<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: MARCH 31, 1997
COMMISSION FILE NO. 333-06121
COMPRESSENT CORPORATION
(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
(FORMERLY CABLE-SAT SYSTEMS, INC.)
------------------------
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. 5,028,752 shares of common
stock, as of May 12, 1997.
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COMPRESSENT CORPORATION
INDEX
<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...... 3
Condensed Balance Sheets --
September 30, 1996 and March 31, 1997...................................... 4
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.......................................................... 5
Notes to Condensed Financial Statements.................................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................ 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.......................................................... 15
ITEM 4. Submission of Matters to a Vote of Security Holders........................ 16
ITEM 6. Exhibits and Reports on Form 8-K........................................... 17
SIGNATURES
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS.
COMPRESSENT CORPORATION
(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
3
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COMPRESSENT CORPORATION
(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.................. $ 258,954 $ 334,874
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 included in the Company's Annual
Report on Form 10-K for the year ended September 30, 1996.
See accompanying notes
4
<PAGE> 5
COMPRESSENT CORPORATION
(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 (decrease) 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 and advance 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
5
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COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. BUSINESS ACTIVITIES AND BASIS OF PRESENTATION
Business
Compressent Corporation (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 included in the Company's 1996 Report on
Form 10-K filed with the SEC. 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 anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 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 Statement 128 on the
calculation of primary earnings per share and fully diluted earnings per share
for the quarters ended March 31, 1997 and March 31, 1996 is not expected to be
material.
Cash, Cash Equivalents and Short-Term Investments
Cash equivalents at March 31, 1997, 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.
6
<PAGE> 7
COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
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.
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 ("FASB 86").
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 FASB 86. A total of
approximately $32,000 in software development costs have been capitalized
through March 31, 1997.
7
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COMPRESSENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
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.
8
<PAGE> 9
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 began capitalizing
software development costs pursuant to FASB 86. Approximately $32,000 in
software development costs have been capitalized through March 31, 1997.
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
9
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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 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.
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 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
10
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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.
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
11
<PAGE> 12
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.
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 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. 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.
12
<PAGE> 13
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 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.
13
<PAGE> 14
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1997 Annual Meeting of Shareholders was held on February 27,
1997. The following is a brief description of each matter voted upon and a
statement of the number of votes cast for, against or withheld and the number of
abstentions with respect to each matter. There were no broker non-votes with
respect to any matter.
(a) The shareholders elected the following directors to hold office until
their term expires and until their successors are elected and qualified:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
Abraham Ostrovsky 3,420,205 2,006
William M. Allen 3,420,205 2,006
Fred Chanowski 3,420,205 2,006
E. T. Kalinoski 3,420,205 2,006
Jeffrey Waxman 3,420,205 2,006
Peter A. Whealton 3,420,205 2,006
Stanley A. Young 3,420,205 2,006
</TABLE>
(b) The shareholders approved the change of the Company's name to
Compressent Corporation.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
- ---------- ------- -------
<S> <C> <C>
3,182,965 5,510 233,736
</TABLE>
(c) The shareholders approved to increase the number of shares of common
stock issuable pursuant to the Company's Stock Option Plan.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
- ---------- ------- -------
<S> <C> <C>
2,769,604 20,509 13,536
</TABLE>
(d) The shareholders ratified the appointment of Ernst & Young, LLP as
independent auditors of the Company for the fiscal year ended September 30,
1997.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
- ---------- ------- -------
<S> <C> <C>
3,417,475 1,000 3,736
</TABLE>
14
<PAGE> 15
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 of 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
</TABLE>
The following exhibits are filed herewith:
<TABLE>
<S> <C>
11.1 Computation of net loss per share
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
(a) 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.
(b) The Company filed a Form 8-K dated May 5, 1997, to disclose the
change of the Company's name from Cable-Sat Systems, Inc., to Compressent
Corporation.
15
<PAGE> 16
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.
Compressent Corporation
Date: : May 12,
1997 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
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
11.1 Computation of net loss per share
27.1 Financial Data Schedule (March 31, 1997)
27.2 Financial Data Schedule (March 31, 1996)
</TABLE>
<PAGE> 1
EXHIBIT 11.1
COMPRESSENT CORPORATION
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
3 MONTHS ENDED 6 MONTHS ENDED
-------------------------- --------------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1997 1996 1997
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average number of common shares
outstanding during the period.......... 3,345,833 4,988,684 3,345,833 4,980,342
Incremental common shares attributable to
the application of SAB 64 and 83....... 761,334 -- 758,667 --
---------- ----------- ---------- -----------
Shares used in computing net loss per
share applicable to common
shareholders........................... 4,107,167 4,988,684 4,104,500 4,980,342
========== =========== ========== ===========
Net loss................................. $ (381,828) $(1,067,073) $ (642,860) $(2,381,339)
Less: Accretion on preferred stock....... -- -- -- --
---------- ----------- ---------- -----------
Net loss applicable to common
shareholders........................... $ (381,828) $(1,067,073) $ (642,860) $(2,381,339)
========== =========== ========== ===========
Net loss per share applicable to common
shareholders........................... $ (0.09) $ (0.21) $ (0.16) $ (0.48)
========== =========== ========== ===========
FULLY DILUTED
Weighted average number of common shares
outstanding during the period.......... 3,345,833 4,988,684 3,345,833 4,980,342
Incremental common shares attributable to
the application of SAB 64 and 83....... 761,334 -- 758,667 --
---------- ----------- ---------- -----------
Shares used in computing net loss per
share applicable to common
shareholders........................... 4,107,167 4,988,684 4,104,500 4,980,342
========== =========== ========== ===========
Net loss................................. $ (381,828) $(1,067,073) $ (642,860) $(2,381,339)
Less: Accretion on preferred stock....... -- -- -- --
---------- ----------- ---------- -----------
Net loss applicable to common
shareholders........................... $ (381,828) $(1,067,073) $ (642,860) $(2,381,339)
========== =========== ========== ===========
Net loss per fully diluted share......... $ (0.09) $ (0.21) $ (0.16) $ (0.48)
========== =========== ========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 418,392
<SECURITIES> 3,011,957
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,549,070
<PP&E> 289,568
<DEPRECIATION> (78,347)
<TOTAL-ASSETS> 3,897,618
<CURRENT-LIABILITIES> 334,874
<BONDS> 0
0
0
<COMMON> 5,022
<OTHER-SE> 3,557,722
<TOTAL-LIABILITY-AND-EQUITY> 3,897,618
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,497,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,381,339)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,381,339)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,381,339)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 380,523
<SECURITIES> 0
<RECEIVABLES> 93,462
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 495,505
<PP&E> 82,584
<DEPRECIATION> (15,308)
<TOTAL-ASSETS> 567,426
<CURRENT-LIABILITIES> 43,474
<BONDS> 0
0
450,000
<COMMON> 2,940
<OTHER-SE> 71,012
<TOTAL-LIABILITY-AND-EQUITY> 567,426
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 648,660
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (642,860)
<INCOME-TAX> 0
<INCOME-CONTINUING> (642,860)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (642,860)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
