<PAGE> 1
As filed with the Securities and Exchange Commission on July 17, 1997
Registration No. 333-06121
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
COMPRESSENT CORPORATION
(FORMERLY "CABLE-SAT SYSTEMS, INC.")
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------------
<TABLE>
<S> <C> <C>
FLORIDA 7372 65-0581474
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
2105 HAMILTON AVENUE
SUITE 140
SAN JOSE, CA 95125
(408) 879-6600
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------------
ABE OSTROVSKY
2105 HAMILTON AVENUE
SUITE 140
SAN JOSE, CA 95125
(408) 879-6600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------------
Copies to:
MICHAEL J. DANAHER, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304
(415) 493-9300
(415) 493-6811 (FAX)
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: September
25, 1996
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
================================================================================
<PAGE> 2
EXPLANATORY NOTE
The form of Prospectus filed as part of this Registration Statement has two
versions. The first version of the Prospectus was utilized in connection with
the underwritten public offering of 1,050,000 shares of Common Stock and
1,150,000 Common Stock warrants. (Although the primary offering amount was
1,000,000 shares of Common Stock and 1,000,000 Common Stock warrants, due to the
exercise by the Underwriter of its overallotment option, the amounts actually
issued were 1,050,000 shares of Common Stock and 1,150,000 Common Stock
warrants.) The second version of the Prospectus (the "Alternate Prospectus")
will be utilized by the Selling Shareholders.
The purpose of this Post-effective Amendment No. 1 is to file a First
Prospectus Supplement to each version of the Prospectus. The supplements contain
the financial statements and the Management's Discussion and Analysis of
Financial Condition and Results of Operation set forth in the Registrant's
Annual Report on Form 10-K for the year ended September 30, 1996 and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. Pursuant to
Rule 424(c), only the supplements and not the original prospectuses are included
with this filing.
-2-
<PAGE> 3
FIRST PROSPECTUS SUPPLEMENT
FILED PURSUANT TO RULES 424(B)(3) AND (C)
(TO PROSPECTUS DATED SEPTEMBER 25, 1996)
REGISTRATION NO. 333-06121
1,050,000 SHARES OF COMMON STOCK
1,150,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
COMPRESSENT CORPORATION
(FORMERLY "CABLE-SAT SYSTEMS, INC.")
COMMON STOCK
---------------------
This First Prospectus Supplement supplements and amends the Prospectus
dated September 25, 1996 (the "Prospectus") relating to the offer and resale by
the holders thereof of up to 1,050,000 shares (the "Shares") of common stock,
par value $0.001 per share, of Compressent Corporation, a Florida corporation
(formerly named "Cable-Sat Systems, Inc.") (the "Company") and 1,150,000
redeemable common stock purchase warrants (the "Warrants") of the Company. All
capitalized terms used but not otherwise defined in this First Prospectus
Supplement shall have the meanings ascribed thereto in the Prospectus.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 OF THE PROSPECTUS DATED SEPTEMBER 25, 1996 (THE
"PROSPECTUS").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS OR THIS PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JULY 17, 1997.
-1-
<PAGE> 4
USE OF FORWARD-LOOKING STATEMENTS IN MANAGEMENT'S DISCUSSION AND
ANALYSIS
Item 7 ("Management's Discussion and Analysis of Financial Condition and
Results of Operations") of Annex A and Item 2 ("Management's Discussion and
Analysis of Financial Condition and Results of Operations") of Annex B of this
Prospectus Supplement contain forward-looking statements within the meaning of
Section 27A of the Securities and Exchange Act of 1933 and Section 21E of the
Securities Act of 1934, as amended. All forward-looking statements involve risks
and uncertainties. Actual results could differ materially from those discussed
in the forward-looking statements as a result of many factors including but not
limited to those discussed in "Risk Factors" and elsewhere in the Prospectus.
EXPERTS
The financial statements of Compressent Corporation (formerly Cable-Sat
Systems, Inc.) at September 30, 1996 and for the year then ended, and for the
period from inception (August 26, 1994) to September 30, 1996 appearing in this
Prospectus Supplement and Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm in experts in accounting and auditing.
The balance sheet of the Registrant as of September 30, 1995, and the
statement of operations, shareholders' equity and the statement of cash flows
for the period from inception (August 26, 1994) to September 30, 1995 appearing
in this Prospectus Supplement have been audited by Grant-Schwartz Associates,
CPA's, independent certified public accountants, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm in experts in accounting and auditing.
-2-
<PAGE> 5
CONTENTS
The Prospectus is hereby amended to include certain information from the
Company's Annual Report on Form 10-K for the year ended September 30, 1996 filed
on December 30, 1996 and the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 filed on May 15, 1997, as set forth below and
attached as Annex A and Annex B hereto.
ANNEX A. INFORMATION FROM PART I OF THE ANNUAL REPORT
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 6. Selected Financial Data for the period from inception (August 26, 1994) to
September 30, 1995, the fiscal year ended September 30, 1996, and the period
from inception (August 26, 1994) to September 30, 1996............................5
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.....................................................................5
ITEM 8. Financial Statements and Supplementary Data
Statements of Operations for the period from inception (August 26, 1994) to
September 30, 1995, the year ended September 30, 1996, and the period from
inception (August 26, 1994) to September 30, 1996.................................8
Balance Sheets as of September 30, 1995 and September 30, 1996....................9
Statements of Shareholders' Equity for the period from inception (August 26, 1994)
to September 30, 1995 and for the year ended September 30, 1996..................10
Statements of Cash Flows for the period from inception (August 26, 1994) to
September 30, 1995, the year ended September 30, 1996, and the period from
inception (August 26, 1994) to September 30, 1996................................11
Notes to Financial Statements for the year ended September 30, 1996..............12
Report of Ernst & Young LLP, Independent Auditors................................19
Report of Grant-Schwartz Associates, CPA's, Independent Certified
Public Accountants ..............................................................20
</TABLE>
ANNEX B. INFORMATION FROM PART I OF THE QUARTERLY REPORT
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Statements of Operations -- three and six months ended
March 31, 1996 and 1997, and for the period from inception
(August 26, 1994) to March 31, 1997..............................................22
Condensed Balance Sheets --September 30, 1996 and March 31, 1997.................23
Condensed Statements of Cash Flows --six months ended March 31, 1996 and
1997, and for the period from inception (August 26, 1994) to March 31, 1997......24
Notes to Condensed Financial Statements..........................................25
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................................28
</TABLE>
-3-
<PAGE> 6
ANNEX A
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
ITEMS 6, 7, AND 8 OF PART I OF THE ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED SEPTEMBER 30, 1996
AND SELECTED FINANCIAL DATA
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1997.
-4-
<PAGE> 7
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data for the period from inception
(August 26, 1994) to September 30, 1995, the fiscal year ended September 30,
1996, the six months ended March 31, 1996 and 1997 and the period from inception
(August 26, 1994) to September 30, 1996 are qualified by reference to, and
should be read in conjunction with, the Company's Financial Statements, the
Notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained elsewhere herein. The selected financial
data have been derived from Company's audited financial statements.
<TABLE>
<CAPTION>
Period from Period from Period from
Inception Inception Inception
(August 26, 1994) Year Ended (August 26, 1994) Six Months Ended (August 26, 1994)
to September 30, September 30, to September 30, March 31, March 31, to March 31,
1995 1996 1996 1996 1997 1997
------------- ------------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Total operating costs
and expenses ........... $ 256,554 $ 2,204,249 $ 2,460,803 $ 648,660 $ 2,497,800 $ 4,957,883
Loss from
operations ............. $ (256,554) $ (2,204,249) $ (2,460,803) $ (648,660) $(2,497,080) $ (4,957,883)
Interest income .......... $ 1,789 $ 11,246 $ 13,035 5,800 115,741 128,776
Net loss ................. $ (254,765) $ (2,193,003) $ (2,447,768) $ (642,860) $(2,381,339) $ (4,829,107)
Net loss applicable
to common shareholders $ (254,765) $ (3,093,003) $ (3,347,768) $ (642,860) $(2,381,339) $ (5,729,107)
Net loss per share
applicable to common
shareholders ........... $ (0.06) $ (0.76) (0.16) (0.48)
Shares used in computing
net loss per share
applicable to common
shareholders ........... 4,101,833 4,044,708 4,104,500 4,980,342
</TABLE>
<TABLE>
<CAPTION>
September 30,
-------------------------- March 31,
1995 1996 1997
---------- ------------ ----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets..................................... $ 423,078 $ 5,705,106 $3,549,070
Working capital.................................... 380,142 4,941,100 3,214,196
Total assets....................................... 488,394 5,959,105 3,897,618
Current liabilities................................ 42,936 764,006 334,874
Shareholders' equity............................... 445,458 5,195,099 3,562,744
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the Financial Statements and notes thereto appearing elsewhere herein.
Overview
The Company was incorporated in the state of Florida on August 26, 1994,
but did not commence formal operations until April 1995. The Company's primary
activities since inception have been devoted to developing its initial color
facsimile products and related technologies, preparation for marketing, the
recruitment of key management and technical personnel, including outside
consultants, and raising capital to fund operations. The Company has been
unprofitable since inception and has not licensed or sold any of its products or
technologies. As a result, the financial statements are presented in accordance
with Statement of Financial Accounting Standards No. 7 (SFAS 7), "Accounting and
Reporting by Development Stage Enterprises".
For the period from inception (August 26, 1994) through September 30,
1996, the Company incurred a cumulative net loss of approximately $2,448,000 and
had used $1,989,000 in cash for operating activities. The Company expects to
continue to incur losses through at least the fourth quarter of the year ended
September 30, 1997, or until the Company is able to attain revenues from sales,
licensing or other arrangements sufficient to support its operations.
-5-
<PAGE> 8
Management believes that current working capital of approximately
$4,941,000 will be sufficient to support the Company's planned activities
through the end of fiscal 1997. The Company believes that to the extent
existing resources and anticipated revenues are insufficient to fund the
Company's planned activities in fiscal 1997, additional debt or equity
financing will be available from existing investors and others. Based on the
Company's current plans, it will be necessary for the Company to raise
additional debt or equity financing in the first quarter of fiscal 1998.
Results of Operations
Period from inception (August 26, 1994) to September 30, 1995 compared
with the year ended September 30, 1996.
Research and Development
From inception through September 30, 1996, a substantial part of the
Company's activities related to research and development. The Company's research
and development expenses were approximately $201,000 and $903,000 for the period
from inception (August 26, 1994) to September 30, 1995 and the fiscal year ended
September 30, 1996, respectively. The increase in expenses in fiscal 1996 as
compared with the period from inception (August 26, 1994) to September 30, 1995,
is primarily related to costs associated with the addition of personnel,
increased use of consultants and temporary help, and increased supplies, all
incurred to support increased development and testing activities. The Company
expects research and development costs to continue to increase as the Company
continues to expand its research efforts.
Marketing
Marketing expenses were approximately $0 and $279,000 for the period
from inception (August 26, 1994) to September 30, 1995 and the fiscal year ended
September 30, 1996, respectively. Marketing expenses incurred during fiscal 1996
are primarily related to costs associated with staffing employees and
consultants to start the Company's marketing efforts and costs associated with
developing a marketing strategy and logo. Achieving significant market
acceptance and commercialization of the Company's initial color fax products
will require substantial marketing efforts and the expenditure of significant
funds to establish market awareness of the Company and the initial color fax
products. As such, the Company expects marketing expenses to increase
significantly in fiscal 1997.
General and Administrative
General and administrative expenses were approximately $56,000 and
$1,022,000 for the period from inception (August 26, 1994) to September 30, 1995
and the fiscal year ended September 30, 1996, respectively. The increase is due
primarily to increased administrative staffing to support growing operations and
increases in business development efforts. General and administrative expenses
are expected to continue to increase to support increased levels of operations
and to cover the costs of being a public company.
-6-
<PAGE> 9
Taxes
The Company has had net losses since inception and has not provided for
federal or state taxes to date. As of September 30, 1996, the Company had
federal and state net operating loss carryforwards of approximately $2,100,000
and $1,300,000, respectively. The net operating loss carryforwards will expire
beginning September 30, 2010 (federal) and September 30, 2003 (state), if not
utilized. Utilization of the net operating losses may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating loss carryforwards
before utilization.
Manufacturing, Distribution and Sales
As the Company's initial color fax products are completed and become
available to the market, the Company will begin to incur significant costs to
manufacture, distribute and sell its products. In addition, costs will be
incurred to provide technical support services to customers.
Liquidity and Capital Resources
Since inception, the Company has relied on sales of its equity
securities to fund its operations. Between May 1995 and May 1996 the Company
received approximately $1,952,000 in cash from sales of its equity securities.
In September 1996, the Company's initial public offering of common stock and
Redeemable Common Stock Purchase Warrants became effective. The Company received
net proceeds of approximately $5,387,614 from this initial public offering, less
$108,000 for advisory services to be provided over three years by the
Underwriter, Barron -- Chase Securities, Inc. The Company's outstanding
Redeemable Common Stock Purchase Warrants are exercisable at $6.00 per share and
could result in the receipt of up to an additional $6,900,000. However, there
can be no assurance that such warrants will be exercised and the Company cannot
redeem the warrants until September 25, 1997, without the prior consent of the
Underwriter. In addition, in connection with the Company's initial public
offering, the Company redeemed its preferred stock for a cash payment of
$450,000 and the issuance of 150,000 shares of common stock.
From inception (August 26, 1994) to September 30, 1996, the Company's
cash expenditures for operating activities were approximately $1,989,000. These
cash expenditures were approximately $327,000 from inception (August 26, 1994)
through September 30, 1995 and $1,662,000 for the fiscal year ended September
30, 1996 and differ from the Company's net loss in these periods principally due
to non-cash operating expenditures and an increase in accounts payable and
accrued liabilities. The Company expects its cash requirements to increase due
to expected increases in expenses related to further research and development of
its technologies and increased marketing, manufacturing, sales and distribution
and technical support expenses associated with the introduction of its initial
color fax products to the market place and increased administrative expenses
associated with fees for professional services, legal expenses in connection
with the lawsuit with Color Communications Corporation and the costs associated
with the Company being public. The Company plans to hire additional employees
and increase marketing and sales expenses to execute its sales and marketing
plans.
The Company believes that to the extent existing resources and
anticipated revenues are insufficient to fund the Company's planned activities
in fiscal 1997, additional debt or equity financing will be available from
existing investors and others. Based on the Company's current plans, it will be
necessary for the Company to raise additional debt or equity financing in the
first quarter of fiscal 1998.
-7-
<PAGE> 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From Period From
Inception Inception
(August 26, 1994) Year Ended (August 26, 1994)
to September 30, September 30, to September 30,
1995 1996 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING COSTS AND EXPENSES:
Research and development .............. $ 200,734 $ 903,225 $ 1,103,959
Marketing ............................. -- 278,690 278,690
General and administrative ............ 55,820 1,022,334 1,078,154
--------------- --------------- ---------------
Total operating costs and expenses .. 256,554 2,204,249 2,460,803
--------------- --------------- ---------------
Loss from operations ...................... (256,554) (2,204,249) (2,460,803)
Interest income ........................... 1,789 11,246 13,035
--------------- --------------- ---------------
Net loss ............................ (254,765) (2,193,003) (2,447,768)
Less: Accretion on preferred stock ....... -- (900,000) (900,000)
--------------- --------------- ---------------
Net loss applicable to common
shareholders ........................ $ (254,765) $ 3,093,003 $ 3,347,768
=============== =============== ===============
Net loss per share applicable to common
shareholders .......................... $ (0.06) $ (0.76)
=============== ===============
Shares used in computing net loss per share
applicable to common shareholders ..... 4,101,833 4,044,708
=============== ===============
</TABLE>
See accompanying notes.
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<PAGE> 11
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash ......................................................... $ 314,078 $ 155,533
Notes receivable -- related parties .......................... 109,000 --
Other receivable from underwriter in connection with the
Company's initial public offering ....................... -- 5,549,573
------------ ------------
Total current assets .................................... 423,078 5,705,106
Property and equipment
Office furniture ............................................. 19,329 17,785
Computer equipment ........................................... 40,195 158,504
------------ ------------
59,524 176,289
Less accumulated depreciation ................................ 2,700 40,237
------------ ------------
Net property and equipment .............................. 56,824 136,052
Other assets ..................................................... 8,492 117,947
------------ ------------
Total assets ............................................ $ 488,394 $ 5,959,105
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ............................................. $ 42,936 $ 168,266
Accrued registration costs ................................... -- 55,052
Preferred stock redemption payable ........................... -- 450,000
Other accrued liabilities .................................... -- 90,688
------------ ------------
Total current liabilities ............................... 42,936 764,006
Commitments
Redeemable preferred stock, par value $.001 per share:
no shares authorized in 1995 (150,000 shares in 1996) none
issued and outstanding ....................................... -- --
Shareholders' equity
Common stock, par value $.001 per share: authorized 50,000,000
shares; Issued and outstanding 2,200,000 and 4,972,000 shares
at September 30, 1995 and 1996, respectively ................. 2,200 4,972
Paid in capital .............................................. 698,023 7,781,895
Deficit accumulated during the development stage ............. (254,765) (2,447,768)
Deferred compensation ........................................ -- (144,000)
------------ ------------
Total shareholders' equity .............................. 445,458 5,195,099
------------ ------------
Total liabilities and shareholders' equity ......... $ 488,394 $ 5,959,105
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 12
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the Total
----------------------- Paid in Development Deferred Shareholders'
Shares Amount Capital Stage Compensation Equity
--------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock for cash
May 1995 -- $0.001/share ..... 1,276,000 $ 1,276 $ (1,116) $ -- $ -- $ 160
May 1995 -- $0.65/share ...... 374,000 374 199,689 -- -- 200,063
August 1995 -- $0.92/share ... 550,000 550 499,450 -- -- 500,000
Net loss from inception
(August 26, 1994) to
September 30, 1995 ........... -- -- -- (254,765) (254,765)
--------- --------- ----------- ----------- ----------- -----------
Balance -- September 30, 1995 .... 2,200,000 2,200 698,023 (254,765) -- 445,458
Sale of common stock for cash
January 1996 -- $1.00/share .. 120,000 120 119,880 -- -- 120,000
April 1996 -- $0.60/share .... 350,000 350 209,650 -- -- 210,000
May 1996 -- $2.50/share ...... 372,000 372 900,658 -- -- 901,030
Common stock issued in exchange
for full recourse note payable
--March 1996 -- $0.30/share .. 300,000 300 89,700 -- -- 90,000
Common stock exchanged for
services
December 1995 -- $1.00/share . 60,000 60 59,940 -- -- 60,000
April 1996 -- $0.60/share .... 50,000 50 29,950 -- -- 30,000
Exercise of common stock warrant
in exchange for cash and
forgiveness of loans --
March 1996 -- $0.30/share .... 320,000 320 95,680 -- -- 96,000
Accretion of preferred stock
redemption value ............. -- -- (900,000) -- -- (900,000)
Common stock to be issued in
October 1996 upon
redemption of preferred
stock -- $6.00/share ......... 150,000 150 899,850 -- -- 900,000
Sale of common stock in initial
public offering for receivable
from underwriter for
$6.00/share in September
1996, net of issue costs
of $1,056,146 ................ 1,050,000 1,050 5,242,804 -- -- 5,243,854
Redeemable warrants issued in
initial public offering -
$0.125/warrant ............... -- -- 143,760 -- -- 143,760
Deferred compensation expense
related to stock options ..... -- -- 192,000 -- (192,000) --
Amortization of deferred
compensation ................. -- -- -- -- 48,000 48,000
Net loss for the year ended
September 30, 1996 ........... -- -- -- (2,193,003) -- (2,193,003)
--------- --------- ----------- ----------- ----------- -----------
Balance -- September 30, 1996 .... 4,972,000 $ 4,972 $ 7,781,895 $(2,447,768) $ (144,000) $ 5,195,099
========= ========= =========== =========== =========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 13
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period from
Inception Inception
(August 26, 1994) Year ended (August 26, 1994)
to September 30, 1995 September 30, 1996 to September 30, 1996
--------------------- ------------------ ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ...................................... $ (254,765) $ (2,193,003) $ (2,447,768)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .............. 2,815 40,352 43,167
Amortization of deferred compensation ...... -- 48,000 48,000
Write-off of property and equipment ........ -- 29,126 29,126
Common stock exchanged for services ........ -- 90,000 90,000
Changes in operating assets and liabilities:
(Increase) decrease -- notes receivable ....... (109,000) 109,000 --
(Increase) decrease -- other assets ........... (8,607) (1,455) (10,062)
Increase (decrease) -- payables and other
liabilities ................................ 42,936 216,018 258,954
------------- ------------- -------------
Net cash used in operating activities ...... (326,621) (1,661,962) (1,988,583)
------------- ------------- -------------
Cash flows from investing activities:
Purchase of property and equipment ............ (59,524) (148,707) (208,231)
------------- ------------- -------------
Net cash used in investing activities ...... (59,524) (148,707) (208,231)
------------- ------------- -------------
Cash flows from financing activities:
Sale of common stock .......................... 700,223 1,252,040 1,952,263
Initial public offering registration costs paid -- (214,916) (214,916)
Loans from shareholder ........................ -- 75,000 75,000
Repayment of full recourse note payable ....... -- 90,000 90,000
Sale of redeemable preferred stock ............... -- 450,000 450,000
------------- ------------- -------------
Net cash provided from financing activities 700,223 1,652,124 2,352,347
------------- ------------- -------------
Net increase (decrease) in cash ............ 314,078 (158,545) 155,533
Cash at beginning of period ...................... -- 314,078 --
------------- ------------- -------------
Cash at end of period ............................ $ 314,078 $ 155,533 $ 155,533
============= ============= =============
Supplemental schedule of noncash investing
and financing activities:
Common stock to be issued in redemption of
preferred stock ............................... $ -- $ 900,000 $ 900,000
Conversion of loans from related party to
common stock .................................. -- 75,000 75,000
Common stock and warrants issued in initial
public offering ............................... -- 5,387,614 5,387,614
Issuance of common stock in exchange for full
recourse note payable ......................... -- 90,000 90,000
</TABLE>
See accompanying notes.
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<PAGE> 14
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. BUSINESS ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activities
Compressent Corporation (formerly Cable-Sat Systems, Inc.), the
"Company", was incorporated in the state of Florida on August 26, 1994, but did
not commence formal operations until April 1995. It is engaged in the
development of digital image coding and data compression products which will
enable the facsimile transmission of color images from computers equipped with
the Company's software programs.
Development Stage Company
The Company's primary activities since inception have been devoted to
developing its initial color facsimile products and related technologies,
preparation for marketing, the recruitment of key management and technical
personnel, including outside consultants, and raising capital to fund
operations. The Company has been unprofitable since inception and has not
licensed or sold any of its products or technologies. As a result, the financial
statements are presented in accordance with Statement of Financial Accounting
Standards No. 7 (SFAS 7), "Accounting and Reporting by Development Stage
Enterprises".
For the period from inception (August 26, 1994) through September 30,
1996, the Company had a deficit accumulated during the development stage of
approximately $2,448,000 and had used $1,989,000 of cash for operating
activities. The Company expects to continue to incur losses through at least the
fourth quarter of the year ended September 30, 1997, or until the Company is
able to attain revenues from sales, licensing or other arrangements sufficient
to support its operations. Management believes that current working capital of
approximately $4,941,000 will be sufficient to support the Company's planned
activities through the end of fiscal 1997 and that to the extent existing
resources and anticipated revenues are insufficient to fund the Company's
planned activities in fiscal 1997, additional debt or equity financing will be
available from existing investors and others. Based on the Company's current
plans, it will be necessary for the Company to raise additional debt or equity
financing in the first quarter of fiscal 1998.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of short-term financial instruments that are
readily convertible into cash with original maturities of less than ninety days
from the date of acquisition. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value.
-12-
<PAGE> 15
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC. )
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Other Assets
In connection with the Company's initial public offering that went
effective on September 25, 1996, the Company paid Barron-Chase Securities, Inc.
(the Underwriter) a $108,000 fee for certain financial advisory services to be
provided over the three years following the effective date of the offering. The
$108,000 is included in other assets and will be amortized on a straight-line
basis over the three year term of the agreement.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and
amortization is provided on a straight-line basis over estimated useful lives or
over the life of the lease for equipment under capitalized leases, if shorter.
Leasehold improvements are amortized over the term of the lease or their
estimated useful life, whichever is shorter. The useful lives of property and
equipment for purposes of depreciation are:
<TABLE>
<S> <C>
Office Equipment....................................................... 5 years
Computers.............................................................. 3 years
</TABLE>
Software Development Costs
The Company capitalizes software development costs upon achievement of
technological feasibility, subject to net realizable value consideration in
accordance with Statement of Financial Accounting Standard No. 86 (SFAS 86),
"Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed." The Company has defined technological feasibility as completion of a
working model. Such capitalized costs are amortized upon product release on a
straight-line basis over the estimated useful life or the ratio of current
revenue to the total of current and anticipated future revenues, whichever
results in the greater amortization. No software development costs have been
capitalized through September 30, 1996.
Income Taxes
The Company accounts for income taxes in accordance with the provisions
of Financial Accounting Standards Board Statement No. 109 (SFAS 109),
"Accounting for Income Taxes". Under SFAS 109, the liability method is used for
accounting in income taxes.
Net Loss Per Share Attributable to Common Shareholders
Net loss applicable to common shareholders is computed using the
weighted average number of shares of common stock outstanding. Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, common and common
equivalent shares issued at prices below the assumed public offering price
during the twelve months prior to the initial filing of the registration
statement have been included in the calculation as if they were outstanding for
all periods prior to the quarter in which the Company's initial public offering
became effective (using the treasury stock method and an initial public offering
price of $6.00 per common share). Redeemable preferred stock is not deemed to be
a common stock equivalent for purposes of calculating the net loss applicable to
common shareholders. Fully diluted net loss per share is not presented because
it is antidilutive.
-13-
<PAGE> 16
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC. )
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Impact of Recently Issued Accounting Standards
In 1995, the Financial Accounting Standards Board released the Statement
of Financial Accounting Standard No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
SFAS 121 requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS 121 is effective for fiscal years beginning
after December 15, 1995. Adoption of SFAS 121 is not expected to have a material
impact on the Company's financial position or results of operations.
The Company accounts for its stock option plans and its employee stock
purchase plan in accordance with provisions of the Accounting Principles Board's
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees". In October
1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock Based
Compensation". SFAS 123 provides an alternative to APB 25 and is effective for
fiscal years beginning after December 15, 1995. The Company expects to continue
to account for its employee stock plans in accordance with the provisions of APB
25. Accordingly, SFAS 123 is not expected to have any material impact on the
Company's financial position or results of operations.
Financial Presentation
Certain items in the period from inception (August 26, 1994) to
September 1995, have been reclassified to conform to the fiscal 1996
presentation.
2. REDEEMABLE PREFERRED STOCK
The Company has authorized 150,000 shares of redeemable Series A
Preferred Stock. The Series A Preferred Stock is entitled to receive a
cumulative cash dividend of $0.21 per share on each anniversary from the date of
issuance. No dividends were payable at September 30, 1996.
In the event of the liquidation of the Company, holders of Series A
Preferred Stock have liquidation preference over holders of common stock of
$3.00 per share plus all accrued but unpaid dividends and one share of common
stock.
The Company is required to redeem all preferred shares outstanding out
of the net proceeds from any underwritten public offering or private placement
of the Company's common stock. The redemption price is $3.00 per share plus one
share of the Company's common stock per share of preferred stock. The Company's
initial public offering of common stock purchase warrants went effective
September 25, 1996, and the Company became irrevocably committed to redeem its
then outstanding preferred stock. The preferred stock was held by Call Now, Inc.
("Call Now"), a related party. The initial public offering closed on October 1,
1996, and the Company redeemed the preferred stock from Call Now. For purposes
of presentation in the accompanying financial statements, the cash redemption
amount of the preferred stock of $450,000 is classified as "Preferred stock
redemption payable" at September 30, 1996, and is included in current
liabilities. In addition, the 150,000 shares of common stock issuable upon
redemption of the preferred stock are included as outstanding common stock at
September 30, 1996, in the accompanying financial statements.
-14-
<PAGE> 17
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC. )
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. SHAREHOLDERS' EQUITY
Public Offering
During September 1996, the Company completed a public offering of
1,050,000 shares of common stock at $6.00 per share and 1,150,000 redeemable
common stock purchase warrants for $0.125 per warrant. The Company received net
proceeds of $5,387,614. In addition, as part of the initial public offering, the
Company's 150,000 shares of Preferred Stock were redeemed at $3.00 per share
plus one share of the Company's common stock per share of preferred stock (see
Note 2).
The initial public offering, a firm underwriting commitment, went
effective September 25, 1996. However, the proceeds from this offering were
received by the Company from the Underwriter on October 1, 1996, upon the
closing. Therefore, at September 30, 1996, proceeds from the sale of common
stock and redeemable common stock purchase warrants are classified as "Other
receivable from underwriter in connection with the Company's initial public
offering", the cash redemption amount of the Preferred Stock is classified as
"Preferred stock redemption payable" and the common stock issued to redeem the
preferred stock is included as outstanding common stock (see Note 2) in the
accompanying financial statements.
Shares Issued in Exchange for Cash and Loan
In August 1995, in connection with the sale of 550,000 shares of common
stock to Call Now, the Company also sold a warrant to Call Now to purchase
320,000 shares of common stock at an exercise price of the then current fair
value of the common stock of $0.92 per share. In January 1996 and February 1996,
the Company received $75,000 in loans from Call Now. In March 1996, the Company
adjusted the warrant exercise price on the 320,000 shares from $0.92 per share
to the then current fair market value of $0.30 per share of Common Stock. The
option was then exercised by Call Now in exchange for forgiveness of the $75,000
in loans plus $21,000 in cash.
Shares Issued for Services
In December 1995, the Company issued 60,000 shares of common stock
valued at $60,000 in exchange for past services rendered to the Company. In
addition, in April 1996, the Company issued 50,000 shares of common stock valued
at $30,000 in exchange for past services rendered to the Company. The value
assigned to the shares was based on the Company's best estimate of fair market
value of the common stock at the time of issuance.
Common Stock Purchase Warrants
On September 25, 1996, in connection with the Company's initial public
offering, the Company issued 1,150,000 redeemable common stock purchase warrants
for $0.125 per share. The warrants are exercisable to purchase common stock
during the three year period from the effective date of the offering (September
25, 1996), at an exercise price of $6.00 per share. The Company may redeem the
warrants at a price of $0.25 per warrant by giving 30 days written notice to the
holders if the Company's common stock price equals or exceeds $12.00 per share
for 30 consecutive trading days. The warrants may not be redeemed in the first
year from the effective date without consent of the Underwriter.
-15-
<PAGE> 18
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC. )
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Underwriter's Warrant and Underlying Warrant
At the closing of the initial public offering on October 1, 1996, for
nominal consideration, the Company issued to the Underwriter, 100,000 Common
Stock Underwriter Warrants ("Underwriter's Warrants") and 100,000 Warrant
Underwriter Warrants ("Underlying Warrants"). The Underwriter's Warrants are
exercisable for a five year period and allow the holder to purchase one share of
common stock at a price of $9.00 per share. The exercise price of the Underlying
Warrants is $0.1875 per warrant. Each Underlying Warrant is exercisable for a
three year period to purchase one share of common stock at a price of $9.00 per
share. The Underwriter's Warrants and the Underlying Warrants are subject to
adjustment for certain events including mergers, stock dividends, stock splits,
and other events. The Underwriter's Warrants contains net issuance provisions
permitting the holders to elect to exercise the Underwriter's Warrants in whole
or in part and instruct the Company to withhold from the securities issuable
upon exercise, the number of securities, valued at the current fair market value
on the date of exercise, to pay the exercise price.
Stock Options
Employee and Consultant Stock Options
In February 1996, the Company's Board of Directors adopted an incentive
stock option plan. The plan allows for incentive stock options to be granted to
key employees. In addition, from time to time the Board of Directors may grant
options to consultants that are in addition to the options approved for key
employees under the incentive stock option plan. All options expire no more than
five years from the date of grant. The exercise price for all options shall not
be less than 100% of the fair market value of the stock subject to the option on
the date of grant as determined by the Board of Directors. All options generally
vest in increments over a period of three years from the date of grant, with the
first increment vesting after one year. Options may be granted with different
vesting terms from time to time. The Board of Directors has approved options to
purchase up to 780,000 shares of common stock to be granted to key employees
under the incentive stock option plan and to consultants of the Company.
At September 30, 1996, 180,000 options were exercisable by consultants
to the Company and no options were exercisable by employees under the incentive
stock option plan.
Stock option activity is summarized below:
<TABLE>
<CAPTION>
Options Outstanding
Shares ------------------------------------------
Available for Number of Aggregate
Grant Shares Price Per Share Price
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Balance at September 30, 1995........ -- -- $ -- $ --
Shares Authorized................ 780,000 -- -- --
Options Granted.................. (818,500) 818,500 $2.50-$6.00 3,308,000
Options Canceled................. 250,000 (250,000) $6.00 (1,500,000)
--------- --------- ----------- ----------
Balance at September 30, 1996........ 211,500 568,500 $2.50-$6.00 $1,808,000
========= ========= =========== ==========
</TABLE>
-16-
<PAGE> 19
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC. )
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Other Stock Options
In February 1996, the Company's Board of Directors also approved the
issuance of stock options to purchase up to 150,000 shares of common stock at
$0.30 per share for key employees and consultants. These options are in addition
to the options that may be granted under the incentive stock option plan and to
consultants described above, and expire five years from the date of grant. As of
September 30, 1996, the Board of Directors had granted options to purchase
80,000 shares of common stock. Based on the difference between the option
exercise price and the fair value of the common stock on the date of grant, the
Company has recorded $192,000 of deferred compensation relating to these options
and is amortizing compensation expense over the two year vesting period. None of
these options were exercisable at September 30, 1996.
Common Stock Reserved for Future Issuance
Shares of common stock of the Company reserved for future issuance,
including shares reserved pertaining to the Underwriter's over-allotment and
Underwriter's Warrant and Underlying Warrant are as follows:
<TABLE>
<CAPTION>
September 30,
1996
---------------
<S> <C>
Redeemable common stock purchase warrants ..................... 1,150,000
Employee, consultant, and other stock options ................. 930,000
Underwriter's Warrants and Underlying Warrants ................ 200,000
---------------
2,280,000
===============
</TABLE>
4. INCOME TAXES
As of September 30, 1996, the Company had federal and state net
operating loss carryforwards of approximately $2,100,000 and $1,300,000,
respectively. The net operating loss carryforwards will expire beginning
September 30, 2010 (federal) and September 30, 2003 (state), if not utilized.
Utilization of the net operating losses may be subject to a substantial
annual limitation due to the ownership change limitation provided by the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating loss carryforwards
before utilization.
Significant components of the Company's deferred tax assets and
liabilities for federal and state taxes as of September 30, 1996, are as
follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards .............................. $ 800,000
Other -- net .................................................. 60,000
-----------
Total deferred tax assets ..................................... 860,000
Valuation allowance for deferred tax assets ................... (860,000)
-----------
Net deferred tax assets ......................................... $ --
===========
</TABLE>
The net valuation allowance increased by $770,000 during fiscal 1996.
-17-
<PAGE> 20
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC. )
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED PARTY TRANSACTIONS
During May 1996, the Company forgave a loan for $89,000 to the Company's
former president. The total amount of forgiveness was recognized as compensation
expense by the Company.
During March 1996, the Company sold 300,000 shares of common stock at
the then current fair value of $0.30 per share to the Company's new Chairman and
Chief Executive Officer in exchange for a full recourse interest bearing note
payable amounting to $90,000. The loan was repaid in May 1996.
In January 1996 and February 1996, the Company received $75,000 in loans
from Call Now, Inc. In March 1996, Call Now exercised a repriced warrant to
purchase 320,000 shares at $0.30 per share by forgiving the $75,000 in loans
plus paying $21,000 in cash (see Note 3).
6. COMMITMENTS
The Company leases office space and office equipment. Rent expense was
approximately $13,360 and $65,152 for the period from inception (August 26,
1994) to September 30, 1995, and the year ended September 30, 1996, respectively
($78,512 for the period from inception (August 26, 1994) to September 30, 1996).
Future payments for operating leases at September 30, 1996 are as
follows:
<TABLE>
<S> <C>
Year Ended
September 30, 1997 .............................................. $ 115,418
September 30, 1998 .............................................. 118,830
----------
$ 234,248
==========
</TABLE>
The Company is committed under employment and consulting agreements with
officers and others to make the following future payments:
<TABLE>
<S> <C>
Year Ended
September 30, 1997 .............................................. $ 468,000
September 30, 1998 .............................................. 100,000
----------
$ 568,000
==========
</TABLE>
-18-
<PAGE> 21
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Compressent Corporation (formerly Cable-Sat Systems, Inc.)
We have audited the accompanying balance sheet of Compressent
Corporation (formerly Cable-Sat Systems, Inc.), a development stage company, as
of September 30, 1996, and the related statements of operations, shareholders'
equity, and cash flows for the year then ended, and for the period from
inception (August 26, 1994) to September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
financial statements as of September 30, 1995, and for the period from inception
(August 26, 1994) to September 30, 1995, were audited by other auditors whose
report dated December 1, 1995, expressed an unqualified opinion on those
statements. The financial statements for the period from inception (August 26,
1994) to September 30, 1995, include a net loss of $254,765. Our opinion on the
statements of operations, shareholders' equity, and cash flows for the period
from inception (August 26, 1994) to September 30, 1996, insofar as it relates to
amounts for prior periods through September 30, 1995, is based solely on the
report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Compressent Corporation (formerly Cable-Sat
Systems, Inc.) at September 30, 1996, and the results of its operations and its
cash flows for the year then ended and the period from inception (August 26,
1994) to September 30, 1996, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
San Jose, California
December 27, 1996
-19-
<PAGE> 22
REPORT OF GRANT-SCHWARTZ ASSOCIATES, CPA'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Compressent Corporation (formerly Cable-Sat Systems, Inc.)
We have audited the accompanying balance sheet of Compressent
Corporation (formerly Cable-Sat Systems, Inc.), a development stage company, as
of September 30, 1995 and the statements of operations, shareholders' equity and
the statement of cash flows for the year ended September 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates by management, as well as evaluating the overall
financial statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Compressent
Corporation (formerly Cable-Sat Systems, Inc.), a development stage company, as
of September 30, 1995 and its statements of operation and cash flows for the
year then ended in conformity with generally accepted accounting principles.
GRANT-SCHWARTZ ASSOCIATES, CPA'S
Boca Raton, Florida
December 1, 1995
-20-
<PAGE> 23
ANNEX B
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
ITEMS 1 AND 2 OF PART I OF THE QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED AND SIX MONTHS ENDED MARCH 31, 1997
-21-
<PAGE> 24
ITEM 1. FINANCIAL STATEMENTS.
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED SIX MONTHS ENDED INCEPTION
----------------------------- ---------------------------- (AUGUST 26, 1994)
MARCH 31, MARCH 31, MARCH 31, MARCH 31, TO MARCH 31,
1996 1997 1996 1997 1997
------------ ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
OPERATING COSTS AND
EXPENSES:
Research and development ......... $ 213,791 $ 322,517 $ 315,672 $ 723,331 $ 1,827,290
Sales and marketing .............. 32,259 273,525 42,259 838,404 1,117,094
General and administrative ....... 141,578 525,072 290,729 935,345 2,013,499
------------ ------------ ------------ ------------ ----------------
Total operating costs and expenses 387,628 1,121,114 648,660 2,497,080 4,957,883
------------ ------------ ------------ ------------ ----------------
Loss from operations ............... (387,628) (1,121,114) (648,660) (2,497,080) (4,957,883)
Interest income .................... 5,800 54,041 5,800 115,741 128,776
------------ ------------ ------------ ------------ ----------------
Net loss ......................... (381,828) (1,067,073) (642,860) (2,381,339) (4,829,107)
Less: Accretion on preferred stock . -- -- -- -- (900,000)
------------ ------------ ------------ ------------ ----------------
Net loss applicable to common
shareholders ..................... $ (381,828) $ (1,067,073) $ (642,860) $ (2,381,339) $ (5,729,107)
============ ============ ============ ============ ================
Net loss per share applicable to
common shareholders .............. (0.09) $ (0.21) $ (0.16) $ (0.48)
============ ============ ============ ============
Shares used in computing net loss
share applicable to common
shareholders ..................... 4,107,167 4,988,684 4,104,500 4,980,342
============ ============ ============ ============
</TABLE>
See accompanying notes
-22-
<PAGE> 25
COMPRESSENT CORPORATION (FORMERLY CABLE-SET SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996(1) 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash ................................................... $ 155,533 $ 418,392
Short-term investments ................................. -- 3,011,957
Other receivable from underwriter in connection with IPO 5,549,573 --
Other current assets ................................... -- 118,721
------------- -------------
Total current assets ................................. 5,705,106 3,549,070
Property and equipment, net .............................. 136,052 211,221
Other assets ............................................. 117,947 137,327
------------- -------------
Total assets ......................................... $ 5,959,105 $ 3,897,618
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and other accrued liabilities ......... 168,266 257,976
Other accrued liabilities .............................. 90,688 76,898
Accrued registration costs ............................. 55,052 --
Preferred stock redemption payable ..................... 450,000 --
------------- -------------
Total current liabilities ............................ 764,006 334,874
Shareholders' equity
Common stock and additional paid in capital ............ 7,786,867 8,487,849
Deficit accumulated during development stage ........... (2,447,768) (4,829,105)
Deferred compensation .................................. (144,000) (96,000)
------------- -------------
Total shareholders' equity ........................... 5,195,099 3,562,744
------------- -------------
Total liabilities and shareholders' equity ........... $ 5,959,105 $ 3,897,618
============= =============
</TABLE>
- ----------------------
(1) Derived from audited financial statements for the year ended September
30, 1996, included elsewhere in this Prospectus.
See accompanying notes
-23-
<PAGE> 26
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED INCEPTION
--------------------------- (AUGUST 26, 1994)
MARCH 31, MARCH 31, TO MARCH 31,
1996 1997 1997
----------- ----------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities .................. $ (549,198) $(2,011,790) $ (4,000,373)
----------- ----------- ---------------
Cash flows from investing activities
Purchase of short-term investments ....................... -- (4,808,710) (4,808,710)
Sale of short-term investments ........................... -- 1,796,753 1,796,753
Purchase of property and equipment ....................... (50,357) (113,279) (321,510)
----------- ----------- ---------------
Net cash used in investing activities .................. (50,357) (3,125,236) (3,333,467)
----------- ----------- ---------------
Cash flows from financing activities
Sale of common stock ..................................... 141,000 -- 1,952,263
Receipt of proceeds from underwriter ..................... -- 5,549,573 5,549,573
IPO registration costs paid .............................. -- -- (214,916)
Loan from shareholder .................................... 75,000 -- 75,000
Repayment of full course note payable .................... -- -- 90,000
Sale of redeemable preferred stock ....................... 450,000 -- 450,000
Redemption of preferred stock ............................ -- (450,000) (450,000)
Conversion of redeemable stock warrant ................... -- 300,312 300,312
----------- ----------- ---------------
Net cash provided from financing activities ............ 666,000 5,399,885 7,752,232
----------- ----------- ---------------
Net increase in cash ................................... 66,445 262,859 418,392
----------- ----------- ---------------
Cash at beginning of period .............................. 314,078 155,533 --
----------- ----------- ---------------
Cash at end of period .................................... $ 380,523 $ 418,392 $ 418,392
=========== =========== ===============
Supplemental schedule of noncash investing and
financing activities:
Common stock to be issued in redemption of preferred stock $ -- $ -- $ 900,000
Conversion of loan from shareholder to
common stock ........................................... 75,000 -- 75,000
Issuance of common stock in exchange for full recourse
note payable ........................................... 90,000 -- 90,000
</TABLE>
See accompanying notes
-24-
<PAGE> 27
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
2. BUSINESS ACTIVITIES AND BASIS OF PRESENTATION
Business
Compressent Corporation (Formerly Cable-Sat Systems, Inc.), the
"Company", was incorporated in the state of Florida on August 26, 1994, but did
not commence formal operations until April 1995. It is engaged in the
development of digital image coding and data compression products which will
enable the facsimile transmission of color images from computers equipped with
the Company's software programs.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X. 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 considered
necessary for a fair presentation have been included. Management recommends that
these interim financial statements be read in conjunction with the audited
financial statements and notes thereto for the Company's year ended September
30, 1996, included elsewhere in this Prospectus. The results of operations for
the six months ended March 31, 1997, are not necessarily indicative of the
results that may be expected for the year ended September 30, 1997.
Net Loss Per Share Attributable to Common Shareholders
Net loss per share attributable to common shareholders for the three
months and six months ended March 31, 1997 is computed using the weighted
average number of shares of common stock outstanding during the quarter. Net
loss per share attributable to common shareholders for the three months and six
months ended March 31, 1996, is computed using the weighted average number of
shares of common stock outstanding during the quarter, and in addition, pursuant
to the Securities and Exchange Commission Staff Accounting Bulletins, common and
common equivalent shares issued by the Company at prices below the public
offering price during the twelve month period prior to the initial filing of the
registration statement have been included in the calculation as if they were
outstanding for all periods prior to the quarter in which the Company's initial
public offering became effective (using the treasury stock method and an initial
public offering price of $6.00 per share). Fully diluted net loss per share is
not presented because it is antidilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (SFAS 128), "Earnings per Share", which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The impact of
SFAS 128 on the calculation of primary earnings per share and fully diluted
earnings per share for the quarter and six months ended March 31, 1997 and March
31, 1996 is not expected to be material.
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<PAGE> 28
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash, Cash Equivalents and Short-Term Investments
Cash equivalents at March 31, 1997, consist of short-term financial
instruments that are readily convertible into cash with original maturities of
less than ninety days from the date of acquisition. The carrying amount reported
in the balance sheet for cash and cash equivalents approximates fair value.
3. SHAREHOLDERS' EQUITY
Common Stock Purchase Warrants
On September 25, 1996, in connection with the Company's initial public
offering, the Company issued 1,150,000 redeemable common stock purchase warrants
for $0.125 per share. The warrants are exercisable to purchase common stock
during the three year period from the effective date of the offering (September
25, 1996), at an exercise price of $6.00 per share. During March 1997,
redeemable stock purchase warrants to purchase 50,052 shares of common stock
were exercised for $300,312. As of March 31, 1997, there were 1,099,948 warrants
outstanding.
Stock Option
The Company accounts for stock options granted to outside service
providers in accordance with Statement of Financial Accounting Standard No. 123
(SFAS 123), "Accounting for Stock Based Compensation", utilizing the fair value
method. In December 1996, the Company's Board of Directors approved the issuance
of stock options to certain outside service providers to purchase up to 145,000
shares of the Company's common stock at an exercise price of $7.013 per share.
The exercise price was calculated at 110% of the fair market value on the date
of grant of $6.375 per share. The options vest one-half in year one and one-half
in year two, and expire three years from the date of grant. Pursuant to the
provisions of SFAS 123, the fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
assumptions: risk free interest rate of approximately 6%; no dividend yield;
volatility factor of .5; and a weighted-average expected life of the options of
approximately 1.5 years. The fair market value of these options was estimated to
be approximately $216,000 and will be recognized as compensation expense over
the vesting period. Compensation expense relating to these options for the three
and six months ended March 31, 1997, was approximately $37,600 and $50,200,
respectively.
In December 1996, in connection with a preliminary agreement between the
Company and a distributor, Set 1 Communications, NSW, Australia ("Set 1") (see
Note 3), the Company granted Set 1 a stock option to purchase up to 248,600
shares of the Company's common stock at the then fair market value of $6.375 per
share. The option vested immediately and expires two years from the date of
grant. Pursuant to the provisions of SFAS 123, the fair value for this option
was estimated at the date of grant using a Black-Scholes option pricing model
with the following assumptions: risk free interest rate of approximately 6%; no
dividend yield; volatility factor of .5; and a weighted-average expected life of
the option of 1 year. The Company recorded the entire estimated fair value of
this option of approximately $351,000 as sales and marketing expense during the
three months ended December 31, 1996.
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<PAGE> 29
4. SOFTWARE CAPITALIZATION
Software Development Costs
The Company capitalizes software development costs upon achievement of
technological feasibility, subject to net realizable value consideration in
accordance with Statement of Financial Accounting Standards No. 86 (SFAS 86)
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed". Based on the Company's development process, technological feasibility
is achieved upon completion of a working model. Accordingly, all expenses
incurred prior to completion of a working model are expensed. Capitalized costs
are amortized upon product release on a straight-line basis over the estimated
useful life or the ratio of current revenue to the total current and anticipated
future revenues, whichever results in the greater amortization. During March
1997, the Company released the first working model of its facsimile software and
began capitalizing software development costs pursuant to SFAS 86. A total of
approximately $32,000 in software development costs have been capitalized
through March 31, 1997.
5. DISTRIBUTION AGREEMENT
In January 1997, based on the preliminary agreement reached in December
1996, the Company finalized a five-year agreement with Set 1 (see Note 2), to
distribute a "light" version of the Company's CHROMAFAX software with modems
developed and marketed worldwide by Set 1. The "light" version is a version of
CHROMAFAX with selected functionality. The agreement between the companies
stipulates that Compressent will provide technology, support and basic
documentation to Set 1. The agreement provides Set 1 with exclusivity for the
"light" version bundled with modems based upon minimum shipments per year. The
agreement further allows Set 1 to non-exclusively market the retail version of
the product through its own channels and distribution partners. As part of the
agreement signed with Set 1, the Company granted a stock option to Set 1 to
purchase up to 248,600 shares of common stock (see Note 2).
6. LEGAL
On February 14, 1997, the Company instituted a lawsuit in Santa Clara
County Superior Court against former consultants and a company they had formed
known as Color Communication Corporation. The lawsuit asserts claims for breach
of contract, breach of confidence, unfair competition and unjust enrichment,
alleging that the former consultants misappropriated the Company's confidential
information. On April 30, 1997, the Superior Court prohibited the defendants
from using the Company's confidential information in any products, literature or
advertising. In addition, the Superior Court issued a preliminary injunction
barring the former consultants and Color Communications Corporation from
advertising, marketing, selling or otherwise distributing any facsimile or color
imaging software product for a period of nine months beginning April 21, 1997.
There is no assurance that the defendants will not seek to appeal the order. A
total of approximately $76,800 in legal expenses have been incurred in
connection with this lawsuit through March 31, 1997.
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<PAGE> 30
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Exchange Act of 1933 and Section 21E of the
Securities Act of 1934. All forward-looking statements involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of many factors including the
Company's inability to complete development of commercial versions of its
products, delays in product development or failure of such products to develop
substantial sales volume. (See "Factors That May Affect Future Operating
Results")
Overview
The Company was incorporated in the state of Florida on August 26, 1994,
but did not commence formal operations until April 1995. The Company's primary
activities since inception have been devoted to designing and developing its
initial color facsimile products and related technologies, preparation for
marketing, the recruitment of key management and technical personnel, including
outside consultants, and raising capital to fund operations. The Company has
been unprofitable since inception and has not licensed or sold any of its
products or technologies. As a result, the financial statements are presented in
accordance with Statement of Financial Accounting Standards No. 7 (SFAS 7),
"Accounting and Reporting by Development Stage Enterprises."
For the period from inception (August 26, 1994) through March 31, 1997,
the Company has incurred a cumulative net loss of approximately $4,829,000 and
had used $4,000,000 in cash for operating activities. The Company expects to
continue to incur losses through the end of fiscal 1997 or until the Company is
able to attain revenues from sales, licensing or other arrangements sufficient
to support its operations. Management believes that current working capital of
approximately $3,214,000 will be sufficient to support the Company's planned
activities through the end of fiscal 1997. The Company believes that to the
extent existing resources and anticipated revenues are insufficient to fund the
Company's planned activities in fiscal 1997, additional debt or equity financing
will be available from existing investors and others. Based on the Company's
current plans, management anticipates that it will be necessary for the Company
to raise additional debt or equity financing in the first quarter of fiscal
1998.
Results of Operations
Three and Six Months Ended March 31, 1996 and 1997.
Research and Development
From inception through March 31, 1997, a substantial part of the
Company's activities related to research and development. Research and
development expenses were approximately $323,000 and $723,000 for the three
months and six months ended March 31, 1997, respectively, compared to $214,000
and $316,000, respectively, in the corresponding periods in fiscal 1996. The
increase is primarily due to increased staffing and consultants, and increased
supplies and associated costs related to increased development and testing
activities of the software functions and features. The Company believes that
significant investments in product development are required to remain
competitive. As a consequence the Company intends to incur increased product
development expenditures in the future. During March 1997, the Company released
the first working model of its facsimile software and began capitalizing
software development costs pursuant to FASB 86. Approximately $32,000 in
software development costs have been capitalized through March 31, 1997.
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<PAGE> 31
Sales and Marketing
Sales and marketing expenses were approximately $274,000 and $838,000
for the three months and six months ended March 31, 1997, respectively, compared
to $32,000 and $42,000, respectively, in the corresponding periods in fiscal
1996. The increase is primarily due to costs associated with staffing employees
and consultants, participation in trade shows and other events, and the costs
associated with developing a marketing strategy and logo. In addition, in
December 1996, the Company granted a stock option to Set 1 Communications, NSW,
Australia ("Set 1"), to purchase up to 248,600 shares of the Company's common
stock. The option was granted in connection with a preliminary agreement between
the Company and Set 1 and has an exercise price equal to the fair value of the
Company's common stock on the date of grant of $6.375 per share. The option
vested immediately and expires two years from the date of grant. Pursuant to the
provision of SFAS 123, the fair value of the option was estimated to be $351,000
as of the date of grant using a Black-Scholes option pricing model. During
December 1996, the Company recorded the estimated fair value of this option as
sales and marketing expense.
Achieving significant market acceptance and commercialization of the
Company's initial color fax products will require substantial marketing efforts
and the expenditure of significant funds to establish market awareness of the
Company and the initial color fax products. As such, the Company expects
significant sales and marketing expenses in future periods as it continues to
pursue an aggressive brand building strategy in fiscal 1997.
In January 1997, the Company finalized a five-year agreement with Set 1
to distribute a "light" version of the Company's CHROMAFAX software with modems
developed and marketed worldwide by Set 1. The "light" version is a version of
CHROMAFAX with selected functionality. The agreement between the companies
stipulates that Compressent (formerly Cable-Sat Systems) will provide
technology, support and basic documentation to Set 1. The agreement provides Set
1 with exclusivity for the "light" version bundled with modems based upon
minimum shipments per year. The agreement further allows Set 1 to
non-exclusively market the retail version of the product through its own
channels and distribution partners.
General and Administrative
General and administrative expenses consist primarily of compensation
and fees for professional services. General and administrative expenses were
approximately $525,000 and $935,000 for the three months and six months ended
March 31, 1997, respectively, compared to $142,000 and $291,000, respectively in
the corresponding periods in fiscal 1996. The increase in general and
administrative expenses was primarily attributable to increased staffing, fees
for professional services, legal expenses in connection with the lawsuit against
Color Communications Corporation and the costs associated with the Company being
public. General and administrative expenses are expected to continue to increase
to support growing operations and increases in business development efforts, and
the continued expenses incurred as a public entity.
Interest Income
Interest income was approximately $54,000 and $116,000 for the three
months and six months ended March 31, 1997, respectively, compared to $6,000 and
$6,000, respectively in the corresponding periods in fiscal 1996. Interest
income is primarily derived from the investment of the Company's proceeds from
its initial public offering of common stock that closed on October 1, 1996.
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<PAGE> 32
Liquidity and Capital Resources
The Company had approximately $3,430,000 in cash, cash equivalents and
short-term investments at March 31, 1997. To date, the Company has primarily
financed its operations through the private and public sale of equity
securities. The Company's cash expenditures for operating activities were
approximately $1,077,000 and $2,012,000 for the three months and six months
ended March 31, 1997, respectively, compared to $302,000 and $549,000,
respectively in the corresponding periods in fiscal 1996, and differ from the
Company's net loss in these periods principally due to non-cash operating
expenditures and an increase in accounts payable and accrued liabilities. The
Company expects its cash requirements to increase due to expected increases in
expenses related to further research and development of its technologies and
increased marketing, manufacturing, sales and distribution and technical support
expenses associated with the introduction of its initial color fax products to
the marketplace and increased administrative expenses associated with fees for
professional services, legal expenses in connection with the lawsuit with Color
Communication Corporation and the costs associated with the Company being
public. The Company plans to hire additional employees and increase marketing
and sales expenses to execute its sales and marketing plans.
The Company believes that to the extent existing resources and
anticipated revenues are insufficient to fund the Company's planned activities
in fiscal 1997, additional debt or equity financing will be available from
existing investors and others. However, there can be no assurance as to the
terms and conditions of any such financing. Based on the Company's current
plans, it will be necessary for the Company to raise additional debt or equity
financing in the first quarter of fiscal 1998.
Factors That May Affect Future Operating Results
Development Stage Company; Absence of Operating History. The Company has
been engaged primarily in the design and development of CHROMAFAX and CHROMAFAX
LITE (the "Initial Color Fax Products") and related technology. The Company has
produced a beta version of its initial color fax software product, currently
called CHROMAFAX, and is in the process of developing its "light" version,
currently called CHROMAFAX LITE. The Company's viability, profitability and
growth depend upon successful completion of the development and
commercialization of these products. There can be no assurance that any of the
Company's technologies or products will be successfully or timely developed or
commercialized. The risks, expenses and difficulties often encountered in a
shift from the research and development of products to the commercialization of
new products based on innovative technology must also be considered. The
prospects for the Company's success must be considered in light of the risks,
expenses and difficulties often encountered in the establishment of a new
business in a continually evolving industry subject to rapid technological and
price changes, and characterized by an increasing number of market competitors.
No Revenues; Anticipated Future Losses. To date, the Company has had no
operating revenue and does not anticipate any operating revenue until one or
more of its Initial Color Fax Products are completely developed, manufactured in
commercial quantities and are available for commercial distribution. The Company
anticipates incurring significant costs in connection with the development of
its technologies and Initial Color Fax Products and there is no assurance that
the Company will achieve sufficient revenues to offset anticipated operating
costs. As of March 31, 1997, the Company's deficit accumulated during the
developmental stage was approximately $4,829,000. Further, the Company
anticipates it will have a loss in its fiscal year ended September 30, 1997, and
that losses will continue until the Company's Initial Color Fax Products
generate substantial revenues.
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<PAGE> 33
Need for Additional Financing. The Company has expended and will
continue to expend substantial funds to complete the research, development and
marketing and distribution activities of its products. The Company has been
dependent on the sales of its securities to fund its development activities. The
Company has no current arrangements with respect to sources of additional
financing and there is no assurance that other additional financing will be
available to the Company in the future on commercially reasonable terms. The
Company believes that additional debt or equity financing will be available from
existing investors and others. However, there can be no assurance as to the
terms and conditions of any such financing and no certainty that funds would be
available when needed. The inability to obtain additional financing, when
needed, would be likely to curtail the Company's sales and marketing and product
development efforts and would be likely to have a material adverse effect on the
Company. To the extent that any future financing involves the sale of the
Company's equity securities, the Company's then existing stockholders could be
substantially diluted.
Limited Sales and Marketing Experience. The Company will seek to market
and sell its products, if successfully developed, through key manufacturers and
distributors. Such companies could be inhibited from doing business with the
Company because of their commitment to their own technologies and products. As a
result, demand and market acceptance for the Company's technologies and proposed
products is subject to a high level of uncertainty. The Company intends to rely
in part on the manufacturers of personal computers, fax modems, color printers
and scanners for initial distribution of its Initial Color Fax Products as a
software package included with such hardware purchase. The Company is therefore
dependent upon such firms to distribute its color fax products. In addition,
many factors could affect the success of the Company's distribution agreement
with Set 1. These include the timing and success of the Company's efforts to
develop a "light" version of the Company's CHROMAFAX software, Set 1's
performance and marketing efforts, competitive factors and market acceptance.
Rapid Technological Change. Technologies and proposed products being
developed by the Company are in various stages of development. Product
development efforts are subject to the risks inherent in the development of new
technology and products (including unanticipated delays, expenses, technical
problems or difficulties, as well as the possible insufficiency of funding to
complete development). There can be no assurance as to when, or whether, such
development projects will be successfully completed. The markets for the
technology and products being developed by the Company are characterized by
rapid changes and evolving industry standards often resulting in product
obsolescence or short product life cycles. The Company's operating results will
depend upon its ability to complete development and introduce to the marketplace
in a timely and cost-competitive manner its proposed products and technology, to
continually enhance and improve such products and technology, to adapt its
proposed products to be compatible with specific products manufactured by
others, and to successfully develop and market new products and technology.
Substantial Competition. Other companies may be developing technologies
or products of which the Company is unaware which may be functionally similar,
or superior, to some or all of those being developed by the Company. These
companies may have substantially greater, technical, personnel and other
resources than the Company and may have established reputations for success in
developing, licensing and sales of their products. There is no assurance that
the Company will be able to compete successfully, that its competitors or future
competitors will not develop technologies or products that render the Company's
products and technology obsolete or less marketable or that the Company will be
able to successfully enhance its proposed products or technology or adapt them
satisfactorily.
Dependence Upon Qualified and Key Personnel. The success of the Company
will be largely dependent on its ability to hire and retain qualified executive,
scientific and marketing personnel. There is no assurance that the Company will
be able to attract or retain such necessary personnel, particularly in light of
the currently high demand for software engineers and other personnel in Silicon
Valley. The loss of key personnel or the failure to recruit additional personnel
could have a material adverse effect on the Company's business.
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<PAGE> 34
Protection of Proprietary Information. Competitors in both the United
States and foreign countries, many of which have substantially greater resources
and have made substantial investments in competing technologies, may have
applied for or obtained, or may in the future apply for and obtain, patents that
will prevent, limit or otherwise interfere with the Company's ability to make
and sell its products. The Company has not conducted an independent review of
patents issued to third parties. In addition, because of the developmental stage
of the Company, claims that the Company's products infringe on the proprietary
rights of others are more likely to be asserted after commencement of commercial
sales incorporating the Company's technology. There can be no assurance that
other third parties will not assert infringement claims against the Company or
that such claims will not be successful. The Company is in the process of
applying for patents. There can also be no assurance that competitors will not
infringe the Company's patents if any such patents are granted to the Company in
the future. Defense and prosecution of patent suits, even if successful, are
both costly and time consuming. An adverse outcome in the defense of a patent
suit could subject the Company to significant liabilities to third parties,
require disputed rights to be licensed from third parties or require the Company
to cease selling its products.
The Company is in the process of applying for copyrights relating to
certain of its proposed Initial Color Fax Products and is also applying for
patent protection. There is no assurance that any patents will be obtained.
If obtained, there is no assurance that any patents or copyrights will afford
the Company commercially significant protection of its technologies or that the
Company will have adequate resources to enforce its patents and copyrights. The
Company also intends to seek foreign patent and copyright protection. With
respect to foreign patents and copyrights, the laws of other countries may
differ significantly from those of the United States as to the patentability of
the Company's products or technology. Moreover, the degree of protection
afforded by foreign patents or copyrights may be different from that in the
United States. Patent applications in the United States are maintained in
secrecy until patents issue, and since publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries by
several months, the Company cannot be certain that it will be the first creator
of inventions covered by any patent applications it makes or the first to file
patent applications on such inventions. Furthermore, in the desktop computer
application market today, patents and copyrights cannot give substantial
protection against competitors determined to introduce competing products since
it is likely that such competitors will be able to develop similar technology
which does not infringe on the Company's proprietary technology.
The Company also relies on unpatented proprietary technology, and there
can be no assurance that others may not independently develop the same or
similar technology or otherwise obtain access to the Company's unpatented
technology. To protect its trade secrets and other proprietary information, the
Company requires employees, consultants, advisors and collaborators to enter
into confidentiality agreements. There can be no assurance that these agreements
will provide meaningful protection for the Company's trade secrets, know-how or
other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how or other
proprietary information. If the Company is unable to maintain the proprietary
nature of its technologies, the Company could be adversely affected.
Efforts to enforce the Company's proprietary rights, even if successful,
can be expensive. For example, in April 1997, the Company successfully obtained
an injunction against a company which had allegedly misappropriated the
Company's trade secrets. Legal fees and costs associated with enforcing the
Company's rights in such action may exceed $100,000, and there is no assurance
that such costs will be covered by insurance.
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ALTERNATE PROSPECTUS
FIRST PROSPECTUS SUPPLEMENT
FILED PURSUANT TO RULES 424(B)(3) AND (C)
(TO PROSPECTUS DATED SEPTEMBER 13, 1996)
REGISTRATION NO. 333-06121
2,092,000 SHARES
COMPRESSENT CORPORATION
(FORMERLY "CABLE-SAT SYSTEMS, INC.")
COMMON STOCK
This First Prospectus Supplement supplements and amends the Prospectus
dated September 13, 1996 (the "Prospectus") relating to the offer and resale by
the holders thereof of up to 2,092,000 shares (the "Shares") of common stock,
par value $0.001 per share, of Compressent Corporation, a Florida corporation
(formerly named "Cable-Sat Systems, Inc.") (the "Company"). All capitalized
terms used but not otherwise defined in this First Prospectus Supplement shall
have the meanings ascribed thereto in the Prospectus.
The Prospectus, together with this First Prospectus Supplement,
constitutes the prospectus required to be delivered by Section 5(b) of the
Securities Act with respect to offers and sales of the shares by the Selling
Stockholders. All references in the Prospectus to "this Prospectus" are hereby
amended to read "this Prospectus (as supplemented and amended)."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 OF THE PROSPECTUS DATED SEPTEMBER 13, 1996 (THE
"PROSPECTUS").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS OR THIS PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JULY 17, 1997.
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<PAGE> 36
USE OF FORWARD-LOOKING STATEMENTS IN MANAGEMENT'S DISCUSSION AND
ANALYSIS
Item 7 ("Management's Discussion and Analysis of Financial Condition and
Results of Operations") of Annex A and Item 2 ("Management's Discussion and
Analysis of Financial Condition and Results of Operations") of Annex B of this
Prospectus Supplement contain forward-looking statements within the meaning of
Section 27A of the Securities and Exchange Act of 1933 and Section 21E of the
Securities Act of 1934, as amended. All forward-looking statements involve risks
and uncertainties. Actual results could differ materially from those discussed
in the forward-looking statements as a result of many factors including but not
limited to those discussed in "Risk Factors" and elsewhere in the Prospectus.
EXPERTS
The financial statements of Compressent Corporation (formerly Cable-Sat
Systems, Inc.) at September 30, 1996 and for the year then ended, and for the
period from inception (August 26, 1994) to September 30, 1996 appearing in this
Prospectus Supplement and Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm in experts in accounting and auditing.
The balance sheet of the Registrant as of September 30, 1995, and the
statement of operations, shareholders' equity and the statement of cash flows
for the period from inception (August 26, 1994) to September 30, 1995 appearing
in this Prospectus Supplement have been audited by Grant-Schwartz Associates,
CPA's independent certified public accountants; as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm in experts in accounting and auditing.
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CONTENTS
The Prospectus is hereby amended to include certain information from the
Company's Annual Report on Form 10-K for the year ended September 30, 1996 filed
on December 30, 1996 and the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 filed on May 15, 1997, as set forth below and
attached as Annex A and Annex B hereto.
ANNEX A. INFORMATION FROM PART I OF THE ANNUAL REPORT
<TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 6. Selected Financial Data for the period from inception (August 26, 1994)
to September 30, 1995, the fiscal year ended September 30, 1996, and the period
from inception (August 26, 1994) to September 30, 1996............................5
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.....................................................................5
ITEM 8. Financial Statements and Supplementary Data
Statements of Operations for the period from inception (August 26, 1994)
to September 30, 1995, the year ended September 30, 1996, and the period from
inception (August 26, 1994) to September 30, 1996.................................8
Balance Sheets as of September 30, 1995 and September 30, 1996....................9
Statements of Shareholders' Equity for the period from inception (August 26,
1994) to September 30, 1995 and for the year ended September 30, 1996............10
Statements of Cash Flows for the period from inception (August 26, 1994)
to September 30, 1995, the year ended September 30, 1996, and the period
from inception (August 26, 1994) to September 30, 1996...........................11
Notes to Financial Statements for the year ended September 30, 1996..............12
Report of Ernst & Young LLP, Independent Auditors................................19
Report of Grant-Schwartz Associates, CPA's, Independent Certified
Public Accountants ..............................................................20
</TABLE>
ANNEX B. INFORMATION FROM PART I OF THE QUARTERLY REPORT
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Statements of Operations -- three and six months ended
March 31, 1996 and 1997, and for the period from inception
(August 26, 1994) to March 31, 1997..............................................22
Condensed Balance Sheets --September 30, 1996 and March 31, 1997.................23
Condensed Statements of Cash Flows --six months ended March 31, 1996
and 1997, and for the period from inception (August 26, 1994) to
March 31, 1997...................................................................24
Notes to Condensed Financial Statements..........................................25
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................................28
</TABLE>
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ANNEX A
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
ITEMS 6, 7, AND 8 OF PART I OF THE ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED SEPTEMBER 30, 1996 AND SELECTED
FINANCIAL DATA FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1997.
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<PAGE> 39
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data for the period from inception
(August 26, 1994) to September 30, 1995, the fiscal year ended September 30,
1996, the six months ended March 31, 1996 and 1997 and the period from inception
(August 26, 1994) to September 30, 1996 are qualified by reference to, and
should be read in conjunction with, the Company's Financial Statements, the
Notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained elsewhere herein. The selected financial
data have been derived from Company's audited financial statements.
<TABLE>
<CAPTION>
Period from Period from Period from
Inception Inception Inception
(August 26, 1994) Year Ended (August 26, 1994) Six Months Ended (August 26, 1994)
to September 30, September 30, to September 30, March 31, March 31, to March 31,
1995 1996 1996 1996 1997 1997
------------- ------------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Total operating costs
and expenses ........... $ 256,554 $ 2,204,249 $ 2,460,803 $ 648,660 $ 2,497,800 $ 4,957,883
Loss from
operations ............. $ (256,554) $ (2,204,249) $ (2,460,803) $ (648,660) $(2,497,080) $ (4,957,883)
Interest income .......... $ 1,789 $ 11,246 $ 13,035 5,800 115,741 128,776
Net loss ................. $ (254,765) $ (2,193,003) $ (2,447,768) $ (642,860) $(2,381,339) $ (4,829,107)
Net loss applicable
to common shareholders $ (254,765) $ (3,093,003) $ (3,347,768) $ (642,860) $(2,381,339) $ (5,729,107)
Net loss per share
applicable to common
shareholders ........... $ (0.06) $ (0.76) (0.16) (0.48)
Shares used in computing
net loss per share
applicable to common
shareholders ........... 4,101,833 4,044,708 4,104,500 4,980,342
</TABLE>
<TABLE>
<CAPTION>
September 30,
-------------------------- March 31,
1995 1996 1997
---------- ------------ ----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................. $ 423,078 $ 5,705,106 $3,549,070
Working capital................ 380,142 4,941,100 3,214,196
Total assets................... 488,394 5,959,105 3,897,618
Current liabilities............ 42,936 764,006 334,874
Shareholders' equity........... 445,458 5,195,099 3,562,744
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the Financial Statements and notes thereto appearing elsewhere herein.
Overview
The Company was incorporated in the state of Florida on August 26, 1994,
but did not commence formal operations until April 1995. The Company's primary
activities since inception have been devoted to developing its initial color
facsimile products and related technologies, preparation for marketing, the
recruitment of key management and technical personnel, including outside
consultants, and raising capital to fund operations. The Company has been
unprofitable since inception and has not licensed or sold any of its products or
technologies. As a result, the financial statements are presented in accordance
with Statement of Financial Accounting Standards No. 7 (SFAS 7), "Accounting and
Reporting by Development Stage Enterprises".
For the period from inception (August 26, 1994) through September 30,
1996, the Company incurred a cumulative net loss of approximately $2,448,000 and
had used $1,989,000 in cash for operating activities.
-5-
<PAGE> 40
The Company expects to continue to incur losses through at least the fourth
quarter of the year ended September 30, 1997, or until the Company is able to
attain revenues from sales, licensing or other arrangements sufficient to
support its operations. Management believes that current working capital of
approximately $4,941,000 will be sufficient to support the Company's planned
activities through the end of fiscal 1997. The Company believes that to the
extent existing resources and anticipated revenues are insufficient to fund the
Company's planned activities in fiscal 1997, additional debt or equity financing
will be available from existing investors and others. Based on the Company's
current plans, it will be necessary for the Company to raise additional debt or
equity financing in the first quarter of fiscal 1998.
Results of Operations
Period from inception (August 26, 1994) to September 30, 1995 compared
with the year ended September 30, 1996.
Research and Development
From inception through September 30, 1996, a substantial part of the
Company's activities related to research and development. The Company's research
and development expenses were approximately $201,000 and $903,000 for the period
from inception (August 26, 1994) to September 30, 1995 and the fiscal year ended
September 30, 1996, respectively. The increase in expenses in fiscal 1996 as
compared with the period from inception (August 26, 1994) to September 30, 1995,
is primarily related to costs associated with the addition of personnel,
increased use of consultants and temporary help, and increased supplies, all
incurred to support increased development and testing activities. The Company
expects research and development costs to continue to increase as the Company
continues to expand its research efforts.
Marketing
Marketing expenses were approximately $0 and $279,000 for the period
from inception (August 26, 1994) to September 30, 1995 and the fiscal year ended
September 30, 1996, respectively. Marketing expenses incurred during fiscal 1996
are primarily related to costs associated with staffing employees and
consultants to start the Company's marketing efforts and costs associated with
developing a marketing strategy and logo. Achieving significant market
acceptance and commercialization of the Company's initial color fax products
will require substantial marketing efforts and the expenditure of significant
funds to establish market awareness of the Company and the initial color fax
products. As such, the Company expects marketing expenses to increase
significantly in fiscal 1997.
General and Administrative
General and administrative expenses were approximately $56,000 and
$1,022,000 for the period from inception (August 26, 1994) to September 30, 1995
and the fiscal year ended September 30, 1996, respectively. The increase is due
primarily to increased administrative staffing to support growing operations and
increases in business development efforts. General and administrative expenses
are expected to continue to increase to support increased levels of operations
and to cover the costs of being a public company.
-6-
<PAGE> 41
Taxes
The Company has had net losses since inception and has not provided for
federal or state taxes to date. As of September 30, 1996, the Company had
federal and state net operating loss carryforwards of approximately $2,100,000
and $1,300,000, respectively. The net operating loss carryforwards will expire
beginning September 30, 2010 (federal) and September 30, 2003 (state), if not
utilized. Utilization of the net operating losses may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating loss carryforwards
before utilization.
Manufacturing, Distribution and Sales
As the Company's initial color fax products are completed and become
available to the market, the Company will begin to incur significant costs to
manufacture, distribute and sell its products. In addition, costs will be
incurred to provide technical support services to customers.
Liquidity and Capital Resources
Since inception, the Company has relied on sales of its equity
securities to fund its operations. Between May 1995 and May 1996 the Company
received approximately $1,952,000 in cash from sales of its equity securities.
In September 1996, the Company's initial public offering of common stock and
Redeemable Common Stock Purchase Warrants became effective. The Company received
net proceeds of approximately $5,387,614 from this initial public offering, less
$108,000 for advisory services to be provided over three years by the
Underwriter, Barron -- Chase Securities, Inc. The Company's outstanding
Redeemable Common Stock Purchase Warrants are exercisable at $6.00 per share and
could result in the receipt of up to an additional $6,900,000. However, there
can be no assurance that such warrants will be exercised and the Company cannot
redeem the warrants until September 25, 1997, without the prior consent of the
Underwriter. In addition, in connection with the Company's initial public
offering, the Company redeemed its preferred stock for a cash payment of
$450,000 and the issuance of 150,000 shares of common stock.
From inception (August 26, 1994) to September 30, 1996, the Company's
cash expenditures for operating activities were approximately $1,989,000. These
cash expenditures were approximately $327,000 from inception (August 26, 1994)
through September 30, 1995 and $1,662,000 for the fiscal year ended September
30, 1996 and differ from the Company's net loss in these periods principally due
to non-cash operating expenditures and an increase in accounts payable and
accrued liabilities. The Company expects its cash requirements to increase due
to expected increases in expenses related to further research and development of
its technologies and increased marketing, manufacturing, sales and distribution
and technical support expenses associated with the introduction of it's initial
color fax products to the market place and increased administrative expenses
associated with fees for professional services, legal expenses in connection
with the lawsuit with Color Communication Corporation and the costs associated
with the Company being public. The Company plans to hire additional employees
and increase marketing and sales expenses to execute its sales and marketing
plans.
The Company believes that to the extent existing resources and
anticipated revenues are insufficient to fund the Company's planned activities
in fiscal 1997, additional debt or equity financing will be available from
existing investors and others. Based on the Company's current plans, it will be
necessary for the Company to raise additional debt or equity financing in the
first quarter of fiscal 1998.
-7-
<PAGE> 42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From Period From
Inception Inception
(August 26, 1994) Year Ended (August 26, 1994)
To September 30, 1995 September 30, 1996 To September 30, 1996
--------------------- ------------------ ---------------------
<S> <C> <C> <C>
OPERATING COSTS
AND EXPENSES:
Research and
development ......... $ 200,734 $ 903,225 $ 1,103,959
Marketing ........... -- 278,690 278,690
General and
administrative ...... 55,820 1,022,334 1,078,154
------------- ------------- -------------
Total operating costs
and expenses ........ 256,554 2,204,249 2,460,803
------------- ------------- -------------
Loss from operations .... (256,554) (2,204,249) (2,460,803)
Interest income ......... 1,789 11,246 13,035
------------- ------------- -------------
Net loss .......... (254,765) (2,193,003) (2,447,768)
Less: Accretion on
preferred stock ......... -- (900,000) (900,000)
------------- ------------- -------------
Net loss applicable to
common shareholders ..... $ (254,765) $ 3,093,003 $ 3,347,76
============= ============= =============
Net loss per share
applicable to common
shareholders ............ $ (0.06) $ (0.76)
============= =============
Shares used in computing
net loss per share
applicable to common
shareholders ............ 4,101,833 4,044,708
============= =============
</TABLE>
See accompanying notes.
-8-
<PAGE> 43
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
------------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash ........................................................... $ 314,078 $ 155,533
Notes receivable -- related parties ............................ 109,000 --
Other receivable from underwriter in connection with the
Company's initial public offering ......................... -- 5,549,573
------------ ------------
Total current assets ...................................... 423,078 5,705,106
Property and equipment
Office furniture ............................................... 19,329 17,785
Computer equipment ............................................. 40,195 158,504
------------ ------------
59,524 176,289
Less accumulated depreciation .................................. 2,700 40,237
------------ ------------
Net property and equipment ................................ 56,824 136,052
Other assets ....................................................... 8,492 117,947
------------ ------------
Total assets .............................................. $ 488,394 $ 5,959,105
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ............................................... $ 42,936 $ 168,266
Accrued registration costs ..................................... -- 55,052
Preferred stock redemption payable ............................. -- 450,000
Other accrued liabilities ...................................... -- 90,688
------------ ------------
Total current liabilities ................................. $ 42,936 $ 764,006
Commitments
Redeemable preferred stock, par value $.001 per share:
no shares authorized in 1995 (150,000 shares in 1996) none
issued and outstanding ......................................... -- --
Shareholders' equity
Common stock, par value $.001 per share: authorized 50,000,000
shares; Issued and outstanding 2,200,000 and 4,972,000 shares at
September 30, 1995 and 1996, respectively ...................... 2,200 4,972
Paid in capital ................................................ 698,023 7,781,895
Deficit accumulated during the development stage ............... (254,765) (2,447,768)
Deferred compensation .......................................... -- (144,000)
------------ ------------
Total shareholders' equity ................................ 445,458 5,195,099
------------ ------------
Total liabilities and shareholders' equity ........... $ 488,394 $ 5,959,105
============ ============
</TABLE>
See accompanying notes.
-9-
<PAGE> 44
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the Total
----------------------- Paid in Development Deferred Shareholders'
Shares Amount Capital Stage Compensation Equity
---------- ---------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock for cash
May 1995 -- $0.001/share ........ 1,276,000 $1,276 $ (1,116) $ -- $ -- $ 160
May 1995 -- $0.65/share ......... 374,000 374 199,689 -- -- 200,063
August 1995 -- $0.92/share ...... 550,000 550 499,450 -- -- 500,000
Net loss from inception (August 26,
1994) to September 30, 1995 ..... -- -- -- (254,765) (254,765)
---------- ---------- ---------- ------------- ------------- -------------
Balance -- September 30, 1995 ....... 2,200,000 2,200 698,023 (254,765) -- 445,458
Sale of common stock for cash
January 1996 -- $1.00/share ..... 120,000 120 119,880 -- -- 120,000
April 1996 -- $0.60/share ....... 350,000 350 209,650 -- -- 210,000
May 1996 -- $2.50/share ......... 372,000 372 900,658 -- -- 901,030
Common stock issued in exchange
for full recourse note payable
March 1996 -- $0.30/share ....... 300,000 300 89,700 -- -- 90,000
Common stock exchanged for
services
December 1995 -- $1.00/share .... 60,000 60 59,940 -- -- 60,000
April 1996 -- $0.60/share ....... 50,000 50 29,950 -- -- 30,000
Exercise of common stock warrant
in exchange for cash and
forgiveness of loans -- March
1996 -- $0.30/share ............. 320,000 320 95,680 -- -- 96,000
Accretion of preferred stock to
redemption value ................ -- -- (900,000) -- -- (900,000)
Common stock to be issued in
October 1996 upon redemption
of preferred stock -- $6.00/share 150,000 150 899,850 -- -- 900,000
Sale of common stock in initia1
public offering for receivable
from underwriter for
$6.00/share in September 1996,
net of issue costs of $1,056,146 1,050,000 1,050 5,242,804 -- -- 5,243,854
Redeemable warrants issued in
initial public offering
$0.125/warrant .................. -- -- 143,760 -- -- 143,760
Deferred compensation expense
related to stock options ............ -- -- 192,000 -- (192,000) --
Amortization of deferred
compensation .................... -- -- -- -- 48,000 48,000
Net loss for the year ended
September 30, 1996 .............. -- -- -- (2,193,003) -- (2,193,003)
---------- ---------- ---------- ------------- ------------- -------------
Balance -- September 30, 1996 ....... 4,972,000 $4,972 $7,781,895 $(2,447,768) $(144,000) $5,195,099
========== ========== ========== ============= ============= =============
</TABLE>
See accompanying notes.
-10-
<PAGE> 45
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period from
Inception Inception
(August 26, 1994) Year ended (August 26, 1994)
to September 30, 1995 September 30, 1996 to September 30, 1996
--------------------- ------------------ ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ...................................... $ (254,765) $(2,193,003) $(2,447,768)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .............. 2,815 40,352 43,167
Amortization of deferred compensation ...... -- 48,000 48,000
Write-off of property and equipment ........ -- 29,126 29,126
Common stock exchanged for services ........ -- 90,000 90,000
Changes in operating assets and liabilities:
(Increase) decrease -- notes receivable ....... (109,000) 109,000 --
(Increase) decrease -- other assets ........... (8,607) (1,455) (10,062)
Increase (decrease) -- payables and other
liabilities ................................ 42,936 216,018 258,954
----------- ----------- -----------
Net cash used in operating activities ...... (326,621) (1,661,962) (1,988,583)
----------- ----------- -----------
Cash flows from investing activities
Purchase of property and equipment ............ (59,524) (148,707) (208,231)
----------- ----------- -----------
Net cash used in investing activities ...... (59,524) (148,707) (208,231)
----------- ----------- -----------
Cash flows from financing activities
Sale of common stock .......................... 700,223 1,252,040 1,952,263
Initial public offering registration costs paid -- (214,916) (214,916)
Loans from shareholder ........................ -- 75,000 75,000
Repayment of full recourse note payable ....... -- 90,000 90,000
Sale of redeemable preferred stock ............... -- 450,000 450,000
----------- ----------- -----------
Net cash provided from financing activities 700,223 1,652,124 2,352,347
----------- ----------- -----------
Net increase (decrease) in cash ............ 314,078 (158,545) 155,533
Cash at beginning of period ...................... -- 314,078 --
----------- ----------- -----------
Cash at end of period ............................ $ 314,078 $ 155,533 $ 155,533
=========== =========== ===========
Supplemental schedule of noncash investing and
financing activities
Common stock to be issued in redemption of
preferred stock ............................... $ -- $ 900,000 $ 900,000
Conversion of loans from related party to
common stock .................................. -- 75,000 75,000
Common stock and warrants issued in initial
public offering .............................. -- 5,387,614 5,387,614
Issuance of common stock in exchange for full
recourse note payable ......................... -- 90,000 90,000
</TABLE>
See accompanying notes.
-11-
<PAGE> 46
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. BUSINESS ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activities
Compressent Corporation (formerly Cable-Sat Systems, Inc.), the
"Company", was incorporated in the state of Florida on August 26, 1994, but did
not commence formal operations until April 1995. It is engaged in the
development of digital image coding and data compression products which will
enable the facsimile transmission of color images from computers equipped with
the Company's software programs.
Development Stage Company
The Company's primary activities since inception have been devoted to
developing its initial color facsimile products and related technologies,
preparation for marketing, the recruitment of key management and technical
personnel, including outside consultants, and raising capital to fund
operations. The Company has been unprofitable since inception and has not
licensed or sold any of its products or technologies. As a result, the financial
statements are presented in accordance with Statement of Financial Accounting
Standards No. 7 (SFAS 7), "Accounting and Reporting by Development Stage
Enterprises".
For the period from inception (August 26, 1994) through September 30,
1996, the Company had a deficit accumulated during the development stage of
approximately $2,448,000 and had used $1,989,000 of cash for operating
activities. The Company expects to continue to incur losses through at least the
fourth quarter of the year ended September 30, 1997, or until the Company is
able to attain revenues from sales, licensing or other arrangements sufficient
to support its operations. Management believes that current working capital of
approximately $4,941,000 will be sufficient to support the Company's planned
activities through the end of fiscal 1997 and that to the extent existing
resources and anticipated revenues are insufficient to fund the Company's
planned activities in fiscal 1997, additional debt or equity financing will be
available from existing investors and others. Based on the Company's current
plans, it will be necessary for the Company to raise additional debt or equity
financing in the first quarter of fiscal 1998.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of short-term financial instruments that are
readily convertible into cash with original maturities of less than ninety days
from the date of acquisition. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value.
-12-
<PAGE> 47
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Other Assets
In connection with the Company's initial public offering that went
effective on September 25, 1996, the Company paid Barron-Chase Securities, Inc.
(the Underwriter) a $108,000 fee for certain financial advisory services to be
provided over the three years following the effective date of the offering. The
$108,000 is included in other assets and will be amortized on a straight-line
basis over the three year term of the agreement.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and
amortization is provided on a straight-line basis over estimated useful lives or
over the life of the lease for equipment under capitalized leases, if shorter.
Leasehold improvements are amortized over the term of the lease or their
estimated useful life, whichever is shorter. The useful lives of property and
equipment for purposes of depreciation are:
<TABLE>
<S> <C>
Office Equipment.................................................... 5 years
Computers........................................................... 3 years
</TABLE>
Software Development Costs
The Company capitalizes software development costs upon achievement of
technological feasibility, subject to net realizable value consideration in
accordance with Statement of Financial Accounting Standard No. 86 (SFAS 86),
"Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed". The Company has defined technological feasibility as completion of a
working model. Such capitalized costs are amortized upon product release on a
straight-line basis over the estimated useful life or the ratio of current
revenue to the total of current and anticipated future revenues, whichever
results in the greater amortization. No software development costs have been
capitalized through September 30, 1996.
Income Taxes
The Company accounts for income taxes in accordance with the provisions
of Financial Accounting Standards Board Statement No. 109 (SFAS 109),
"Accounting for Income Taxes". Under SFAS 109, the liability method is used for
accounting in income taxes.
Net Loss Per Share Attributable to Common Shareholders
Net loss applicable to common shareholders is computed using the
weighted average number of shares of common stock outstanding. Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, common and common
equivalent shares issued at prices below the assumed public offering price
during the twelve months prior to the initial filing of the registration
statement have been included in the calculation as if they were outstanding for
all periods prior to the quarter in which the Company's initial public offering
became effective (using the treasury stock method and an initial public offering
price of $6.00 per common share). Redeemable preferred stock is not deemed to be
a common stock equivalent for purposes of calculating the net loss applicable to
common shareholders. Fully diluted net loss per share is not presented because
it is antidilutive.
-13-
<PAGE> 48
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Impact of Recently Issued Accounting Standards
In 1995, the Financial Accounting Standards Board released the Statement
of Financial Accounting Standard No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
SFAS 121 requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS 121 is effective for fiscal years beginning
after December 15, 1995. Adoption of SFAS 121 is not expected to have a material
impact on the Company's financial position or results of operations.
The Company accounts for its stock option plans and its employee stock
purchase plan in accordance with provisions of the Accounting Principles Board's
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees". In October
1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock Based
Compensation". SFAS 123 provides an alternative to APB 25 and is effective for
fiscal years beginning after December 15, 1995. The Company expects to continue
to account for its employee stock plans in accordance with the provisions of APB
25. Accordingly, SFAS 123 is not expected to have any material impact on the
Company's financial position or results of operations.
Financial Presentation
Certain items in the period from inception (August 26, 1994) to
September 1995, have been reclassified to conform to the fiscal 1996
presentation.
2. REDEEMABLE PREFERRED STOCK
The Company has authorized 150,000 shares of redeemable Series A
Preferred Stock. The Series A Preferred Stock is entitled to receive a
cumulative cash dividend of $0.21 per share on each anniversary from the date of
issuance. No dividends were payable at September 30, 1996.
In the event of the liquidation of the Company, holders of Series A
Preferred Stock have liquidation preference over holders of common stock of
$3.00 per share plus all accrued but unpaid dividends and one share of common
stock.
The Company is required to redeem all preferred shares outstanding out
of the net proceeds from any underwritten public offering or private placement
of the Company's common stock. The redemption price is $3.00 per share plus one
share of the Company's common stock per share of preferred stock. The Company's
initial public offering of common stock purchase warrants went effective
September 25, 1996, and the Company became irrevocably committed to redeem its
then outstanding preferred stock. The preferred stock was held by Call Now, Inc.
("Call Now"), a related party. The initial public offering closed on October 1,
1996, and the Company redeemed the preferred stock from Call Now. For purposes
of presentation in the accompanying financial statements, the cash redemption
amount of the preferred stock of $450,000 is classified as "Preferred stock
redemption payable" at September 30, 1996, and is included in current
liabilities. In addition, the 150,000 shares of common stock issuable upon
redemption of the preferred stock are included as outstanding common stock at
September 30, 1996, in the accompanying financial statements.
-14-
<PAGE> 49
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. SHAREHOLDERS' EQUITY
Public Offering
During September 1996, the Company completed a public offering of
1,050,000 shares of common stock at $6.00 per share and 1,150,000 redeemable
common stock purchase warrants for $0.125 per warrant. The Company received net
proceeds of $5,387,614. In addition, as part of the initial public offering, the
Company's 150,000 shares of Preferred Stock were redeemed at $3.00 per share
plus one share of the Company's common stock per share of preferred stock (see
Note 2).
The initial public offering, a firm underwriting commitment, went
effective September 25, 1996. However, the proceeds from this offering were
received by the Company from the Underwriter on October 1, 1996, upon the
closing. Therefore, at September 30, 1996, proceeds from the sale of common
stock and redeemable common stock purchase warrants are classified as "Other
receivable from underwriter in connection with the Company's initial public
offering", the cash redemption amount of the Preferred Stock is classified as
"Preferred stock redemption payable" and the common stock issued to redeem the
preferred stock is included as outstanding common stock (see Note 2) in the
accompanying financial statements.
Shares Issued in Exchange for Cash and Loan
In August 1995, in connection with the sale of 550,000 shares of common
stock to Call Now, the Company also sold a warrant to Call Now to purchase
320,000 shares of common stock at an exercise price of the then current fair
value of the common stock of $0.92 per share. In January 1996 and February 1996,
the Company received $75,000 in loans from Call Now. In March 1996, the Company
adjusted the warrant exercise price on the 320,000 shares from $0.92 per share
to the then current fair market value of $0.30 per share of Common Stock. The
option was then exercised by Call Now in exchange for forgiveness of the $75,000
in loans plus $21,000 in cash.
Shares Issued for Services
In December 1995, the Company issued 60,000 shares of common stock
valued at $60,000 in exchange for past services rendered to the Company. In
addition, in April 1996, the Company issued 50,000 shares of common stock valued
at $30,000 in exchange for past services rendered to the Company. The value
assigned to the shares was based on the Company's best estimate of fair market
value of the common stock at the time of issuance.
Common Stock Purchase Warrants
On September 25, 1996, in connection with the Company's initial public
offering, the Company issued 1,150,000 redeemable common stock purchase warrants
for $0.125 per share. The warrants are exercisable to purchase common stock
during the three year period from the effective date of the offering (September
25, 1996), at an exercise price of $6.00 per share. The Company may redeem the
warrants at a price of $0.25 per warrant by giving 30 days written notice to the
holders if the Company's common stock price equals or exceeds $12.00 per share
for 30 consecutive trading days. The warrants may not be redeemed in the first
year from the effective date without consent of the Underwriter.
-15-
<PAGE> 50
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Underwriter's Warrant and Underlying Warrant
At the closing of the initial public offering on October 1, 1996, for
nominal consideration, the Company issued to the Underwriter, 100,000 Common
Stock Underwriter Warrants ("Underwriter's Warrants") and 100,000 Warrant
Underwriter Warrants ("Underlying Warrants"). The Underwriter's Warrants are
exercisable for a five year period and allow the holder to purchase one share of
common stock at a price of $9.00 per share. The exercise price of the Underlying
Warrants is $0.1875 per warrant. Each Underlying Warrant is exercisable for a
three year period to purchase one share of common stock at a price of $9.00 per
share. The Underwriter's Warrants and the Underlying Warrants are subject to
adjustment for certain events including mergers, stock dividends, stock splits,
and other events. The Underwriter's Warrants contains net issuance provisions
permitting the holders to elect to exercise the Underwriter's Warrants in whole
or in part and instruct the Company to withhold from the securities issuable
upon exercise, the number of securities, valued at the current fair market value
on the date of exercise, to pay the exercise price.
Stock Options
Employee and Consultant Stock Options
In February 1996, the Company's Board of Directors adopted an incentive
stock option plan. The plan allows for incentive stock options to be granted to
key employees. In addition, from time to time the Board of Directors may grant
options to consultants that are in addition to the options approved for key
employees under the incentive stock option plan. All options expire no more than
five years from the date of grant. The exercise price for all options shall not
be less than 100% of the fair market value of the stock subject to the option on
the date of grant as determined by the Board of Directors. All options generally
vest in increments over a period of three years from the date of grant, with the
first increment vesting after one year. Options may be granted with different
vesting terms from time to time. The Board of Directors has approved options to
purchase up to 780,000 shares of common stock to be granted to key employees
under the incentive stock option plan and to consultants of the Company.
At September 30, 1996, 180,000 options were exercisable by consultants
to the Company and no options were exercisable by employees under the incentive
stock option plan.
Stock option activity is summarized below:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------------------------------------------
Shares Available Number of
for Grant Shares Price Per Share Aggregate Price
---------------- --------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance at September 30, 1995........ $ -- $ -- $ -- $ --
Shares Authorized................ 780,000 -- -- --
Options Granted.................. (818,500) 818,500 $2.50-$6.00 3,308,000
Options Canceled................. 250,000 (250,000) $6.00 (1,500,000)
--------- --------- ----------- -----------
Balance at September 30, 1996........ 211,500 568,500 $2.50-$6.00 $ 1,808,000
========= ========= =========== ===========
</TABLE>
-16-
<PAGE> 51
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Other Stock Options
In February 1996, the Company's Board of Directors also approved the
issuance of stock options to purchase up to 150,000 shares of common stock at
$0.30 per share for key employees and consultants. These options are in addition
to the options that may be granted under the incentive stock option plan and to
consultants described above, and expire five years from the date of grant. As of
September 30, 1996, the Board of Directors had granted options to purchase
80,000 shares of common stock. Based on the difference between the option
exercise price and the fair value of the common stock on the date of grant, the
Company has recorded $192,000 of deferred compensation relating to these options
and is amortizing compensation expense over the two year vesting period. None of
these options were exercisable at September 30, 1996.
Common Stock Reserved for Future Issuance
Shares of common stock of the Company reserved for future issuance,
including shares reserved pertaining to the Underwriter's over-allotment and
Underwriter's Warrant and Underlying Warrant are as follows:
<TABLE>
<CAPTION>
September 30,
1996
-------------
<S> <C>
Redeemable common stock purchase warrants .................... 1,150,000
Employee, consultant, and other stock options ................ 930,000
Underwriter's Warrants and Underlying Warrants ............... 200,000
-------------
2,280,000
=============
</TABLE>
4. INCOME TAXES
As of September 30, 1996, the Company had federal and state net
operating loss carryforwards of approximately $2,100,000 and $1,300,000,
respectively. The net operating loss carryforwards will expire beginning
September 30, 2010 (federal) and September 30, 2003 (state), if not utilized.
Utilization of the net operating losses may be subject to a substantial
annual limitation due to the ownership change limitation provided by the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating loss carryforwards
before utilization.
Significant components of the Company's deferred tax assets and
liabilities for federal and state taxes as of September 30, 1996, are as
follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards ............................. $ 800,000
Other -- net ................................................. 60,000
-----------
Total deferred tax assets .................................... 860,000
Valuation allowance for deferred tax assets .................. (860,000)
-----------
Net deferred tax assets ........................................ $ --
===========
</TABLE>
The net valuation allowance increased by $770,000 during fiscal 1996.
-17-
<PAGE> 52
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED PARTY TRANSACTIONS
During May 1996, the Company forgave a loan for $89,000 to the Company's
former president. The total amount of forgiveness was recognized as compensation
expense by the Company.
During March 1996, the Company sold 300,000 shares of common stock at
the then current fair value of $0.30 per share to the Company's new Chairman and
Chief Executive Officer in exchange for a full recourse interest bearing note
payable amounting to $90,000. The loan was repaid in May 1996.
In January 1996 and February 1996, the Company received $75,000 in loans
from Call Now, Inc. In March 1996, Call Now exercised a repriced warrant to
purchase 320,000 shares at $0.30 per share by forgiving the $75,000 in loans
plus paying $21,000 in cash (see Note 3).
6. COMMITMENTS
The Company leases office space and office equipment. Rent expense was
approximately $13,360 and $65,152 for the period from inception (August 26,
1994) to September 30, 1995, and the year ended September 30, 1996, respectively
($78,512 for the period from inception (August 26, 1994) to September 30, 1996).
Future payments for operating leases at September 30, 1996 are as
follows:
<TABLE>
<S> <C>
Year Ended
- ----------
September 30, 1997 ..................................... $ 115,418
September 30, 1998 ..................................... 118,830
----------
$ 234,248
==========
</TABLE>
The Company is committed under employment and consulting agreements with
officers and others to make the following future payments:
<TABLE>
<S> <C>
Year Ended
- ----------
September 30, 1997 .............................................. $ 468,000
September 30, 1998 .............................................. 100,000
-----------
$ 568,000
===========
</TABLE>
-18-
<PAGE> 53
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Compressent Corporation (formerly Cable-Sat Systems, Inc.)
We have audited the accompanying balance sheet of Compressent
Corporation (formerly Cable-Sat Systems, Inc.), a development stage company, as
of September 30, 1996, and the related statements of operations, shareholders'
equity, and cash flows for the year then ended, and for the period from
inception (August 26, 1994) to September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
financial statements as of September 30, 1995, and for the period from inception
(August 26, 1994) to September 30, 1995, were audited by other auditors whose
report dated December 1, 1995, expressed an unqualified opinion on those
statements. The financial statements for the period from inception (August 26,
1994) to September 30, 1995, include a net loss of $254,765. Our opinion on the
statements of operations, shareholders' equity, and cash flows for the period
from inception (August 26, 1994) to September 30, 1996, insofar as it relates to
amounts for prior periods through September 30, 1995, is based solely on the
report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Compressent Corporation (formerly Cable-Sat
Systems, Inc.) at September 30, 1996, and the results of its operations and its
cash flows for the year then ended and the period from inception (August 26,
1994) to September 30, 1996, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
San Jose, California
December 27, 1996
-19-
<PAGE> 54
REPORT OF GRANT-SCHWARTZ ASSOCIATES, CPA'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Compressent Corporation (formerly Cable-Sat Systems, Inc.)
We have audited the accompanying balance sheet of Compressent
Corporation (formerly Cable-Sat Systems, Inc.), a development stage company, as
of September 30, 1995 and the statements of operations, shareholders' equity and
the statement of cash flows for the year ended September 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates by management, as well as evaluating the overall
financial statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Compressent
Corporation (formerly Cable-Sat Systems, Inc.,) a development stage company, as
of September 30, 1995 and its statements of operation and cash flows for the
year then ended in conformity with generally accepted accounting principles.
GRANT-SCHWARTZ ASSOCIATES, CPA'S
Boca Raton, Florida
December 1, 1995
-20-
<PAGE> 55
ANNEX B
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
ITEMS 1 AND 2 OF PART I OF THE QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED AND SIX MONTHS ENDED MARCH 31, 1997
-21-
<PAGE> 56
Item 1. FINANCIAL STATEMENTS.
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED SIX MONTHS ENDED INCEPTION
--------------------------- --------------------------- (AUGUST 26, 1994)
MARCH 31, MARCH 31, MARCH 31, MARCH 31, TO MARCH 31,
1996 1997 1996 1997 1997
----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
OPERATING COSTS AND
EXPENSES:
Research and development ................. $ 213,791 $ 322,517 $ 315,672 $ 723,331 $ 1,827,290
Sales and marketing ...................... 32,259 273,525 42,259 838,404 1,117,094
General and administrative ............... 141,578 525,072 290,729 935,345 2,013,499
----------- ----------- ----------- ----------- ----------------
Total operating costs and expenses ....... 387,628 1,121,114 648,660 2,497,080 4,957,883
----------- ----------- ----------- ----------- ----------------
Loss from operations ....................... (387,628) (1,121,114) (648,660) (2,497,080) (4,957,883)
Interest income ............................ 5,800 54,041 5,800 115,741 128,776
----------- ----------- ----------- ----------- ----------------
Net loss ................................. (381,828) (1,067,073) (642,860) (2,381,339) (4,829,107)
Less: Accretion on preferred stock ......... -- -- -- -- (900,000)
----------- ----------- ----------- ----------- ----------------
Net loss applicable to common
shareholders ............................. $ (381,828) $(1,067,073) $ (642,860) $(2,381,339) $ (5,729,107)
=========== =========== =========== =========== ================
Net loss per share applicable to
common shareholders ...................... (0.09) (0.21) (0.16) (0.48)
=========== =========== =========== ===========
Shares used in computing net loss per
share applicable to common
shareholders ............................. 4,107,167 4,988,684 4,104,500 4,980,342
=========== =========== =========== ===========
</TABLE>
See accompanying notes
-22-
<PAGE> 57
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996(1) 1997
------------- -----------
ASSETS
Current assets
<S> <C> <C>
Cash ................................................... $ 155,533 $ 418,392
Short-term investments ................................. -- 3,011,957
Other receivable from underwriter in connection with IPO 5,549,573 --
Other current assets ................................... -- 118,721
----------- -----------
Total current assets ................................. 5,705,106 3,549,070
Property and equipment, net .............................. 136,052 211,221
Other assets ............................................. 117,947 137,327
----------- -----------
Total assets ......................................... $ 5,959,105 $ 3,897,618
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and other accrued liabilities ......... $ 168,266 $ 257,976
Other accrued liabilities .............................. 90,688 76,898
Accrued registration costs ............................. 55,052 --
Preferred stock redemption payable ..................... 450,000 --
----------- -----------
Total current liabilities ............................ 764,006 334,874
Shareholders' equity
Common stock and additional paid in capital ............ 7,786,867 8,487,849
Deficit accumulated during development stage ........... (2,447,768) (4,829,105)
Deferred compensation .................................. (144,000) (96,000)
----------- -----------
Total shareholders' equity ........................... 5,195,099 3,562,744
----------- -----------
Total liabilities and shareholders' equity ........... $ 5,959,105 $ 3,897,618
=========== ===========
</TABLE>
- ----------------------
(1) Derived from audited financial statements for the year ended September
30, 1996, included elsewhere in this Prospectus.
See accompanying notes
-23-
<PAGE> 58
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED INCEPTION
----------------------------- (AUGUST 26, 1994)
MARCH 31, MARCH 31, TO MARCH 31,
1996 1997 1997
----------- ----------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities .............. $ (549,198) $(2,011,790) $ (4,000,373)
----------- ----------- -------------
Cash flows from investing activities
Purchase of short-term investments ................... -- (4,808,710) (4,808,710)
Sale of short-term investments ....................... -- 1,796,753 1,796,753
Purchase of property and equipment ................... (50,357) (113,279) (321,510)
----------- ----------- -------------
Net cash used in investing activities .............. (50,357) (3,125,236) (3,333,467)
----------- ----------- -------------
Cash flows from financing activities
Sale of common stock ................................. 141,000 -- 1,952,263
Receipt of proceeds from underwriter ................. -- 5,549,573 5,549,573
IPO registration costs paid .......................... -- -- (214,916)
Loan from shareholder ................................ 75,000 -- 75,000
Repayment of full course note payable ................ -- -- 90,000
Sale of redeemable preferred stock ................... 450,000 -- 450,000
Redemption of preferred stock ........................ -- (450,000) (450,000)
Conversion of redeemable stock warrant ............... -- 300,312 300,312
----------- ----------- -------------
Net cash provided from financing activities ........ 666,000 5,399,885 7,752,232
----------- ----------- -------------
Net increase in cash ............................... 66,445 262,859 418,392
----------- ----------- -------------
Cash at beginning of period .......................... 314,078 155,533 --
----------- -------------
Cash at end of period ................................ $ 380,523 $ 418,392 $ 418,392
=========== =========== =============
Supplemental schedule of noncash investing and
financing activities:
Common stock to be issued in redemption of
preferred stock .................................... $ -- $ -- $ 900,000
Conversion of loan from shareholder to
common stock ....................................... 75,000 -- 75,000
Issuance of common stock in exchange for full recourse
note payable ....................................... 90,000 -- 90,000
</TABLE>
See accompanying notes
-24-
<PAGE> 59
COMPRESSENT CORPORATION (FORMERLY CABLE-SAT SYSTEMS, INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. BUSINESS ACTIVITIES AND BASIS OF PRESENTATION
Business
Compressent Corporation (formerly Cable-Sat Systems, Inc.), the
"Company", was incorporated in the state of Florida on August 26, 1994, but did
not commence formal operations until April 1995. It is engaged in the
development of digital image coding and data compression products which will
enable the facsimile transmission of color images from computers equipped with
the Company's software programs.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X. 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 considered
necessary for a fair presentation have been included. Management recommends that
these interim financial statements be read in conjunction with the audited
financial statements and notes thereto for the Company's year ended September
30, 1996, included elsewhere in this Prospectus. The results of operations for
the six months ended March 31, 1997, are not necessarily indicative of the
results that may be expected for the year ended September 30, 1997.
Net Loss Per Share Attributable to Common Shareholders
Net loss per share attributable to common shareholders for the three
months and six months ended March 31, 1997 is computed using the weighted
average number of shares of common stock outstanding during the quarter. Net
loss per share attributable to common shareholders for the three months and six
months ended March 31, 1996, is computed using the weighted average number of
shares of common stock outstanding during the quarter, and in addition, pursuant
to the Securities and Exchange Commission Staff Accounting Bulletins, common and
common equivalent shares issued by the Company at prices below the public
offering price during the twelve month period prior to the initial filing of the
registration statement have been included in the calculation as if they were
outstanding for all periods prior to the quarter in which the Company's initial
public offering became effective (using the treasury stock method and an initial
public offering price of $6.00 per share). Fully diluted net loss per share is
not presented because it is antidilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (SFAS 128), "Earnings per Share", which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The impact of
SFAS 128 on the calculation of primary earnings per share and fully diluted
earnings per share for the quarter and six months ended March 31, 1997 and March
31, 1996 is not expected to be material.
-25-
<PAGE> 60
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash, Cash Equivalents and Short-Term Investments
Cash equivalents at March 31, 1997, consist of short-term financial
instruments that are readily convertible into cash with original maturities of
less than ninety days from the date of acquisition. The carrying amount reported
in the balance sheet for cash and cash equivalents approximates fair value.
2. SHAREHOLDERS' EQUITY
Common Stock Purchase Warrants
On September 25, 1996, in connection with the Company's initial public
offering, the Company issued 1,150,000 redeemable common stock purchase warrants
for $0.125 per share. The warrants are exercisable to purchase common stock
during the three year period from the effective date of the offering (September
25, 1996), at an exercise price of $6.00 per share. During March 1997,
redeemable stock purchase warrants to purchase 50,052 shares of common stock
were exercised for $300,312. As of March 31, 1997, there were 1,099,948 warrants
outstanding.
Stock Option
The Company accounts for stock options granted to outside service
providers in accordance with Statement of Financial Accounting Standard No. 123
(SFAS 123), "Accounting for Stock Based Compensation", utilizing the fair value
method. In December 1996, the Company's Board of Directors approved the issuance
of stock options to certain outside service providers to purchase up to 145,000
shares of the Company's common stock at an exercise price of $7.013 per share.
The exercise price was calculated at 110% of the fair market value on the date
of grant of $6.375 per share. The options vest one-half in year one and one-half
in year two, and expire three years from the date of grant. Pursuant to the
provisions of SFAS 123, the fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
assumptions: risk free interest rate of approximately 6%; no dividend yield;
volatility factor of .5; and a weighted-average expected life of the options of
approximately 1.5 years. The fair market value of these options was estimated to
be approximately $216,000 and will be recognized as compensation expense over
the vesting period. Compensation expense relating to these options for the three
and six months ended March 31, 1997, was approximately $37,600 and $50,200,
respectively.
In December 1996, in connection with a preliminary agreement between the
Company and a distributor, Set 1 Communications, NSW, Australia ("Set 1") (see
Note 3), the Company granted Set 1 a stock option to purchase up to 248,600
shares of the Company's common stock at the then fair market value of $6.375 per
share. The option vested immediately and expires two years from the date of
grant. Pursuant to the provisions of SFAS 123, the fair value for this option
was estimated at the date of grant using a Black-Scholes option pricing model
with the following assumptions: risk free interest rate of approximately 6%; no
dividend yield; volatility factor of .5; and a weighted-average expected life of
the option of 1 year. The Company recorded the entire estimated fair value of
this option of approximately $351,000 as sales and marketing expense during the
three months ended December 31, 1996.
-26-
<PAGE> 61
3. SOFTWARE CAPITALIZATION
Software Development Costs
The Company capitalizes software development costs upon achievement of
technological feasibility, subject to net realizable value consideration in
accordance with Statement of Financial Accounting Standards No. 86 (SFAS 86)
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed". Based on the Company's development process, technological feasibility
is achieved upon completion of a working model. Accordingly, all expenses
incurred prior to completion of a working model are expensed. Capitalized costs
are amortized upon product release on a straight-line basis over the estimated
useful life or the ratio of current revenue to the total current and anticipated
future revenues, whichever results in the greater amortization. During March
1997, the Company released the first working model of its facsimile software and
began capitalizing software development costs pursuant to SFAS 86. A total of
approximately $32,000 in software development costs have been capitalized
through March 31, 1997.
4. DISTRIBUTION AGREEMENT
In January 1997, based on the preliminary agreement reached in December
1996, the Company finalized a five-year agreement with Set 1 (see Note 2), to
distribute a "light" version of the Company's CHROMAFAX software with modems
developed and marketed worldwide by Set 1. The "light" version is a version of
CHROMAFAX with selected functionality. The agreement between the companies
stipulates that Compressent will provide technology, support and basic
documentation to Set 1. The agreement provides Set 1 with exclusivity for the
"light" version bundled with modems based upon minimum shipments per year. The
agreement further allows Set 1 to non-exclusively market the retail version of
the product through its own channels and distribution partners. As part of the
agreement signed with Set 1, the Company granted a stock option to Set 1 to
purchase up to 248,600 shares of common stock (see Note 2).
5. LEGAL
On February 14, 1997, the Company instituted a lawsuit in Santa Clara
County Superior Court against former consultants and a company they had formed
known as Color Communication Corporation. The lawsuit asserts claims for breach
of contract, breach of confidence, unfair competition and unjust enrichment,
alleging that the former consultants misappropriated the Company's confidential
information. On April 30, 1997, the Superior Court prohibited the defendants
from using the Company's confidential information in any products, literature or
advertising. In addition, the Superior Court issued a preliminary injunction
barring the former consultants and Color Communications Corporation from
advertising, marketing, selling or otherwise distributing any facsimile or color
imaging software product for a period of nine months beginning April 21, 1997.
There is no assurance that the defendants will not seek to appeal the order. A
total of approximately $76,800 in legal expenses have been incurred in
connection with this lawsuit through March 31, 1997.
-27-
<PAGE> 62
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Exchange Act of 1933 and Section 21E of the
Securities Act of 1934. All forward-looking statements involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of many factors including the
Company's inability to complete development of commercial versions of its
products, delays in product development or failure of such products to develop
substantial sales volume. (See "Factors That May Affect Future Operating
Results")
Overview
The Company was incorporated in the state of Florida on August 26, 1994,
but did not commence formal operations until April 1995. The Company's primary
activities since inception have been devoted to designing and developing its
initial color facsimile products and related technologies, preparation for
marketing, the recruitment of key management and technical personnel, including
outside consultants, and raising capital to fund operations. The Company has
been unprofitable since inception and has not licensed or sold any of its
products or technologies. As a result, the financial statements are presented in
accordance with Statement of Financial Accounting Standards No. 7 (SFAS 7),
"Accounting and Reporting by Development Stage Enterprises."
For the period from inception (August 26, 1994) through March 31, 1997,
the Company has incurred a cumulative net loss of approximately $4,829,000 and
had used $4,000,000 in cash for operating activities. The Company expects to
continue to incur losses through the end of fiscal 1997 or until the Company is
able to attain revenues from sales, licensing or other arrangements sufficient
to support its operations. Management believes that current working capital of
approximately $3,214,000 will be sufficient to support the Company's planned
activities through the end of fiscal 1997. The Company believes that to the
extent existing resources and anticipated revenues are insufficient to fund the
Company's planned activities in fiscal 1997, additional debt or equity financing
will be available from existing investors and others. Based on the Company's
current plans, management anticipates that it will be necessary for the Company
to raise additional debt or equity financing in the first quarter of fiscal
1998.
Results of Operations
Three and Six Months Ended March 31, 1996 and 1997.
Research and Development
From inception through March 31, 1997, a substantial part of the
Company's activities related to research and development. Research and
development expenses were approximately $323,000 and $723,000 for the three
months and six months ended March 31, 1997, respectively, compared to $214,000
and $316,000, respectively, in the corresponding periods in fiscal 1996. The
increase is primarily due to increased staffing and consultants, and increased
supplies and associated costs related to increased development and testing
activities of the software functions and features. The Company believes that
significant investments in product development are required to remain
competitive. As a consequence the Company intends to incur increased product
development expenditures in the future. During March 1997, the Company released
the first working model of its facsimile software and began capitalizing
software development costs pursuant to FASB 86. Approximately $32,000 in
software development costs have been capitalized through March 31, 1997.
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<PAGE> 63
Sales and Marketing
Sales and marketing expenses were approximately $274,000 and $838,000
for the three months and six months ended March 31, 1997, respectively, compared
to $32,000 and $42,000, respectively, in the corresponding periods in fiscal
1996. The increase is primarily due to costs associated with staffing employees
and consultants, participation in trade shows and other events, and the costs
associated with developing a marketing strategy and logo. In addition, in
December 1996, the Company granted a stock option to Set 1 Communications, NSW,
Australia ("Set 1"), to purchase up to 248,600 shares of the Company's common
stock. The option was granted in connection with a preliminary agreement between
the Company and Set 1 and has an exercise price equal to the fair value of the
Company's common stock on the date of grant of $6.375 per share. The option
vested immediately and expires two years from the date of grant. Pursuant to the
provision of SFAS 123, the fair value of the option was estimated to be $351,000
as of the date of grant using a Black-Scholes option pricing model. During
December 1996, the Company recorded the estimated fair value of this option as
sales and marketing expense.
Achieving significant market acceptance and commercialization of the
Company's initial color fax products will require substantial marketing efforts
and the expenditure of significant funds to establish market awareness of the
Company and the initial color fax products. As such, the Company expects
significant sales and marketing expenses in future periods as it continues to
pursue an aggressive brand building strategy in fiscal 1997.
In January 1997, the Company finalized a five-year agreement with Set 1
to distribute a "light" version of the Company's CHROMAFAX software with modems
developed and marketed worldwide by Set 1. The "light" version is a version of
CHROMAFAX with selected functionality. The agreement between the companies
stipulates that Compressent (formerly Cable-Sat Systems, Inc.) will provide
technology, support and basic documentation to Set 1. The agreement provides Set
1 with exclusivity for the "light" version bundled with modems based upon
minimum shipments per year. The agreement further allows Set 1 to
non-exclusively market the retail version of the product through its own
channels and distribution partners.
General and Administrative
General and administrative expenses consist primarily of compensation
and fees for professional services. General and administrative expenses were
approximately $525,000 and $935,000 for the three months and six months ended
March 31, 1997, respectively, compared to $142,000 and $291,000, respectively in
the corresponding periods in fiscal 1996. The increase in general and
administrative expenses was primarily attributable to increased staffing, fees
for professional services, legal expenses in connection with the lawsuit against
Color Communications Corporation and the costs associated with the Company being
public. General and administrative expenses are expected to continue to increase
to support growing operations and increases in business development efforts, and
the continued expenses incurred as a public entity.
Interest Income
Interest income was approximately $54,000 and $116,000 for the three
months and six months ended March 31, 1997, respectively, compared to $6,000 and
$6,000, respectively in the corresponding periods in fiscal 1996. Interest
income is primarily derived from the investment of the Company's proceeds from
its initial public offering of common stock that closed on October 1, 1996.
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<PAGE> 64
Liquidity and Capital Resources
The Company had approximately $3,430,000 in cash, cash equivalents and
short-term investments at March 31, 1997. To date, the Company has primarily
financed its operations through the private and public sale of equity
securities. The Company's cash expenditures for operating activities were
approximately $1,077,000 and $2,012,000 for the three months and six months
ended March 31, 1997, respectively, compared to $302,000 and $549,000,
respectively in the corresponding periods in fiscal 1996, and differ from the
Company's net loss in these periods principally due to non-cash operating
expenditures and an increase in accounts payable and accrued liabilities. The
Company expects its cash requirements to increase due to expected increases in
expenses related to further research and development of its technologies and
increased marketing, manufacturing, sales and distribution and technical support
expenses associated with the introduction of its initial color fax products to
the marketplace and increased administrative expenses associated with fees for
professional services, legal expenses in connection with the lawsuit with Color
Communication Corporation and the costs associated with the Company being
public. The Company plans to hire additional employees and increase marketing
and sales expenses to execute its sales and marketing plans.
The Company believes that to the extent existing resources and
anticipated revenues are insufficient to fund the Company's planned activities
in fiscal 1997, additional debt or equity financing will be available from
existing investors and others. However, there can be no assurance as to the
terms and conditions of any such financing. Based on the Company's current
plans, it will be necessary for the Company to raise additional debt or equity
financing in the first quarter of fiscal 1998.
Factors That May Affect Future Operating Results
Development Stage Company; Absence of Operating History. The Company has
been engaged primarily in the design and development of CHROMAFAX and CHROMAFAX
LITE (the "Initial Color Fax Products") and related technology. The Company has
produced a beta version of its initial color fax software product, currently
called CHROMAFAX, and is in the process of developing its "light" version,
currently called CHROMAFAX LITE. The Company's viability, profitability and
growth depend upon successful completion of the development and
commercialization of these products. There can be no assurance that any of the
Company's technologies or products will be successfully or timely developed or
commercialized. The risks, expenses and difficulties often encountered in a
shift from the research and development of products to the commercialization of
new products based on innovative technology must also be considered. The
prospects for the Company's success must be considered in light of the risks,
expenses and difficulties often encountered in the establishment of a new
business in a continually evolving industry subject to rapid technological and
price changes, and characterized by an increasing number of market competitors.
No Revenues; Anticipated Future Losses. To date, the Company has had no
operating revenue and does not anticipate any operating revenue until one or
more of its Initial Color Fax Products are completely developed, manufactured in
commercial quantities and are available for commercial distribution. The Company
anticipates incurring significant costs in connection with the development of
its technologies and Initial Color Fax Products and there is no assurance that
the Company will achieve sufficient revenues to offset anticipated operating
costs. As of March 31, 1997, the Company's deficit accumulated during the
developmental stage was approximately $4,829,000. Further, the Company
anticipates it will have a loss in its fiscal year ended September 30, 1997, and
that losses will continue until the Company's Initial Color Fax Products
generate substantial revenues.
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<PAGE> 65
Need for Additional Financing. The Company has expended and will
continue to expend substantial funds to complete the research, development and
marketing and distribution activities of its products. The Company has been
dependent on the sales of its securities to fund its development activities. The
Company has no current arrangements with respect to sources of additional
financing and there is no assurance that other additional financing will be
available to the Company in the future on commercially reasonable terms. The
Company believes that additional debt or equity financing will be available from
existing investors and others. However, there can be no assurance as to the
terms and conditions of any such financing and no certainty that funds would be
available when needed. The inability to obtain additional financing, when
needed, would be likely to curtail the Company's sales and marketing and product
development efforts and would be likely to have a material adverse effect on the
Company. To the extent that any future financing involves the sale of the
Company's equity securities, the Company's then existing stockholders could be
substantially diluted.
Limited Sales and Marketing Experience. The Company will seek to market
and sell its products, if successfully developed, through key manufacturers and
distributors. Such companies could be inhibited from doing business with the
Company because of their commitment to their own technologies and products. As a
result, demand and market acceptance for the Company's technologies and proposed
products is subject to a high level of uncertainty. The Company intends to rely
in part on the manufacturers of personal computers, fax modems, color printers
and scanners for initial distribution of its Initial Color Fax Products as a
software package included with such hardware purchase. The Company is therefore
dependent upon such firms to distribute its color fax products. In addition,
many factors could affect the success of the Company's distribution agreement
with Set 1. These include the timing and success of the Company's efforts to
develop a "light" version of the Company's CHROMAFAX software, Set 1's
performance and marketing efforts, competitive factors and market acceptance.
Rapid Technological Change. Technologies and proposed products being
developed by the Company are in various stages of development. Product
development efforts are subject to the risks inherent in the development of new
technology and products (including unanticipated delays, expenses, technical
problems or difficulties, as well as the possible insufficiency of funding to
complete development). There can be no assurance as to when, or whether, such
development projects will be successfully completed. The markets for the
technology and products being developed by the Company are characterized by
rapid changes and evolving industry standards often resulting in product
obsolescence or short product life cycles. The Company's operating results will
depend upon its ability to complete development and introduce to the marketplace
in a timely and cost-competitive manner its proposed products and technology, to
continually enhance and improve such products and technology, to adapt its
proposed products to be compatible with specific products manufactured by
others, and to successfully develop and market new products and technology.
Substantial Competition. Other companies may be developing technologies
or products of which the Company is unaware which may be functionally similar,
or superior, to some or all of those being developed by the Company. These
companies may have substantially greater, technical, personnel and other
resources than the Company and may have established reputations for success in
developing, licensing and sales of their products. There is no assurance that
the Company will be able to compete successfully, that its competitors or future
competitors will not develop technologies or products that render the Company's
products and technology obsolete or less marketable or that the Company will be
able to successfully enhance its proposed products or technology or adapt them
satisfactorily.
Dependence Upon Qualified and Key Personnel. The success of the Company
will be largely dependent on its ability to hire and retain qualified executive,
scientific and marketing personnel. There is no assurance that the Company will
be able to attract or retain such necessary personnel, particularly in light of
the currently high demand for software engineers and other personnel in Silicon
Valley. The loss of key personnel or the failure to recruit additional personnel
could have a material adverse effect on the Company's business.
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<PAGE> 66
Protection of Proprietary Information. Competitors in both the United
States and foreign countries, many of which have substantially greater resources
and have made substantial investments in competing technologies, may have
applied for or obtained, or may in the future apply for and obtain, patents that
will prevent, limit or otherwise interfere with the Company's ability to make
and sell its products. The Company has not conducted an independent review of
patents issued to third parties. In addition, because of the developmental stage
of the Company, claims that the Company's products infringe on the proprietary
rights of others are more likely to be asserted after commencement of commercial
sales incorporating the Company's technology. There can be no assurance that
other third parties will not assert infringement claims against the Company or
that such claims will not be successful. The Company is in the process of
applying for patents. There can also be no assurance that competitors will not
infringe the Company's patents if any such patents are granted to the Company in
the future. Defense and prosecution of patent suits, even if successful, are
both costly and time consuming. An adverse outcome in the defense of a patent
suit could subject the Company to significant liabilities to third parties,
require disputed rights to be licensed from third parties or require the Company
to cease selling its products.
The Company is in the process of applying for copyrights relating to
certain of its proposed Initial Color Fax Products and is also applying for
patent protection. There is no assurance that any patents will be obtained.
If obtained, there is no assurance that any patents or copyrights will afford
the Company commercially significant protection of its technologies or that the
Company will have adequate resources to enforce its patents and copyrights. The
Company also intends to seek foreign patent and copyright protection. With
respect to foreign patents and copyrights, the laws of other countries may
differ significantly from those of the United States as to the patentability of
the Company's products or technology. Moreover, the degree of protection
afforded by foreign patents or copyrights may be different from that in the
United States. Patent applications in the United States are maintained in
secrecy until patents issue, and since publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries by
several months, the Company cannot be certain that it will be the first creator
of inventions covered by any patent applications it makes or the first to file
patent applications on such inventions. Furthermore, in the desktop computer
application market today, patents and copyrights cannot give substantial
protection against competitors determined to introduce competing products since
it is likely that such competitors will be able to develop similar technology
which does not infringe on the Company's proprietary technology.
The Company also relies on unpatented proprietary technology, and there
can be no assurance that others may not independently develop the same or
similar technology or otherwise obtain access to the Company's unpatented
technology. To protect its trade secrets and other proprietary information, the
Company requires employees, consultants, advisors and collaborators to enter
into confidentiality agreements. There can be no assurance that these agreements
will provide meaningful protection for the Company's trade secrets, know-how or
other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how or other
proprietary information. If the Company is unable to maintain the proprietary
nature of its technologies, the Company could be adversely affected.
Efforts to enforce the Company's proprietary rights, even if successful,
can be expensive. For example, in April 1997, the Company successfully obtained
an injunction against a company which had allegedly misappropriated the
Company's trade secrets. Legal fees and costs associated with enforcing the
Company's rights in such action may exceed $100,000, and there is no assurance
that such costs will be covered by insurance.
-32-
<PAGE> 67
PART II. OTHER INFORMATION
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1(a) -- Underwriting Agreement (revised)
1(c) -- Selected Dealer Agreement (revised)
3(a) -- Amended and Restated Articles of Incorporation of the Registrant
3(b) -- Bylaws of the Registrant
4.1 -- Form of Warrant Certificate
4.2 -- Form of Common Stock Certificate
5.1 -- Opinion of Counsel
10.1 -- Financial Advisory Agreement
10.2 -- Merger and Acquisition Agreement
10.3 -- Warrant Agreement
10.4 -- Underwriter's Warrant Agreement (revised)
10.5 -- Incentive Stock Option Plan
10.5(a) -- Employment Agreement-- Ostrovsky Consulting, Inc.
10.5(b) -- Employment Agreement-- Wil F. Zarecor
10.5(c) -- Employment Agreement-- John L. Douglas
10.5(d) -- Employment Agreement-- Glenn Crepps
11.0 -- Computation of Earnings per Share
23.0 -- Consent of counsel is contained in Exhibit 5.1
*23.1 -- Independent Auditors Consent
*23.2 -- Independent Auditors Consent
24.0 -- Powers of Attorney-- See signature page
27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ----------------------
*Filed herewith.
-33-
<PAGE> 68
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Compressent Corporation, a corporation organized and existing under the laws of
the State of Florida, certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-1 and has duly caused this
Post-Effective Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Jose,
State of California, on this 16th day of July, 1997.
By: /s/ Abe Ostrovsky
--------------------------------------
Abe Ostrovsky
Chief Executive Officer
(Principal Executive Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Abe Ostrovsky and Lisa E. D'Alencon and
each of them, their true and lawful attorneys and agents, with full power of
substitution, each with power to act alone, to sign and execute on behalf of the
undersigned any amendment or amendments to this Post-Effective Amendment No. 1
Registration Statement on Form S-1 and to perform any acts necessary in order to
file such amendments, and each of the undersigned does hereby ratify and confirm
all that said attorneys and agents, or their or his or her substitutes, shall do
or cause to be done by virtue hereof. Pursuant to the requirements of the
Securities Act of 1933, this Post-Effective Amendment No. 1 to the Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ----------------------------- ------------------------------ -------------
<S> <C> <C>
/s/ Abe Ostrovsky Chairman of the Board July 17, 1997
- ---------------------------- Chief Executive Officer
Abe Ostrovsky
/s/ William M. Allen Director July 17, 1997
- ----------------------------
William M. Allen
/s/ Fred Chanowski Director July 17, 1997
- ----------------------------
Fred Chanowski
/s/ Lisa E. D'Alencon Chief Financial Officer July 17, 1997
- ----------------------------
Lisa E. D'Alencon
/s/ E.T. Kalinoski Director July 17, 1997
- ----------------------------
E.T. Kalinoski
/s/ Jeffrey Waxman Director July 17, 1997
- ----------------------------
Jeffrey Waxman
/s/ Peter A. Whealton President and Director July 17, 1997
- ----------------------------
Peter A. Whealton
/s/ Stanley A. Young Director July 17, 1997
- ----------------------------
Stanley A. Young
</TABLE>
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<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1(a) -- Underwriting Agreement (revised)
1(c) -- Selected Dealer Agreement (revised)
3(a) -- Amended and Restated Articles of Incorporation of the Registrant
3(b) -- Bylaws of the Registrant
4.1 -- Form of Warrant Certificate
4.2 -- Form of Common Stock Certificate
5.1 -- Opinion of Counsel
10.1 -- Financial Advisory Agreement
10.2 -- Merger and Acquisition Agreement
10.3 -- Warrant Agreement
10.4 -- Underwriter's Warrant Agreement (revised)
10.5 -- Incentive Stock Option Plan
10.5(a) -- Employment Agreement-- Ostrovsky Consulting, Inc.
10.5(b) -- Employment Agreement-- Wil F. Zarecor
10.5(c) -- Employment Agreement-- John L. Douglas
10.5(d) -- Employment Agreement-- Glenn Crepps
11.0 -- Computation of Earnings per Share
23.0 -- Consent of counsel is contained in Exhibit 5.1
*23.1 -- Independent Auditors Consent
*23.2 -- Independent Auditors Consent
24.0 -- Powers of Attorney-- See signature page
27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ----------------------
*Filed herewith.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF GRANT-SCHWARTZ ASSOCIATES, CPA'S, INDEPENDENT AUDITOR
As Independent Public Accountants, we consent to the use of our reports
dated December 1, 1995 and all references to our firm included in or made a
part of the Form S-1 of Compressent Corporation, formerly Cable-Sat Systems,
Inc., formerly Cable-Sat Compression, Inc.
/s/ GRANT-SCHWARTZ ASSOCIATES, CPA'S
--------------------------------------------
GRANT-SCHWARTZ ASSOCIATES, CPA'S
Boca Raton, Florida
July 16, 1997
<PAGE> 2
CONSENT OF GRANT-SCHWARTZ ASSOCIATES, CPA'S, INDEPENDENT PUBLIC AUDITOR
As Independent Public Accountants, we consent to the use of our reports
dated December 1, 1995 to all references to our firm included in or made a part
of the Alternate Prospectus of Compressent Corporation, formerly Cable-Sat
Systems, Inc., formerly Cable-Sat Compression, Inc.
/s/ GRANT-SCHWARTZ ASSOCIATES, CPA'S
------------------------------------
GRANT-SCHWARTZ ASSOCIATES, CPA'S
Boca Raton, Florida
July 16, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 27, 1996, in the Post Effective Amendment No. 1
to the Registration Statement (Form S-1 No. 333-06121) and related Prospectus of
Compressent Corporation (formerly Cable-Sat Systems, Inc.) for the registration
of 1,050,000 shares of its common stock and 1,150,000 redeemable common stock
purchase warrants.
/s/ ERNST & YOUNG LLP
-----------------------------------
ERNST & YOUNG LLP
San Jose, California
July 16, 1997
<PAGE> 2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 27, 1996, in the Post Effective Amendment No.
1 to the Registration Statement (Form S-1 No. 333-06121) and related Prospectus
of Compressent Corporation (formerly Cable-Sat Systems, Inc.) for the
registration of 2,092,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
San Jose, CA
July 16, 1997
