<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For Quarter Ended: March 31, 1996
Commission File No. 0-24034
SKYSAT COMMUNICATIONS NETWORK CORPORATION
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(Exact name of small business issuer as specified in its charter)
Delaware 13-3722117
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(State of Incorporation) (I.R.S. Employer Identification No.)
405 Lexington Avenue, 33rd floor
New York, New York 10174
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(Address of Principal Executive Office)
(Zip Code)
Issuer's telephone number, including area code (212) 972-0070
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
<TABLE>
<CAPTION>
March 31, 1996
--------------
<S> <C>
Class A Common Stock 2,107,321
Class B Common Stock 1,657,679
</TABLE>
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
Condensed Balance Sheet at March 31, 1995
(unaudited)
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash and cash equivalents $ 1,046,968
Accounts receivable 166,697
Prepaid research and development costs (Note F) 61,507
Prepaid expenses & other current assets 28,778
-----------
Total current assets 1,303,951
Equipment, at cost (net of $3,897 accumulated depreciation) 9,572
Equipment under construction 1,353,945
Patent costs (net of $2,375 accumulated depreciation) 191,469
Other 49,184
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TOTAL $ 2,908,122
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L I A B I L I T I E S
Current Liabilities:
Accrued expenses $ 182,933
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Total current liabilities 182,933
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STOCKHOLDERS' EQUITY
(Notes B, C, D and E)
Preferred stock, par value $0.01 per share, 5,000,000 shares
authorized, none issued
Class B common stock, par value $0.001 per share, 2,000,000 shares authorized;
1,657,679 shares issued and outstanding, including
872,125 forfeitable shares 1,658
Class A common stock, par value $0.001 per share, 18,000,000 shares
authorized; 2,107,321 shares issued and outstanding, including
127,875 forfeitable shares 2,107
Capital in excess of par value 7,411,271
Deficit accumulated during the development stage (4,689,847)
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Total stockholders' equity 2,725,189
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TOTAL $ 2,908,122
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</TABLE>
See notes to condensed financial statements.
2
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SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
Condensed Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the
Period from
Commencement
of Operations
For the Three Months Ended (January 1,
March 31, 1993) to
-------------------------------
1995 1996 March 31, 1996
---- ---- --------------
<S> <C> <C> <C>
Operating Expenses:
Research and development expenses (Note D[1]) $ 616,410 $ 90,112 $ 2,951,054
General and administrative expenses (Note D) 214,576 169,442 1,423,181
---------------------------------------------------
Total operating expenses 830,986 259,553 4,374,235
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Loss from Operations (830,986) (259,553) (4,374,235)
---------------------------------------------------
Financing Costs (Income):
Interest (income) (37,642) (6,597) (127,955)
Interest expense 83,317
Amortization of deferred financing costs 299,000
Amortization of debt discount 61,250
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Total financing costs (income) (37,642) (6,597) 315,612
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NET LOSS $ (793,344) $ (252,956) $(4,689,847)
===================================================
Net loss per share of common stock $ (0.35) $ (0.11) $ (2.77)
===================================================
Weighted average number of common shares
and common share equivalents outstanding 2,265,000 2,369,396 1,694,586
===================================================
</TABLE>
See notes to condensed financial statements.
3
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SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
Condensed Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the
Period from
Commencement
of Operations
For the Three Months Ended (January 1,
March 31, 1993) to
-------------------------------
1995 1996 March 31, 1996
---- ---- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (793,344) $ (252,956) $(4,689,847)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,200 3,575 14,072
Rent recorded as capital contribution 22,000
Amortization of debt issuance costs 360,250
Changes in operating assets and liabilities:
Other receivables (436,747) (166,697)
Organization costs (12,000)
Prepaid expenses 257,991 40,086 (90,288)
Accounts payable and other current
liabilities (22,215) 6,374 182,933
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Net cash (used in) operating activities (993,115) (202,921) (4,379,577)
---------------------------------------------------
Cash flows from investing activities:
Purchase of fixed assets (380,312) (1,367,414)
Patent costs (291) (1,526) (193,844)
Deposits (2,500) (9,625)
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Net cash (used in) investing activities (383,103) (1,526) (1,570,883)
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Cash flows from financing activities:
Proceeds from notes payable 2,151,000
Repayment of notes payable (2,450,000)
Net proceeds from sale of common stock 991,547 7,296,428
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Net cash provided by financing activities 991,547 6,997,428
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,376,218) 787,100 1,046,968
Cash and cash equivalents - beginning of period 1,882,678 259,868
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CASH AND CASH EQUIVALENTS - END OF PERIOD $ 506,460 $ 1,046,968 $ 1,046,968
===================================================
Supplemental disclosures of cash flow information
Taxes paid $ 2,026 $ 9,503 $ 31,532
Interest paid $ 83,317
Supplemental disclosures of non-cash financing activities:
Warrants issued $ 61,250
</TABLE>
See notes to condensed financial statements.
4
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SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31,
1996, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996. For further information, refer to the financial
statements and footnotes thereto included in the Registrant Company annual
report on Form 10-KSB for the year ended December 31, 1995.
NOTE B - The Company
Skysat Communications Network Corporation (the "Company") is a
development stage company incorporated in Delaware in July 1992. The Company is
engaged in the research and development of a high altitude unmanned aircraft
system (the "Skysat System" or the "System") for commercial application in the
telecommunications industry.
The Company has incurred significant losses to date and anticipates
substantial additional losses before completion of Phase I of the Skysat System.
There is no assurance that necessary financing will be available for completion
of Phase I or that the Company will be in a position to proceed with Phase II.
These factors raise substantial doubt about the ability of the Company to
continue as a going concern. The Company is currently seeking additional
financing or other arrangements to complete its planned activities. The
accompanying financial statements do not include any adjustments relating to the
recoverability of assets and classification of liabilities that might be
necessary if the Company is unable to continue as a going concern.
NOTE C - Sale of Common Stock
On March 13, 1996, the Company sold 500,000 unregistered shares of
Class A common stock and unregistered warrants for an additional 2,000,000
shares for a total of $1,000,000. The warrants are exercisable at $1.00 per
share. After this transaction, the Company has 3,765,000 shares outstanding.
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SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE D - Related Party Transactions
[1] Research and development expense includes the following
payments to related parties for the periods indicated:
<TABLE>
<S> <C>
January 1, 1995 - March 31, 1995 ........... $ 50,000
=========
January 1, 1996 - March 31, 1996........... $ 40,833
=========
January 1, 1993 - March 31, 1996............ $ 464,859
=========
</TABLE>
General and Administrative expenses for the periods ended
March 31, 1995 and March 31, 1996, and for the period from January 1, 1993
through March 31, 1996 includes $66,289, $55,000 and $510,250, respectively,
paid to three officers/stockholders and three director/stockholders.
[2] The Company had occupied its headquarters on a rent-free basis in
the offices of a stockholder from January 1, 1993 through October 31, 1994. The
Company has reflected $22,000, the fair value for such space, as a capital
contribution for the period from January 1, 1993 through March 31, 1996.
NOTE E - Stock Option Plan
The Company has granted nonqualified stock options under the Stock
Option Plan to certain Company directors to purchase, at $6.00 per share, an
aggregate of 60,000 shares of Class A common stock and an incentive stock option
to an officer of the Company to purchase, at $6.00 per share, 10,000 shares of
Class A common stock. During 1995, the Company also granted an aggregate of
16,000 nonqualified stock options to consultants to the Company.
NOTE F - Jet Propulsion Laboratory Agreement
The Company has entered into an agreement (the "JPL Agreement") under
which the Jet Propulsion Laboratory ("JPL") will develop a preliminary design of
the Skysat System and determine its technical feasibility.
Under the JPL Agreement, the Company paid JPL $2,493,000 through March
31, 1996 (including $256,000 in the period ended March 31, 1995), for
development work. The Company is charging research and development expense as
JPL utilizes the funds. JPL commenced its work with respect to the contract in
April 1994.
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SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE G - Av-Intel Inc. Agreement
In April 1996 the Company entered into an agreement with Av-Intel Inc.
("Av-Intel"), a research an development company based in Ottawa, Canada, which
has developed lighter-than-air technology (stratospheric satellite vehicles)
("SSV's") that could be applied to airborne platforms. The agreement provides
that Skysat and Av-Intel will work together to test the viability and
cost-effectiveness of the SSV.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS
(A) Management's Discussion and Analysis of
Financial Condition and Results of Operations:
The Company is a development stage company. Since its inception in July
1992, the Company's efforts have been principally devoted to research and
development of the Skysat System and raising capital; the Company has sustained
losses of $4,689,847 of which $252,956 and $793,344 were incurred during the
three-month periods ended March 31, 1996 and 1995, respectively. These losses
have resulted from expenditures specifically in connection with an increased
level of effort under the JPL Agreement (discussed below) which commenced during
1994, continued construction and development of a conventional engine-powered
prototype aircraft (the "Platform"), commencement of the development of the
flight management system related to the Skysat System and general and
administrative activities, including legal and professional activities relating
thereto and salaries to officers and emoloyees which are continuing to date.
Research and development expenses have aggregated $2,951,054 since inception, of
which $90,112 and $614,410 were incurred during the three-month periods ended
March 31, l996 and l995, respectively.
The Company's research and development agreement (the "JPL Agreement")
with the Jet Propulsion Laboratory ("JPL"), an operating division of the
California Institute of Technology which operates JPL under contract from NASA,
commenced in April 1994. JPL has incurred expenses aggregating $27,119 during
the three-month period ended March 31, 1996.
In May, 1996, the Company paid an additional $50,000 to JPL for
research activities related to payload development and activities in support of
the Company's research and development into unmanned aerial vehicles.
General and administrative expenses were $1,423,181 since the Company's
inception in July 1992, of which $169,442 and $214,576 were expended during the
three-month periods ended March 31, 1996 and 1995, respectively.
The Company's research and development and general and administrative
expenses will be substantial in the forseeable future, including substantial
expenses for the payment of salaries, consulting fees and expenses related to
the JPL Agreement, the development and construction of the Platform and other
related vehicles and the development of the flight management system and other
related activities.
In April 1996, the Company entered into an agreement with Av-Intel,
Inc. ("Av-Intel"), a research and development company which has developed
lighter-than-air technology that could be applied to airborne platforms with a
capability to fly at 70,000 feet altitude for periods of several months (the
"Av-Intel Agreement"). These "stratospheric satellite vehicles" ("SSV's") have
certain characteristics that would make them effective as communications
platforms. Skysat and Av-Intel will work together over the next several
8
<PAGE> 9
months to verify the viability and cost-effectivemess of the SSV. Under the
Av-Intel Agreement, the Company and Av-Intel will develop a comprehensive design
leading to a telecommunications prototype.
Liquidity and Capital Resources:
The Company has had no revenue and has incurred a cumulative loss
through March 31, 1996 of $4,689,847. However, the Company believes that it has
the necessary liquidity and capital resources to sustain planned operations for
approximately one year following March 31, 1996. In the event that the Company's
internal estimates relating to its planned expenditures prove materially
inaccurate, the Company may be required to reallocate funds among its planned
activities and curtail certain planned expenditures. In any event, the Company
anticipates that it will require additional financing during fiscal 1996. There
can be no assurances as to the availability or terms of any required additional
financing, when and if needed. In the event that the Company fails to raise the
funds it requires, it may be necessary for the Company to cease operations or
severely limit growth.
(B) Plan of Operation:
During the one-year period following March 31, 1996, the Company
intends to continue to conduct significant additional research, development and
testing activities related to the JPL Agreement and additional activities in
connection with the development of the Skysat System, including the completion
of, and/or the acquisition and testing of, a platform, and the exploration of
the technical and economic feasibility and viability of additional and
alternative aerial vehicles, which, together with other general and
administrative expenses, are expected to result in substantially higher
operating losses. The Company does not expect to generate any revenues until
such time as the Skysat System becomes commercially available, which cannot
occur until it has, among other things, obtained substantial additional funds,
completed development of the Skysat System using its microwave power
transmission technology and received necessary regulatory approvals. The Company
is currently seeking additional financing or a strategic or other arrangement in
order to continue its planned activities for the current fiscal year.
As previously disclosed, in July 1994 the Company entered into an
agreement with B & R Designs, Inc. (the "B & R Designs Agreement"), pursuant to
which B & R Designs agreed to construct the Company's first Platform. Due to
disagreements and cost overruns, work by B & R Designs under the B & R Designs
Agreement was scaled back and ultimately suspended entirely during 1995. The
Company is currently in discussions with B & R Designs management regarding
quantifying expenses and continuing work. The Company and B & R Designs
management are attempting to resolve the amount payable, if any, under the B & R
Designs Agreement. Due to these uncertainties, the Company's financial
commitment cannot be quantified at this time.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SKYSAT COMMUNICATIONS NETWORK CORPORATION
Date: May 14, 1996 By: /s/ Martin D. Fife
-------------------------------
Martin D. Fife,
Chief Executive Officer
Date: May 14, 1996 By: /s/ Paul S. Wasserman
-------------------------------
Paul S. Wasserman,
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONDENSED BALANCE SHEET AND CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH (B) CONDENSED FINANCIAL STATEMENTS INCLUDED IN FORM 10-QSB FOR THE QUARTER
ENDED MARCH 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,046,968
<SECURITIES> 0
<RECEIVABLES> 166,697
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,303,951
<PP&E> 13,469
<DEPRECIATION> (3,897)
<TOTAL-ASSETS> 2,908,122
<CURRENT-LIABILITIES> 182,933
<BONDS> 0
0
0
<COMMON> 3,765
<OTHER-SE> 2,721,424
<TOTAL-LIABILITY-AND-EQUITY> 2,908,122
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 259,553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (252,956)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (252,956)
<EPS-PRIMARY> (2.77)
<EPS-DILUTED> (2.77)
</TABLE>
