SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
------------------------
For Quarter Ended: June 30, 1996
Commission File No. 0-24034
SKYSAT COMMUNICATIONS NETWORK CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 13-3722117
(State of Incorporation) (I.R.S. Employer Identification No.)
405 Lexington Avenue, 33rd floor
New York, New York 10174
(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.
June 30, 1996
-------------
Class A Common Stock 2,107,321
Class B Common Stock 1,657,679
Transitional Small Business Disclosure Format (check one):
Yes __ No X
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
Condensed Balance Sheet at June 30, 1996
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents 698,237
Accounts receivable 116,967
Prepaid research and development costs (Note F) 78,583
Prepaid expenses & other current assets 214,001
----------
Total current assets 1,107,788
Equipment, at cost (net of $4,497 accumulated depreciation) 8,972
Equipment under construction 1,353,945
Patent costs (net of $3,975 accumulated depreciation) 188,624
Other 13,225
----------
TOTAL 2,672,555
==========
L I A B I L I T I E S
Current Liabilities:
Accrued expenses 169,942
----------
Total current liabilities 169,942
----------
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 1,694
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 2,071
Capital in excess of par value 7,411,271
Deficit accumulated during the development stage (4,912,424)
----------
Total stockholders' equity 2,502,612
----------
TOTAL 2,672,555
==========
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
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 For the Six Months Ended (January 1,
June 30, June 30, 1993) to
------------------------- ------------------------- ----------
1995 1996 1995 1996 June 30, 1996
------------------------- ------------------------- ----------
<S> <C> <C> <C> <C> <C>
Operating Expenses:
Research and development expenses
(Note D[1]) 175,226 61,833 791,636 151,945 3,012,887
General and administrative expenses
(Note D) 218,961 170,837 433,537 340,279 1,594,018
------------------------- ------------------------- ----------
Total operating expenses 394,187 232,670 1,225,173 492,224 4,606,906
------------------------- ------------------------- ----------
Loss from Operations (394,187) (232,670) (1,225,173) (492,224) (4,606,906)
------------------------- ------------------------- ----------
Financing Costs (Income):
Interest (income) (12,138) (10,095) (49,780) (16,692) (138,050)
Interest expense 83,317
Amortization of deferred financing costs 299,000
Amortization of debt discount 61,250
------------------------- ------------------------- ----------
Total financing costs (income) (12,138) (10,095) (49,780) (16,692) 305,517
------------------------- ------------------------- ----------
NET LOSS (382,049) (222,575) (1,175,393) (475,532) (4,912,423)
========================= ========================= ==========
Net loss per share of common stock $ (0.17) $ (0.08) $ (0.52) $ (0.19) $ (2.77)
========================= ========================= ==========
Weighted average number of common shares
and common share equivalents outstanding 2,265,000 2,765,000 2,265,000 2,567,198 1,771,044
========================= ========================= ==========
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
Condensed Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the
Period from
Commencement
Three Months Ended Six Months Ended of Operations
June 30, June 30, (January 1,
-------------------------------------------------- 1993) to
1995 1996 1995 1996 June 30, 1996
-------- -------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss (382,049) (222,576) (1,175,393) (475,532) (4,912,423)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,200 1,920 2,400 3,925 14,422
Rent recorded as capital contribution 22,000
Amortization of debt issuance costs 360,250
Changes in operating assets and liabilities:
Accounts receivable 49,730 49,730 49,730
Other receivables 736,747 300,000 (166,697)
Organization costs (12,000)
Prepaid expenses and other assets 236,050 (166,340) 494,041 (124,684) (255,058)
Accounts payable and other current liabilities (135,474) (12,991) (157,689) (6,617) 169,942
------------------------------------------------------------------
Net cash (used in) operating activities 456,474 (350,257) (536,641) (553,178) (4,729,834)
------------------------------------------------------------------
Cash flows from investing activities:
Purchase of fixed assets (112,808) (493,120) (1,367,414)
Patent costs 1,526 (291) (192,318)
Deposits (2,500) (9,625)
------------------------------------------------------------------
Net cash (used in) investing activities (112,808) 1,526 (495,911) 0 (1,569,357)
------------------------------------------------------------------
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 0 991,547 7,296,428
------------------------------------------------------------------
Net cash provided by financing activities 0 991,547 6,997,428
------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 343,666 (348,731) (1,032,552) 438,369 698,237
Cash and cash equivalents - beginning of period 506,460 1,046,968 1,882,678 259,868
------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD 850,126 698,237 850,126 698,237 698,237
==================================================================
Supplemental disclosures of cash flow information
Interest paid 83,317
Supplemental disclosures of non-cash financing
activities:
Warrants issued 61,250
</TABLE>
See notes to condensed financial statements.
4
<PAGE>
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 six-month period ended June 30, 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 $1.00 per share. After this
transaction, the Company has 3,765,000 shares outstanding.
5
<PAGE>
SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE D - Related Party Transactions
[1] Research and development expense includes the following payments to
related parties for the periods indicated:
January 1, 1995 - June 30, 1995 ...........$ 100,000
==========
January 1, 1996 - June 30, 1996............$ 63,833
==========
January 1, 1993 - June 30, 1996............$ 487,359
==========
General and Administrative expenses for the six-month periods ended June
30, 1995 and June 30, 1996, and for the period from January 1, 1993 through June
30, 1996 includes $126,289, $110,000 and $565,250, 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 June 30, 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 incentive stock options to officers
and employees of the Company to purchase, at $6.00 and $1.00 per share, 10,000
shares and 82,500 shares, respectively, of Class A common stock. During 1995 and
1996, the Company also granted an aggregate of 16,000 and 1,500, respectively,
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 $2,543,000 through June 30,
1996 (including $256,000 and $50,000 in the periods ended June 30, 1995 and
1996, respectively), for development work. The Company is charging research and
6
<PAGE>
SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE F - Jet Propulsion Laboratory Agreement (cont.)
development expense as JPL utilizes the funds. JPL commenced its work with
respect to the contract in April 1994.
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>
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 $4,912,424 of which $475,532 and $1,175,393 were incurred during the
six-month periods ended June 30, 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 employees which are continuing to date.
Research and development expenses have aggregated $3,012,887 since inception, of
which $151,945 and $791,636 were incurred during the six-month periods ended
June 30, 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 $60,003 during the
six-month period ended June 30, 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 $1,594,018 since the Company's
inception in July 1992, of which $340,279 and $433,537 were expended during the
six-month periods ended June 30, 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>
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
June 30, 1996 of $4,912,423. However, the Company believes that it has the
necessary liquidity and capital resources to sustain planned operations for
approximately one year following June 30, 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 June 30, 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>
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: August 14, 1996 By:/s/ Martin D. Fife
-------------------
Martin D. Fife,
Chief Executive Officer
Date: August 14, 1996 By:/s/ Martin D. Fife
--------------------
Martin D. Fife,
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
CONDENSED BALANCE SHEET AND CONDENSED STATEMENT OF OPERATIONS FOR THE
THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1996.
</LEGEND>
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 3-MOS 3-MOS 6-MOS 6-MOS OTHER
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1995 DEC-31-1996 DEC-31-1996
<PERIOD-END> JUN-30-1995 JUN-30-1996 JUN-30-1995 JUN-30-1996 JUN-30-1996
<CASH> 0 0 0 698,237 0
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 0 0 0 116,967 0
<ALLOWANCES> 0 0 0 0 0
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 0 0 0 1,107,788 0
<PP&E> 0 0 0 13,469 0
<DEPRECIATION> 0 0 0 4,497 0
<TOTAL-ASSETS> 0 0 0 2,672,555 0
<CURRENT-LIABILITIES> 0 0 0 169,942 0
<BONDS> 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
<COMMON> 0 0 0 3,765 0
<OTHER-SE> 0 0 0 2,498,847 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0 0 2,672,555 0
<SALES> 0 0 0 0 0
<TOTAL-REVENUES> 0 0 0 0 0
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 0 0 0 0 0
<OTHER-EXPENSES> 394,187 232,670 1,225,173 492,224 4,606,906
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0 382,317
<INCOME-PRETAX> (382,049) (222,575) (1,175,393) (475,532) (4,912,423)
<INCOME-TAX> 0 0 0 0 0
<INCOME-CONTINUING> (382,049) (222,575) (1,175,393) (475,532) (4,912,423)
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> (382,049) (222,575) (1,175,393) (475,532) (4,912,423)
<EPS-PRIMARY> (.17) (.08) (.52) (.19) (2.77)
<EPS-DILUTED> (.17) (.08) (.52) (.19) (2.77)
</TABLE>
