<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED: DECEMBER 31, 1996
COMMISSION FILE NO. 333-06121
CABLE-SAT SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
------------------------
<TABLE>
<S> <C>
FLORIDA 65-0581474
(State of Incorporation) (IRS Employer Identification No.)
2105 HAMILTON AVENUE, SUITE 140, SAN JOSE, CA 95125
(Address of principal executive offices) (zip code)
</TABLE>
Registrant's Telephone No. (408) 879-6600
------------------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
REDEEMABLE STOCK PURCHASE WARRANTS
Check whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or such shorter period that the Registrant was required to file such
reports); and, (2) has been subject to such filing requirements for the past 90
days.
Yes ____X No ____
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 4,972,000 shares of common
stock, as of February 10, 1997.
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CABLE-SAT SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE NO.
----------------------------------------------------------------------- --------
<C> <S> <C>
Item 1. Condensed Statements of Operations -- three months ended December 31,
1995 and 1996, and for the period from inception (August 26, 1994) to
December 31, 1996...................................................... 3
Condensed Balance Sheets -- September 30, 1996 and December 31, 1996... 4
Condensed Statements of Cash Flows -- three months ended December 31,
1995 and 1996, and for the period from inception (August 26, 1994) to
December 31, 1996...................................................... 5
Notes to Condensed Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................... 13
SIGNATURES............................................................. 14
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CABLE-SAT SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED INCEPTION
----------------------------- (AUGUST 26, 1994)
DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1995 1996 1996
------------ ------------ -----------------
<S> <C> <C> <C>
OPERATING COSTS AND EXPENSES:
Research and development...................... $ 145,056 $ 400,814 $ 1,504,773
Sales and marketing........................... -- 564,879 843,569
General and administrative.................... 115,976 410,273 1,488,427
--------- ---------- ----------
Total operating costs and expenses......... 261,032 1,375,966 3,836,769
--------- ---------- ----------
Loss from operations............................ (261,032) (1,375,966) (3,836,769)
Interest income................................. -- 61,700 74,735
--------- ---------- ----------
Net loss.............................. (261,032) (1,314,266) (3,762,034)
Less: Accretion on preferred stock.............. -- -- (900,000)
--------- ---------- ----------
Net Loss applicable to common shareholders.... $ (261,032) $(1,314,266) $(4,662,034)
========= ========== ==========
Net loss per share applicable to common
shareholders.................................. $ (0.06) $ (0.26)
========= ==========
Shares used in computing net loss per share
applicable to common shareholders............. 4,101,833 4,972,000
========= ==========
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CABLE-SAT SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996
SEPTEMBER 30, ------------
1996(1)
------------- (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................................... $ 155,533 $ 176,737
Short-term investments........................................ -- 4,105,984
Other receivable from underwriter in connection with Company's
initial public offering.................................... 5,549,573 --
Other current assets.......................................... -- 49,531
---------- ----------
Total current assets.................................. 5,705,106 4,332,252
PROPERTY AND EQUIPMENT, NET..................................... 136,052 156,995
OTHER ASSETS.................................................... 117,947 115,254
---------- ----------
Total assets.......................................... $ 5,959,105 $ 4,604,501
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other accrued liabilities................ $ 258,954 $ 336,606
Accrued registration costs.................................... 55,052 --
Preferred stock redemption payable............................ 450,000 --
---------- ----------
Total current liabilities............................. 764,006 336,606
Redeemable preferred stock...................................... -- --
SHAREHOLDERS' EQUITY
Common stock and additional paid in capital................... 7,786,867 8,149,929
Deficit accumulated during development stage.................. (2,447,768) (3,762,034)
Deferred compensation......................................... (144,000) (120,000)
---------- ----------
Total shareholders' equity............................ 5,195,099 4,267,895
---------- ----------
Total liabilities and shareholders' equity............ $ 5,959,105 $ 4,604,501
========== ==========
</TABLE>
- ---------------
(1) The information in this column was derived from the Company's audited
balance sheet as of September 30, 1996.
4
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CABLE-SAT SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCEPTION
----------------------------- (AUGUST 26, 1994)
DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1995 1996 1996
------------ ------------ -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used in operating
activities.......................... $ (242,623) $ (935,290) $(2,923,873)
------------ ------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments............ -- (4,755,387) (4,755,387)
Sale of short-term investments................ -- 649,403 649,403
Purchase of property and equipment............ (55,001) (37,095) (245,326)
------------ ------------ -----------------
Net cash used in investing
activities.......................... (55,001) (4,143,079) (4,351,310)
------------ ------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock.......................... -- -- 1,952,263
Receipt of proceeds from underwriter in
initial public offering.................... -- 5,549,573 5,549,573
Initial public offering registration costs
paid....................................... -- -- (214,916)
Loans from shareholder........................ -- -- 75,000
Repayment of full recourse note payable....... -- -- 90,000
Sale of redeemable preferred stock............ -- -- 450,000
Redemption of preferred stock................. -- (450,000) (450,000)
------------ ------------ -----------------
Net cash provided from financing
activities.......................... -- 5,099,573 7,451,920
------------ ------------ -----------------
Net increase (decrease) in cash and
cash equivalents.................... (297,624) 21,204 176,737
------------ ------------ -----------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD........................................ 314,078 155,533 --
------------ ------------ -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...... $ 16,454 $ 176,737 $ 176,737
========== ========== =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Common stock to be issued in redemption of
preferred stock............................... $ -- $ -- $ 900,000
Conversion of loan and advance from shareholder
to common stock............................... -- -- 75,000
Issuance of common stock in exchange for full
recourse note payable......................... -- -- 90,000
</TABLE>
5
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CABLE-SAT SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BUSINESS ACTIVITIES AND BASIS OF PRESENTATION
Business
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 Articles 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. Such adjustments are of a
normal recurring nature, except for sales and marketing expense recorded in the
quarter ended December 31, 1996, related to the estimated fair value of stock
options issued to a distributor (see Notes 2 and 3). Management recommends that
these interim financial statements be read in conjunction with the audited
financial statements and notes thereto included in the Company's 1996 Report on
Form 10-K filed with the SEC. The results of operations for the three months
ended December 31, 1996, 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 quarter
ended December 31, 1996 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 quarter ended December 31, 1995, 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 anti-dilutive.
Cash, Cash Equivalents and Short-Term Investments
The Company's initial public offering of common stock closed on October 1,
1996, and the Company received cash proceeds of approximately $5,550,000 from
the underwriter. Cash equivalents at December 31, 1996, are comprised of
interest bearing money market funds. Short-term investments are designated as
available for sale and are comprised of a money market mutual fund that invests
only in AAA rated investments in United States treasury notes, federal agency
securities and corporate bonds. The difference between the fair market value and
carrying value of short-term investments is not significant.
2. SHAREHOLDERS' EQUITY
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 Compensa-
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CABLE-SAT SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
tion" 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 months ended December 31, 1996 was approximately
$12,500.
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 has 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.
3. SUBSEQUENT EVENTS
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 agreement between the companies
stipulates that Cable-Sat 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).
7
<PAGE> 8
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 or failure of such products to develop substantial sales volume.
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 December 31, 1996,
the Company has incurred a cumulative net loss of approximately $3,762,000 and
had used $2,924,000 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 $3,996,000 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
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996.
Research and Development
From inception through December 31, 1996, a substantial part of the
Company's activities related to research and development. The Company's research
and development expenses were approximately $145,000 and $401,000 for the three
months ended December 31, 1995 and 1996, respectively. The quarterly 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. To date, all product development costs have
been expensed as incurred. 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 future.
Sales and Marketing
Sales and marketing expenses were approximately $0 and $565,000 for the
three months ended December 31, 1995 and 1996, respectively. Sales and marketing
expenses incurred for the three months ended December 31, 1996, include costs
associated with staffing employees and consultants, trade show participation,
and the Company's marketing efforts and 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
8
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value of the option was estimated as of 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 for the option of one year. During the quarter
ended December 31, 1996, the Company recorded the entire estimated fair value of
this option of approximately $351,000 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 agreement between the companies
stipulates that Cable-Sat 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 $116,000 and $410,000 for the three months ended December 31, 1995
and 1996, respectively. The increase in general and administrative expenses was
primarily attributable to increased staffing and fees for professional services.
General and administrative expenses are expected to continue to increase to
support growing operations and increases in business development efforts, and
the costs of being a public company.
Interest Income
Interest income was $0 and $62,000 in the quarters ended December 31, 1995
and 1996, respectively. 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.
Liquidity and Capital Resources
The Company had approximately $4,283,000 in cash, cash equivalents and
short-term investments at December 31, 1996. 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 $243,000 and $935,000 for the three months ended December 31, 1995
and 1996, respectively, 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. During this time, 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.
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FUTURE RESULTS -- RISK FACTORS
Development Stage Company; Absence of Operating History. The Company has
been engaged primarily in the design and development of CHROMAFAX and CHROMAFAX
PLUS (the "Initial Color Fax Products") and related technology. The Company has
produced technology prototypes of its initial color fax software product,
currently called CHROMAFAX, and is in the process of developing its advanced
color fax software product, currently called CHROMAFAX PLUS. 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
developed or commercialized. The risks, expenses and difficulties often
encountered in a shift from the research and development of prototype 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 proposed Initial Color Fax Products and there is no
assurance that the Company will achieve sufficient revenues to offset
anticipated operating costs. As of December 31, 1996, the Company's deficit
accumulated during the developmental stage was approximately $3,762,000.
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.
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 of 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. The inability to obtain additional financing, when needed,
would 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, including investors in this offering,
could be substantially diluted.
Limited Sales and Marketing Experience. The Company intends to market and
sell its products, if successfully developed, through key manufacturers and
distributors who may 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, there can be no
assurance that the Company's distribution agreement with Set 1 will result in
material sales due to the dependence upon successful completion of development
of a "light" version of the Company's CHROMAFAX software, market factors
affecting the technology, the Company's ability to compete and performance under
the agreement by Set 1.
Rapid Technological Change and Substantial Competition. Technologies and
proposed products being developed by the Company are in various stages of
development. Product development efforts are subject to all 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 developments will be successfully completed. The
markets for the technology and products being developed by the Company are
characterized
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by rapid changes and evolving industry standards often resulting in product
obsolescence or short product life cycles. As a result, certain 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.
The ability of the Company to compete will depend on 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. 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. The Company has
employment contracts with several of its key personnel. The loss of key
personnel or the failure to recruit additional personnel could have a material
adverse effect on the Company's business.
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 intends to apply 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 will apply for copyrights relating to certain of its proposed
Initial Color Fax Products and will also apply 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 patentabiliity 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.
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
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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.
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.
12
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following exhibits are incorporated by reference to Registrant's
Registration Statement on Form S-1, File No. 333-06121:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- ----------------------------------------------------------------------------
<S> <C>
3 (a) Amended and Restated Articles of Incorporation of the Registrant
3 (b) Bylaws of the Registrant
4.1 Form Warrant Certificate
4.2 Form of Common Stock Certificate
10.1 Financial Advisory Agreement
10.2 Merger and Acquisition Agreement
10.3 Warrant Agreement
10.4 Underwriter's Warrant Agreement
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
The following exhibits are filed herewith:
11.1 Computation of net loss per share
27 Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
The Company filed Form 8-Ks dated October 24, 1996 and November 5, 1996 to
disclose a change of accountants. There were no disagreements reported in
connection with such change of accountants.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CABLE-SAT SYSTEMS, INC.
By: /s/ LISA E. D'ALENCON
------------------------------------
Lisa E. D'Alencon
Chief Financial Officer
Secretary
Signing on behalf of the registrant
and as principal financial officer
Date: February 12, 1997
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit 11.1 Computation of Net loss per share
Exhibit 27.1 Financial Data Schedule for the period ended December 31, 1995
Exhibit 27.2 Financial Data Schedule for the period ended December 31, 1996
</TABLE>
15
<PAGE> 1
EXHIBIT 11.1
CABLE-SAT SYSTEMS, INC.
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- --------------
<S> <C> <C>
PRIMARY
Weighted average number of common shares outstanding during
the period................................................. 1,833,333 4,972,000
Incremental common shares attributable to the application of
SAB 64 and 83.............................................. 2,268,500 --
---------- ----------
Shares used in computing net loss per share applicable to
common shareholders........................................ 4,101,833 4,972,000
========== ==========
Net loss..................................................... $ (254,765) $(1,314,266)
========== ==========
Net loss per share applicable to common shareholders $ (0.06) $ (0.26)
========== ==========
FULLY DILUTED
Weighted average number of common shares outstanding during
the period................................................. 1,833,333 4,972,000
Incremental common shares attributable to the application of
SAB 64 and 83.............................................. 2,268,500 --
---------- ----------
Total shares outstanding for purposes of computing fully
diluted net loss per share................................. 4,101,833 4,972,000
========== ==========
Net loss..................................................... $ (254,765) $(1,314,266)
========== ==========
Net loss per fully diluted share............................. $ (0.06) $ (0.26)
========== ==========
</TABLE>
Fully diluted earnings per share is not presented because its effects are
anti-dilutive
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 16,454
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 130,108
<PP&E> 109,880
<DEPRECIATION> 11,628
<TOTAL-ASSETS> 249,459
<CURRENT-LIABILITIES> 10,889
<BONDS> 0
<COMMON> 2,260
0
0
<OTHER-SE> 236,310
<TOTAL-LIABILITY-AND-EQUITY> 249,459
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 261,032
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (261,032)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (261,032)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 176,737
<SECURITIES> 4,105,984
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,332,252
<PP&E> 213,385
<DEPRECIATION> 56,390
<TOTAL-ASSETS> 4,604,501
<CURRENT-LIABILITIES> 336,606
<BONDS> 0
<COMMON> 4,972
0
0
<OTHER-SE> 4,262,923
<TOTAL-LIABILITY-AND-EQUITY> 4,604,501
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,375,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,314,266)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,314,266)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,314,266)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
