<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 DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________TO _______________.
COMMISSION FILE NUMBER 0-28660
- --------------------------------------------------------------------------------
TRITEAL CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 33-0548924
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2011 PALOMAR AIRPORT ROAD
CARLSBAD, CA 92009-1431
(Address of principal executive offices)
(619) 930-2077
(Registrant's phone number, including area code)
----------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED 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 [ ]
As of February 10, 1997 there were 9,280,878 shares of $.001 par value common
stock outstanding.
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TRITEAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets.................................. 3
Consolidated Statements of Operations........................ 4
Consolidated Statements of Cash Flows........................ 5
Notes to Consolidated 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............................. 14
SIGNATURES............................................................... 14
</TABLE>
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRITEAL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................... $ 4,229,876 $ 301,251
Short-term investments ............................................. 17,708,938 -
Accounts receivable, net ........................................... 5,657,207 4,872,054
Prepaid expenses and other current assets .......................... 1,141,229 378,485
------------ ------------
Total current assets .......................................... 28,737,250 5,551,790
Property and equipment, net ............................................ 1,226,959 1,024,040
Other assets, net ...................................................... 191,872 60,140
============ ============
Total assets ................................................. $ 30,156,081 $ 6,635,970
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit ................................................... $ - $ 113,542
Accounts payable ................................................. 445,234 784,575
Accrued liabilities .............................................. 4,214,157 3,181,761
Deferred revenues ................................................ 1,136,980 922,732
Current portion of long-term debt ............................... - 121,388
------------ ------------
Total current liabilities .................................... 5,796,371 5,123,998
Long-term debt ......................................................... - 242,776
Stockholders' equity:
Preferred Stock, $.001 par value
Authorized shares -- 5,000,000
Issued and outstanding -- no shares and
1,527,247 shares at December 31, 1996
and March 31, 1996, respectively ............................... - 1,527
Common Stock, $.001 par value
Authorized shares -- 30,000,000
Issued and outstanding -- 9,209,852 shares and
4,186,902 shares at December 31,
1996 and March 31, 1996, respectively .......................... 9,210 4,187
Additional paid-in capital ....................................... 30,195,296 5,869,825
Preferred stock subscriptions .................................... - 363,129
Notes receivable from stockholders ............................... (101,667) (167,250)
Deferred compensation ............................................ (113,200) (151,900)
Accumulated deficit .............................................. (5,629,929) (4,650,322)
------------ ------------
Total stockholders' equity .................................... 24,359,710 1,269,196
============ ============
Total liabilities and stockholders' equity .................... $ 30,156,081 $ 6,635,970
============ ============
</TABLE>
Note: The balance sheet at March 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
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TRITEAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
License fees ...................... $ 4,253,714 $ 1,599,672 $ 9,657,074 $ 3,227,808
Maintenance and services .......... 452,501 225,476 1,455,396 1,173,897
------------ ------------ ------------ ------------
Total revenues ............... 4,706,215 1,825,148 11,112,470 4,401,705
Cost of revenues:
Cost of license fees .............. 846,712 317,524 1,886,775 902,720
Cost of maintenance and services .. 181,675 81,804 448,066 324,794
------------ ------------ ------------ ------------
Total cost of revenues ....... 1,028,387 399,328 2,334,841 1,227,514
------------ ------------ ------------ ------------
Gross profit ................. 3,677,828 1,425,820 8,777,629 3,174,191
Operating expenses:
Research and development .......... 643,368 1,058,195 1,678,703 1,753,142
Selling, general and administrative 3,106,256 2,140,676 8,572,788 5,684,486
------------ ------------ ------------ ------------
Total operating expenses ..... 3,749,624 3,198,871 10,251,491 7,437,628
------------ ------------ ------------ ------------
Operating loss ...................... (71,796) (1,773,051) (1,473,862) (4,263,437)
Interest income (expense), net ...... 339,538 (3,500) 494,255 (16,535)
------------ ------------ ------------ ------------
Income (loss) before provision for
(benefit from) income taxes ....... 267,742 (1,776,551) (979,607) (4,279,972)
Provision for (benefit from) income
taxes ............................. - (34,000) - (83,000)
============ ============ ============ ============
Net income (loss) ................... $ 267,742 $ (1,742,551) $ (979,607) $ (4,196,972)
============ ============ ============ ============
Net income (loss) per share ......... $ 0 .03 $ (0.26) $ (0.12) $ (0.63)
============ ============ ============ ============
Shares used in computing net income
(loss) per share ................. 10,590,707 6,712,321 7,966,133 6,712,321
============ ============ ============ ============
</TABLE>
See accompanying notes.
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TRITEAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................ $ (979,607) $ (4,196,972)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization ..................... 427,174 223,713
Amortization of deferred compensation ............. 38,700 20,400
Issuance of common stock for services ............. - 6,250
Changes in operating assets and liabilities:
Accounts receivable receivable ................ (785,153) (795,833)
Prepaid expenses and other current assets ..... (762,744) (356,049)
Accounts payable .............................. (339,341) 95,476
Accrued liabilities ........................... 1,032,396 1,252,605
Deferred revenue .............................. 214,248 80,735
------------ ------------
Net cash used in operating activities ................... (1,154,327) (3,699,675)
Cash flows from investing activities:
Short-term investments ............................ (17,708,938) -
Purchase of property and equipment ................ (630,093) (817,528)
Other assets ...................................... (131,732) (33,727)
------------ ------------
Net cash used in investing activities ................... (18,470,763) (851,255)
Cash flows from financing activities:
Net proceeds from (repayments of) line of credit .. (113,542) 113,542
Proceeds from long-term debt ...................... - 251,271
Repayments of long-term debt ...................... (364,164) (19,355)
Proceeds from repayments of notes receivable from
stockholders ................................... 65,583 -
Proceeds from issuance of common stock, net ....... 20,399,674 -
Proceeds from issuance of preferred stock, net .... 3,566,164 3,965,000
------------ ------------
Net cash provided by financing activities ............... 23,553,715 4,310,458
------------ ------------
Increase (decrease) in cash and cash equivalents ........ 3,928,625 (210,472)
Cash and cash equivalents at beginning of period ........ 301,251 1,224,636
------------ ------------
Cash and cash equivalents at end of period .............. $ 4,229,876 $ 1,014,164
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest .......................................... $ 28,155 $ 29,493
============ ============
Supplemental disclosure of noncash financing activities:
Issuance of common stock in exchange for notes
receivable ....................................... $ - $ 167,250
============ ============
</TABLE>
See accompanying notes.
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TRITEAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
TriTeal Corporation (the "Company") develops, markets and supports open
systems-based, mission-critical desktop system software and integrated
applications that enable multi-platform deployment of client/server applications
throughout an enterprise. The Company recently introduced its Java-based SoftNC
technology, a thin-client, platform-independent solution designed to allow
simultaneous access to Java and legacy applications.
The Consolidated Financial Statements of the Company included in the
Company's Registration Statement on Form S-1 (Registration No. 333-20579),
including the related Prospectus dated January 31, 1997 (the "Registration
Statement"), contain additional information about the Company, its operations,
and its financial statements and accounting practices, and should be read in
conjunction with this Quarterly Report on Form 10-Q. These unaudited
consolidated financial statements have been prepared in accordance with the
instructions on Form 10-Q and, therefore, certain information and footnote
disclosures normally contained in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The accompanying unaudited consolidated financial statements of the Company
reflect all adjustments of a normal recurring nature which are, in the opinion
of management, necessary for a fair presentation of the financial position,
results of operations and cash flows for all periods presented. The interim
financial information herein are not necessarily indicative of results for any
future interim periods or for the full fiscal year ending March 31, 1997.
NOTE 2 - STOCKHOLDERS' EQUITY
On August 6, 1996, the Company completed its initial public offering of
2,500,000 shares of its Common Stock. Net proceeds to the Company aggregated
approximately $17.6 million. As of the closing date of the offering, all of the
Preferred Stock outstanding was converted, on a one-for-one basis, into an
aggregate of 2,093,411 shares of Common Stock. A portion of the proceeds was
used to repay the Company's long-term debt.
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TRITEAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - STOCKHOLDERS' EQUITY (CONTINUED)
On August 29, 1996, the underwriters of the offering exercised their
over-allotment option to purchase an additional 375,000 shares of Common Stock.
Net proceeds to the Company aggregated approximately $2.8 million.
NOTE 3 - COMPUTATION OF NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
common shares and common stock equivalents outstanding. Common equivalent shares
from stock options and warrants are excluded from the computation when their
effect is antidilutive except that, pursuant to the Securities and Exchange
Commission Staff Accounting Bulletins, common shares and common equivalent
shares issued during the twelve months prior to the initial filing of the
Registration Statement with the Securities and Exchange Commission have been
included in the calculation as outstanding for all periods prior to the
Company's initial public offering (using the treasury stock method). The
calculation also gives effect to the conversion of all convertible preferred
shares (using the if-converted method), which automatically converted into
common shares upon completion of the Company's initial public offering.
NOTE 4 - LINE OF CREDIT FACILITY
On November 18, 1996, the Company entered into a $3 million revolving bank
credit facility (the "Facility") which expires on October 30, 1997. Borrowings
are secured by substantially all Company assets and bear interest at the bank's
prime rate (8.25% at December 31, 1996). At December 31, 1996, no amounts were
outstanding under the Facility.
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the American Institute of Certified Public Accountants issued
an Exposure Draft of a proposed Statement of Position (SOP), "Software Revenue
Recognition," that would supercede SOP 91-1 and would be effective for the
Company's fiscal 1998 financial statements. If adopted, the Exposure Draft is
not expected to have a significant impact on the financial position or the
results of operations of the Company.
NOTE 6 - SUBSEQUENT EVENT
On January 27, 1997, the Board of Directors approved the filing of, and the
Company subsequently filed, a Registration Statement on Form S-1 (Registration
No. 333-20579) including the related Prospectus dated January 31, 1997 (the
"Registration Statement"), covering 2,200,000 shares of the Company's Common
Stock to the public, of which 1,350,000 shares will be offered by the Company
and 850,000 shares will be offered by certain stockholders of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following 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 materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those risks and uncertainties
discussed below, as well as other risks set forth under the caption "Risk
Factors" in the Registration Statement and elsewhere in the related Prospectus.
The following discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto included in Item 1 of this Quarterly
Report on Form 10-Q and the Registration Statement.
OVERVIEW
TriTeal Corporation (the "Company") develops, markets and supports open
systems-based, mission-critical desktop system software and integrated
applications that enable multi-platform deployment of client/server applications
throughout an enterprise. The Company recently introduced its Java-based SoftNC
technology, a thin-client, platform-independent solution designed to allow
simultaneous access to Java and legacy applications. The Company was founded in
January 1993, commenced operations in April 1993 and released its first product
in May 1993. In August 1995, the Company introduced its current flagship
product, TED. The Company's current products are based on certain technologies
licensed from Hewlett-Packard, Spyglass, Inc., SPYRUS and other technology
vendors. The Company's revenues are derived principally from two sources: (i)
license fees for the use of the Company's software products, and (ii)
maintenance agreements and software development contract revenues. To date,
substantially all of the Company's revenues have been attributable to sales of
the TED family of products and related services. The Company has not introduced
for commercial sale any products based on, or recognized any revenues from
license fees of, its SoftNC technology. Revenues from software licenses are
generally recognized upon shipment of software. Revenues from maintenance
agreements are recognized over the term of each contract, which generally is one
year. Software development contract revenues are recognized using the
percentage-of-completion method.
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Revenues
TriTeal's revenues are derived principally from license fees, maintenance
agreements and software development contracts. The Company's total revenues
increased to $4.7 million for the three months ended December 31, 1996 from $1.8
million for the three months ended December 31, 1995. During the three months
ended December 31, 1996, two of the Company's customers/resellers, Sylvest
Management and IBM, accounted for 42% and 32% of revenues, respectively. License
fees increased to $4.3 million for the three months ended December 31, 1996 from
$1.6 million for the three months ended December 31, 1995. During the three
months ended December 31, 1996 and 1995, license fees aggregated 90% and 88% of
total revenues, respectively. This increase in license fees was due primarily to
increased market acceptance of
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the Company's existing products, introduction of enhanced and new products and
expansion of the Company's direct sales force. Maintenance and services
revenues, which also include revenues derived from software development
contracts, increased to $453,000 for the three months ended December 31, 1996
from $226,000 for the three months ended December 31, 1995. Maintenance, which
consists primarily of technical support, increased to $453,000 for the three
months ended December 31, 1996 from $200,000 for the three months ended December
31, 1995. The increase in maintenance revenues was due primarily to additional
maintenance agreements associated with a larger installed base of customers. The
Company does not anticipate receiving a significant amount of revenues from
software development contracts in the future; however, it may enter into such
contracts in special situations where the technology may allow the Company to
introduce new products, penetrate new markets or establish strategic
relationships.
Cost of Revenues
The Company's total cost of revenues increased to $1.0 million for the three
months ended December 31, 1996 from $399,000 for the three months ended December
31, 1995. As a percentage of revenues, gross profit was 78% for the three months
ended December 31, 1996 and 1995. There can be no assurance that gross margins
will remain at this level in the future. The cost of license fees, which
consists primarily of third-party royalties for licensed technology and media
and documentation, increased to $847,000 for the three months ended December 31,
1996 from $318,000 for the three months ended December 31, 1995. The increase in
the cost of license fees was due principally to a higher volume of sales of
licenses. The cost of maintenance and services, which consists primarily of
labor and services, increased to $182,000 for the three months ended December
31, 1996 from $82,000 for the three months ended December 31, 1995. The increase
in the cost of maintenance and services was due primarily to the increase in the
number of customer support and development personnel and related overhead costs
necessary to support a larger installed customer base, product upgrades and
development activities, offset in part by the decrease in revenue from software
development contracts.
Research and Development
Research and development expenses include expenses associated with the
development of new products, enhancements of existing products and quality
assurance activities. These expenses consist principally of personnel costs,
overhead costs relating to occupancy, equipment depreciation and supplies. In
accordance with Statement of Financial Accounting Standards No. 86, development
costs incurred in the research and development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility in the form of a working model has been established.
To date, the Company's software development has been completed concurrent with
the establishment of technological feasibility and, accordingly, no costs have
been capitalized. Research and development expenses decreased to $643,000 for
the three months ended December 31, 1996 from $1.1 million for the three months
ended December 31, 1995. The decrease in research and development expenses was
primarily attributable to a $600,000 non-recurring charge in 1995 for in-process
technology, offset in large part by increased costs associated with both
additional headcount as well as expanded research and development efforts in the
current quarter. The Company believes that a significant level of
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investment for product development is required to remain competitive and,
accordingly, the Company anticipates that, for the foreseeable future, these
expenses will continue to increase in absolute dollars.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of
salaries, commissions and bonuses, promotional expenses and occupancy costs.
Selling, general and administrative expenses increased to $3.1 million for the
three months ended December 31, 1996 from $2.1 million for the three months
ended December 31, 1995. The increase in selling, general and administrative
expenses was due primarily to sales commissions and bonuses associated with
increased sales volume, additional promotional activities, the hiring of
additional sales and marketing personnel and, to a lesser degree, increased
administrative personnel and occupancy costs.
The Company believes that selling, general and administrative expenses
will increase in absolute dollar amounts as the Company expands its sales,
marketing and administrative staff, adds infrastructure and incurs additional
costs related to being a public company.
Interest Income (Expense), Net
Interest income (expense), net, represents interest earned on the
Company's cash, cash equivalents and short-term investments, offset in part by
interest expense on the Company's borrowings, principally its equipment loan.
Interest income was $340,000 for the three months ended December 31, 1996,
compared to interest expense of $3,500 for the three months ended December 31,
1995. This increase was attributable to earnings on the proceeds from the
Company's initial public offering.
NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Revenues
The Company's total revenues increased to $11.1 million for the nine
months ended December 31, 1996 from $4.4 million for the nine months ended
December 31, 1995. During the nine months ended December 31, 1996, two of the
Company's customers/resellers, IBM and Sylvest Management, accounted for 50% and
24% of revenues, respectively. License fees increased to $9.7 million for the
nine months ended December 31, 1996 from $3.2 million for the nine months ended
December 31, 1995. During the nine months ended December 31, 1996 and 1995,
license fees aggregated 87% and 73% of total revenues, respectively. This
increase in license fees was due primarily to increased market acceptance of the
Company's existing products, introduction of enhanced and new products and
expansion of the Company's direct sales force. Maintenance and services
revenues, which also include revenues derived from software development
contracts, increased to $1.5 million for the nine months ended December 31, 1996
from $1.2 million for the nine months ended December 31, 1995. Maintenance,
which consists primarily of technical support, increased to $1.2 million for the
nine months ended December 31, 1996 from $504,000 for the nine months ended
December 31, 1995. The increase in maintenance revenues was due primarily to
additional maintenance agreements associated with a larger installed base of
customers.
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Cost of Revenues
The Company's total cost of revenues increased to $2.3 million for the nine
months ended December 31, 1996 from $1.2 million for the nine months ended
December 31, 1995. As a percentage of revenues, gross profit increased to 79%
for the nine months ended December 31, 1996 from 72% for the nine months ended
December 31, 1995. The increase in gross margin was a result of the shift in
revenue mix to software license revenues, which typically have higher gross
margins, as well as lower average third-party royalty rates. The cost of license
fees increased to $1.9 million for the nine months ended December 31, 1996 from
$903,000 for the nine months ended December 31, 1995. The increase in the cost
of license fees was due principally to a higher volume of sales of licenses. The
cost of maintenance and services increased to $448,000 for the nine months ended
December 31, 1996 from $325,000 for the nine months ended December 31, 1995. The
increase in the cost of maintenance and services was due primarily to the
increase in the number of customer support and development personnel and related
overhead costs necessary to support a larger installed customer base, product
upgrades and development activities.
Research and Development
Research and development expenses decreased to $1.7 million for the nine
months ended December 31, 1996 from $1.8 million for the nine months ended
December 31, 1995. The decrease in research and development expenses was
primarily attributable to a $600,000 non-recurring charge in 1995 for in-process
technology, offset in large part by increased costs associated with both
additional headcount as well as expanded research and development efforts during
the nine months ended December 31, 1996.
Selling, General and Administrative
Selling, general and administrative expenses increased to $8.6 million for
the nine months ended December 31, 1996 from $5.7 million for the nine months
ended December 31, 1995. The increase in selling, general and administrative
expenses was due primarily to sales commissions and bonuses associated with
increased sales volume, additional promotional activities, the hiring of
additional sales and marketing personnel and, to a lesser degree, increased
administrative personnel and occupancy costs.
Interest Income (Expense), Net
Interest income (expense), net, represents interest earned on the Company's
cash, cash equivalents and short-term investments, offset in part by interest
expense on the Company's borrowings, principally its equipment loan. Interest
income was $494,000 for the nine months ended December 31, 1996, compared to
interest expense of $17,000 for the nine months ended December 31, 1995. This
increase was attributable to earnings on the proceeds from the Company's initial
public offering in August 1996.
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FACTORS AFFECTING OPERATING RESULTS
The Company has experienced significant fluctuations in its revenues and
operating results from quarter to quarter and anticipates that it will continue
to experience such quarterly fluctuations. The Company's revenues and operating
results have generally been higher in the fourth fiscal quarter than in any
preceding quarter of each fiscal year and lower in the first fiscal quarter, due
largely, the Company believes, to the effect of the Company's incentive sales
compensation plans. There can be no assurance, however, that such patterns of
operating results will be repeated in the future. In addition, the Company's
sales are made predominantly in the third month of each fiscal quarter and tend
to be concentrated in the latter half of that third month. Moreover, the
Company's sales generally reflect a relatively high average of revenues per
order. Accordingly, the Company's quarterly results of operations are difficult
to predict, and delays in product delivery or in closings of sales near the end
of a quarter, or the loss of individual orders, could cause quarterly revenues
to fall substantially short of anticipated levels and, to a greater degree,
adversely affect profitability. Factors that may contribute to such
fluctuations, in addition to incentive compensation plans, include seasonal
factors, such as the fiscal year ends of the government and other customers and
reduction in the European business during summer months; the number of new
orders and product shipments; the size and timing of individual orders; the
timing of introduction of products or product enhancements by the Company, the
Company's competitors or other providers of hardware, software and components
for the Company's market; competition and pricing in the software industry;
market acceptance of new products; reduction in demand for existing products and
shortening of product life cycles as a result of new product introductions by
competitors; product quality problems; customer order deferrals in anticipation
of new products; changes in customer budgets; changes in operating expenses;
changes in Company strategy; personnel changes; changes in foreign currency
exchange rates; changes in mix of products sold; and changes in general economic
conditions.
The Company's software products generally are shipped as orders are
received, and revenues are recognized upon shipment of the products, provided no
significant vendor obligations exist and collection of the related receivable is
deemed probable. The Company typically enters each fiscal quarter with a low
backlog and, as a result, software license revenues in any quarter are
substantially dependent on orders booked and shipped in that quarter. Because
the Company's operating expenses are based on anticipated revenue trends and
because a high percentage of the Company's expenses are relatively fixed, a
delay in the recognition of revenue from a limited number of license
transactions could cause significant variations in operating results from
quarter to quarter and could result in losses substantially in excess of
anticipated amounts. To the extent such expenses precede, or are not
subsequently followed by, increased revenues, the Company's operating results
would be materially and adversely affected. As a result of the foregoing
factors, among others, revenues for any quarter are subject to significant
variation, and the Company believes that period-to-period comparisons of its
results of operations should not be relied upon as indications of future
performance. Fluctuations in operating results may also result in volatility in
the price of the Company's Common Stock in the public market. Due to all of the
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foregoing factors, among others, it is likely that, from time to time in the
future, the Company's results of operations would be below the expectations of
public market analysts and investors.
The Company's business is subject to a number of other significant risks
including, but not limited to, its limited operating history and history of
operating losses (including an accumulated deficit of $5.6 million at December
31, 1996); its dependence on certain strategic relationships and third-party
technology licenses; the concentration of the Company's customers among
enterprises supporting UNIX operating systems; its dependence on the growth of
the desktop and client/server market and the continuation of heterogeneous
operating environments; the relatively small number of customers that have
historically accounted for a significant percentage of the Company's revenues;
the Company's dependence on indirect channel partners; the concentration of its
product line on the TED family of products and services; the risks associated
with rapidly changing technology and evolving standards, international
operations and sales to departments and agencies of the U.S. Government;
substantial competition in the Company's markets (including competitors and
potential competitors with significantly greater resources than the Company);
the Company's dependence on proprietary technology and other risks common to
emerging growth, high technology software companies as well as other factors
discussed herein.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had $21.9 million in cash, cash
equivalents and short-term investments, representing 73% of total assets. The
Company has a $3 million revolving bank credit facility which expires on October
30, 1997. Borrowings are secured by substantially all Company assets and bear
interest at the bank's prime rate (8.25% at December 31, 1996). At December 31,
1996, no amounts were outstanding borrowings under the facility.
As of December 31, 1996, the Company's principal commitments consisted of
obligations under operating leases, aggregating $728,000, and the Company had no
material commitments for capital expenditures.
The Company's operations to date have required substantial amounts of
capital. The Company expects to spend substantial funds to support the growth of
its products, to add enhancements and additional applications to its products
and to expand internationally. The Company's capital requirements will depend on
numerous factors, including the progress of the Company's research and
development programs, the commercial acceptance of its products, the resources
the Company devotes to advanced technologies and the demand for its products.
The Company believes that the its existing cash and investments, together with
its available credit facilities, will be sufficient to meet its anticipated cash
needs for working capital, capital expenditures and business expansion for at
least the next 12 months. The estimate of the period for which the Company
expects its available cash balances and credit facilities to be sufficient to
meet its capital requirements is a forward-looking statement that involves risks
and uncertainties as set forth herein and under the caption "Risk Factors" in
the Registration Statement.
Page 13
<PAGE> 14
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS:
10.1 Imperial Bank Revolving Line of Credit, dated
November 18, 1996
11.1 Statement Regarding Calculation of Net Income (Loss)
Per Share
27.1 Financial Data Schedule
B) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Company during the
three months ended December 31, 1996.
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.
TRITEAL CORPORATION
Date: February 12, 1997 /s/ Jeffrey D. Witous
---------------------- -------------------------------------------
Jeffrey D. Witous
President, Chief Executive Officer and
Chairman of the Board
Date: February 12 , 1997 /s/ Arthur S. Budman
---------------------- -----------------------------------------
Arthur S. Budman
Chief Financial Officer and Director
(Principal financial and accounting
officer)
Page 14
<PAGE> 1
EXHIBIT 10.1
[IMPERIAL BANK LOGO]
NOTE
$3,000,000.00 Inglewood, California, November 18, 1996
On October 30, 1997, and as hereinafter provided, for value received, the
undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking
corporation, or order, at its LENDING SERVICES office, the principal sum of
$3,000,000.00 MAXIMUM or such sums up to the minimum if so stated, as the Bank
may now or hereafter advance to or for the benefit of the undersigned in
accordance with the terms hereof, together with interest from date of
disbursement or N/A, whichever is later, on the unpaid principal balance [ ] at
the rate of % per year [x] at the rate of 0.000% per year in excess of the
rate of interest which Bank has announced as its prime lending rate (the "Prime
Rate"), which shall vary concurrently with any change in such Prime Rate, or
$250.00, whichever is greater. Interest shall be computed at the above rate on
the basis of the actual number of days during which the principal balance is
outstanding, divided by 360, which shall, for interest computation purposes, be
considered one year.
Interest shall be payable [x] monthly [ ] quarterly [ ] included with
principal [ ] in addition to principal [ ] beginning November 30, 1996, and if
not so paid shall become a part of the principal. All payments shall be applied
first to any late charges owing, then to interest and the remainder, if any, to
principal. [ ] (If checked), Principal shall be payable in installments of
$ or more, each installment on the day of each , beginning .
Advances not to exceed any unpaid balance owing at any one time equal to the
maximum amount specified above, may be made at the option of Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal
or interest when due, or in the performance or observance, when due, of any
item, covenant or condition of any deed of trust, security agreement or other
agreement (including amendments or extensions thereof) securing or pertaining
to this note, at the option of the holder hereof and without notice or demand,
the entire balance of principal and accrued interest then remaining unpaid
shall (a) become immediately due and payable, and (b) thereafter bear interest,
until paid in full, at the increased rate of 5% per year in excess of the rate
provided for above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of the
maker(s) to pay principal or interest when due; the filing as to each person
obligated hereon, whether as maker, co-maker, endorser or guarantor
(individually or collectively referred to as the "Obligor") of a voluntary or
involuntary petition under the provisions of the Federal Bankruptcy Act; the
issuance of any attachment or execution against any asset of any Obligor; the
death of any Obligor; or any deterioration of the financial condition of any
Obligor which results in the holder hereof considering itself, in good faith,
insecure.
If any installment payment, interest payment, principal payment or
principal balance payment due hereunder is delinquent ten or more days, Obligor
agrees to pay Bank a late charge in the amount of 5% of the payment so due and
unpaid, in addition to the payment; but nothing in this paragraph is to be
construed as any obligation on the part of the holder of this note to accept
payment of any payment past due or less than the total unpaid principal balance
after maturity.
If this note is not paid when due, each Obligor promises to pay all
costs and expenses of collection and reasonable attorneys fees incurred by the
holder hereof on account of such collection, plus interest at the rate
applicable to principal, whether or not suit is filed hereon. Each Obligor
shall be jointly and severally liable hereon and consents to renewals,
replacements and extensions of time for payment hereof, before, at, or after
maturity, consents to the acceptance, release or substitution of security for
this note; and waives demand and protest and the right to assert any statute of
limitations. Any married person who signs this note agrees that recourse may be
had against separate property for any obligations hereunder. The indebtedness
evidenced hereby shall be payable in lawful money of the United States. In any
action brought under or arising out of this note, each Obligor, including
successor(s) or assign(s) hereby consents to the application of California law,
to the jurisdiction of any competent court within the State of California, and
to service of process by any means authorized by California law.
No single or partial exercise of any power hereunder, or under any deed
of trust, security agreement or other agreement in connection herewith shall
produce other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect
to any of the security. Any delay or omission on the part of the holder hereof
in exercising any right hereunder, or under any deed of trust, security
agreement or other agreement, shall not operate as a waiver of such right, or
of any other right, under this note or any deed of trust, security agreement or
other agreement in connection herewith.
TRITEAL CORPORATION
By /s/ [SIG]
- ----------------------------------- -------------------------------------
- ----------------------------------- -------------------------------------
- ----------------------------------- -------------------------------------
<PAGE> 2
[IMPERIAL BANK LOGO]
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
Name(s): Date: November 18, 1996
TRITEAL CORPORATION
$ paid to you directly by Cashiers Check No.
$ 3,000,000.00 credited to deposit account No. 11-070-337
when advances are requested.
$ paid on Loan(s) No.
$ amounts paid to Bank for:
Amounts paid to others on your behalf:
$ to Title Insurance Company
$ to Public Officials
$ to
$ to
$ to
$ to
$ 3,000,000.00 SUBTOTAL (NOTE AMOUNT)
LESS $ 0.00 Prepaid Finance Charge (Loan fee(s))
$ 3,000,000.00 TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Imperial Bank to disburse the loan proceeds as stated above.
TRITEAL CORPORATION
BY [SIG]
---------------------------------- -------------------------------------
Signature Signature
---------------------------------- -------------------------------------
Signature Signature
<PAGE> 3
[IMPERIAL BANK LOGO]
AGREEMENT TO PROVIDE INSURANCE
(REAL OR PERSONAL PROPERTY)
TO: IMPERIAL BANK Date: November 18, 1996
9920 S. La Cienega Blvd. Borrower: TRITEAL CORPORATION
Inglewood, CA 90301
In consideration of a loan in the amount of $3,000,000, secured by all tangible
personal property including inventory and equipment.
I/We agree to obtain adequate insurance coverage to remain in force during the
term of the loan.
I/We also agree to advise the below named agent to add Imperial Bank as loss
payee on the new or existing insurance policy, and to furnish Bank at above
address with a copy of said policy/endorsements and any subsequent renewal
policies.
I/We understand that the policy must contain:
1. Fire and extended coverage in an amount sufficient to cover:
a) The amount of the loan, OR
b) All existing encumbrances, whichever is greater;
But not in excess of the replacement value of the improvements on
the real property.
2. Lender's "Loss Payable" Endorsement Form 438 BFU in favor of
Imperial Bank, or any other form acceptable to Bank.
INSURANCE INFORMATION
Insurance Co./Agent: Johnson & Higgins Telephone No.: 552-4266
Agent's Address:
TRITEAL CORPORATION
Signature of Obligor: BY /s/ [SIG]
------------------------------
Signature of Obligor:
------------------------------
===============================================================================
ST. PAUL FIRE
- --------------------------------------------
FOR BANK USE ONLY
INSURANCE VERIFICATION: Date: 12/30/96
Person Spoken to: Hana Hughes
---------------------------
Policy Number: TE06100944
------------------------------
Effective From: 7/1/96 To: 7/1/97
-------------- ---------
Verified By: [SIG]
--------------------------------
- --------------------------------------------
L 245 E (R 10/92)
<PAGE> 4
[IMPERIAL BANK LOGO]
CORPORATE RESOLUTION REGARDING CREDIT
OFFICE: LENDING SERVICES ADDRESS: 9920 S. La Cienega Blvd.
Inglewood, CA 90301
RESOLVED, that TRITEAL CORPORATION
borrow from IMPERIAL BANK, hereinafter referred to as "Bank", from time to
time, such sums of money as, in the judgement of the officer or officers
hereinafter authorized, this corporation may require: provided that the
aggregate amount of such borrowing, pursuant to this resolution, shall not at
any one time exceed the principal sum of Three Million Dollars and Zero
Cents ($3,000,000.00), in addition to such amount as may be otherwise
authorized;
RESOLVED FURTHER, that any 1 of the following named officers
------------
(Specify Number)
Arthur Budman Chief Financial Officer
- ---------------------------------- the -------------------------------------
Jeff Witous Chairman & CEO
- ---------------------------------- the -------------------------------------
- ---------------------------------- the -------------------------------------
- ---------------------------------- the -------------------------------------
- ---------------------------------- the -------------------------------------
of this corporation (the officer or officers acting in combination, authorized
to act pursuant hereto being hereinafter designated as "authorized officers"),
be and they are hereby authorized, directed and empowered, for and on behalf
and in the name of this corporation (1) to execute and deliver to the Bank such
notes or other evidences of indebtedness of this corporation for the monies so
borrowed, with interest thereon, as the Bank may require, and to execute and
deliver, from time to time, renewals or extensions of such notes or other
evidences of indebtedness; (2) to grant a security interest in, transfer, or
otherwise hypothecate or deed in trust for Bank's benefit and deliver by such
instruments in writing or otherwise as may be demanded by the Bank, and of the
property of this corporation as may be required by the Bank to secure the
payment of any notes or other indebtedness of this corporation or third
parties to the Bank, whether arising pursuant to this resolution or otherwise;
and (3) to perform all acts and execute and deliver all instruments which the
Bank may deem necessary to carry out the purposes of this resolution;
RESOLVED FURTHER that said authorized officers be and they are hereby
authorized and empowered, and that any one of said authorized officers be and
he/she is hereby authorized and empowered (1) to discount with or sell to the
Bank conditional sales contracts, notes, acceptances, drafts, bailment
agreements, leases, receivables and evidences of indebtedness payable to this
corporation, upon such terms as may be agreed upon by them and the Bank, and to
endorse in the name of this corporation said notes, acceptances, drafts,
bailment agreements, leases, receivables and evidences of indebtedness so
discounted, and to guarantee the payment of the same to the Bank, and (2) to
apply for and obtain from the Bank letters of credit and in connection
therewith to execute such agreement, applications, guarantees, indemnities and
other financial undertakings as Bank may require;
RESOLVED FURTHER, that said authorized officers are also authorized to
direct the disposition of the proceeds of any such obligation, and to accept or
direct delivery from the Bank of any property of this corporation at any time
held by the Bank;
RESOLVED FURTHER, that the authority given hereunder shall be deemed
retroactive and any and all acts authorized hereunder performed prior to the
passage of this resolution are hereby ratified and affirmed:
RESOLVED FURTHER, that this resolution will continue in full force and
effect until the Bank shall receive official notice in writing from this
corporation of the revocation thereof by a resolution duly adopted by the
Board of Directors of this corporation, and that the certification of the
Secretary of this corporation as to the signatures of the above named persons
shall be binding on this corporation.
I, Gregory J White, Secretary of the above named corporation, duly
organized and existing under the laws of the State of Delaware , do hereby
certify that the foregoing is a full, true and correct copy of a resolution of
the Board of Directors of said corporation, duly and regularly passed and
adopted by the Board of Directors of said corporation.
I further certify that said resolution is still in full force and
effect and has not been amended or revoked, and that the specimen signatures
appearing below are the signatures of the officers authorized to sign for this
corporation by virtue of said resolution.
EXECUTED ON 12/19/96.
AUTHORIZED SIGNATURES:
Signature: /s/ ARTHUR BUDMAN
------------------------------
Arthur Budman
Signature: /s/ JEFF WITOUS /s/ GREGORY J. WHITE
------------------------------ -------------------------------
Jeff Witous Gregory J. White (Secretary)
Signature: ______________________________
Signature: ______________________________
Signature: ______________________________
<PAGE> 5
CREDIT AGREEMENT
This Credit Agreement ("Agreement") is made by and between TriTeal
Corporation ("Borrower") and Imperial Bank, a California banking corporation,
("Bank"). This Agreement, to the extent applicable, supercedes all prior credit
agreements between Borrower and Bank.
In consideration of mutual covenants and conditions hereof, the parties
hereto agree as follows:
1. REPRESENTATIONS OF BORROWER
Borrower represents and warrants that:
1.01 EXISTENCE AND RIGHTS. Borrower is a corporation duly organized and
existing and in good standing under the laws of California, without limit as to
the duration of its existence and is authorized and in good standing to do
business in the State of California; Borrower has corporate powers and adequate
authority, rights and franchises to own its property and to carry on its
business as now conducted, and is duly qualified and in good standing in each
State in which the character of the properties owned by it therein or the
conduct of its business makes such qualification necessary; and Borrower has
the power and adequate authority to make and carry out this Agreement.
1.02 AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; are not in contravention of or
in conflict with any law or regulation or any term or provision of Borrower's
articles of incorporation, by-laws, as the case may be, and this Agreement is
the valid, binding and legally enforceable obligation of Borrower in accordance
with its terms; subject only to bankruptcy, insolvency or similar laws
affecting creditors rights generally.
1.03 NO CONFLICT. The execution, delivery and performance of this Agreement
are not in contravention of or in conflict with any agreement, indenture or
undertaking to which Borrower is a party or by which it or any of its property
may be bound or affected, and do not cause any lien, charge or other
encumbrance to be created or imposed upon any such property by reason thereof.
1.04 LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower which if determined adversely to
Borrower or its interest would have a material adverse effect on the financial
condition of Borrower, and Borrower is not in default with respect to any
order, writ, injunction, decree or demand of any court or other governmental or
regulatory authority.
1.05 FINANCIAL CONDITION. The balance sheet of Borrower as of September 30,
1996, a copy of which has heretofore been delivered to Bank by Borrower, and
all other statements and data submitted in writing by Borrower to Bank in
connection with this request for credit are true and correct, and said balance
sheet truly presents the financial condition of Borrower as of the date
thereof, and has been prepared in accordance with generally accepted accounting
principles on a basis consistently maintained. Since such date, there have been
no material adverse changes in the ordinary course of
1
<PAGE> 6
business. Borrower has no knowledge of any liabilities, contingent or
otherwise, at such date not reflected in said balance sheet, and Borrower has
not entered into any special commitments or substantial contracts which are not
reflected in said balance sheet, other than in the ordinary and normal course
of its business, which may have a materially adverse effect upon its financial
condition, operations or business as now conducted.
1.06 TITLE TO ASSETS. Borrower has good title to its assets, and the same are
not subject to any liens or encumbrances other than those permitted by Section
3.03 hereof.
1.07 TAX STATUS. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
1.08 TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights and
license to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
1.09 REGULATION U. The proceeds of the Loan shall not be used to purchase or
carry margin stock (as defined within Regulation U of the Board of Governors of
the Federal Reserve system).
2. AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, under
borrowings, or other indebtedness, it will, unless Bank shall otherwise consent
in writing:
2.01 RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
2.02 INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good business
judgment.
2.03 TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as:
a. The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
affect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
2
<PAGE> 7
b. It shall have set aside on its books reserves (segregated to
the extent required by generally accepted accounting practice) deemed by it
adequate with respect thereto.
2.04 NON-UTILIZATION FEE. Pay a fee of 0.5% per year on the average unused
portion of the loan commitment, as a non-utilization fee calculated on a
quarterly basis, payable in arrears. In lieu of the Non-Utilization Fee,
Borrower may maintain average collected balances in non-interest bearing Demand
Deposit Accounts with Bank equal to $300,000.00. Demand Deposit Balances shall
be computed after reduction for uncollected funds, reserve requirements,
deposit insurance, and all balances necessary for the cost of services provided
Borrower.
2.05 RECORDS AND REPORTS. Maintain a standard and modern system of accounting
in accordance with generally accepted accounting principles on a basis
consistently maintained; permit Bank's representatives to have access to, and
to examine its properties, books and records at all reasonable times and upon
reasonable notice during normal business hours; and furnish Bank:
a. QUARTERLY FINANCIAL STATEMENTS. Within forty five (45) days
after the close of each quarter of each fiscal year of Borrower,
commencing with the first quarter next ending, a balance sheet, profit
and loss statement and form 10-Q as of the close of such period and
covering operations for the portion of Borrower's fiscal year ending on
the last day of such period, all in reasonable detail, prepared in
accordance with generally accepted accounting principles on a basis
consistently maintained by Borrower and certified by an appropriate
officer of Borrower;
b. ANNUAL FINANCIAL STATEMENT. Within 90 days of fiscal year end, a
financial report of Borrower as of the close of and for each fiscal
year, and form 10-K, all in reasonable detail, prepared on an audited
basis by an independent certified public accountant selected by Borrower
and reasonable acceptable to Bank, in accordance with generally accepted
accounting principles on a basis consistently maintained by Borrower and
certified by an appropriate officer of Borrower;
c. MONTHLY LIQUIDITY VERIFICATION. Within 30 days of each
month-end, copies of bank or brokerage house statements evidencing
compliance with Minimum Liquidity covenant.
d. OTHER INFORMATION. Such other information relating to the
affairs of Borrower as the Bank reasonably may request from time to
time;
e. MANAGEMENT LETTER. In connection with each fiscal year end
financial statement furnished to Bank hereunder, any management letter
of Borrower's independent certified public accountant.
2.06 NOTICE OF DEFAULT. Promptly notify Bank in writing of the occurrence of
any event of default hereunder or any event which upon notice and lapse of time
would be an event of default.
2.07 OPERATING ACCOUNTS. Maintain all primary deposit accounts and banking
relationship with Bank during the term of the Loan. Borrower shall maintain, or
cause to be maintained, on deposit with Imperial Bank, non-interest bearing
demand deposit balances sufficient to compensate Bank for
3
<PAGE> 8
all services provided by Bank. Balances shall be calculated after reduction for
the reserve requirement of the Federal Reserve Board and uncollected funds. Any
deficiencies shall be charged directly to the Borrower on a monthly basis.
2.08 ATTORNEY'S FEES. Pay promptly to Bank without demand after notice, with
interest thereon from the date of expenditure at the rate applicable to the
Loan, reasonable attorneys' fees and all costs and expenses paid or incurred by
Bank in collecting or compromising the Loan after the occurrence of an event of
default, whether or not suit is filed. If suit is brought to enforce any
provision of this Agreement, the prevailing party shall be entitled to recover
its reasonable attorneys' fees and court costs in addition to any other remedy
or recovery awarded by the court.
2.09 GAAP AND CALCULATIONS. All financial covenants and financial information
referenced herein shall be interpreted and prepared in accordance with
generally accepted accounting principles applied on a basis consistent with
previous years. Compliance with financial covenants shall be calculated and
monitored on a quarterly basis.
2.10 TANGIBLE NET WORK. Maintain a minimum Tangible Net Worth (the excess of
all assets, excluding any value for goodwill, trademarks, patents, copyrights,
organization expense and other similar intangible items, over its liabilities,
less subordinated debt) of not less than $20,000,000.
2.11 MINIMUM LIQUIDITY. At all times maintain cash and Marketable Securities
of no less than $10,000,000.00. "Marketable Securities" shall be defined as
readily negotiable "Margin Stocks" as defined by Regulation U with a per-share
market value of no less than $5.00; or municipal, corporate, or United States
Government debt instruments rated "Baa" or higher.
3. NEGATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, it will not,
without Bank's written consent:
3.01 TYPE OF BUSINESS; MANAGEMENT. Make any substantial change in the
character of its business; or make any change in its Chief Executive Officer or
Chief Financial Officer.
3.02 LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances to
any person or other entity other than in the ordinary and normal course of its
business and consistent with past practices or make any investment in
unmarketable securities of any person or other entity; or guarantee or
otherwise become liable upon the obligation of any person or other entity,
except by endorsement of negotiable instruments for deposit or collection in
the ordinary and normal course of its business and consistent with past
practices.
3.03 ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Except in the
ordinary course of business or for the betterment of the business, purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings
therefor; or sell any assets except in the ordinary course of its business
consistent with past practices or for the betterment of the business; or except
in the ordinary course of business or for the
4
<PAGE> 9
betterment of the business, sell, lease assign or transfer any substantial part
of its business or fixed assets, or any property or other assets necessary for
the continuance of its business as now conducted, including without limitation
the selling of any dividends, property or other asset accompanied by the
leasing back of the same.
3.04 MAXIMUM QUARTERLY TANGIBLE NET WORTH REDUCTION. In any fiscal quarter,
suffer a Tangible Net Worth decline of more than $2,000,000.00.
4. EVENTS OF DEFAULT
The occurrence of any of the following events of default shall, at
Bank's option, terminate Bank's commitment to lend and make all sums of
principal and interest then remaining unpaid on all Borrower's indebtedness to
Bank immediately due and payable, all without demand, presentment or notice,
all of which are hereby expressly waived:
4.01 FAILURE TO PAY NOTE. Failure to pay any installment of principal or
interest on any indebtedness of Borrower to Bank.
4.02 BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this Agreement binding upon Borrower.
4.03 BREACH OF WARRANTY. Any of Borrower's representations or warranties
made herein or any statement or certificate at any time given in writing
pursuant hereto or in connection herewith shall be false or misleading in any
respect.
4.04 INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or
admit its inability to pay its debts as they mature; or make an assignment for
the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business.
4.05 JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process shall be entered or filed against Borrower or
any of its assets and shall remain unvacated, unbonded or unstayed for a period
later than five days prior to the date of any proposed sale thereunder.
4.06 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall be consented to.
5. MISCELLANEOUS PROVISIONS
5.01 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Bank or any holder of Notes issued hereunder, in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies
5
<PAGE> 10
existing under this Agreement or any note issued in connection with a loan that
Bank may make hereunder, are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
5.02 ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in addition to
all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
5.03 INUREMENT. The benefits of this Agreement shall inure to the successors
and assigns of Bank and the permitted successors and assigns of Borrower.
5.04 APPLICABLE LAW. This Agreement and all other agreements and instruments
required by Bank in connection therewith shall be governed by and construed
according to the laws of the State of California, to the jurisdiction of whose
courts the parties hereby agree to submit.
5.05 OFFSET. In addition to and not in limitation of all rights of offset
that Bank or other holder of the Loan may have under applicable law, Bank or
other holder of the Notes shall, upon the occurrence of any Event of Default or
any event which with the passage of time or notice would constitute such an
Event of Default, have the right to appropriate and apply to the payment of the
Loan any and all balances, credits, deposits, accounts or moneys of Borrower
then or thereafter with Bank or other holder, within ten (10) days after the
Event of Default, and notice of the occurrence of any Event of Default by Bank
to Borrower.
5.06 SEVERABILITY. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
5.07 TIME OF THE ESSENCE. Time is hereby declared to be of the essence of
this Agreement and of every part hereof.
5.08 INTEGRATION CLAUSES. Except for documents the instruments specifically
referenced herein, the Agreement constitutes the entire agreement between Bank
and Borrower regarding the Loan, and all prior communications verbal or written
between Borrower and Bank shall be of no further effect or evidentiary value.
In the event of a conflict or inconsistency among any other documents and
instruments and this Agreement, the provisions of this Agreement shall prevail.
5.09 ACCOUNTING. All accounting terms shall have the meanings applied under
generally accepted accounting principles unless otherwise specified.
5.10 MODIFICATION. This Agreement may be modified only by a writing signed
by both parties hereto.
6
<PAGE> 11
This Agreement is executed on behalf of the parties by duly authorized
representatives as of December 19, 1996.
IMPERIAL BANK ("Bank")
By: /s/ [SIG]
-------------------------------------
Title: Vice President
----------------------------------
TRITEAL CORPORATION ("Borrower")
By: /s/ [SIG]
-------------------------------------
Title: CFO
----------------------------------
7
<PAGE> 1
EXHIBIT 11.1
TRITEAL CORPORATION
STATEMENT REGARDING CALCULATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income (loss)....................................... $ 268 $(1,743) $ (980) $(4,197)
======= ======= ====== =======
Average common shares outstanding....................... 9,184 3,493 6,409 3,493
Adjustments to reflect requirements of the Securities
and Exchange Commission (Effect of SAB 83)............ -- 2,492 1,205 2,492
Effect of assumed conversion of Series A convertible
preferred shares from date of issuance................ -- 727 352 727
Common equivalent shares from outstanding stock
options and warrants(1)............................... 1,407 -- -- --
------- ------- ------ -------
Adjusted shares outstanding............................. 10,591 6,782 7,966 6,712
======= ======= ====== =======
Net income (loss) per share(2).......................... $ .03 $ (.26) $ (.12) $ (.63)
======= ======= ====== =======
</TABLE>
(1) Common equivalent shares from outstanding stock options and warrants are not
included in calculations for loss periods because they are antidilutive.
(2) Fully diluted net income per share for the three months ended December 31,
1996 has not been presented because the effect is not material.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,229,876
<SECURITIES> 17,708,938
<RECEIVABLES> 5,737,207
<ALLOWANCES> (80,000)
<INVENTORY> 0
<CURRENT-ASSETS> 28,737,250
<PP&E> 2,061,528
<DEPRECIATION> (834,569)
<TOTAL-ASSETS> 30,156,081
<CURRENT-LIABILITIES> 5,796,371
<BONDS> 0
0
0
<COMMON> 9,210
<OTHER-SE> 24,350,500
<TOTAL-LIABILITY-AND-EQUITY> 30,156,081
<SALES> 9,657,074
<TOTAL-REVENUES> 11,112,470
<CGS> 2,334,841
<TOTAL-COSTS> 8,777,629
<OTHER-EXPENSES> 10,251,491
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (979,607)
<INCOME-TAX> 0
<INCOME-CONTINUING> (979,607)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (979,607)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
