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: September 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
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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.
September 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 September 30, 1996
(unaudited)
ASSETS
------
Current Assets:
Cash and cash equivalents 392,316
Prepaid research and development costs (Note F) 4,014
Prepaid expenses & other current assets 87,699
----------
Total current assets 484,029
Equipment, at cost (net of $5,097 accumulated depreciation) 8,372
Patent costs (net of $6,375 accumulated depreciation) 187,244
Equipment under construction (Note G) 200,000
Advances to Joint Venture (Note G) 302,096
Other 12,625
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TOTAL 1,194,366
==========
LIABILITIES
-----------
Current Liabilities:
Accrued expenses 149,494
----------
Total current liabilities 149,494
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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 1,694
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 (6,370,164)
----------
Total stockholders' equity 1,044,872
----------
TOTAL 1,194,366
==========
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
For the Three Months Ended For the Nine Months Ended of Operations
September 30, September 30, (January 1,
-------------------------- ------------------------- 1993) to
1995 1996 1995 1996 Sept. 30, 1996
---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
Operating Expenses:
Research and development expenses
(Notes D[1] and G) 103,267 1,223,401 894,903 1,375,346 4,236,289
General and administrative expenses
(Note D) 178,720 241,253 612,257 581,532 1,835,271
------------------------- ------------------------- ----------
Total operating expenses 281,987 1,464,654 1,507,160 1,956,878 6,071,561
------------------------- ------------------------- ----------
Loss from Operations (281,987) (1,464,654) (1,507,160) (1,956,878) (6,071,561)
------------------------- ------------------------- ----------
Financing Costs (Income):
Interest (income) (8,159) (6,915) (57,939) (23,607) (144,965)
Interest expense 83,317
Amortization of deferred financing costs 299,000
Amortization of debt discount 61,250
------------------------- ------------------------- ----------
Total financing costs (income) (8,159) (6,915) (57,939) (23,607) 298,602
------------------------- ------------------------- ----------
NET LOSS (273,828) (1,457,740) (1,449,221) (1,933,272) (6,370,164)
========================= ========================= ===========
Net loss per share of common stock $ (0.12) $ (0.53) $ (0.64) $ (0.73) (3.47)
========================= ========================= ===========
Weighted average number of common shares
and common share equivalents outstanding 2,265,000 2,765,000 2,265,000 2,633,613 1,837,404
========================= ========================= ===========
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
Condensed Statements of Cash Flows
(unaudited)
For the
<TABLE>
<CAPTION>
Period from
Commencement
Three Months Ended Nine Months Ended of Operations
September 30, September 30, (January 1,
----------------------------------------------- 1993) to
1995 1996 1995 1996 Sept. 30, 1996
---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss (273,828) (1,457,740) (1,449,221) (1,933,272) (6,370,164)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 1,200 6,050 3,600 9,975 20,472
Rent recorded as capital contribution 22,000
Amortization of debt issuance costs 360,250
Write-off of equipment under construction (Note G) 1,153,945 1,153,945 1,153,945
Changes in operating assets and liabilities:
Accounts & other receivables 116,967 300,000 166,697 0
Organization costs (12,000)
Prepaid expenses and other assets (56,579) (103,394) 437,462 (228,078) (358,451)
Accounts payable and other current liabilities 11,362 (20,448) (146,327) (27,065) 149,494
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Net cash (used in) operating activities (317,845) (304,620) (854,486) (857,798) (5,034,454)
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Cash flows from investing activities:
Purchase of fixed assets (15,192) (508,312) (1,367,414)
Patent costs (1,301) (291) (1,301) (193,619)
Deposits (2,500) (9,625)
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Net cash (used in) investing activities (15,192) (1,301) (511,103) (1,301) (1,570,658)
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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 (333,037) (305,921) (1,365,589) 132,448 392,316
Cash and cash equivalents - beginning of period 850,126 698,237 1,882,678 259,868
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CASH AND CASH EQUIVALENTS - END OF PERIOD 517,089 392,316 517,089 392,316 392,316
================================================================
Supplemental disclosures of cash flow information
Taxes paid 1,364 1,364
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 nine-month period ended September 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 - Sept. 30, 1995 ........... $ 150,000
=========
January 1, 1996 - Sept. 30, 1996............ $ 76,458
=========
January 1, 1993 - Sept. 30, 1996............ $ 500,484
=========
General and Administrative expenses for the nine-month periods ended
September 30, 1995 and September 30, 1996, and for the period from January 1,
1993 through September 30, 1996 includes $181,289, $165,000 and $620,250,
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 September 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") has developed a preliminary design of the
Skysat System and determined its technical feasibility.
Under the JPL Agreement, the Company paid JPL $2,543,000 through Sept. 30,
1996 (including $256,000 and $50,000 in the periods ended Sept. 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 initial contract in April 1994 and substantially completed it in
September 1996.
NOTE G - Av-Intel Inc. Agreement
In April 1996 the Company entered into an agreement with Av-Intel Inc.
("Av-Intel"), a research and 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. In conjunction with this agreement, the Company
has advanced $302,000 to and on behalf of the joint venture being formed.
Due to the redirection of the Company's primary efforts toward
lighter-than-air technology, the Company wrote down, to estimated realizable
value, equipment previously being developed based on glider technology; this
write down resulted in a charge to research and development expense of
$1,154,000 in the quarter ended September 30, 1996.
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 $6,370,164 of which $1,933,272 and $1,449,221 were incurred during the
nine-month periods ended September 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, the 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 $4,236,289 since inception, of
which $1,375,346 and $894,903 were incurred during the nine-month periods ended
September 30, l996 and l995, respectively. Research and development expenses for
the nine-month period ended September 30, 1996 includes $1,153,945 resulting
from the write-down to estimated realizable value of capitalized costs relating
to the prototype aircraft discussed above.
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 incurred expenses aggregating $134,612 during the nine-month
period ended September 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 $1,835,271 since the Company's
inception in July 1992, of which $581,532 and $612,257 were expended during the
six-month periods ended September 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, the
development and construction of the Platform and other related vehicles and the
development of the flight management system and other related activities.
8
<PAGE>
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 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
September 30, 1996 of $6,370,164. The Company currently does not have the
necessary liquidity and capital resources to sustain planned operations for the
one year period following September 30, 1996 unless it obtains additional
financing. There can be no assurances as to the availability or terms of such
additional financing. 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 September 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. 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: November 19, 1996 By: /s/ Martin D. Fife
------------------------------
Martin D. Fife,
Chief Executive Officer
Date: November 19, 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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996
</LEGEND>
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS OTHER
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1995 DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1995 SEP-30-1996 SEP-30-1995 SEP-30-1996 SEP-30-1996
<CASH> 0 0 0 0 0
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 0 0 0 0 0
<ALLOWANCES> 0 0 0 0 0
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 0 0 0 0 0
<PP&E> 0 0 0 0 0
<DEPRECIATION> 0 0 0 0 0
<TOTAL-ASSETS> 0 0 0 0 0
<CURRENT-LIABILITIES> 0 0 0 0 0
<BONDS> 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
<COMMON> 0 0 0 0 0
<OTHER-SE> 0 0 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0 0 0 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> 281,987 1,464,654 1,507,160 1,956,878 6,071,561
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0 83,317
<INCOME-PRETAX> (273,828) (1,457,740) (1,449,221) (1,933,272) (6,370,164)
<INCOME-TAX> 0 0 0 0 0
<INCOME-CONTINUING> (273,828) (1,457,740) (1,449,221) (1,933,272) (6,370,164)
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> (273,828) (1,457,740) (1,449,221) (1,933,272) (6,370,164)
<EPS-PRIMARY> (.12) (.53) (.64) (.73) (3.47)
<EPS-DILUTED> (.12) (.53) (.64) (.73) (3.47)
</TABLE>
