<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended MARCH 31, 1996 or
[ ] Transition report pursuant to Section or 15(d) of the Securities Exchange
Act of 1934 for the transition period from __________ to __________.
Commission file number 0-13218
COMPRESSION LABS, INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 94-2390960
--------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2860 JUNCTION AVENUE, SAN JOSE, CALIFORNIA 95134
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (408) 435-3000
Indicate by check mark 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 preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Shares outstanding at May 16, 1996
----- ----------------------------------
<S> <C>
Common Stock 15,525,323
</TABLE>
<PAGE> 2
COMPRESSION LABS, INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page
Number
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations --
For the Three Months Ended March 31, 1996 and 1995...... 1
Condensed Consolidated Balance Sheets --
March 31, 1996 and December 31, 1995.................... 2
Condensed Consolidated Statements of Cash Flows --
For the Three Months Ended March 31, 1996 and 1995...... 3
Notes to Condensed Consolidated Financial Statements --
March 31, 1996.......................................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 8
Item 6. Exhibits and Reports on Form 8-K................................. 10
SIGNATURES....................................................... 11
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPRESSION LABS, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1996 1995
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<S> <C> <C>
REVENUES $ 20,021 $ 27,857
Cost of revenues 11,107 17,529
-------- --------
GROSS MARGIN 8,914 10,328
OPERATING EXPENSES:
Selling, general and administrative 11,457 9,428
Research and development 3,450 2,421
Settlement of litigation -- 897
-------- --------
14,907 12,746
-------- --------
LOSS FROM OPERATIONS (5,993) (2,418)
Interest income 13 6
Interest expense (225) (215)
-------- --------
Net loss from continuing operations (6,205) (2,627)
Net income from discontinued operations -- 535
-------- --------
NET LOSS $ (6,205) $ (2,092)
======== ========
NET INCOME (LOSS) PER SHARE:
Net loss from continuing operations $ (0.40) $ (0.18)
Net income from discontinued operations -- 0.04
-------- --------
NET LOSS PER SHARE $ (0.40) $ (0.14)
======== ========
Weighted average common shares outstanding 15,526 14,667
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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<PAGE> 4
COMPRESSION LABS, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,196 $ 12,638
Accounts receivable, less allowance for doubtful accounts of
$9,995 in 1996 and $10,028 in 1995 33,864 46,798
Inventories 24,759 22,821
Other current assets 1,334 1,096
--------- ---------
Total current assets 63,153 83,353
PROPERTY AND EQUIPMENT
Furniture and fixtures 9,997 9,551
Machinery and equipment 26,926 25,802
Equipment under capital leases 2,090 2,090
--------- ---------
39,013 37,443
Accumulated depreciation and amortization (21,894) (20,171)
--------- ---------
17,119 17,272
CAPITALIZED SOFTWARE, NET 3,809 3,828
OTHER ASSETS 268 300
--------- ---------
Total assets $ 84,349 $ 104,753
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 5,212 $ 13,452
Current portion of capital lease obligations 291 506
Accounts payable 29,756 26,169
Accrued liabilities 13,190 21,689
Deferred revenue 5,571 6,278
--------- ---------
Total current liabilities 54,020 68,094
--------- ---------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 804 985
STOCKHOLDERS' EQUITY
Preferred stock -
Undesignated preferred stock, $.001 par value; 4,000,000
shares authorized, none issued and outstanding -- --
Common stock -
$.001 par value; 25,153,658 shares authorized; shares
issued and outstanding: 15,525,323 in 1996 and 15,491,475 in
1995 16 15
Additional paid-in capital 120,751 120,696
Accumulated deficit (91,242) (85,037)
--------- ---------
Total stockholders' equity 29,525 35,674
--------- ---------
Total liabilities and stockholders' equity $ 84,349 $ 104,753
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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COMPRESSION LABS, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6,205) $ (2,092)
Non-cash expenses included in operations-
Depreciation and amortization 1,543 2,599
Changes in certain assets and liabilities -
Accounts receivable 7,571 (2,122)
Inventories (2,849) 572
Other current assets (207) 213
Accounts payable 3,587 (1,208)
Accrued liabilities (8,499) 140
Deferred revenue (707) 138
Discontinued operations 5,933 (1,597)
-------- --------
Net cash generated by (used in) operations 167 (3,357)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions (708) (2,092)
Increase in capitalized software (353) (1,767)
(Increase) decrease in other assets 32 (124)
-------- --------
Net cash used in investing activities (1,029) (3,983)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock, net 56 224
Payments of capital lease obligations (220) (191)
Collateralized borrowings (157) 2,051
(Payments) borrowings under line of credit agreements (8,259) 2,649
-------- --------
Net cash generated by (used in) financing activities (8,580) 4,733
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,442) (2,607)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,638 11,319
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,196 $ 8,712
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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<PAGE> 6
COMPRESSION LABS, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
contain all adjustments of a normal recurring nature and certain
one-time charges that in the opinion of management are necessary to
present fairly the financial position and results of operations of
Compression Labs, Incorporated (the Company). Interim results of
operations are not necessarily indicative of the results to be expected
for the full year.
The Company's interim fiscal quarters end on the Friday of the
thirteenth week following the end of the previous quarter. Accordingly,
the actual dates of the end of the first quarters of 1996 and 1995 were
March 29 and March 31, respectively. The fiscal year end will remain as
December 31. The comparability of the financial statements between
years is not materially affected by this presentation.
The condensed consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto for the
year ended December 31, 1995, included in the Company's 1995 Annual
Report to Stockholders.
2. DISCONTINUED OPERATIONS
During November 1995, the Company adopted a strategic plan to
discontinue its broadcast products division. This division generally
manufactures and sells broadcast video products to commercial
end-users. The results for the division have been accounted for as
discontinued operations in accordance with Accounting Principles Board
Opinion No. 30, and prior years' financial statements have been
restated to reflect the discontinuation of the division.
The Company is actively pursuing a number of alternatives and has held
discussions with other companies regarding the possible sale of the
broadcast products division. No definitive agreement has been reached,
nor can there be any assurances that an agreement with terms acceptable
to the Company will ultimately be reached. The components of net assets
of discontinued operations included in the Consolidated Balance Sheets
at March 31, 1996 and December 31, 1995 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-----------------------------------------------------------
<S> <C> <C>
Accounts receivable, net $ 9,566 $14,929
Inventories 9,948 10,859
Property and equipment, net 4,484 4,174
Other assets 69 38
------- -------
$24,067 $30,000
======= =======
</TABLE>
Revenues from the discontinued division were approximately $6,744,000
and $12,189,000 for the three months ended March 31, 1996 and 1995,
respectively.
3. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
common shares outstanding. Common share equivalents have not been
included in the net loss per share calculation because the effect would
be anti-dilutive.
4. UNBILLED RESEARCH AND DEVELOPMENT CONTRACT RECEIVABLES AND ADVANCES
As of March 31, 1996, the Company had net unbilled receivables of
$2,440,000 primarily relating to research and development contracts
entered into with Thomson Consumer Electronics, Inc. and North American
Philips Corporation. These receivables are generally billable either in
quarterly installments or upon the delivery of specific items.
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<PAGE> 7
5. INVENTORIES
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------------------------------------------------------------------------------
<S> <C> <C>
Raw Material $ 4,946 $ 2,189
Work-in-process 4,683 3,858
Finished products
- Products on hand 12,029 13,488
- Products under rental and loan agreements 3,101 3,286
------- -------
$24,759 $22,821
======= =======
</TABLE>
6. CAPITALIZED SOFTWARE
The Company capitalized approximately $353,000 of software development
costs during the three months ended March 31, 1996. Amortization of
capitalized software development costs and purchased software was
$372,000 for the quarter ended March 31, 1996. At March 31, 1996,
capitalized software, net of accumulated amortization, was $3,809,000
(including $19,000 of purchased software).
7. BANK LINE OF CREDIT AND LONG-TERM DEBT
The Company has $15,000,000 in a revolving credit facility with a bank
that bears interest at the bank's prime rate (currently 8.25%) plus one
and one-half percent, which expires on August 21, 1996. The line of
credit agreement is secured by substantially all of the Company's
assets. Under the agreement, the Company is required to meet certain
financial covenants involving capital spending levels and debt ratio,
and may not declare or make any cash or stock dividends. The Company
was in compliance with these requirements as of March 31, 1996 or had
obtained a waiver for non-compliance from the bank. At March 31, 1996,
the balance outstanding under this line of credit was $4,536,000.
In 1995, the Company entered into long-term loan agreements for
$2,172,000 that bear interest rates from 10.76% to 11.48% over
thirty-six and forty-eight months. These loans are secured by specific
capital assets. At March 31, 1996, the balances outstanding under these
loans were $1,440,000, of which $764,000 is included in long term debt.
8. INCOME TAXES
Substantially all of the Company's federal income taxes to date have
been offset by utilization of net operating loss carryforwards. When
all such carryforwards are utilized, the Company anticipates a future
provision for federal income taxes that will more closely approximate
the statutory rates.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in the
Company's Form 10-K for the year ended December 31, 1995 under the caption
"Business."
Unless noted otherwise, the following discussion pertains to the Company's
continuing operations. Discussion of discontinued operations is contained in
Note 2 of Notes to Condensed Consolidated Financial Statements.
RESULTS OF OPERATIONS
REVENUES
Revenues in the first quarter of 1996 were $20.0 million compared to $27.9
million in the first quarter of 1995, a decrease of 28%. This decrease in
revenues was due primarily to a decrease in videoconferencing unit shipments.
Codec shipments were 431 units in the first quarter of 1996 compared to 613
units in the first quarter of 1995.
International revenues decreased to $4.4 million, or 22% of revenues for the
three months ended March 31, 1996, compared to $5.2 million, or 19% of revenues
for the first quarter of 1995.
GROSS MARGIN
Gross margin as a percentage of revenues was 45% and 37% in the three months
ended March 31, 1996 and 1995, respectively. The increase in gross margin in
1996 compared to 1995 was primarily due to sales of higher margin Radiance and
eclipse group videoconferencing systems and reduced manufacturing costs. The
Company continues to seek improvement in gross margin through introduction of
new products with higher margins, as well as through cost reductions of existing
products. However, the Company anticipates that product gross margin on revenues
will continue to be subject to fluctuations caused by the introduction of new
products, changes in product mix and variations in manufacturing costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to 57% of total revenues
in the first quarter of 1996 compared to 34% in the first quarter of 1995. The
increase as a percentage of revenues in the first quarter of 1996 compared to
the first quarter of 1995 was primarily due to decreased revenues and $1.7
million of additional expenses resulting from the Company's decision to
restructure its videoconferencing division. The additional expenses consisted
primarily of severance and related costs associated with headcount reductions in
the first quarter of 1996. The Company anticipates that selling, general and
administrative expenses will decline as a percentage of revenue in the future.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense was 17% and 9% of revenues in the first quarter
of 1996 and 1995, respectively. The increase in research and development expense
as a percentage of revenues was due principally to decreased revenues as well as
a decrease in the amounts capitalized in conjunction with the development of new
software. The Company expects that the level of research and development
expenses as a percentage of revenues will fluctuate, due to varying levels of
research and development activities, external funding and amounts capitalized in
conjunction with software development activities.
INTEREST INCOME/INTEREST EXPENSE
Interest income increased to $13,000 in the first quarter of 1996 from $6,000 in
the first quarter of 1995.
Interest expense was $225,000 in the first quarter of 1996 compared to $215,000
in the first quarter of 1995. See Note 7 of Notes to Condensed Consolidated
Financial Statements.
NET LOSS
The net loss from continuing operations was $6.2 million in the first quarter of
1996 compared to a net loss from continuing operations of $2.6 million in the
first quarter of 1995, a decline due primarily to lower revenues as well as $1.7
million of additional expenses resulting from the Company's decision to
restructure its videoconferencing division, partially offset by improved gross
margins on videoconferencing product sales.
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<PAGE> 9
FACTORS AFFECTING FUTURE RESULTS
The Company continues to seek improvement in operating results through
introduction of new products that are expected to have higher margins, as well
as through cost reductions of existing products. However, there can be no
assurance that the Company will be successful in its efforts. In the future, the
Company's operating results may be impacted by a number of factors, including
cancellation or delays of customer orders, interruption or delays in the supply
of key components, changes in customer base or product mix, seasonal patterns of
capital spending by customers, new product announcements by the Company or its
competitors, pricing pressures and changes in general economic conditions.
Historically, a significant portion of the Company's shipments have been made in
the last month of each quarter. As a result, a shortfall in revenue compared to
expectation may not evidence itself until late in the quarter. Additionally, the
timing of expenditures for research and development activities and sales and
marketing programs, as well as the timing of orders by major customers, may
cause operating results to fluctuate between quarters and between years.
LIQUIDITY AND CAPITAL RESOURCES
The Company has used internally generated funds, public and private offerings of
common stock and preferred stock, sale and leaseback arrangements and bank
credit lines to finance its growth since 1983. Cash generated by operations was
$0.2 million in the first quarter of 1996 compared to cash used in operations of
$3.4 million in the first quarter of 1995. This increase in cash generated by
operations was primarily due to a decrease in accounts receivable, a decrease in
assets of the discontinued operation, and an increase in accounts payable,
partially offset by a decrease in accrued liabilities, an increase in
inventories, and a net loss. Net cash used in investing activities was $1.0
million for the first three months of 1996 compared to $4.0 million for the
three months ended March 31, 1995, due primarily to lower additions of property
and equipment and capitalized software. The Company expects the level of capital
expenditures to decrease in 1996 compared to 1995. Net cash used in financing
activities was $8.6 million during the first three months of 1996 primarily due
to payments against the line of credit in the first quarter of 1996. See Note 7
of Notes to Condensed Consolidated Financial Statements.
As of March 31, 1996, the Company had cash and cash equivalents totaling $3.2
million. The Company has a line of credit, which expires on August 21, 1996, in
the amount of $15.0 million, of which $4.5 million was outstanding at March 31,
1996. The Company believes it has the ability to either renew this line upon its
expiration or obtain alternative financing. See Note 7 of Notes to Condensed
Consolidated Financial Statements. Working capital was $9.1 million as of March
31, 1996, compared to $15.3 million at December 31, 1995. The Company's
operating and product development activities have required significant cash. The
Company anticipates that existing cash and lines of credit, together with
sources of additional liquidity such as private or public offerings, sale and
leaseback arrangements, equipment lease lines and bank credit lines, will be
sufficient to meet cash requirements through 1996. Should additional funding be
required, however, there can be no assurance that such funding will be available
on acceptable terms as and when required by the Company.
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<PAGE> 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CIT GROUP/OSUERF
On August 24, 1993, the Company filed a complaint against Oklahoma State
University Education and Research Foundation, Inc. (OSUERF) in United States
District Court claiming that OSUERF breached an exclusive subcontract for the
Company to provide equipment to OSUERF under OSUERF's prime contract with the
United States Army, TRADOC Division. On November 18, 1993, the Company amended
the complaint to add Federal Leasing, Inc. (FLI) as a defendant. On February 4,
1994, the CIT Group/Equipment Financing Inc. (CIT), as an assignee of FLI's
rights under the Financing Agreement, filed a complaint against the Company in
United States District Court claiming indemnification from the Company. The
Company responded to CIT's complaint by denying the material charging
allegations and stating certain affirmative defenses. The OSUERF and CIT actions
have been consolidated. On April 21, 1995, CIT and FLI separately moved for
summary judgment against the Company seeking damages in the amount of $2
million. The Company opposed the respective motions. By order dated October 11,
1995 the court denied the summary judgment motions of CIT and FLI, respectively.
By order dated December 20, 1995, the consolidated actions were reassigned to
the Honorable Charles A. Legge. A case management conference was held before
Judge Legge on January 19, 1996, at which time the matter was set for jury trial
to begin November 4, 1996. By order dated March 19, 1996, the consolidated
actions were reassigned to the Honorable Robert P. Aguilar. Judge Aguilar has
adopted the November 4, 1996 trial date. Discovery will close June 28, 1996.
The Company will vigorously defend the claims stated against it by CIT, and
believes that it has meritorious defenses. However, there can be no assurance
that the Company will prevail or obtain indemnity for any recovery from OSUERF.
If any of CIT's claims were to be decided adversely to the Company, the Company
would be liable to pay monetary damages to CIT. The Company believes that the
ultimate resolution of this matter will not have a material adverse impact on
the Company's consolidated financial position.
DATAPOINT CORPORATION
In a complaint filed December 20, 1993, in the United States District Court in
Dallas, Texas, Datapoint Corporation (Datapoint) alleged that the Company had
infringed two United States patents owned by Datapoint relating to video
conferencing networks. The complaint seeks a judgment of infringement, monetary
damages, injunctive relief and reasonable attorney's fees. The Company responded
to the complaint on February 16, 1994 by denying the material allegations of the
complaint and asserting affirmative defenses. Pursuant to court order, the
parties have participated in mediation before a court-appointed mediator.
Discovery in the case has commenced.
The Company believes that it has meritorious defenses to the allegations of the
complaint, and is pursuing an aggressive defense; however, there can be no
assurance that the Company will prevail. If any of the claims were to be decided
adversely to the defendants, the Company could be liable for monetary damages to
the plaintiff and be subject to injunctive relief. The Company believes that the
ultimate resolution of this matter will not have a material adverse impact on
the Company's financial position.
SOUTHWESTERN BELL TELEPHONE COMPANY
On April 6, 1995, the Company filed a complaint against Southwestern Bell
Telephone Company (SWBT) in Santa Clara, California Superior Court alleging that
SWBT intentionally interfered with CLI's contracts with OSUERF and Hughes
Network Systems (HNS). SWBT moved to quash service of summons for lack of
personal jurisdiction, which motion was granted on July 11, 1995. On July 25,
1995, the Company refiled the complaint in the United States District Court for
the Western District of Oklahoma. The complaint was served on SWBT which filed
its answer on October 17, 1995, denying the material allegations of the
complaint.
In September 6, 1995, CLI filed its notice of appeal of the Superior Court's
order granting SWBT's motion to quash service of summons for lack of personal
jurisdiction. The appeal has now been fully briefed and the parties are awaiting
an order from the Court of Appeal setting oral argument. Pending the outcome of
the appeal, CLI and SWBT have stipulated that the Oklahoma federal court action
will be placed in administrative closure. An order placing the matter in
administrative closure was entered on October 20, 1995.
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<PAGE> 11
PHILIPS CONSUMER ELECTRONICS COMPANY
The Company entered into a Joint Development and Marketing Agreement (JDMA) with
Philips dated January 12, 1994, for the supply of certain decoder units
discussed in the Jabil matter above. By amendment to the JDMA on May 24, 1995,
Philips agreed to pay the Company $2.6 million for all intellectual property
jointly developed under the JDMA. In a related license agreement of May 12,
1995, the Company agreed to pay Philips $5.6 million for a license under
background patents and other intellectual property. Philips owes the Company
$1.3 million under the amendment, $0.9 million of which was due December 29,
1995. The Company owes Philips $3.3 million under the license agreement, $2.1
million of which was due December 29, 1995. The Company believes that Philips
has failed to make certain technology disclosures required under the license
agreement. The Company has initiated and is engaged in negotiations with Philips
regarding disposition of rights and monies owed under the amendment and license
agreement. Philips has indicated an interest in reaching a mutually acceptable,
amicable solution. The Company believes that the ultimate resolution of this
matter will not have a material adverse impact on the Company's consolidated
financial position.
CORPORATE COMPUTER SYSTEMS INC.
By letter dated October 23, 1995, Corporate Computer Systems, Inc. (CCS),
through its counsel, asserted that the Company is using proprietary technology
of CCS without a license and is willfully misappropriating CCS' copyrights.
Related to these assertions, CCS in October 1995 filed a complaint in U.S.
District Court, District of New Jersey, Corporate Computer Systems, Inc. v.
Compression Labs, Inc., Case No. 95-5457. The complaint was never served and was
subsequently dismissed without prejudice by CCS. The Company, in a letter from
its counsel dated November 6, 1995, vigorously refuted CCS' assertions. The
Company also tendered a payment with respect to past due royalties plus interest
pursuant to the terms of the MUSICAM License Agreement with CCS. The Company and
CCS are now in the process of exploring the possibility of a future license
arrangement. The Company believes that the ultimate resolution of this matter
will not have a material adverse impact on the Company's consolidated financial
position.
JABIL CIRCUITS, INC.
To fulfill a purchase order from Philips Consumer Electronics Company (Philips)
for the supply of certain decoder units, the Company placed a purchase order
with Jabil Circuits, Inc. (Jabil) for the procurement of the component parts and
the manufacture of the units. Due to the cancellation of the Philips purchase
order, the Company has canceled its purchase order with Jabil. By letter dated
January 11, 1996, Jabil demanded that the Company issue a purchase order for
approximately $6.5 million for the components which are outside the cancellation
and reschedule windows. The Company has negotiated with Philips and Jabil
regarding the disposition of the component inventory and responsibility for cost
of inventory that cannot be disposed of by Jabil. A resolution of the inventory
issue has been reached as between Jabil and Philips. CLI has made a claim
against Philips for damages associated with the Jabil inventory. The Company
believes that the ultimate resolution of this matter will not have a material
adverse impact on the Company's consolidated financial position.
MUELLER/SHIELDS
On or about March 15, 1996, a complaint was filed against the Company by
Mueller/Shields OME in Superior Court of Orange County, California alleging
breach of a marketing research contract. In the action entitled Mueller/Shields
OME v. Compression Labs, Inc., Case No. 761079, Mueller/Shields seeks $682,425
in compensatory damages, plus attorneys' fees provided by contract. Since the
filing of its complaint, Mueller/Shields has served notice of its application
for a writ of attachment. Following service of the complaint and service of the
writ application, the Company and Mueller/Shields reached agreement on the terms
of a Settlement Agreement whereby the Company agreed to pay a total of
approximately $600,000 (principal and interest) on an installment basis
beginning in April, 1996 and concluding in September, 1996. If paid in full, the
underlying action will be dismissed with prejudice. The writ of attachment
application has been taken off the calendar. Should the Company fail to meet
the payment schedule, judgment pursuant to stipulation may be entered against
the Company in the amount of the remaining balance of the settlement payment.
The Company believes that the ultimate resolution of this matter will not have
a material impact on the Company's consolidated financial position.
NEW ENGLAND CAPITAL CORPORATION
By letter dated April 15, 1996, New England Capital Corporation (NECC) asserted
that the Company is in default of an Equipment Financing Agreement dated March
3, 1994 between NECC and the Company. On or about May 3, 1996, NECC filed a
complaint in the Superior Court for Santa Clara County, California, Case No.
CV757815, seeking compensatory damages and a writ of possession for certain
equipment. The Company believes that the ultimate resolution of this matter will
not have a material adverse impact on the Company's consolidated financial
position.
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<PAGE> 12
USL CAPITAL CORPORATION
By letter dated May 9, 1996, USL Capital Corporation (USL Capital) asserted that
the Company is in default of a Master Lease Agreement dated July 28, 1993
between United States Leasing International, Inc. and the Company. By letter of
the same date, USL Capital asserted that the Company is also in default of a
Promissory Note and Security Agreement dated March 31, 1995 between USL Capital
and the Company. In both letters, USL Capital threatened to exercise legal means
to recovery property if the Company fails to remedy the alleged defaults. The
Company believes that the ultimate resolution of this matter will not have a
material adverse impact on the Company's consolidated financial position.
GENERAL
In the normal course of business, the Company receives and makes inquiries with
regard to other possible patent infringement. Where deemed advisable, the
Company may seek or extend licenses or negotiate settlements. Outcomes of such
negotiations may not be determinable at any point in time; however, management
does not believe that such licenses or settlements will, individually or in the
aggregate, have a material adverse affect on the Company's consolidated
financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.47 Waiver and Second Amendment of Credit Agreement,
entered into as of May 17, 1996, by and between
Compression Labs, Incorporated and BankAmerica
Business Credit, Inc.
27.01 Article 5 of Regulation S-X, Financial Data Schedules
for Compression Labs, Incorporated for the Quarter
Ending March 31, 1996.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
March 31, 1996.
No other applicable items.
-10-
<PAGE> 13
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.
COMPRESSION LABS, INCORPORATED
BY /s/ Michael E. Seifert
----------------------------------------------------
Michael E. Seifert
Vice President, Finance and Chief Accounting Officer
May 17, 1996
<PAGE> 1
EXHIBIT 10.47
[BankAmerica Logo]
BankAmerica
Business Credit, Inc.
May 17, 1996
Mr. Michael Seifert, CFO
Compression Labs., Inc.
2860 Junction Ave.
San Jose, California 95134
BankAmerica Business Credit, Inc. ("BABC") hereby waives the default caused by
the violation of the 3/31/96 Debt to Tangible Net worth covenant. Please note
that this waiver is being provided only for the violation noted for the 3/31/96
requirement and such waiver shall not apply to any subsequent periods.
Approved by:
/s/ Randy J. Bowman
-----------------------------------
/s/ Randy J. Bowman, Vice President
BankAmerica Business Credit, Inc.
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,196
<SECURITIES> 0
<RECEIVABLES> 33,864
<ALLOWANCES> 9,995
<INVENTORY> 24,759
<CURRENT-ASSETS> 63,153
<PP&E> 39,013
<DEPRECIATION> 21,894
<TOTAL-ASSETS> 84,349
<CURRENT-LIABILITIES> 54,020
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 120,751
<TOTAL-LIABILITY-AND-EQUITY> 84,349
<SALES> 20,021
<TOTAL-REVENUES> 20,021
<CGS> 11,107
<TOTAL-COSTS> 11,107
<OTHER-EXPENSES> 14,907
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 225
<INCOME-PRETAX> (6,205)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,205)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,205)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
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