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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 FOR THE QUARTER ENDED: JUNE 30, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Exchange Act
for the transition period from __________ to __________
Commission file number: 0-28556
---------------------------
BOREALIS TECHNOLOGY CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 88-0238203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4070 Silver Sage Drive
Carson City, NV 89701
(address of principal executive offices)
Issuer's telephone number: (702) 888-3200
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
State the number of shares outstanding of each of the issuer's classes of equity
as of the latest practicable date.
CLASS OUTSTANDING AT
Common Stock - par value $0.001 ("Common Stock") June 30, 1997: 3,184,969
Transitional Small Business Disclosure Format (check one): Yes ; No X .
--- ---
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BOREALIS TECHNOLOGY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Balance Sheets
December 31, 1996 and June 30, 1997 (unaudited) 3
Condensed Statements of Operations (unaudited)
three and six months ended June 30, 1996 and 1997 4
Condensed Statements of Cash Flows (unaudited)
six months ended June 30, 1996 and 1997 5
Notes to Condensed Financial Statements (unaudited) 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Risk Factors 10
PART II. OTHER INFORMATION
Item 2 Changes in Securities 13
Item 6 Exhibits and Reports on Form 8-K 13
</TABLE>
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PART 1 - FINANCIAL INFORMATION
BOREALIS TECHNOLOGY CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,921,506 $ 159,366
Accounts receivable 2,000 1,800
Certificate of deposit -- 650,000
Other current assets 136,073 116,942
------------ ------------
Total current assets 4,059,579 928,108
Property and equipment, net 856,653 939,671
Long-term investment 650,000 --
Other assets 40,850 47,474
------------ ------------
Total assets $ 5,607,082 $ 1,915,253
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 258,377 $ 502,139
Accrued employee compensation 298,492 378,134
Promissory note -- 650,000
Other current liabilities 320,739 665,417
------------ ------------
Total current liabilities 877,608 2,195,690
Long-term obligations 738,800 38,691
------------ ------------
Total liabilities 1,616,408 2,234,381
------------ ------------
Stockholders' equity (deficit):
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 - 3,184,506 and 3,184,969
at December 31, 1996, and June 30, 1997, respectively 3,185 3,185
Additional paid-in capital 10,777,241 10,827,091
Accumulated deficit (6,789,752) (11,149,404)
------------ ------------
Total stockholders' equity (deficit) 3,990,674 (319,128)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 5,607,082 $ 1,915,253
============ ============
</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 June 30, Six Months Ended June 30,
----------------------------- ----------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues $ 32,474 $ 185,005 $ 123,060 $ 207,354
Cost of revenues 12,098 25,248 45,622 36,268
----------- ----------- ----------- -----------
Gross profit 20,376 159,757 77,438 171,086
Operating expenses:
Sales and marketing 687,531 1,559,490 866,024 2,376,076
Research and development 402,403 558,803 736,051 1,176,312
General and administrative 316,778 486,566 490,609 992,969
----------- ----------- ----------- -----------
Total operating expenses 1,406,712 2,604,859 2,092,684 4,545,357
Loss from operations (1,386,336) (2,445,102) (2,015,246) (4,374,271)
Interest income (expense) (38,158) (3,491) (55,464) 14,619
----------- ----------- ----------- -----------
Net loss $(1,424,494) $(2,448,593) $(2,070,710) $(4,359,652)
=========== =========== =========== ===========
Net loss per common and
common share equivalent $ (1.90) $ (0.77) $ (2.95) $ (1.37)
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding 751,294 3,184,781 701,475 3,184,644
=========== =========== =========== ===========
</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 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,070,710) $(4,359,652)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 52,167 169,526
Noncash charges (credits), net -- 47,930
Changes in assets and liabilities:
Accounts receivable 10,490 200
Other assets (117,373) 12,507
Accounts payable 110,498 243,762
Other liabilities 215,044 374,211
----------- -----------
Net cash used in operating activities (1,799,884) (3,511,516)
INVESTING ACTIVITIES
Purchases of property and equipment (184,345) (252,544)
Proceeds from disposal of property and equipment
-- 250
----------- -----------
Net cash used in investing activities (184,345) (252,294)
FINANCING ACTIVITIES
Proceeds from exercise of common stock options -- 1,670
Proceeds from issuance of notes payable to stockholders 750,000 --
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 (used in) provided by financing activities 9,920,686 1,670
----------- -----------
Net increase (decrease) in cash and cash equivalents 7,936,457 (3,762,140)
Cash and cash equivalents at beginning of period 158,840 3,921,506
----------- -----------
Cash and cash equivalents at end of period $ 8,095,297 $ 159,366
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
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BOREALIS TECHNOLOGY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
(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, 1997 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. For further information, refer to the 1996
financial statements and footnotes thereto included in the Company's 10-KSB and
the Company's registration statement on form SB-2 declared effective by the
Securities and Exchange Commission on July 21, 1997.
NOTE B - FINANCING
On July 25, 1997, the Company successfully completed a follow-on public
offering. The Company issued 1,400,000 shares of its Common Stock with proceeds
net of offering expenses and underwriter's discounts of approximately $4.0
million. On August 8, 1997, the Company issued 210,000 shares of Common Stock
pursuant to the exercise of an over-allotment option granted by the Company to
the underwriter of its secondary public offering, with proceeds net of offering
expenses and underwriter's discounts of approximately $0.6 million.
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.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. A restatement of prior periods will not be necessary as common
equivalent shares from common stock options and warrants have been excluded from
the computation of net loss per share as their effect is anti-dilutive. The
impact of Statement 128 on the calculation of fully diluted earnings per share
for these quarters is not expected to be material.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussions and analyses contain forward-looking
statements regarding future events and the future financial performance of
Borealis Technology Corporation ("Borealis" or the "Company") that involve risks
and uncertainties including, but not limited to, statements related to the
market acceptance of Arsenal and the adequacy of the Company's cash reserves.
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" and elsewhere in this report.
The Company has experienced significant operating losses for the three
month and six month periods ended June 30, 1997. In the three months ended June
30, 1997, the Company completed development of its new sales force automation
product, Arsenal, and shipped Arsenal to initial customers.
In mid 1995, 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. The Company's revenues in
periods prior to the three months ended June 30, 1997 have been generated almost
entirely from the sale of consulting services and products which the Company no
longer sells and are not meaningful in predicting future performance. Although
the Company continues to provide product support for the products it no longer
sells, this activity is not expected to be meaningful to future operating
results. Due to the shift to the development and sale of Arsenal, the Company
will derive substantially all of its revenues from licensing Arsenal as well as
maintenance contracts for Arsenal.
The Company's future operating results will depend on many factors,
including demand for the Company's Arsenal product, which has only recently been
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. In
particular, the ability of the Company to achieve revenue growth in the future
will depend on its success in adding a Vice President of Sales and a substantial
number of direct sales personnel and in attracting third party integrators in
1997 and future periods. Competition for such personnel is intense, and there
can be no assurance that the Company can retain its existing sales personnel or
that it can attract, assimilate or retain additional highly qualified sales
personnel in the future. Further, the Company believes, based on interactions
with its customers and potential customers, that the purchase of its products is
relatively discretionary and generally involves a significant commitment of
capital. As a result, in the event of any downturn in any potential customer's
business or the economy in general, purchases of the Company's products may be
deferred or canceled, which could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company has generally recognized product license revenues not
subject to significant future obligations upon execution of a licensing
agreement and delivery of the software and when collection is deemed probable.
Services revenues are recognized as services are performed while maintenance
revenues are recognized ratably over the term of the support period.
REVENUES:
Revenues have historically consisted of revenue from the licensing and
sale of products, revenue from service and maintenance agreements and revenue
from consulting services. Revenues increased from $32,474 for the three months
ended June 30, 1996 to $185,005 for the comparable period ended June 30, 1997.
Revenues increased from $123,060 to $207,354 between the six months ending June
30, 1996 and 1997, respectively. Both of these increases are the result of the
recent introduction and initial sales of the Company's new sales force
automation product, Arsenal. Although the Company has now recognized revenue in
connection with sales of its Arsenal product, there can be no assurance that the
Company's revenues will continue to increase or fail to decrease, and any
further increases in the Company's revenues will be dependent upon, among other
things, the market acceptance of Arsenal and the Company's ability to attract,
retain and assimilate additional sales personnel.
COST OF REVENUES:
Cost of revenues represents primarily amounts incurred pursuant to
royalty obligations and maintenance agreements on certain technology and the
wages of technical services personnel. The cost of revenues increased from
$12,098 to $25,248 between the three months ended June 30, 1996 and 1997,
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primarily due to initial sales of the Company's new sales force automation
product, Arsenal. Between the six months ended June 30, 1996 and 1997, the cost
of revenues decreased from $45,622 to $36,268. This decrease is primarily the
result of the decrease in amounts incurred pursuant to royalty obligations. The
Company anticipates that the absolute dollar spending for cost of revenues will
increase in the foreseeable future as the Company expands its technical services
organization to support customer needs. However, since the Company only recently
introduced Arsenal, the Company believes that the ratio of cost of revenues to
revenues is not meaningful in this period or indicative of future results.
OPERATING EXPENSES:
Total operating expenses are comprised of sales and marketing, research
and development, and general and administrative expenses. Sales and marketing
expenses increased from $687,531 to $1,559,490 between the three months ended
June 30, 1996 and 1997 and increased from $866,024 to $2,376,076 between the six
month periods ended June 30, 1996 and 1997. Both of these increases were the
result of increased staffing as well as costs associated with the Company's
attendance at trade shows, print advertising and public relations. Research and
development expenses increased from $402,403 to $558,803 between the three
months ended June 30, 1996 and 1997 and increased from $736,051 to $1,176,312
between the six month periods ended June 30, 1996 and 1997. Both of these
increases are the result of additional staffing and expenditures related to the
development of Arsenal. General and administrative expenses increased from
$316,778 to $486,566 between the three months ended June 30, 1996 and 1997 and
increased from $490,609 to $992,969 between the six month periods ended June 30,
1996 and 1997. Both of these increases were due primarily to increased staffing.
The Company anticipates that total operating expenses will continue to increase
for the foreseeable future as the Company: (i) expands its sales and marketing
function in order to facilitate the market acceptance and sale of Arsenal and
(ii) adds additional software engineers to fund the development of enhancements
to Arsenal and develop new products.
Based on the Company's research and development process, costs incurred
between the establishment of technical feasibility and general release have not
been material and therefore have not been capitalized in accordance with
Statement of Financial Accounting Standards No. 86. All research and development
costs are expensed as incurred.
LIQUIDITY AND CAPITAL RESOURCES
In July 1997, the Company completed a follow-on public offering (the
"Offering") of 1,400,000 shares of Common Stock. In August 1997, the Company
completed the public sale of an additional 210,000 shares of Common Stock
pursuant to the exercise of an over-allotment option granted by the Company to
the underwriter of the Company's Offering. As a result of these offerings, the
Company recorded proceeds of approximately $4.6 million, net of related
underwriting discounts and offering expenses. The Company has invested the
proceeds from these offerings in investment grade, interest-bearing securities,
and has not invested in any derivative securities or other financial instruments
that involve a high level of risk.
The Company's cash and short-term investments totaled $159,366 at June
30, 1997, representing 8% of total assets. The Company used $1.6 million of cash
to fund operations for the second quarter of 1997. Net cash used in operating
activities was primarily for the development, sales and marketing costs
associated with Arsenal. The Company's principal investing activities consisted
of expenditures for computers and computer related equipment. Other than the
Offering, there were no significant additional financing activities for the
three months ended June 30, 1997.
During July 1997, the Company issued a $250,000 promissory note bearing
interest of 10% per annum which was due on demand seven days following the
closing of the Offering. In connection with the promissory note, the Company
issued a warrant to purchase up to 50,000 shares of the Company's Common Stock.
The exercise price of the warrant is equal to the fair market value of the
Company's Common Stock price at the date of execution. The warrant expires five
years from its execution date. In addition, in July 1997, the Company borrowed
$250,000 pursuant to a bank credit line personally guaranteed by certain
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directors of the Company. These borrowings accrue interest at 10.25% per annum
and are due and payable on July 14, 1998.
The Company's future capital requirements will depend upon many
factors, including the amount of revenues generated from operations, the cost of
the Company's sales and marketing activities and the progress of the Company's
research and development activities, none of which can be predicted with
certainty. The Company anticipates that the proceeds from the Offering, together
with existing capital resources and cash generated from operations, if any, will
be sufficient to meet the Company's cash requirements for at least the next 12
months at its anticipated level of operations, which includes increases in
expenses, particularly sales and marketing expenses, and costs of revenues.
However the Company may seek additional funding during the next 12 months and
will likely seek additional funding after such time. There can be no assurance
that any additional financing will be available on acceptable terms, or at all,
when required by the Company. Moreover, if additional financing is not
available, the Company could be required to reduce or suspend its operations,
seek an acquisition partner or sell securities on terms that may be highly
dilutive or otherwise disadvantageous to investors. The Company has in the past,
and may continue to experience, operational difficulties and delays in its
product development due to working capital constraints. Any such difficulties or
delays could have a material adverse effect on the Company's business, financial
condition and results of operations.
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RISK FACTORS
Going Concern assumption; Future Capital Needs Uncertain; No assurance of
Future Financing
The Company's independent auditors' report on the Company's financial
statements at December 31, 1996 and for the years ended December 31, 1995 and
1996 contains an explanatory paragraph indicating that the Company had recurring
operating losses that raise substantial doubt about its ability to continue as a
going concern. In addition, the Company had an accumulated deficit of
$11,149,404 at June 30, 1997. The Company may require substantial additional
funds in the future and there can be no assurance that any independent auditor's
report on the Company's future financial statements will not include a similar
explanatory paragraph if the Company is unable to raise sufficient funds or
generate sufficient cash from operations to cover the cost of its operations.
The existence of the explanatory paragraph may materially adversely affect the
Company's relationship with prospective customers, third party integrators and
suppliers, and therefore could have a material adverse effect on the Company's
business financial condition and results of operations.
The Company's future capital requirements will depend upon many
factors, including the amount of revenues generated from operations, the cost of
the Company's sales and marketing activities and the progress of the Company's
research and development activities, none of which can be predicted with
certainty. In July and August 1997, the Company raised approximately $4.6
million from a secondary offering (the "Offering") and anticipates that the
proceeds from the Offering, together with existing capital resources and cash
generated from operations, if any, will be sufficient to meet the Company's cash
requirements for at least the next 12 months at its anticipated level of
operations, which includes increases in expenses, particularly sales and
marketing expenses, and costs of revenues. However the Company may seek
additional funding during the next 12 months and will likely seek additional
funding after such time. There can be no assurance that any additional financing
will be available on acceptable terms, or at all, when required by the Company.
Moreover, if additional financing is not available, the Company could be
required to reduce or suspend its operations, seek an acquisition partner or
sell securities on terms that may be highly dilutive or otherwise
disadvantageous to investors. The Company has in the past, and may continue to
experience, operational difficulties and delays in its product development due
to working capital constraints. Any such difficulties or delays could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Complete Dependence on Recent Product Introduction
The Company commenced sales of Arsenal, currently the Company's only
product, in April 1997. As a result, the Company will derive substantially all
of its revenues from the sale of Arsenal licenses and maintenance contracts for
Arsenal. Consequently, the Company will depend entirely on the successful
introduction and commercial acceptance of Arsenal. Unless and until Arsenal
receives market acceptance the Company will have no material source of revenue.
There can be no assurance that Arsenal 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 and
there can be no assurance that the Company will be able to successfully hire and
train such personnel. Although the Company has begun to establish distribution
channels for Arsenal, 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 for the Company
to achieve profitability will have a material adverse effect on the Company's
business, financial condition and results of operations.
Need to Fill Key Sales Executive Position; Dependence on Limited Number
of Key Personnel
In May 1997, the Company's Vice President of Sales resigned from that
position. As a result, the Company is seeking to hire a new Vice President of
Sales.
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There can be no assurance that the Company will timely locate and hire
a new Vice President of Sales, if at all, or that any such new Vice President of
Sales will possess the vision, leadership and other skills to effectively manage
the sales department of the Company. Highly skilled candidates are in great
demand and the Company will be required to provide substantial compensation to
any new Vice President of Sales and, any failure by the Company to timely find
and hire a Vice President of Sales will have a material adverse effect on the
Company's business, financial condition and results of operations.
In addition, the Company's future success substantially depends on the
efforts of certain of its officers and key technical and other employees, many
of whom have only recently joined the Company. The Company's future success will
require it to recruit additional key personnel, in addition to a Vice President
of Sales, including sales and marketing personnel, product support, and product
development. The Company has not entered into employment agreements nor does it
have key man life insurance. The Company believes that its future success also
substantially depends on its ability to attract, retain and motivate highly
skilled employees, who are in great demand. There can be no assurance that the
Company will be successful in doing so.
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 is dependent on the utilization of
third-party integrators to install, customize and service the product.
Consequently, third-party integrators are 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 current and 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 current and 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 maintain effective,
long-term relationships with these integrators, or if such integrators fail to
meet the needs of the Company's current and 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.
In addition, the Company uses its third-party integrators as a source
for sales leads and, to some extent as part of its sales and distribution
channels. To the Company's knowledge, such use of third-party integrators by
other companies has been limited and there can be no assurance that such
third-party integrators will contribute meaningfully to the Company's sales
efforts.
The Company has not and 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 provide sufficient incentive for 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, 1995, 1996 and for the three months and six months ended June 30,
1997 and expects to incur significant operating losses for the foreseeable
future. In mid 1995, 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, from the sale of Arsenal licenses and
maintenance contracts for Arsenal. There can be no assurance that the Company
will ever achieve profitability.
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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. In addition, the price of the
Company's Common Stock has fluctuated significantly since the Company's initial
public offering and is expected to continue to do so. Fluctuations in operating
results may contribute to volatility in the price of the Company's Common Stock.
Operating results may fluctuate as a result of many factors, including volume
and timing of orders received, the extent to which the Company is required to
establish and support a third-party integrator channel or hire additional sales
personnel to supplement such channel, announcements by the Company and its
competitors, the timing of commercial introduction of enhancements or
competitive products, the impact of price competition on the Company's average
selling prices and the level of research and development required to complete
any future product enhancements. 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 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 the timing of revenues will cause
significant variations in quarterly operating results. 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
revenue is 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 obtain market acceptance of Arsenal, 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 marketing and supporting Arsenal or enhancements to Arsenal, if
any, or will not experience difficulties that could delay or prevent the
successful marketing and support of these products, or that Arsenal or any such
product enhancements will adequately meet the requirements of the marketplace
and achieve any significant degree of commercial acceptance. The Company has in
the past experienced delays in product development, including significant delays
in the development of Arsenal. Delays in enhancements to Arsenal, if any, may
result in customer dissatisfaction and delay or loss of product and maintenance
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. As
a result, such software defects can have a materially adverse effect on the
financial condition and operating results of the Company. There can be no
assurance that, despite testing by the Company and by potential customers,
errors 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.
Page 12
<PAGE> 13
ITEM 2. CHANGES IN SECURITIES
In July of 1997, Borealis issued a promissory note in principal amount
of $250,000 and a warrant to purchase 50,000 shares of Common Stock to Oxbow
LLC. The issuance of these securities were deemed to be exempt from
registration under the Securities Act of 1933, as amended, in reliance on
Section 4(2) under such Act, as a transaction by an issuer not involving a
public offering.
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(3) 1997 Employee Stock Purchase Plan.
10.7(1) Form of Indemnification Agreement.
10.8(1) Asset License and Purchase Agreement between the
Registrant and Sales Technologies, Inc., dated
April 15, 1994.
10.9(1) Form of Warrant for 2,000 shares granted to Peter
Pitsker on June 11, 1996.
10.10(1) Form of Warrant for 7,000 shares granted to Jerry
Brooks on June 11, 1996.
10.11(1) Form of Warrant granted to H.J. Meyers & Co.,
Inc. in connection with the Registrant's initial
public offering.
10.12(4) Form of Warrant granted to H.J. Meyers & Co.,
Inc. in connection with the Registrant's 1997
public offering.
10.13(1) Lease between the Registrant and DBB Holdings,
Inc., dated June 11, 1996.
10.14(2) Promissory Note between the Registrant and US
Bank, dated July 11, 1996.
10.15(4) Solution Provider Agreement between the Company
and American Technology Corporation, dated
October 4, 1996.
10.16(4) Promissory Note issued to Oxbow LLC
10.16(4) Warrant to Purchase Shares of Common Stock issued
to Oxbow LLC
10.17(4) Rights Agreement with Oxbow LLC
27.1 Financial Data Schedule
</TABLE>
-------------------------
(1) Incorporated by reference to exhibits filed with
Registrant's Registration Statement on Form SB-2 which
became effective on June 20, 1996.
(2) Incorporated by reference to exhibits filed with
Registrant's Quarterly Report on Form 10-QSB filed August
13, 1996.
(3) Incorporated by reference to annex filed with Registrant's
Definite Proxy Statement on Schedule 14A filed April 11,
1997.
(4) Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form SB-2 which
became effective on July 21, 1997.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant
during the quarter ended June 30, 1997.
Page 13
<PAGE> 14
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BOREALIS TECHNOLOGY CORPORATION
Registrant
BY: /s/ John W. Murphy
-------------------------
John W. Murphy
President
Chief Executive Officer
Date: August 14, 1997
Page 14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------ --------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 159,366
<SECURITIES> 0
<RECEIVABLES> 1,800
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 928,108
<PP&E> 1,361,767
<DEPRECIATION> 422,096
<TOTAL-ASSETS> 1,915,253
<CURRENT-LIABILITIES> 2,195,690
<BONDS> 0
0
0
<COMMON> 3,185
<OTHER-SE> (322,313)
<TOTAL-LIABILITY-AND-EQUITY> 1,915,253
<SALES> 0
<TOTAL-REVENUES> 207,354
<CGS> 0
<TOTAL-COSTS> 4,581,625
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,305
<INCOME-PRETAX> (4,359,652)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,374,271)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,359,652)
<EPS-PRIMARY> (1.37)
<EPS-DILUTED> (1.37)
</TABLE>
