchase order for 10,000 satellite radio units from ABB Power T&D
Company. Under this agreement, the Company was eligible to receive up to
$500,000 towards development costs upon meeting the milestone requirements of
the contract. We met the first four milestones of the contract and have received
$400,000 in cash. The parties agreed to suspend all 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
10
<PAGE>
the Argos System. Therefore, such milestone payments could be subject to refund,
in whole or in part.
RISKS AND UNCERTAINTIES AFFECTING FUTURE OPERATING RESULTS
A number of factors could cause future results to differ materially
from historic results. We are a development stage company and as of March 31,
2000, we had no customers. Given our limited operating history and lack of
revenues, no assurances can be given that we will be able to construct and
implement our systems, and, if implemented, to develop a sufficiently large
customer base to be profitable.
In addition, we currently estimate that we will require approximately
$120 million in capital related to the construction and launch costs associated
with our system. No assurance can be given that capital will be available to us
on commercially acceptable terms to meet development costs or on terms
acceptable to us. The issuance of additional equity securities by us will result
in significant dilution of the equity interests of the current stockholders.
Selling debt securities such as bonds will increase our liabilities and future
cash commitments. In order to comply with development milestones required by the
FCC license, we have entered into various development contracts including a
satellite construction contract and a satellite launch contract. All of these
contracts require that we have available capital which is not currently
available.
Other factors, in addition to those identified in this report, which
could affect future results would include 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 and construction contracts, 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 (including but not limited to FCC approval of
our transfer of control of E-SAT, Inc. from EchoStar), 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, unscheduled delays or technological
difficulties, satellite launch risks, potential satellite malfunction, limited
availability of insurance, results of the Company's financing efforts and
marketing conditions, competition, and other risk factors related to the
Company's business. Readers of this report are cautioned not to put undue
reliance on "forward looking" statements that 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 that 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 significantly over relatively short periods of time.
IMPACT OF THE YEAR 2000 ISSUE
As of May 1, 2000, we had not encountered any material year 2000
problems with the hardware and software systems used in our operations. In
addition, none of our critical vendors have reported any material year 2000
problems nor have we experienced any decline in service levels from such
vendors.
We expect to continue to monitor internal and external issues related
to year 2000. While no material problems have been discovered, we cannot assure
you that material problems will not materialize in the future.
11
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. RECENT SALES IN UNREGISTERED SECURITIES
The Company is currently engaged in a private placement of its Series A
Convertible Preferred Stock ("Preferred Stock"). Each share of Preferred Stock
is convertible, at the option of the holder into ten (10) shares of the
Company's Common Stock. During the three month period ended March 31, 2000, the
Company sold 29,564 shares of its Preferred Stock at $30.00 per share, for an
aggregate placement of approximately $900,000. Commissions were paid to one
placement agent in the aggregate amount of approximately $60,000. At the
completion of the private placement the Company will also issue a warrant to the
placement agent to purchase the equivalent of 10% of the number of shares of
Common Stock sold in the private placement, on an as converted basis.
The offers and sales were made to twelve (12) accredited investors, as
that term is defined in Rule 501(a) under the Securities Act. The offers and
sales during the three month period ended March 31, 2000 were made by the
Company in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DBS INDUSTRIES, INC.
DATE: May 12, 2000 By: /S/FRED W. THOMPSON
-------------------------------
FRED W. THOMPSON
President
By: /S/STANTON C. LAWSON
-------------------------------
STANTON C. LAWSON
Director Principal Financial Officer
13
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE 10-QSB FOR THE PERIOD ENDED MARCH 31, 2000 FOR DBS INDUSTRIES,
INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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<NAME> DBS INDUSTRIES, INC.
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
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12
<COMMON> 5,801
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