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 June 30, 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 July 31, 2000: 14,883,988
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 June 30, 2000 (unaudited) and December 31, 1999.........................1
Condensed Consolidated Statements of Operations (unaudited):
For the Three and Six Months Ended June 30, 2000 and June 30, 1999
and for the period from April 25, 1990 (Inception) to June 30, 2000...........2
Condensed Consolidated Statements of Cash Flows (unaudited):
For the Six Months Ended June 30, 2000 and June 30, 1999
and for the period from April 25, 1990 (Inception) to June 30, 2000 ..........3
Notes to Condensed Consolidated Financial Statements........................4-8
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................9-13
PART II - OTHER INFORMATION..................................................14
ITEM 1. Legal Proceedings...................................................14
ITEM 2. Recent Sales in Unregistered Securities.............................14
ITEM 4. Submission of Matters to a Vote of Security Holders.................15
ITEM 6. Exhibits and Reports on Form 8-K....................................15
ii
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2000 1999
(Unaudited)
------------ ------------
Current assets:
Cash and cash equivalents $ 32,069 $ 282,945
Prepaid and other current assets 68,976 114,439
------------ ------------
Total current assets 101,045 397,384
------------ ------------
Furniture and equipment, net 42,535 48,211
Investments and license acquisition costs 2,369,571 2,370,618
Satellite construction costs 12,198,517 12,072,873
Deferred stock offering costs 733,500 673,500
------------ ------------
15,344,123 15,165,202
Total assets $ 15,445,168 $ 15,562,586
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,152,526 $ 478,334
Customer advances 400,000 400,000
Accrued liabilities 840,633 460,577
------------ ------------
Total current liabilities 2,393,159 1,338,911
------------ ------------
Stockholders' equity:
Preferred stock, $0.0004 par value;
5,000,000 shares authorized; 35,897
issued and outstanding at June 30, 2000 15 --
Common stock, $0.0004 par value;
50,000,000 shares authorized;
14,738,923 and 14,354,911 issued and
outstanding at June 30, 2000 and
December 31, 1999, respectively 5,915 5,762
Capital in excess of par value 28,391,184 26,968,174
Warrants 2,355,796 1,890,436
Note receivable from stockholder (60,000) (60,000)
Deferred stock-based compensation (1,038,024) (1,532,582)
Deficit accumulated during the development
stage (16,602,877) (13,048,115)
------------ ------------
Total stockholders' equity 13,052,009 14,223,675
------------ ------------
Total liabilities and stockholders'
equity $ 15,445,168 $ 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)
<TABLE>
<CAPTION>
April 25, 1990
Three Months Ended Six Months Ended (Inception) to
June 30, June 30, June 30,
2000 1999 2000 1999 2000
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ -- $ -- $ -- $ 161,420
------------ ------------ ------------ ------------ ------------
Cost and operating expenses:
Cost of revenue -- -- -- -- 127,580
Marketing and sales 304,472 -- 666,972 -- 1,589,595
General and administrative 1,662,360 778,757 2,650,193 1,676,799 15,372,792
Research and development 63,096 138,623 237,803 359,224 4,249,817
------------ ------------ ------------ ------------ ------------
2,029,928 917,380 3,554,968 2,036,023 21,339,784
------------ ------------ ------------ ------------ ------------
Loss from operations (2,029,928) (917,380) (3,554,968) (2,036,023) (21,178,364)
------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest, net 648 63,280 1,927 75,649 (594,196)
Equity in loss of
investees, net -- -- -- -- (512,920)
Gain on sales of
investments -- -- -- -- 5,829,218
Other, net -- -- (1,721) -- (58,355)
------------ ------------ ------------ ------------ ------------
648 63,280 206 75,649 4,663,747
------------ ------------ ------------ ------------ ------------
Loss before provision
for income taxes and
minority interests (2,029,280) (854,100) (3,554,762) (1,960,374) (16,514,617)
Provision for income taxes -- -- -- -- (96,835)
------------ ------------ ------------ ------------ ------------
Loss before minority
interests (2,029,280) (854,100) (3,554,762) (1,960,374) (16,611,452)
Minority interests in income
of consolidated
subsidiaries -- -- -- -- 8,575
------------ ------------ ------------ ------------ ------------
Net loss $ (2,029,280) $ (854,100) $ (3,554,762) $ (1,960,374) $(16,602,877)
============ ============ ============ ============ ============
Basic net loss per share $ (0.14) $ (0.06) $ (0.25) $ (0.17)
============ ============ ============ ============
Diluted net loss per share $ (0.14) $ (0.06) $ (0.25) $ (0.17)
============ ============ ============ ============
Weighted average number of
shares of common stock,
basic 14,517,748 14,019,273 14,448,316 11,838,062
============ ============ ============ ============
Weighted average number of
shares of common stock,
diluted 14,517,748 14,019,273 14,448,316 11,838,062
============ ============ ============ ============
</TABLE>
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
Six Months Ended (Inception) to
June 30, June 30,
2000 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Reconciliation of net loss to net cash
used in operating activities:
Net loss $ (3,554,762) $ (1,960,374) (16,602,877)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 7,706 6,909 454,681
Minority interest's share of net loss -- -- (8,575)
Non-cash charges (60,000) -- 1,024,545
Amortization of stock-based compensation 494,558 -- 1,452,313
Issuance of options and warrants
for services rendered 470,700 28,859 1,244,998
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 prepaid and other
current assets 45,463 26,363 (49,772)
Increase (decrease) in accounts payable and
accrued liabilities 1,164,998 (574,882) 1,774,913
Increase in customer advances -- -- 400,000
------------ ------------ ------------
Net cash used in operating activities (1,429,616) (2,148,734) (15,058,976)
------------ ------------ ------------
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) (3,080) (148,145)
Satellite construction costs (125,644) (9,010,584) (12,198,517)
Organization costs -- -- (28,526)
Advances to officer -- (60,000) (91,187)
Purchase of interest in Continental -- -- (2,292,409)
Investments and license acquisition costs -- (500,000) (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 (128,348) (9,573,664) (12,368,854)
------------ ------------ ------------
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 1,410,395 15,479,704 24,801,692
Redemption of common stock warrants -- -- (19,490)
Stock issue costs (103,307) (104,100) (757,142)
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 1,307,088 15,375,604 27,459,899
------------ ------------ ------------
Net increase in cash and cash equivalents (250,876) 3,653,206 32,069
Cash and cash equivalents, beginning of period 282,945 1,291,711 --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 32,069 $ 4,944,917 $ 32,069
============ ============ ============
</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 June 30, 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
and requires substantial capital. 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 $2,369,571 as of June 30, 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%
4
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
of the E-SAT shares. This transfer of control agreement is subject to
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 $12.2 million as of June 30,
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. 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 5,938,906 shares of common stock with exercise
prices from $0.39 to $5.60 were outstanding as of June 30, 2000 and
were excluded from the loss per share calculation for the quarter and
the six month periods then ended as they have the effect of
decreasing loss per share. Options and warrants to purchase 3,509,906
shares of common stock with exercise prices from $0.53 to $5.60 were
outstanding as of June 30, 1999 and were excluded from the loss per
share calculation for the quarter and the six month period 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. The Board is further authorized to establish such series, to
fix and determine the variations in the relative rights and
preferences, and to allow for the conversion of preferred stock into
common stock.
Series A Preferred Shares are convertible into 10 shares of
Company's common stock. Beginning three months from purchase, if the
Company's common stock is trading for less than $3.00 per share, then
the Series A Preferred Shares will be convertible by the result of
dividing $30.00 by the 5 day Average Trading Price. The Company has
the right to redeem the Series A Preferred Shares, if the average
trading price for the Company's common stock is $6.00 or more for 20
consecutive trading days. The holder of Series A Preferred Shares may
choose to convert his or her shares within 20 days of notice for the
Company's intention to redeem the Series A Preferred Shares. The
redemption price is $30.00 per share, plus any unpaid dividends; as
of June 30, 2000 accreted dividends totaled $16,305. As of June 30,
2000, 35,897 shares of Series A 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 six months ended June 30, 2000, the Company issued
35,897 shares of the Company's Preferred Stock in exchange for gross
proceeds of $1,076,910 in cash. The shares of preferred stock have a
liquidation preference of $30.00 per share and were initially
convertible, at the option of the holder, into ten shares of our
common stock, or at a rate of $3.00 per common share. Per the
conversion terms, the conversion rate was adjusted based upon the
5-day average closing price of the Company's common stock three
6
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
months after the shares were issued, because the Company's common
stock was trading below $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 May 2000, the Company granted warrants to purchase 300,000
shares of common stock to a consultant for services rendered. The
warrants are exercisable through May 2003 at an exercise price of
$0.67 per share. The fair value of such warrants of $470,700 was
expensed and was estimated on the date of grant using the Black
Scholes model with volatility of 150%, expected life of 3 years, risk
free interest rate of 6% and a fair market value of the common stock
of $1.75 per share. In June 2000, the Company issued 66,667 shares of
the Company's Common Stock, valued at $100,000 to one of the
Company's suppliers for services rendered.
In June 2000, the Company issued 166,298 shares of the
Company's Common Stock, in exchange for gross proceeds of $166,298 in
cash, to three accredited investors.
As of June 30, 2000, the total year-to-date proceeds from the
exercise of warrants and options to purchase 140,370 shares of the
Company's Common Stock by non-employees and a member of the Board of
Directors was approximately $163,100.
During May and June 2000, for service on the Board of
Directors, the Company granted to its non-employee directors, in
accordance with the 2000 Stock Option Plan, options to purchase an
aggregate of 56,109 shares of the Company's Common Stock at prices
ranging from $1.1953 to $2.5875 per share.
On June 2, 2000, the Company entered into an agreement to sell
shares of its Common Stock, at the Company's option, to Torneaux
Ltd., a corporation organized in the Bahamas. To date, no sales have
occurred under the agreement. No commission was paid, however, the
Company issued a Warrant to purchase 250,000 shares of its Common
Stock at an exercise price of the lower of $1.5625 per share, or the
fair market value of the Company's stock at the effective date of
registration, as a finder's fee.
Equity Transactions With Employees
In January 2000, the Company received $900 from the sale of
stock to employees pursuant to the 1999 Employee Stock Purchase Plan.
In April 2000, the Company received proceeds of $3,212 from
the exercise of options by an employee to purchase 5,500 shares of
the Company's Common Stock.
NOTE 7 SUBSEQUENT EVENTS
On July 10, 2000, the Company received $9,954 from the sale of
6,961 shares of common stock to employees pursuant to the 1999
Employee Stock Purchase Plan for the period ended June 30, 2000.
On July 10, 2000, the Company also issued 3,672 shares of
Common Stock valued at $9,501 to a Director as payment for services
rendered.
7
<PAGE>
DBS INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On July 25, 2000, the Company received $100,000 from a private
placement of 133,333 shares of Common Stock and issued a warrant for
10,000 shares of Common Stock at an exercise price of $0.75 per
share.
8
<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 June 30, 2000, we issued 35,897
shares of the Company's preferred stock in exchange for gross proceeds of
$1,076,910 in cash and the Company has received $163,094 in options and warrants
exercised.
Revenues
The Company remains in the development stage and did not generate
revenues in either the three or six months ended June 30, 2000 or June 30, 1999.
Operating Expenses
Total operating expenses for the three months ended June 30, 2000 and
1999, were $2,029,928 and $917,380 respectively. Total operating expenses for
the six months ended June 30, 2000 were $3,554,968 as compared to $2,036,023 for
the six months ended June 30, 1999. These costs are related to marketing and
sales expenses, general and administrative expenses, and research and
development expenses.
9
<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 three months ended June 30, 2000 were $304,472 (15.0% of operating
expenses). No marketing and sales expenses were incurred for the three or six
months ended June 30, 1999. For the six months ended June 30, 2000, marketing
and sales expenses totaled $666,972 (18.8% of operating expenses). This increase
in expenses is due to the establishment of our dedicated marketing and sales
group in June 1999, which included non-cash compensation of approximately
$114,000.
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 three months ended June 30, 2000 and 1999 were
$1,662,360 (81.9% of operating expenses), and $778,757 (84.9% of operating
expenses) respectively. The increase of $973,394 to $2,650,193 (74.5% of
operating expenses) during the six months ended June 30, 2000, compared to
$1,676,799 (82.4% of operating expenses) in the six months ended June 30, 1999,
was primarily due to increased personnel related costs of $253,000, non-cash
compensation of approximately $355,000 and consulting fees of $742,000, netted
against a decrease in the cost of options for services provided by consultants
of approximately $353,000.
Research and Development Expenses
Research and development expenses represent non-capitalized costs
incurred to develop our system. Research and development expenses for the three
months ended June 30, 2000 and 1999 were $63,096 (3.1% of operating expenses),
and $138,623 (15.1% of operating expenses) respectively. The decrease of
$121,421 to $237,803 (6.7% of operating expenses) during the six months ended
June 30, 2000, compared to $359,224 (17.6% of operating expenses) in the six
months ended June 30, 1999, was primarily due to a decrease in consulting
expenses of $163,000 and a decrease in travel expenses of $39,000, offset by an
increase in personnel cost of $60,000 and non-cash compensation of approximately
$26,000.
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. As of December 31,
1999 the Company had amortized $957,755 of this expense. The Company recognized
a total of $494,558 as non-cash stock compensation expense in the first two
quarters ended June 30, 2000 in the relevant expense category as described
above. No similar expenses were incurred in the quarter ended June 30, 1999.
Other Income (Expense)
The Company experienced a non-operating gain of $648 for the three
months ended June 30, 2000, as compared to a gain of $63,280 for the three
months ended June 30, 1999. The Company had a non-operating gain of $206 for the
six months ended June 30, 2000, as compared to a gain of $75,649 for the six
months ended June 30, 1999. The reduced gains incurred in 2000 were a result of
the reduction in net interest due to the reduction of cash and cash equivalents.
10
<PAGE>
Net Loss
The Company's net loss for the three months ended June 30, 2000 was
$2,029,280 compared to $854,100 for the three months ended June 30, 1999. Net
loss for the six months ended June 30, 2000 was $3,554,762 compared to a net
loss of $1,960,374 for the six months ended June 30, 1999.
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 $676,000 per month during the second quarter of 2000 which
included approximately $101,000 per month for marketing and sales, approximately
$554,000 per month for finance, legal, administrative and general management
expenses and approximately $21,000 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,
which will result in further dilution to our stockholders. We cannot be certain
that additional funding will be available on acceptable terms or at all.
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 six months ended June 30, 2000, we received proceeds from
the sale of common and preferred stock totaling $1,409,495 before stock issuance
costs of $103,307. These transactions included a private placement of 35,897
shares of the Company's Series A preferred stock at $30 per share for an
aggregate amount of $1,076,910 before stock issuance costs of $91,666; a private
placement of 166,298 shares of the Company's common stock at $1.00 per share for
an aggregate of $166,298 before stock issuance costs of $11,641; and proceeds in
the amount of $166,307 from the exercise of 145,870 options and warrants.
In addition to the above, the Company also received $900 from the sale
of 490 shares of common stock to employees pursuant to the 1999 Employee Stock
Purchase Plan for the offering period ended December 31, 1999.
Subsequent to June 30, 2000, the Company received $9,954 from the sale
of 6,961 shares of common stock to employees pursuant to the 1999 Employee Stock
Purchase Plan for the period ended June 30, 2000. These proceeds were used
primarily to fund our satellite construction costs and investing activities
We had cash and cash equivalents of $32,069 and $4,944,917 as of the
six months ended June 30, 2000 and 1999 respectively. We had negative working
capital of $2,292,114 as of the six months ended June 30, 2000, compared to
working capital of $4,934,803 as of the six months ended June 30, 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 six months ended June 30,
2000 was $1,429,616, as compared to $2,148,734 for the six months ended June 30,
1999. This resulted from a net loss of $3,554,762 offset primarily by (1)
non-cash stock compensation of $494,558, (2) non cash warrants issues of
$470,700, (3) an increase in accounts payable and accrued liabilities of
$1,164,998 arising from increased marketing and general administrative expenses
and (4) a decrease in accounts receivable and other current assets of $45,463
due to a reduction in prepaid insurance and employee receivables.
Net cash used in investing activities for the six months ended June 30,
2000, was $128,348 compared to $9,573,664 for the same six months ended June 30,
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1999. This was a decrease of $9,445,316 over the six month period ending June
30, 1999, which was as a result of a decrease in satellite construction costs.
Approximately $126,000 of the net cash used in investing activities during the
six months ended June 30, 2000 was related to satellite construction payments
made to our satellite contractors in Europe.
Net cash provided by financing activities for the six months ended June
30, 2000, was $1,307,088 compared to $15,375,604 for the same six months ended
June 30, 1999. Net cash provided by financing activities during the six months
ended June 30, 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. 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
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 June 30,
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 system, 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.
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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 August 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.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. RECENT SALES IN UNREGISTERED SECURITIES
(a) The Company completed a private placement of its Series A Convertible
Preferred Stock ("Preferred Stock") to two accredited investors. During
the three month period ended June 30, 2000, the Company sold an
aggregate of 6,333 shares of its Series A Convertible Preferred Stock
at $30 per share, for an aggregate placement of $189,990. The shares of
preferred stock have a liquidation preference of $30.00 per share and
were initially convertible, at the option of the holder, into ten
shares of our common stock, or at a rate of $3.00 per common share. Per
the conversion terms, the conversion rate was adjusted based upon the
5-day average closing price of the Company's common stock three months
after the shares were issued, because the Company's common stock was
trading below $3.00 per share. Commissions were paid to one placement
agent in the aggregate amount of approximately $7,000, plus 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. The offers and
sales during the three month period ended June 30, 2000 were made by
the Company in reliance upon the exemption from registration provided
by Section 4(2) of the Securities Act.
(b) On June 2, 2000, the Company entered into an agreement to sell shares
of its Common Stock, at the Company's option, to Torneaux Ltd., a
corporation organized in the Bahamas. To date, no sales have occurred
under the agreement. No commission was paid, however, the Company
issued a Warrant to purchase 250,000 shares of its Common Stock at an
exercise price of the lower of $1.5625 per share, or the fair market
value of the Company's stock at the effective date of registration, as
a finder's fee. The transaction was exempt from registration in
reliance upon Section 4(2) of the Securities Act.
(c) On June 2, 2000, the Company sold an aggregate of 166,298 shares of its
Common Stock to three accredited investors. The stock was sold for
$1.00 per share resulting in gross proceeds to the Company of $166,298.
A finder's fee of approximately $11,641 was paid in connection with
these transactions. The offers and sales during the three month period
ended June 30, 2000 were made by the Company in reliance upon the
exemption from registration provided by Section 4(2) of the Securities
Act.
(d) In May 2000, the Company granted a warrant to purchase 300,000 shares
of its Common Stock to a consultant for past services. No commissions
were paid. The warrant has an exercise price of $0.6749 per share. The
transaction was exempt from registration in reliance upon Section 4(2)
of the Securities Act.
(e) In May 2000, the Company granted to an employee an option to purchase
20,000 shares of Common Stock at $1.75 per share.
(f) During May and June 2000, for service on the Board of Directors, the
Company granted to its non-employee directors, in accordance with the
2000 Stock Option Plan, options to purchase an aggregate of 56,109
shares of the Company's Common Stock at prices ranging from $1.1953 to
$2.5875 per share.
(g) On June 21, 2000, the Company issued 66,667 shares of its Common Stock
to its outside legal counsel for past services. No commission was paid
in connection with this transaction. The transaction was exempt from
registration in reliance upon Section 4(2) of the Securities Act.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 22, 2000, the Company held its annual shareholder meeting
wherein the following matters were acted upon:
(a) A majority of the voting stock of the Company approved the election of
three directors of the Company to hold office for a three-year term
ending at the Annual Meeting of Stockholders in 2003 and until their
successors are elected and qualified. Votes cast:
Directors For Withheld
----------------- ---------- --------
Jerome W. Carlson 12,647,542 214,003
Roy T. Grant 12,645,542 216,003
Stanton C. Lawson 12,642,542 219,003
(b) The affirmative vote of a majority of the outstanding shares of Common
Stock of the Company was not received to amend the Certificate of
Incorporation to (i) increase the number of authorized shares of Common
Stock from 50,000,000 to 100,000,000 and (ii) increase the number of
authorized shares of Preferred Stock from 5,000,000 to 10,000,000.
Votes cast were approximately 97% in favor of the amendment but were
short of the 7,407,015 votes required to approve the amendments to the
Company's Articles of Incorporation:
For: 7,092,841
Against: 200,310
Abstain: 36,949
(c) The affirmative vote of a majority of the Common Stock of the Company
represented and voting at the meeting was received to adopt the 2000
Stock Option Plan. Votes cast:
For: 6,791,369
Against: 521,707
Abstain: 17,024
ITEM 6.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
10.57 Amendment to Common Stock Purchase Agreement between
Torneaux Ltd. and DBS Industries, Inc., dated June 30,
2000.
Reports on Form 8-K
The Company filed a report on Form 8-K on June 2, 2000 announcing the
Company's common stock purchase agreement and related agreements with
Torneaux Ltd.
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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: August 10, 2000 By: /S/FRED W. THOMPSON
-------------------------------
FRED W. THOMPSON
President
By: /S/STANTON C. LAWSON
-------------------------------
STANTON C. LAWSON
Director Principal Financial Officer
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