<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal quarter ended: June 30, 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: 0-28556
BOREALIS TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 88-0238203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
923 Tahoe Blvd., Suite 211
Incline Village, Nevada 89451
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (702) 832-0300
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 No X
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock ("Common Stock"), as of the latest practicable date.
CLASS OUTSTANDING AT JUNE 30, 1996
Common Stock - par value $0.001 2,893,457
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BOREALIS TECHNOLOGY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Balance Sheets
December 31, 1995 and June 30, 1996 (unaudited) 3
Condensed Statements of Operations (unaudited)
three and six months ended June 30, 1995 and 1996 4
Condensed Statements of Cash Flows (unaudited)
six months ended June 30, 1995 and 1996 5
Notes to Condensed Financial Statements (unaudited) 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
</TABLE>
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOREALIS TECHNOLOGY CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
-----------------------------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 8,095,297 $ 158,840
Accounts receivable 25,698 36,188
Prepaid expenses and deposits 124,453 7,080
----------- ---------
Total current assets 8,245,448 202,108
Property and equipment, at cost: 631,047 224,172
Less accumulated depreciation and amortization (147,350) (95,183)
----------- ---------
483,697 128,989
----------- ---------
Total assets $ 8,729,145 $ 331,097
=========== =========
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable $ 192,808 $ 82,310
Accrued employee compensation 157,818 75,218
Notes payable to stockholders 971,312 221,311
Other current liabilities 601,858 198,178
----------- ---------
Total current liabilities 1,923,796 577,017
Long-term obligations 95,561 353,628
Stockholders' equity
Preferred stock, $.001 par value
Authorized shares - 5,000,000
Issued and outstanding - none -- --
Common stock, $.001 par value:
Authorized shares - 10,000,000
Issued and outstanding shares - 2,893,457
and 651,658 at June 30, 1996 and December 31, 1995,
respectively 2,893 652
Additional paid-in capital 9,540,276 162,471
Accumulated deficit (2,833,381) (762,671)
----------- ---------
Total stockholders' equity (deficit) 6,709,788 (599,548)
----------- ---------
Total liabilities and stockholders' equity $ 8,729,145 $ 331,097
=========== =========
</TABLE>
See accompanying notes to condensed financial statements.
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BOREALIS TECHNOLOGY CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues $ 59,839 $ 123,610 $ 150,425 $ 341,764
Cost of revenues 12,098 26,958 45,622 88,602
----------- --------- ----------- ---------
Gross profit 47,741 96,652 104,803 253,162
Operating expenses:
Sales and marketing 687,531 50,267 866,024 94,836
Research and development 402,403 145,922 736,051 259,054
General and administrative 344,143 52,105 517,974 131,656
----------- --------- ----------- ---------
Total operating expenses 1,434,077 248,294 2,120,049 485,546
----------- --------- ----------- ---------
Loss from operations (1,386,336) (151,642) (2,015,246) (232,384)
Interest expense 38,158 3,838 55,464 5,923
----------- --------- ----------- ---------
Net loss $(1,424,494) $(155,480) $(2,070,710) $(238,307)
=========== ========= =========== =========
Weighted average number of
shares of common stock and
common stock equivalents
outstanding 751,294 690,944 701,475 690,944
=========== ========= =========== =========
Net loss per share $ (1.90) $ (0.23) $ (2.95) $ (0.34)
=========== ========= =========== =========
</TABLE>
See accompanying notes to condensed financial statements.
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BOREALIS TECHNOLOGY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,070,710) $(238,307)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 52,167 23,032
Common stock issued for compensation -- 2,598
Accounts receivable 10,490 68,172
Deposits and prepaid expenses (117,373) 2,487
Accounts payable 110,498 32,412
Other 215,044 (18,791)
----------- ---------
Net cash used in operating activities (1,799,884) (128,397)
INVESTING ACTIVITIES
Purchases of property and equipment (184,345) (2,497)
----------- ---------
Net cash used in investing activities (184,345) (2,497)
FINANCING ACTIVITIES
Proceeds from issuance of notes payable to
stockholders 750,000 119,948
Initial public offering costs payable 142,716 --
Proceeds from sale of common stock, net 8,352,400 --
Proceeds from issuance of convertible promissory
notes 675,570 --
----------- ---------
Net cash provided by financing activities 9,920,686 119,948
----------- ---------
Net increase (decrease) in cash and cash equivalents 7,936,457 (10,946)
Cash and cash equivalents at beginning of period 158,840 47,436
----------- ---------
Cash and cash equivalents at end of period $ 8,095,297 $ 36,490
=========== =========
</TABLE>
See accompanying notes to condensed financial statements.
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BOREALIS TECHNOLOGY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six-month periods ended June
30, 1996 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1996. For further information, refer to the 1995
financial statements and footnotes thereto included in the Company's
Registration Statement (Form SB-2) filed with the Securities and Exchange
Commission.
NOTE B - FINANCING
On June 27, 1996, the Company successfully completed its initial public
offering. The Company issued 2,000,000 shares of its Common Stock with gross
proceeds of $10,000,000. On July 18, 1996, the Company issued 291,050 shares of
Common Stock pursuant to the exercise of an over-allotment option granted by the
Company to the underwriter of its initial public offering, with gross proceeds
of $1,455,250.
NOTE C - LOSS PER COMMON SHARE
Loss per share was computed by dividing the net loss by the weighted average
number of shares of Common Stock outstanding. Common Stock equivalents from
stock options and warrants are excluded from the computation because their
effect is anti-dilutive. The weighted average number of shares of Common Stock
and common stock equivalents has been computed in accordance with Securities and
Exchange Commission's Staff Accounting Bulletin No. 83, pursuant to which "cheap
stock," as defined, is considered outstanding even if the effect is
anti-dilutive. Fully diluted earnings per share are considered equal to primary
earnings per share in all periods presented.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussions and analysis contain forward-looking
statements regarding future events or the future financial performance of
Borealis Technology Corporation ( the "Company" or "Borealis") that involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth herein under "Risk Factors."
The Company has experienced a significant decrease in revenues and
significant operating losses for each of the three month periods ended March 31,
1996 and June 30, 1996 as a result of the Company's decision to cease sales and
marketing of its products, primarily the Company's Salesbase product, to
concentrate its efforts on the development of its sales automation product,
Arsenal. The Company's revenues in past periods have been generated almost
entirely from the sale of products which it no longer sells and consulting
services and are, therefore, not meaningful and should not be relied upon in
predicting future performance. Although the Company continues to provide product
support for such products, this activity is not expected to be meaningful to
future operating results following such time, if any, as the Company introduces
Arsenal. Due to the recent shift to the development of Arsenal, the Company will
derive substantially all of its revenues, if any, from the sale of Arsenal
licenses as well as maintenance contracts for Arsenal. The Company does not
expect any Arsenal revenues, if ever, until the second half of 1996, at the
earliest, and most likely not until the fourth quarter of such year. The
preceding statements contain forward looking statements which involve risks and
uncertainties; actual results could differ materially from those anticipated in
such forward looking statements as a result of certain factors, including those
set forth herein in "Risk Factors--Complete Dependence on Product Introduction"
and "--Rapid Technological Change; Risk of Product Delays or Defects." There can
be no assurance the Company will successfully or timely complete the development
of Arsenal, that Arsenal will meet with market acceptance, or that the Company
will ever achieve profitability.
The Company's future operating results will depend on many factors,
including demand for Arsenal, which has not yet been completed or introduced,
the level of product and price competition, the ability of the Company to
develop and market new products and to control costs, the ability of the Company
to expand its direct sales force and indirect distribution channels and the
ability of the Company to attract and retain key personnel.
REVENUES:
Net revenues have historically consisted of revenue from the licensing
and sale of products, revenue from service and maintenance agreements and
revenue from consulting services. Net revenue decreased from $123,610 to $59,839
in the quarters ended June 30, 1995 and 1996, respectively. This decrease was
primarily due to the cessation of sales of the Salesbase product. The majority
of the revenues in the quarter ended June 30, 1996 are attributable to the
recognition of previously deferred revenue from service contracts, and are not
indicative of any new product sales. The Company anticipates that revenues will
continue to decrease until the introduction of Arsenal, which is not expected
until the second half of 1996, at the earliest, and most likely not until the
fourth quarter of such year. The preceding statement contains forward looking
statements which involve risks and uncertainties; actual results could differ
materially from those anticipated in such forward looking statement as a result
of certain factors, including those set forth herein in "Risk Factors - Complete
Dependence on Product Introduction" and "--Rapid Technological Change; Risk of
Product Delays or Defects."
COST OF REVENUES:
Cost of revenues represents primarily amounts incurred pursuant to
royalty obligations and maintenance agreements on certain technology. The cost
of revenues decreased from $26,958 to $12,098 in the quarters ended June 30,
1995 and 1996, respectively, primarily due to cessation of sales of the
Salesbase product. The Company believes that the ratio of cost of revenues to
revenues is not meaningful in this period or indicative of future results.
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OPERATING EXPENSES:
Operating expenses are comprised of research and development, general
and administrative and sales and marketing. Operating expenses increased from
$248,294 to $1,434,077 in the quarters ended June 30, 1995 and 1996,
respectively. The increase was due primarily to an increase in staffing and
expenses associated with the development, sales, and marketing of Arsenal. In
particular, the Company has undertaken significant expenses with regard to the
marketing of Arsenal, including scheduled appearances at several trade shows,
print advertising, and public relations. In addition, the number of the
Company's employees has increased from 14 to 42 in such quarters. The Company
anticipates that such expenses will continue to increase for the foreseeable
future, although the rate of increase is expected to decline. The preceding
statement contains forward looking statements which involve risks and
uncertainties; actual results could differ materially from those anticipated
from those in such forward looking statement as a result of certain factors,
including those set forth herein in "Risk Factors."
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended June 30, 1996 the Company financed its
operations primarily from $750,000 in loans from stockholders, and financed its
purchase of equipment and office furniture through the use of long term leases.
A total of $198,603 in new lease commitments were made in the second quarter of
1996.
On June 27, 1996 the Company completed the public offering of 2,000,000
shares of its Common Stock. The Company received net proceeds of $8,352,400 from
such offering, after deducting underwriter's discounts and offering expenses.
The Company invested the proceeds from the public offering in investment grade,
interest-bearing securities, and has not invested in derivative securities or
any other financial instruments that involve a high level of complexity or risk.
Net cash used in operating activities in the second quarter of 1996 was
primarily for the development, sales, and marketing costs associated with
Arsenal.
The Company's investing activities have consisted primarily of
expenditures for fixed assets, primarily computers and computer related
equipment.
The Company is obligated to pay $100,000 on each of July 15 and October
15, 1996 in connection with a purchase of technology. Otherwise, the Company
currently has no significant capital commitments other than commitments under
capital leases.
The Company believes that its current cash and short-term investments
balances and cash flow from operations will be sufficient to meet its working
capital and capital expenditure requirements for at least the next 12 months.
Although operating activities may provide cash in certain periods, to the extent
the Company experiences growth in the future, the Company anticipates that its
operating and investing activities may use cash. Consequently, significant
future growth may require the Company to obtain additional equity or debt
financing.
In July, the Company repaid $321,311 of debt, plus interest, to a
certain stockholder, and secured a $650,000 bank loan to repay other stockholder
debt. In addition, the Company completed the public sale of 291,050 shares of
its Common Stock pursuant to the exercise of an over-allotment option granted by
the Company to the underwriter of its initial public offering. The Company
received net proceeds of $1,266,067 from such offering after deducting
underwriter's discounts and offering expenses.
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RISK FACTORS
Complete Dependence on Anticipated Product Introduction
In recent periods, the Company ceased sales and marketing activities
related to all of its products and shifted its operational and strategic focus
to the development of its new product under development, Arsenal, and the
establishment of a third-party integrator channel. As a result, the Company will
derive substantially all of its revenues, if any, from the sale of Arsenal
licenses and maintenance contracts for Arsenal. Consequently, the Company will
depend entirely on the successful development, introduction and commercial
acceptance of Arsenal. Unless and until Arsenal is introduced and receives
market acceptance, the Company will have no material source of revenue. Although
the Company has completed much of the development of Arsenal, significant
additional development and testing will be required before commercial
introduction, which introduction is not expected until the second half of 1996,
at the earliest, and most likely not until the fourth quarter of such year.
There can be no assurance that Arsenal can be successfully developed and
introduced in a timely manner, or at all, or that it will achieve market
acceptance. The Company's ability to effectuate the introduction of Arsenal will
be substantially dependent on the hiring and training of additional personnel of
which there can be no assurance. Commercial acceptance of Arsenal will require
the Company to successfully establish additional sales and distribution
channels, of which there can be no assurance. Any such failure will have a
material adverse effect on the Company's business, financial condition and
results of operations. Failure of Arsenal to achieve significant market
acceptance and profitability will have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence on Systems Integrators and Third Party Consultants
Sales automation software products that address the needs of medium to
large-size businesses are typically highly complex and require significant
customization that often results in an extensive implementation process. The
Company's strategy for implementing Arsenal will be dependent on the utilization
of third-party integrators to install, customize and service it. Consequently,
third-party integrators will be required to undergo a substantial amount of
training to be able to apply the Company's products to the varied needs of the
Company's prospective customers. There can be no assurance that the Company's
training will be sufficient or that such integrators will be able to provide the
level or quality of service required to meet the needs of the Company's
prospective customers. The Company will likely be dependent on third-party
integrators to complete certain post-delivery obligations prior to the Company's
recognition of revenue. Any failure of such integrators to complete such
obligations could prevent the Company from recognizing revenue and the failure
to so recognize revenue could have a material adverse effect on the Company's
business, financial condition and results of operations. If the Company is
unable to develop or maintain effective, long-term relationships with these
integrators, or if such integrators fail to meet the needs of the Company's
prospective customers in a timely fashion, or at all, such failure would result
in a loss of, or delay in, market acceptance or sales and could result in
increased product support costs and an injury to the Company's reputation, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company does not plan to enter into or maintain exclusive
relationships with third-party integrators and, consequently, such integrators
may have existing relationships with, or may undertake new relationships with,
the Company's direct competitors. There can be no assurance that such
integrators will promote Arsenal effectively, or at all. The failure of the
Company to sufficiently incent such integrators will materially and adversely
affect the Company's sales of Arsenal which will have a material adverse effect
on the Company's business, financial condition and results of operations.
Recent Losses; Quarterly Fluctuations in Performance
The Company has experienced significant operating losses in each of
fiscal 1994 and 1995 and for each of the three months ended March 31, 1996 and
June 30, 1996 and expects to incur significant operating losses for the
foreseeable future. In recent periods, the Company ceased sales and marketing of
its entire product line and shifted its focus to the development of Arsenal and
the establishment of a third-party integrator channel. As a result, the Company
will derive substantially all of its revenues, if any, from the sale of Arsenal
licenses and
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maintenance contracts for Arsenal. The Company does not expect any Arsenal
revenues, if ever, until the second half of 1996, at the earliest, and most
likely not until the fourth quarter of such year. Moreover, there can be no
assurance that the Company will ever achieve profitability.
In the past, the Company experienced significant fluctuations in its
quarterly operating results, and it anticipates that such fluctuations will
continue and could intensify in the future. Fluctuations in operating results
may result in volatility in the price of the Company's Common Stock. Operating
results may fluctuate as a result of many factors, including the level of
research and development required to complete Arsenal or any future product
enhancements, the extent to which the Company is required to establish and
support a third-party integrator channel, announcements by the Company and its
competitors, volume and timing of orders received, if any, during the period,
the timing of commercial introduction of Arsenal or Arsenal enhancements or
competitive products, and the impact of price competition on the Company's
average selling prices. Almost all of these factors are beyond the Company's
control. In addition, due to the short product life cycles that characterize the
sales automation software market, the Company's failure to introduce Arsenal or
any Arsenal enhancements in a timely manner will have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company's operating and other expenses are relatively fixed in the
short term. As a result, variations in timing of revenues, if any, will cause
significant variations in quarterly results of operations. Notwithstanding the
difficulty in forecasting future sales, the Company generally must undertake its
development, sales and marketing activities and other commitments months in
advance. Accordingly, any shortfall in revenues in a given quarter may
materially adversely affect the Company's business, financial condition and
results of operations due to the inability to adjust expenses during the quarter
to match the level of revenues for the quarter. Once commitments for such
expenditures are undertaken, the Company may be unable to reduce them quickly if
revenues are less than expected. In addition, the Company's sales expectations
are based entirely on its internal estimates of future demand. Due to these and
other factors, the Company believes that quarter to quarter comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance.
Rapid Technological Change; Risk of Product Delays or Defects
The sales automation software market is characterized by ongoing
technological developments, frequent new product announcements and
introductions, evolving industry standards and changing customer requirements.
The introduction of products embodying new technologies and the emergence of new
industry standards and practices can render existing products obsolete and
unmarketable. The Company's future success depends in large part upon its
ability to develop and introduce Arsenal successfully, develop enhancements to
Arsenal to address the changing requirements of its customers, educate
third-party integrators regarding Arsenal and anticipate or respond to
technological advances, competitive products and emerging industry standards and
practices in a timely, cost-effective manner. There can be no assurance that the
Company will be successful in developing, introducing, marketing and supporting
Arsenal or enhancements to Arsenal, if any, or will not experience difficulties
that could delay or prevent the successful development, introduction, marketing
and support of these products, or that Arsenal and any such product enhancements
will adequately meet the requirements of the marketplace and achieve any
significant degree of commercial acceptance. Delays in the commencement of
commercial shipments of Arsenal and delays in enhancements to Arsenal, if any,
may result in customer dissatisfaction and delay or loss of product revenue. In
addition, there can be no assurance that Arsenal or other future products will
meet the requirements of the marketplace or will conform to industry standards
and requirements.
Software products such as Arsenal often contain errors or "bugs" that
can adversely affect the performance of the product or damage a user's data. The
Company has in the past discovered software defects in its past products that
have materially adversely affected its business, financial condition and results
of operations. There can be no assurance that, despite testing by the Company
and by potential customers, error will not be found in Arsenal, resulting in a
loss of, or delay in, market acceptance and sales, diversion of development
resources, injury to the Company's reputation, or increased service and warranty
costs, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
-----------------------------
<S> <C>
2.1(1) Agreement and Plan of Merger between
Borealis Corporation, a Nevada corporation,
and Borealis Technology Corporation, a
Delaware corporation, dated June 7, 1996.
3.1 (1) Registrant's Certificate of Incorporation, as currently in effect.
3.2 (1) Registrant's Bylaws, as currently in effect.
10.1 (1) Real Property Lease between Registrant and Incline Investors Group, dated June 15,
1995.
10.2 (1) Real Property Sublease between Registrant and U.S. Bank of Nevada, dated
November 7, 1995.
10.3 (1) 1994 Stock Plan.
10.4 (1) 1996 Stock Plan.
10.5 (1) 1996 Director Option Plan.
10.6 (1) Form of Indemnification Agreement.
10.7 (1) Asset License and Purchase Agreement between the Registrant and Sales
Technologies, Inc., dated April 15, 1994.
10.8 (1) Lease between the Registrant and DBB Holdings, Inc., dated June 11, 1996.
10.9 Promissory Note between the Registrant and US Bank dated July 11, 1996
</TABLE>
(1) Incorporated by reference to exhibits filed with
Registrant's Registration Statement on Form SB-2
which became effective on June 20, 1996.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant
during the quarter ended June 30, 1996.
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SIGNATURE
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.
BOREALIS TECHNOLOGY CORPORATION
Registrant
BY: /s/ Curtis Faith
-----------------------------
Curtis Faith
President
Chief Executive Officer
and Chairman
Dated: August 12, 1996
Page 12
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EXHIBIT 10.9
PROMISSORY NOTE
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$650,000.00 07-11-1996 01-01-1996 843-18 080 1216289749 68647
- ------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this
document to any particular loan or item.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: BOREALIS TECHNOLOGY CORPORATION LENDER: U.S. BANK OF NEVADA
923 TAHOE BLVD., SUITE 211 BUSINESS BANKING--NORTH
INCLINE VILLAGE, NV 89451 1 EAST LIBERTY ST.
RENO, NV 89501
===============================================================================
PRINCIPAL AMOUNT: $650,000.00 INTEREST RATE: 7.550%
DATE OF NOTE: JULY 11, 1996
PROMISE TO PAY. BOREALIS TECHNOLOGY CORPORATION ("BORROWER") PROMISES TO PAY TO
U.S. BANK OF NEVADA ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES
OF AMERICA, THE PRINCIPAL AMOUNT OF SIX HUNDRED FIFTY THOUSAND & 00/100 DOLLARS
($650,000.00), TOGETHER WITH INTEREST AT THE RATE OF 7.550% PER ANNUM ON THE
UNPAID PRINCIPAL BALANCE FROM JULY 11, 1996, UNTIL PAID IN FULL.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PRINCIPAL PAYMENT OF $650,000.00 PLUS INTEREST ON JANUARY 1, 1998. THIS PAYMENT
DUE JANUARY 1, 1998, WILL BE FOR ALL PRINCIPAL AND ACCRUED INTEREST NOT YET
PAID. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ALL ACCRUED
UNPAID INTEREST DUE AS OF EACH PAYMENT DATE, BEGINNING AUGUST 1, 1996, WITH ALL
SUBSEQUENT INTEREST PAYMENTS TO BE DUE ON THE SAME DAY OF EACH MONTH AFTER
THAT. Interest on this Note is computed on a 365/360 simple interest basis;
that is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender
at Lender's address shown above or at such other place as Lender may designate
in writing. Unless otherwise agreed or required by applicable law, payments
will be applied first to accrued unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments under the
payment schedule. Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may materially affect
any of Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents, (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's accounts
with Lender. (g) Any guarantor dies or any of the other events described in
this default section occurs with respect to any guarantor of this Note. (h) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness is
impaired. (i) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the interest rate on this Note 5.000 percentage points.
The interest rate will not exceed the maximum rate permitted by applicable law.
Lender may hire or pay someone else to help collect this Note if Borrower does
not pay. Borrower also will pay Lender that amount. This includes, subject to
any limits under applicable law, Lender's attorney's fees and Lender's legal
expenses whether or not there is a lawsuit, including attorney's fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. If not prohibited by applicable law, Borrower also will pay
any court costs, in addition to all other sums provided by law. THIS NOTE HAS
BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF NEVADA. IF THERE
IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF CLARK COUNTY, THE STATE OF NEVADA (INITIAL HERE
_________) SUBJECT TO THE PROVISIONS ON ARBITRATION, THIS NOTE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account) including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any
and all such accounts.
ARBITRATION. LENDER AND BORROWER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT OR CLASS IN NATURE,
ARISING FROM THIS NOTE OR OTHERWISE, INCLUDING WITHOUT LIMITATION CONTRACT AND
TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act to take or
dispose of any collateral securing this Note shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to Article
9 of the Uniform Commercial Code. Any disputes, claims, or controversies
concerning the lawfulness or reasonableness of any act, or exercise of any
right, concerning any collateral securing this Note, including any claim to
rescind, reform, or otherwise modify any agreement relating to the collateral
securing this Note, shall also be arbitrated, provided however that no
arbitrator shall have the right or the power to enjoin or restrain any act of
any party. Judgment upon any award rendered by any arbitrator may be entered in
any court having jurisdiction. Nothing in this Note shall preclude any party
from seeking equitable relief from a court of competent jurisdiction. The
statute of limitations, estoppel, waiver, laches, and similar doctrines which
would otherwise be applicable in an action brought by a party shall be
applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for these
purposes. The Federal Arbitration Act shall apply to the construction,
interpretation, and enforcement of this arbitration provision.
LATE CHARGE. If a payment is 15 days or more past due, borrower will be charged
a late charge of 5% of the delinquent payment.
PAYMENT BY AUTOMATIC DEDUCTION. Borrower hereby authorizes Lender to
automatically deduct the amount of all principal and/or interest payments on
this Note from Borrower's account with Lender or such other account as Borrower
may designate in writing. If there are insufficient funds in the account to pay
the automatic deduction in full, Lender may allow the account to become
overdrawn, or Lender may reverse the automatic deduction. Borrower will pay all
fees on the account which result from the automatic deductions, including any
overdraft/NSF charges. If for any reason Lender does not charge the account for
a payment, or if an automatic payment is reversed, the payment is still due
Page 13
<PAGE> 2
EXHIBIT 10.9 CONT.
07-11-1996 PROMISSORY NOTE Page 2
Loan No 843-18 (Continued)
================================================================================
according to this Note. If the account is a Money Market Account, the number of
withdrawals from that account is limited as set out in the account agreement.
Lender may cancel the automatic deduction at any time in its discretion.
GENERAL PROVISIONS. This Note is payable on demand. The Inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower
and any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive presentment, demand for payment, protest and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
BOREALIS TECHNOLOGY CORPORATION
COPY
By: /s/ Timothy Arnold
--------------------------
Timothy Arnold, VP Finance
LENDER:
U.S. BANK OF NEVADA
By: /s/ Brent Cichoski
-------------------------
Authorized Officer
================================================================================
Fixed Rate. Single Pay. LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.21
(c) 1988 CFI ProServices, Inc. All rights reserved
[NV-D20 BOREATC.LN C4.OVL]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10 QSB
AS FILED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH PROSPECTUS DATED
JUNE 21, 1996.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 8,095,297
<SECURITIES> 0
<RECEIVABLES> 25,698
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,245,448
<PP&E> 631,047
<DEPRECIATION> 147,350
<TOTAL-ASSETS> 8,729,145
<CURRENT-LIABILITIES> 1,923,796
<BONDS> 0
0
0
<COMMON> 2,893
<OTHER-SE> 6,709,788
<TOTAL-LIABILITY-AND-EQUITY> 8,729,145
<SALES> 59,839
<TOTAL-REVENUES> 59,839
<CGS> 12,098
<TOTAL-COSTS> 1,434,077
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,158
<INCOME-PRETAX> (1,424,494)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,424,494)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,424,494)
<EPS-PRIMARY> (1.90)
<EPS-DILUTED> (1.90)
</TABLE>
