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: March 31, 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.
March 31, 1997
--------------
Class A Common Stock 2,271,883
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 March 31, 1997
(unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents 100,153
Prepaid research and development costs (Note F) 3,492
Prepaid expenses & other current assets 26,830
----------
Total current assets 130,475
Equipment, at cost (net of $1,782 accumulated depreciation) 3,028
Patent costs (net of $11,175 accumulated depreciation) 87,444
Other 11,425
----------
TOTAL 232,372
==========
LIABILITIES
-----------
Current Liabilities:
Accrued expenses 172,598
----------
Contract settlement due after one year (Note H) 15,000
----------
STOCKHOLDERS' EQUITY
--------------------
(Notes B, C, D E 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,
2,271,883 shares issued and outstanding, including 127,875 forfeitable shares 2,272
Capital in excess of par value 7,443,671
Deficit accumulated during the development stage (7,833,425)
----------
Sub-total (385,959)
Add: stock to be issued in settlement of contract (Note H) 25,313
stock subscribed and paid, not yet issued (Note C) 415,000
Less: 667,750 Class B shares held in the Treasury, at cost (Note D[3]) (9,580)
----------
Total stockholders' equity 44,774
----------
TOTAL 232,372
==========
</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
For the Three Months Ended of Operations
March 31, (January 1,
------------------------------ 1993) to
1996 1997 March 31, 1997
---- ---- --------------
<S> <C> <C> <C>
Operating Expenses:
Research and development expenses (Note D[1]) 90,112 208,452 5,148,359
General and administrative expenses (Note D) 169,442 202,775 2,386,903
------------------------------------------------
Total operating expenses 259,553 411,227 7,535,263
------------------------------------------------
Loss from Operations (259,553) (411,227) (7,535,263)
------------------------------------------------
Financing Costs (Income):
Interest (income) (6,597) (145,405)
Interest expense 83,317
Amortization of deferred financing costs 299,000
Amortization of debt discount 61,250
------------------------------------------------
Total financing costs (income) (6,597) 0 298,162
------------------------------------------------
NET LOSS (252,956) (411,227) (7,833,425)
================================================
Net loss per share of common stock $ (0.11) $ (0.19) $ (4.13)
================================================
Weighted average number of common shares
and common share equivalents outstanding 2,369,396 2,127,250 1,897,942
================================================
</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
For the Three Months Ended of Operations
March 31, (January 1,
-------------------------- 1993) to
1996 1997 March 31, 1997
---------- ---------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss (252,956) (411,228) (7,833,425)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,575 3,165 27,237
Write off of fixed assets 1,353,945
Write off of patents 95,000
Stock to be issued in settlement of contract 25,313
Rent recorded as capital contribution 22,000
Amortization of debt issuance costs 360,250
Changes in operating assets and liabilities:
Organization costs (12,000)
Prepaid expenses 40,086 61,108 (3,419)
Accounts payable and other liabilities 6,374 10,722 187,600
-----------------------------------------------
Net cash (used in) operating activities (202,921) (336,233) (5,777,499)
-----------------------------------------------
Cash flows from investing activities:
Purchase of fixed assets (1,367,414)
Patent costs (1,526) (193,620)
Deposits (9,625)
-----------------------------------------------
Net cash (used in) investing activities (1,526) 0 (1,570,659)
-----------------------------------------------
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 991,547 415,000 7,752,311
Purchase of treasury stock (5,000)
-----------------------------------------------
Net cash provided by financing activities 991,547 415,000 7,448,311
-----------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 787,100 78,767 100,153
Cash and cash equivalents - beginning of period 259,868 21,386
-----------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD 1,046,968 100,153 100,153
===============================================
Supplemental disclosures of cash flow information
Taxes paid 9,503 8,472 46,846
Interest paid 83,317
Fixed assets exchanged for treasury stock
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 three-month period ended March 31,
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 May 15, 1997, the Company has nominal operating capital. 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
In February 1997 the Company commenced selling, in a private placement,
unregistered shares of Class A common stock. Through March 31, 1997, 830,000
Class A common shares had been subscribed to at $.50 per share for a total of
5
<PAGE>
SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE C - Sale of Common Stock (cont.)
$415,000 (930,000 shares for a total of $465,000 through May 15, 1997); two
officers of the Company participated in this private placement. For each share
of stock issued, each purchaser also will receive two warrants to purchase Class
A common shares; the warrants will be exercisable at $1.00 and $1.50,
respectively. After this transaction, the Company will have 4,057,250 shares
outstanding.
NOTE D - Related Party Transactions
[1] Research and development expense includes the following payments to
related parties for the periods indicated:
January 1, 1996 - March 31, 1996 ...........$ 40,833
=========
January 1, 1997 - March 31, 1997 ...........$ 22,500
=========
January 1, 1993 - March 31, 1997 ...........$ 545,484
=========
General and Administrative expenses for the three-month periods
ended March 31, 1996 and March 31, 1997, and for the period from January 1, 1993
through March 31, 1997 includes $55,000, $55,000 and $718,250, 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.
[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.
6
<PAGE>
SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE E - 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.
During the three-month period ended March 31, 1997, the Company granted
8,340 nonqualified stock options exercisable at $1.00 per share to a consultant
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 $2,493,000 through March
31, 1997, for development work. The Company is charging research and 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 1996. In
addition, during 1996 JPL was tasked by the Company to do research work on
telecommunications payload development with regard to conventionally-powered and
mocriwave-powered platforms; the Company paid JPL $50,000 in 1996 for this
research which was substantially completed in early 1997.
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 $130,357 in the three- month
period ended March 31, 1997.
7
<PAGE>
SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
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. MAGEMENT'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 $7,833,425 of which $252,956 and $411,227 were incurred during the
three-month periods ended March 31, 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 $5,148,359 since inception, of
which $90,112 and $208,452 were incurred during the three-month periods ended
March 31, 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 three-month period ended March
31, 1997.
General and administrative expenses were $2,386,903 since the Company's
inception in July 1992, of which $169,442 and $202,775 were expended during the
three-month periods ended March 31, 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 expires in June 1997. The Company will use its
best efforts to extend the agreement.
Liquidity and Capital Resources:
The Company has had no revenue and has incurred a cumulative loss
through March 31, 1997 of $7,833,425. The Company currently does not have the
necessary liquidity and capital resources to sustain planned operations for the
one year period following March 31, 1997 unless it obtains additional financing.
The Company raised $435,000 from a private placement in early 1997 and expects
to raise an additional $200,000 during May 1997. There can be no assurances as
to the availability or terms of such additional financing. At May 15, 1997, the
Company has nominal operating 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 March 31, 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: May 20, 1997 By: /s/ Martin D. Fife
-------------------
Martin D. Fife,
Chief Executive Officer
Date: May 20, 1997 By: /s/ Martin D. Fife
-------------------
Martin D. Fife,
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from condensed
balance sheet and condensed statement of operations for the three-month period
ended March 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 100,153
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 130,475
<PP&E> 4,810
<DEPRECIATION> 1,782
<TOTAL-ASSETS> 232,372
<CURRENT-LIABILITIES> 172,598
<BONDS> 0
0
0
<COMMON> 3,795
<OTHER-SE> 40,979
<TOTAL-LIABILITY-AND-EQUITY> 232,372
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (411,227)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (411,227)
<INCOME-TAX> 0
<INCOME-CONTINUING> (411,227)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (411,227)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
