UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the Quarterly Period Ended March 31, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the transition period from _________ to _________
Commission File Number: 000-26607
SATELLITE ENTERPRISES CORP.
(Exact name of small business issuer as specified in its charter)
Nevada 88-0390828
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2140 South Dixie Highway 303, Miami, Florida 33133
(Address of principal executive offices)
(305) 858-1494
(Issuer's telephone number)
(Former name, former address and former fiscal year, if
changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
As of May 20, 2005, the Company had 226,292,559 issued and outstanding shares of
its $.001 par value common stock.
Transitional Small Business Disclosure Format: Yes |_| No |X|
Documents incorporated by reference: None.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements for Satellite Enterprises Corp. and
Subsidiary
Item 1. Financial Statements
SATELLITE ENTERPRISE CORP. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2005 2004
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash $ 208,214 $ 54,195
Accounts receivable 190,132 119,644
Inventory 133,994 59,079
------------ ------------
Total Current Assets 532,340 232,918
EQUIPMENT, net of accumulated depreciation of
$369,179 and $300,765 at March 31, 2005
December 31, 2004, respectively 1,226,586 1,276,727
OTHER ASSETS
Technology rights 15,458 15,458
------------ ------------
Total Assets $ 1,774,384 $ 1,525,103
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
5% Convertible subordinated debenture $ 500,000 $ 500,000
Accounts payable 1,283,595 951,771
Accrued expenses 141,724 103,256
Accrued salaries and related expenses 350,456 253,444
------------ ------------
Total Current Liabilities 2,275,775 1,808,471
LONG-TERM LIABILITIES
Notes payable to related parties 1,532,416 1,436,617
Loans payable 1,227,059 1,247,878
------------ ------------
Total Long -Term Liabilities 2,759,475 2,684,495
STOCKHOLDERS' DEFICIT
Preferred stock, par value $0.001 authorized
5,000,000 shares, none issued and outstanding
Common stock authorized 500,000,000
shares; par value $0.001; issued and
outstanding 225,168,271 shares at
March 31, 2005 and December 31, 2004 225,169 225,169
Additional paid-in capital 7,405,929 7,405,929
Stock subscription receivable
Accumulated deficit (10,673,846) (10,212,366)
Accumulated other comprehensive loss (218,118) (386,595)
------------ ------------
Total Stockholders' Deficit (3,260,866) (2,967,863)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 1,774,384 $ 1,525,103
============ ============
See accompanying notes to financial statements.
SATELLITE ENTERPRISES CORP. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Period
For The Three Months Ended January 2, 2002
March 31, (Inception) to
2005 2004 March
31, 2005
-------------- -------------- --------------
NET SALES $ 741,205 $ 189,778 $ 1,914,481
COSTS AND EXPENSES
Cost of services 158,785 146,861 1,106,718
Selling, general and
administrative 1,006,747 635,421 5,924,121
Stock-based compen-
sation 244,692
Stock issued for services 3,570,000
Impairment of Goodwill 1,131,100
Depreciation and
amortization 68,414 72,173 369,179
-------------- -------------- --------------
Total Costs and Expenses 1,233,946 854,455 12,345,810
-------------- -------------- --------------
NET OPERATING LOSS (492,741) (664,677) (10,431,329)
OTHER INCOME (EXPENSE)
Currency Gain (Loss) 72,110 9,128 32,727
Loss on disposal of equipment (135,745)
Interest expense (40,849) (139,499)
-------------- -------------- --------------
Total Other Income (Expense) 31,261 9,128 (242,517)
-------------- -------------- --------------
NET LOSS $ (461,480) $ (655,549) $ (10,673,846)
============== ============== ==============
NET LOSS PER COMMON
SHARE (BASIC AND
DILUTED) $ (0.01) $ (0.01) $ (0.06)
============== ============== ==============
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 225,168,271 131,258,740 166,390,617
============== ============== ==============
See accompanying notes to consolidated financial statements
SATELLITE ENTERPRISES CORP. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Period
For The Three Months Ended January 2, 2002
March 31, (Inception) to
2005 2004 March 31, 2005
-------------- -------------- --------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (461,480) $ (655,549) $ (10,673,846)
Adjustments to reconcile net loss to
cash flows used in operating activities:
Stock based compensation 244,692
Common stock issued for services 3,570,000
Depreciation 68,414 72,173 369,179
Loss on disposal of equipment 135,745
Impairment of goodwill 1,131,100
Changes in operating assets and liabilities:
Changes in net assets acquired 66,294
Accounts receivable (70,488) (190,132)
Inventory (74,915) (133,994)
Accounts payable 331,824 30,000 1,017,996
Accrued expenses 38,468 134,852
Accrued salaries and related expenses 97,012 350,456
-------------- -------------- --------------
NET CASH FLOWS USED IN
OPERATING ACTIVITIES (71,165) (487,082) (4,043,952)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Cash paid for property and equipment (18,273) (605,446)
-------------- -------------- --------------
NET CASH FLOWS USED IN
INVESTING ACTIVITIES (18,273) (605,446)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
5% Convertible subordinated debenture 500,000
Cash received in acquisition of subsidiary 9,454
Advances from notes payable to related
parties 95,799 927,610
Change in loans payable (20,819) 1,239,577
Proceeds from issuance of common stock 387,340 2,217,612
Proceeds from stock subscription receivable 134,460 180,000
-------------- -------------- --------------
NET CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES 74,980 521,800 5,074,253
-------------- -------------- --------------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 168,477 (216,641)
-------------- -------------- --------------
INCREASE IN CASH 154,019 34,718 208,214
CASH, BEGINNING OF PERIOD 54,195 (3,645)
-------------- -------------- --------------
CASH, END OF PERIOD $ 208,214 $ 31,073 $ 208,214
============== ============== ==============
See accompanying notes to financial statements.
SATELLITE ENTERPRISES CORP. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
For the Period
For The Three Months Ended January 2, 2002
March 31, (Inception) to
2005 2004 March 2005
-------------- -------------- --------------
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Interest paid $ 8,846 $ 103,330
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Increase in paid-in capital from contribution
of property and equipment 1,131,444
Recharacterization of loans payable to notes
payable to related parties 469,426
Common stock subscription receivable 180,000
Outstanding common stock of Satellite
Newspapers Corp. at date of merger 9,353
Issuance of common stock for compensation 244,692
Issuance of common stock for consulting
services 3,570,000
Issuance of common stock in payment of
accounts payable 38,816
Assets acquired and liabilities assumed in
acquisition of 52% of subsidiary:
Cash 9,454
Equipment 2,098
Goodwill 1,131,100
Accounts payable (304,311)
Accrued expenses (6,872)
Loans payable (456,908)
Acquisition note payable (135,380)
Issuance of common stock (239,181)
See accompanying notes to consolidated financial statements.
SATELLITE ENTERPRISE CORP. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE 1 BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. 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 in order to make the
financial statements not misleading have been included. Results for the three
months ended March 31, 2005 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2005. For further information,
refer to the financial statements and footnotes thereto included in the
Satellite Enterprise Corp. and Subsidiaries annual report on Form 10-KSB for the
year ended December 31, 2004.
NOTE 2 GOING CONCERN
As shown in the accompanying financial statements, the Company has incurred
cumulative net operating losses of $10,673,846 since inception, has negative
working capital, stockholders' deficit, and is considered a company in the
development stage. Management's plans include the raising of capital through the
equity markets to fund future operations and the generating of revenue through
its business. Failure to raise adequate capital and generate adequate sales
revenues could result in the Company having to curtail or cease operations.
Additionally, even if the Company does raise sufficient capital to support its
operating expenses and generate adequate revenues, there can be no assurance
that the revenue will be sufficient to enable it to develop business to a level
where it will generate profits and cash flows from operations. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. However, the accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. These financial
statements do not include any adjustments relating to the recovery of the
recorded assets or the classification of the liabilities that might be necessary
should the Company be unable to continue as a going concern.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
When used in this Form 10-QSB, in other filings by the Company with the
SEC, in the Company's press releases or other public or stockholder
communications, or in oral statements made with the approval of an authorized
executive officer of the Company, the words or phrases "would be," "will allow,"
"intends to," "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.
The Company cautions readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made, are based on
certain assumptions and expectations which may or may not be valid or actually
occur, and which involve various risks and uncertainties, including but not
limited to the risks set forth above. In addition, sales and other revenues may
not commence and/or continue as anticipated due to delays or otherwise. As a
result, the Company's actual results for future periods could differ materially
from those anticipated or projected.
Unless otherwise required by applicable law, the Company does not
undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences, developments, unanticipated
events or circumstances after the date of such statement.
Overview
We receive, distribute and sell newspaper data on a daily basis through
multiple outlets or Kiosks. We produce and sell the Kiosks on an international
basis. After introducing the CLiENT Application CD-ROM version, we increasingly
sell Newspaper prints via this channel. We generate revenue as follows:
o we receive a fee for each Kiosk sold;
o we receive a user license fee per Kiosk per year;
o the user printing at a Kiosk pays a printing fee;
o we receive a fee for each client application sold in addition to a
yearly user fee; and
o we receive a percentage of each sale at each user of the client's
kiosks.
We distribute our content through the use of five satellite stations and three
uplink stations.
Managements' Discussion and Analysis
Results of Operations - Period Ended March 31, 2005 Compared to Period Ended
March 31, 2004
Net Sales
We had net sales of $741,205 for the three months ended March 31, 2005 as
compared to $189,778 for the three months ended March 31, 2004. This increase in
net sales is a result of the expansion of regional distributors, which we have
entered into agreements during 2004. This has lead to more points of sales for
our KiOSK system as well as our CLiENT application.
Cost and Expenses
Cost and expenses for the period ended March 31, 2005 was $1,233,946 as
compared to $854,455 during the period ended March 31, 2004, which consisted of
selling, general and administrative costs, cost of services and depreciation and
amortization. Cost and expenses during the period ended March 31, 2005 included
cost of services ($158,785), selling general and administrative ($1,006,747),
and depreciation and amortization ($68,414). This increase in cost and expenses
is a result of the expansion in business operations focusing on the deployment
of electronic newspapers through our KiOSK system as well as our CLiENT software
application.
As a result of the foregoing factors, we realized a net loss of $461,480
for the three months ended March 31, 2005 compared to a net loss of $655,549 for
the three months ended March 31, 2004.
Liquidity and Capital Resources
At March 31, 2005, we had a working capital deficit of $1,743,435. At
December 31, 2004, we had a working capital deficit of $1,575,553. As a result,
our auditors have raised, in their current audit report, a substantial doubt
about our ability to continue as a going concern. We will be unable to continue
as a going concern in the event we are not able to raise capital in order to
develop and implement our business plan and continue operations. Until such time
as sufficient capital is raised, we intend to limit expenditures for capital
assets and other expense categories.
There is no assurance of financial viability for Swiss Satellite
Newspapers. We depend on the financial viability of Swiss Satellite Newspapers
for our content and satellite transmission. Swiss Satellite Newspapers has
limited revenues to date. Our business would be materially harmed if Swiss
Satellite Newspapers is unable to continue to provide us with its content,
satellite transmission and technical support.
On December 1, 2003, we entered into a consulting agreement with GCH
Capital, Ltd to provide assistance relating to business acquisition and general
business strategies. On April 16, 2004, we issued 5,000,000 shares of common
stock to GCH Capital Ltd. in consideration for services provided. There is also
a monthly consulting fee of $10,000 per month for 24 months payable from the
above shares. In connection with the May 2004 private placement, we paid GCH
Capital, Ltd $150,000 to terminate the consulting agreement.
We had unsecured loans to individuals in the amount of $1,227,059 at March
31, 2005. The loans matured between July and November 2004 and are currently
past due. The loans were interest free for the first year and accrue interest at
the rate of 6% commencing after the first anniversary date of the loan. As of
the date hereof, we have not repaid these loans.
As of March 31, 2005, Roy Piceni, our principal stockholder and an
executive officer and director, has advanced our company $1,385,436.
To obtain funding for our ongoing operations, on May 19, 2004, pursuant to
an offering conducted under Rule 506 of Regulation D, as promulgated under the
Securities Act of 1933, we sold 10,869,565 shares of common stock to accredited
investors in a private offering. In connection with the offering, we sold
10,869,565 shares of common stock at a price of $.23 per share. In addition, we
also issued 10,869,565 common stock purchase warrants exercisable at $1.50 per
share. We raised an aggregate of $2,500,000 in connection with this offering. In
November 2004, we entered into an amendment of the Securities Purchase Agreement
whereby we cancelled 2,173,913 shares of common stock and issued to the
investors secured convertible debentures in the amount of $500,000.
We believe we will still need additional investments in order to continue
operations to cash flow break even. Financing transactions may include the
issuance of equity or debt securities, obtaining credit facilities, or other
financing mechanisms. However, the trading price of our common stock and the
downturn in the U.S. stock and debt markets could make it more difficult to
obtain financing through the issuance of equity or debt securities. Even if we
are able to raise the funds required, it is possible that we could incur
unexpected costs and expenses, fail to collect significant amounts owed to us,
or experience unexpected cash requirements that would force us to seek
alternative financing. Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our operations
again.
Cash Flows
Net cash used in operating activities was $71,165 for the three months
ended March 31, 2005 and $487,082 for the three months ended March 31, 2004.
This decrease was primarily due to the decrease of the net loss.
Net cash used in investing activities was $18,273 and $0 for the three
months ended March 31, 2005 and 2004, respectively.
Net cash provided by financing activities was $74,980 and $521,800 for the
three months ended March 31, 2005 and 2004, respectively. The net cash provided
by financing activities consisted primarily of proceeds from, notes payable,
sale of common stock and stock subscription receipts.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future material effect on us.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an
evaluation, under the supervision and with the participation of our chief
executive officer and chief financial officer of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange
Act). Based upon this evaluation, our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission's
rules and forms. There was no change in our internal controls or in other
factors that could affect these controls during our last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are a party to litigation or other legal proceedings
that we consider to be a part of the ordinary course of our business. Except for
the following, we are not involved currently in legal proceedings that could
reasonably be expected to have a material adverse effect on our business,
prospects, financial condition or results of operations:
o On May 14, 2004, Fred DeVries and Renato Mariani (the "Plaintiffs")
filed suit in the Fifteenth Judicial Circuit Court located in Palm
Beach County, Florida, claiming breach of employment agreements
against the Company and against the Company's CEO claiming fraud.
The Plaintiffs are seeking monies and benefits owed in connection
with the employment agreements as well as other damages. The trial
is set on the three month docket running from October 3, 2005
through December 16, 2005. The Company has filed an Answer and
Affirmative Defenses.
o Three Dutch companies in the Netherlands have commenced a legal
procedure against Satellite Newspapers Content B.V. claiming an
amount due to them of approximately $156,000. The parties have
agreed to suspend legal action until June 1, 2005 based upon a
settlement reached in February 2004 whereby a shareholder of the
Company will surrender a comparable number of Company shares to
offset the obligation.
We may become involved in material legal proceedings in the future.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
31.1 Certification by the Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SATELLITE ENTERPRISE CORP.
(Registrant)
Date: May 23, 2005 By: /s/ ROY PICENI
--------------------------------
Roy Piceni
Chief Operating Officer
(Duly Authorized Officer)
Date: May 23, 2005 By: /s/ Randy Hibma
--------------------------------
Randy Hibma
Chief Financial Officer
(Principal Financial
and Accounting Officer)