<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: June 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.
June 30, 1997
-------------
Class A Common Stock 3,253,550
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 JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................................... 178
Prepaid expenses & other current assets........................................ 14,307
---------
Total current assets......................................................... 14,485
Equipment, at cost (net of $1,947 accumulated depreciation)...................... 2,863
Patent costs (net of $13,575 accumulated depreciation)........................... 85,044
Other............................................................................ 10,825
---------
TOTAL........................................................................ 113,217
---------
---------
LIABILITIES
Current Liabilities:
Accrued expenses............................................................... 221,404
Accrued salaries............................................................... 66,441
Loans payable--stockholders.................................................... 43,000
---------
Total current liabilities.................................................... 330,845
---------
Contract settlement due after one year (Note I).................................. 15,000
---------
STOCKHOLDERS' EQUITY (DEFICIENCY)
(Notes B, C, D, E, F and I)
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,
3,253,550 shares issued and outstanding, including 127,875 forfeitable
shares......................................................................... 3,254
Capital in excess of par value................................................... 7,933,523
Deficit accumulated during the development stage................................. (8,228,108)
---------
Sub-total.................................................................... (289,809)
Add: stock to be issued in settlement of contract (Note I)....................... 25,313
stock to be issued to employees for deferral of salaries (Note D)............ 41,449
Less: 667,750 Class B shares held in the Treasury, at cost (Note E[3])........... (9,580)
---------
Total stockholders' equity (deficiency)..................................... (232,627)
---------
TOTAL........................................................................ 113,217
---------
---------
</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
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED OF OPERATIONS
JUNE 30, JUNE 30, (JANUARY 1,
-------------------------- -------------------------- 1993) TO
1996 1997 1996 1997 JUNE 30, 1997
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Operating Expenses:
Research and development
expenses (Note E[1])........ 61,833 141,587 151,945 350,039 5,289,946
General and administrative
expenses (Note E)........... 170,837 253,097 340,279 455,872 2,640,000
------------ ------------ ------------ ------------ --------------
Total operating expenses...... 232,670 394,684 492,224 805,911 7,929,946
------------ ------------ ------------ ------------ --------------
Loss from Operations............ (232,670) (394,684) (492,224) (805,911) (7,929,946)
------------ ------------ ------------ ------------ --------------
Financing Costs (Income):
Interest (income)............. (10,095) (16,692) (145,405)
Interest expense.............. 83,317
Amortization of deferred
financing costs............. 299,000
Amortization of debt
discount.................... 61,250
------------ ------------ ------------ ------------ --------------
Total financing costs
(income).................... (10,095) 0 (16,692) 0 298,162
------------ ------------ ------------ ------------ --------------
NET LOSS........................ (222,575) (394,684) (475,532) (805,911) (8,228,108)
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
Net loss per share of common
stock......................... $ (0.08) $ (0.15) $ (0.19) $ (0.34) $ (4.25)
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
Weighted average number of
common shares and common share
equivalents outstanding....... 2,765,000 2,558,752 2,567,198 2,344,193 1,934,786
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
</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
1996 1997 1996 1997 JUNE 30, 1997
---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. (222,576) (394,683) (475,532) (805,911) (8,228,108)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 1,920 2,565 3,925 5,130 29,202
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:
Accounts receivable............................... 49,730 49,730
Organization costs................................ (12,000)
Prepaid expenses and other assets................. (166,340) 16,615 (126,210) 78,323 13,796
Accounts payable and other liabilities............ (12,991) 158,247 (6,617) 168,968 345,846
---------- ---------- ---------- ---------- --------------
Net cash (used in) operating activities............. (350,257) (217,258) (554,704) (553,492) (5,994,758)
---------- ---------- ---------- ---------- --------------
Cash flows from investing activities:
Purchase of fixed assets.............................. (1,367,414)
Patent costs.......................................... 1,526 1,526 (193,620)
Deposits.............................................. (9,625)
---------- ---------- ---------- ---------- --------------
Net cash (used in) investing activities............. 1,526 1,526 (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................ 117,283 991,547 532,284 7,869,595
Purchase of treasury stock............................ (5,000)
---------- ---------- ---------- ---------- --------------
Net cash provided by financing activities........... 117,283 991,547 532,284 7,565,595
---------- ---------- ---------- ---------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (348,731) (99,975) 438,369 (21,208) 178
Cash and cash equivalents--beginning of period.......... 1,046,968 100,153 259,868 21,386
---------- ---------- ---------- ---------- --------------
CASH AND CASH EQUIVALENTS--END OF PERIOD................ 698,237 178 698,237 178 178
---------- ---------- ---------- ---------- --------------
---------- ---------- ---------- ---------- --------------
Supplemental disclosures of cash flow information
Taxes paid............................................ 1,493 9,965 47,308
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 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, 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 Phrase I or that the Company will be in a position to
proceed with Phase II. As of August 15, 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 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 June 30, 1997, 930,000
Class A common shares had been issued at $.50 per share for a total of
$465,000; two officers of the Company participated in this private placement.
For each share of stock
5
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SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE C - Sale of Common Stock (cont.)
issued, each purchaser will receive 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
In May 1997 the Company issued 51,667 shares of Class A common shares to
employees in exchange for the deferral of salaries due through May 15, 1997.
In addition, each employee will receive two options to purchase Class A
common shares, exercisable at $1.00 and $1.50, respectively. The issuance of
these shares increased the total shares outstanding to 4,108,917.
Through August 15, 1997, an additional 164,447 shares and 328,894 options are
due to employees for the continued deferral of salaries due.
In addition, as of August 15, 1997, 160,400 shares and 320,800 warrants
(exercisable under the terms noted above) are due to two stockholders of the
Company (including one officer) for working capital loans totalling $80,200.
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 - June 30, 1996 ......... $ 63,833
---------
---------
January 1, 1997 - June 30, 1997.......... $ 62,725
---------
---------
January 1, 1993 - June 30, 1997.......... $ 585,709
---------
---------
General and Administrative expenses for the six-month periods ended
June 30, 1996 and June 30, 1997, and for the period from January 1, 1993
through June 30, 1997 includes $110,000, $153,541 and $816,791,
respectively, paid or due to three officers/stockholders and three
director/stockholders.
6
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SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE E - Related Party Transactions (cont.)
[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.
During the six-month period ended June 30, 1997, the Company granted
23,170 nonqualified stock options exercisable at $1.00 per share and 15,000
nonqualified stock options exercisable at $1.25 per share to two consultants
to the Company.
NOTE G - 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 charged research and
development expense as JPL utilized 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
7
<PAGE>
SKYSAT COMMUNICATIONS NETWORK CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE G - Jet Propulsion Laboratory Agreement (cont.)
microwave-powered platforms; the Company paid JPL $50,000 in 1996 for this
research which was substantially completed in early 1997.
NOTE H - 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
$216,113 in the six- month period ended June 30, 1997.
NOTE I - 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 $8,228,108 of which $475,532 and $805,911 were incurred
during the six-month periods ended June 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
$5,289,946 since inception, of which $151,945 and $350,039 were incurred
during the six-month periods ended June 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
9
<PAGE>
Technology which operates JPL under contract from NASA, commenced in April
1994. JPL incurred expenses aggregating $53,218 during the six-month period
ended June 30, 1997.
General and administrative expenses were $2,640,000 since the Company's
inception in July 1992, of which $340,279 and $455,872 were expended during
the six-month periods ended June 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, has been extended
through October 4, 1997.
Liquidity and Capital Resources:
The Company has had no revenue and has incurred a cumulative loss
through June 30, 1997 of $8,228,108. The Company currently does not have the
necessary liquidity and capital resources to sustain planned operations for
the one year period following June 30, 1997 unless it obtains additional
financing. The Company raised $465,000 from a private placement in early
1997 and is presently negotiating a private placement to raise additional
funds. At August 15, 1997, the Company has no 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 June 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
10
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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
and completed development of the Skysat System.
11
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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: August 19, 1997 By: /s/ Martin D. Fife
--------------------------
Martin D. Fife,
Chief Executive Officer
Date: August 19, 1997 By: /s/ Martin D. Fife
--------------------------
Martin D. Fife,
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
CONDENSED BALANCE SHEET AND CONDENSED STATEMENT OF OPERATIONS FOR THE SIX-MONTH
PERIOD ENDED JUNE 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 178
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,485
<PP&E> 2,863
<DEPRECIATION> 1,947
<TOTAL-ASSETS> 113,217
<CURRENT-LIABILITIES> 330,845
<BONDS> 0
0
0
<COMMON> 4,777
<OTHER-SE> (237,404)
<TOTAL-LIABILITY-AND-EQUITY> 113,217
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 805,911
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (805,911)
<INCOME-TAX> 0
<INCOME-CONTINUING> (805,911)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (805,911)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
