<PAGE>
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: September 30, 1997
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.
September 30, 1997
Class A Common Stock 3,268,550
Class B Common Stock 855,367
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, 1997
(unaudited)
A S S E T S
Current Assets:
Cash and cash equivalents................................. 161
Prepaid expenses.......................................... 44,757
Other current assets...................................... 3,013
---------
Total current assets.................................. 47,931
Equipment, at cost (net of $2,112 accumulated depreciation). 2,698
Patent costs (net of $15,975 accumulated depreciation)...... 82,644
Other....................................................... 10,225
---------
TOTAL................................................. 143,498
---------
---------
L I A B I L I T I E S
Current Liabilities:
Accrued expenses.......................................... 320,431
Accrued salaries.......................................... 142,723
Notes payable--stockholders (Note D)...................... 152,309
Less: deferred financing costs.......................... (97,137)
---------
Total current liabilities............................. 518,326
---------
STOCKHOLDERS' EQUITY (DEFICIENCY)
(Notes B, C, D, E, F and H)
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; 1,523,117 shares
issued, including 872,125 forfeitable shares and
667,750 treasury shares................................... 1,523
Class A common stock, par value $0.001 per share,
18,000,000 shares authorized, 3,268,550 shares
issued and outstanding, including 127,875
forfeitable shares ....................................... 3,269
Capital in excess of par value.............................. 7,943,879
Deficit accumulated during the development stage............ (8,496,419)
---------
Sub-total............................................. (547,748)
Add: stock to be issued in settlement of contract (Note H).. 25,313
stock to be issued to officer/stockholder
for loans (Note D)................................... 157,188
Less: 667,750 Class B shares held in the Treasury,
at cost (Note E[3]).................................. (9,580)
---------
Total stockholders' equity (deficiency)............. (374,828)
---------
TOTAL................................................. 143,498
---------
---------
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 FOR THE NINE MONTHS OF OPERATIONS
ENDED ENDED (JANUARY 1,
SEPTEMBER 30, SEPTEMBER 30, 1993) TO
----------------------- ------------------------ SEPT. 30,
1996 1997 1996 1997 1997
----------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Operating Expenses:
Research and development expenses (Note
E[1])..................................... 1,423,401 54,004 1,575,347 404,043 5,343,951
General and administrative expenses (Note
E)........................................ 241,253 144,075 581,532 599,947 2,784,075
----------- ---------- ----------- ----------- -------------
Total operating expenses.................... 1,664,654 198,079 2,156,879 1,003,990 8,128,026
----------- ---------- ----------- ----------- -------------
Loss from Operations........................ (1,664,654) (198,079) (2,156,879) (1,003,990) (8,128,026)
----------- ---------- ----------- ----------- -------------
Financing Costs (Income):
Interest (income)........................... (6,915) (23,607) (145,405)
Interest expense............................ 2,368 2,368 85,685
Amortization of deferred financing costs.... 67,863 67,863 366,863
Amortization of debt discount............... 61,250
----------- ---------- ----------- ----------- -------------
Total financing costs (income).............. (6,915) 70,231 (23,607) 70,231 368,393
----------- ---------- ----------- ----------- -------------
NET LOSS.................................... (1,657,740) (268,310) (2,133,272) (1,074,221) (8,496,419)
----------- ---------- ----------- ----------- -------------
----------- ---------- ----------- ----------- -------------
Net loss per share of common stock.......... $ (0.60) $ (0.09) $ (0.81) $ (0.41) $ (4.25)
----------- ---------- ----------- ----------- -------------
----------- ---------- ----------- ----------- -------------
Weighted average number of common shares and
common share equivalents outstanding...... 2,765,000 3,114,297 2,633,613 2,603,660 1,997,302
----------- ---------- ----------- ----------- -------------
----------- ---------- ----------- ----------- -------------
</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
OF OPERATIONS
NINE MONTHS ENDED (JANUARY 1,
SEPTEMBER 30, 1993) TO
------------------------ SEPT. 30,
1996 1997 1997
----------- ----------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................. (2,133,272) (1,074,221) (8,496,419)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization...................................... 9,975 7,695 31,767
Write off of fixed assets.......................................... 1,353,945 1,353,945
Write off of patents............................................... 95,000
Expenses paid by issuance of shares or options..................... 36,205 36,205
Stock to be issued in settlement of contract....................... 25,313
Stock to be issued to officer/stockholder.......................... 157,188 157,188
Rent recorded as capital contribution.............................. 22,000
Amortization of debt issuance costs................................ 67,863 428,113
Changes in operating assets and liabilities:
Accounts receivable.............................................. 166,697
Organization costs............................................... (12,000)
Prepaid expenses and other assets................................ (228,078) 45,460 (19,067)
Accounts payable and other liabilities........................... (27,065) 121,278 298,157
----------- ----------- -------------
Net cash (used in) operating activities............................ (857,798) (638,534) (6,079,800)
----------- ----------- -------------
Cash flows from investing activities:
Purchase of fixed assets............................................. (1,367,414)
Patent costs......................................................... (1,301) (193,620)
Deposits............................................................. (9,625)
----------- ----------- -------------
Net cash (used in) investing activities............................ (1,301) (1,570,659)
----------- ----------- -------------
Cash flows from financing activities:
Proceeds from notes payable.......................................... 152,309 2,303,309
Repayment of notes payable........................................... (2,450,000)
Net proceeds from sale of common stock............................... 991,547 465,000 7,802,311
Purchase of treasury stock........................................... (5,000)
----------- ----------- -------------
Net cash provided by financing activities.......................... 991,547 617,309 7,650,620
----------- ----------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... 132,448 (21,225) 161
Cash and cash equivalents--beginning of period......................... 259,868 21,386
----------- ----------- -------------
CASH AND CASH EQUIVALENTS--END OF PERIOD............................... 392,316 161 161
----------- ----------- -------------
----------- ----------- -------------
Supplemental disclosures of cash flow information
Taxes paid........................................................... 1,364 11,965 49,308
Interest paid........................................................ 83,317
Fixed assets exchanged for treasury stock............................ 4,580
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 pursuant to instructions to Form 10-QSB and Item 310(b) of
Regulation S-B of the SEC. Accordingly, they do not include all of the
information and footnote disclosures 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, 1997, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1997. 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, 1996.
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. As of October 31, 1997, the Company has no operating capital.
These factors raise substantial doubt about the ability of the Company to
continue as a going concern. 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
From February through April, 1997, the Company sold, in a private
placement, unregistered shares of Class A common stock. Through this private
placement, 930,000 Class A common shares were issued at $.50 per share for a
total of $465,000;
5
<PAGE>
SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE C - Sale of Common Stock (cont.)
two officers of the Company participated in this private placement. For
each share of stock issued, each purchaser received two warrants to purchase
Class A common shares, exercisable at $1.00 and $1.50, respectively. After
this transaction, the Company had 4,057,250 shares outstanding.
NOTE D - Common Stock to be Issued for Deferral of Salaries/Stockholder Loans
Employees of the Company agreed to defer salaries due from February 15
through October 31, 1997. In addition, one stockholder and one
officer/stockholder have made working capital loans to the Company bearing
interest at 10%. In consideration for such salary deferrals and loans, the
Company has issued or committed to be issued the following shares, options
and warrants:
<TABLE>
<CAPTION>
Number of Value of Number of
Options/Warrants for Class A
Class A Class A Common Shares Exercisable @
Common Common ---------------------------------
Shares Shares $0.50 $1.00 $1.50
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
For salary deferrals:
Through 5/15/97 (1) 51,667 $21,844 51,667 51,667
Through 7/31/97 (1) 137,265 137,265 137,265
Through 10/31/97 (2) 126,537 126,537 126,537
------ ------- ------- ------- -------
Totals 51,667 $21,844 263,802 315,469 315,469
------ ------- ------- ------- -------
------ ------- ------- ------- -------
For stockholder loans:
Through 7/31/97 (1) 15,000 $7,812 15,000 15,000
Through 7/31/97 (1) 169,000 169,000
Through 10/31/97(2) 323,618 $157,188 154,618 154,618
------ -------- ------- ------- -------
Totals 338,618 $165,000 338,618 338,618
------ ------- ------- ------- -------
------ ------- ------- ------- -------
</TABLE>
(1) Issued prior to balance sheet date
(2) Issuable as of October 31, 1997
6
<PAGE>
SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE E - Related Party Transactions
[1] Research and development expense includes the following payments or
accruals to related parties for the periods indicated:
January 1, 1996 - September 30, 1996 ...........$ 76,458
---------
---------
January 1, 1997 - September 30, 1997............$ 72,975
---------
---------
January 1, 1993 - September 30, 1997............$ 595,959
---------
---------
General and Administrative expenses for the nine-month periods ended
September 30, 1996 and September 30, 1997, and for the period from January
1, 1993 through September 30, 1997 includes $165,000, $168,245 and $831,495,
respectively, paid or due 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.
[3] In November 1996 the former president of the Company surrendered
667,750 shares of Class B common stock in return for certain fixed assets
with a net book value of $4,580 plus payment of attorney fees of $5,000.
This stock has been recorded at a cost of $9,580 and is being held as
treasury shares.
NOTE F - Stock Option Plan
Through December 31, 1996, the Company had granted incentive stock
options under the Stock Option Plan to certain Company directors, officers
and employees to purchase, at $6.00 per share, an aggregate of 70,000 shares
and to purchase, at $1.00 per share, an aggregate of 42,500 shares of Class A
common stock. During 1995 and 1996, the Company also granted an aggregate of
13,500 and 54,730 nonqualified options, respectively, to consultants to the
Company at exercise prices ranging from $1.00 to $6.00 per share.
7
<PAGE>
SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE F - Stock Option Plan (cont.)
During the nine-month period ended September 30, 1997, the Company
granted 23,170 nonqualified stock options exercisable at $1.00 per share to a
consultant to the Company. These options were valued at $6,549 and recorded
as consulting fees.
In addition to options granted during the nine-month period ended
September 30, 1997 for salary deferrals (Note D), the Company also granted
215,000 options to directors, officers and employees. Had compensation cost
for all of the options granted to directors, officers and employees through
September 30, 1997, been determined based upon fair value at the grant date
consistent with the methodology prescribed under SFAS #123, The Company's net
loss for the period would have increased by $162,800.
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 incurred research and development expenses of $252,306
and $251,628 in the nine- month periods ended September 30, 1996 and 1997,
respectively .
NOTE H - Settlement of Construction Agreement with B & R Designs, Inc.
In March 1997 the Company and B & R Designs, Inc. settled the amount
payable under a construction contract at $20,000 plus 30,000 shares of the
Company's Class A common stock upon receipt by the Company of a comprehensive
report detailing the research and development done at B & R Designs. The
Company has not yet received such a report.
8
<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:
Safe Harbor Statements:
Any statements contained herein by the Company with regard to its
expectations as to financial results and other aspects of its business
may constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Company makes such
statements based on assumptions which it believes to be reasonable, the
Company's business is subject to significant risks and there can be no
assurance that actual results will not differ materially from the Company's
expectations. Accordingly, the Company hereby identifies the following
important factors, among others, which could cause its results to differ
from any results which might be projected, forecasted or estimated by the
Company in any such forward-looking statements: (i) the timely development
and acceptance of the Company's product, (ii) the achievement of
development milestones by the Company, (iii) the timely receipt of
regulatory clearances required to market the Company's proposed product, and
(iv) the Company's ability to enter into arrangements with corporate
partners.
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 $8,496,419 of which $2,133,272 and $1,074,221 were
incurred during the nine-month periods ended September 30, 1996 and 1997,
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 $5,343,951 since inception, of which
$1,575,347 and $404,043 were incurred during the nine-month periods ended
September 30, l996 and l997, 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
9
<PAGE>
incurred expenses aggregating $53,218 during the nine-month period ended
September 30, 1997.
General and administrative expenses were $2,784,075 since the Company's
inception in July 1992, of which $581,532 and $599,947 were expended during
the nine-month periods ended September 30, 1996 and 1997, 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.
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 have worked together since the
inception of the agreement 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.
The Av-Intel Agreement, which expired in June 1997, was extended through
October 29, 1997. Management of the Company is currently negotiating a
further extension of this Agreement.
Liquidity and Capital Resources:
The Company has had no revenue and has incurred a cumulative loss through
September 30, 1997 of $8,496,419. The Company currently does not have the
necessary liquidity and capital resources to sustain planned operations for
the one year period following September 30, 1997 unless it obtains additional
financing. The Company raised $465,000 from a private placement in early
1997 and is attempting to raise additional financing from a second private
placement. As of October 31, 1997, the Company has no working capital. 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, 1997, the Company
intends to continue to conduct significant additional research, development
and testing 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
10
<PAGE>
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 and completed development of the Skysat
System.
11
<PAGE>
SKYSAT COMMUNICATIONS NETWORK CORPORATION
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.
Date: November 18, 1997 By: /s/ Martin D. Fife
-------------------------------
Martin D. Fife,
Chief Executive Officer
Date: November 18, 1997 By: /s/ Martin D. Fife
-------------------------------
Martin D. Fife,
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from condensed
balance sheet and condensed statement of operations for the nine-month period
ended September 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 161
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 47,931
<PP&E> 2,698
<DEPRECIATION> 2,112
<TOTAL-ASSETS> 143,498
<CURRENT-LIABILITIES> 518,326
<BONDS> 0
0
0
<COMMON> 4,792
<OTHER-SE> (379,620)
<TOTAL-LIABILITY-AND-EQUITY> 143,498
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,003,990
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,231
<INCOME-PRETAX> (1,074,221)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,074,221)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
