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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
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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 June 28, 1997
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 0-19640
-----------------------------------------
RETIX
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-3948704
(State or other jurisdiction of ( I.R.S. Employer
incorporation or organization) Identification Number)
4640 ADMIRALTY WAY, #600
MARINA DEL REY, CALIFORNIA 90292
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 828-3400
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 as the Registrant was
required to file such reports), and (2) has been subject to such filing require-
ments for the past ninety days.
YES X NO
----- -----
As of August 8, 1997 there were 22,663,201 shares of common stock outstanding.
Total number of sequential pages: 11
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RETIX
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1997 1996
-------------- --------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and short-term investments............................... $12,843 $16,696
Trade accounts receivable (net of allowances of $1,492 as of
June 30, 1997 and $1,543 as of December 31, 1996)........... 3,634 5,161
Inventories................................................... 1,227 1,744
Prepaid expenses and other current assets..................... 1,529 1,566
-------- --------
Total current assets............................................... 19,233 25,167
Property and equipment, net........................................ 1,234 1,252
Other assets....................................................... 1,184 1,654
------- ------
$21,651 $28,073
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 2,103 $ 2,138
Accrued wages and related liabilities.......................... 1,112 1,282
Accrued restructuring expenses................................. 1,076 1,223
Other accrued liabilities...................................... 4,241 4,310
Deferred revenue............................................... 460 1,242
-------- --------
Total current liabilities................................... 8,992 10,195
Long-term obligations, less current portion........................ 189 276
-------- --------
Total liabilities........................................... 9,181 10,471
-------- --------
Shareholders' equity:
Preferred stock, par value $.01, 2,000,000 shares authorized;
none issued and outstanding
Common stock, par value $.01, 50,000,000 shares authorized;
shares issued and outstanding 1997, 22,662,648;
1996, 22,597,427............................................ 227 226
Additional paid-in capital.................................... 78,294 78,089
Accumulated deficit........................................... (59,178) (53,850)
Cumulative translation adjustment............................. (1,971) (1,961)
-------- --------
Total..................................................... 17,372 22,504
Less notes receivable from issuance of common stock........... (4,902) (4,902)
-------- --------
Total shareholders' equity................................ 12,470 17,602
-------- --------
$21,651 $28,073
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
RETIX
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product.......................................................... $6,158 $7,011 $11,387 $13,571
Service.......................................................... 1,339 1,179 2,585 2,200
-------- -------- -------- --------
Net revenues................................................... 7,497 8,190 13,972 15,771
Cost of revenues:
Product.......................................................... 985 2,300 2,709 4,631
Service.......................................................... 737 510 1,388 957
-------- -------- -------- --------
Total cost of revenues......................................... 1,722 2,810 4,097 5,588
Gross profit....................................................... 5,775 5,380 9,875 10,183
-------- -------- -------- --------
Operating expenses:
Research and development......................................... 2,550 2,593 5,632 5,126
Sales and marketing.............................................. 3,258 2,807 6,696 5,359
General and administrative....................................... 1,305 1,142 2,904 2,370
-------- -------- -------- --------
Total.......................................................... 7,113 6,542 15,232 12,855
-------- -------- -------- --------
Loss from operations............................................... (1,338) (1,162) (5,357) (2,672)
Other income....................................................... 65 211 29 312
-------- -------- -------- --------
Loss before provision for income taxes............................. (1,273) (951) (5,328) (2,360)
Provision for income taxes......................................... -- -- -- --
-------- -------- -------- --------
Net loss........................................................... $(1,273) $ (951) $(5,328) $(2,360)
-------- -------- -------- --------
-------- -------- -------- --------
Net loss per common and
common equivalent share......................................... $(0.06) $(0.05) $(0.26) $(0.12)
-------- -------- -------- --------
Common and common equivalent shares used
in computing per share amount................................... 20,856 20,365 20,833 19,894
-------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
RETIX
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
SIX MONTHS ENDED JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................... $(5,328) $(2,360)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization............................... 713 1,126
Reserve for returns and bad debts........................... (51) (103)
Changes in operating assets and liabilities (Note 4)....... 842 (1,089)
-------- --------
Net cash used for operating activities.......................... (3,824) (2,426)
-------- --------
Cash flows from investing activities:
Increase in short-term investments................................ (140) (96)
Additions to property and equipment............................... (467) (394)
Increase (decrease) in other assets............................... 242 (508)
-------- --------
Net cash used for investing activities.......................... (365) (998)
-------- --------
Cash flows from financing activities:
Repayment of long term obligations................................ -- (98)
Proceeds from issuance of common stock............................ 206 6,866
-------- --------
Net cash provided by financing activities....................... 206 6,768
-------- --------
Effect of exchange rate changes on cash............................. (10) (5)
-------- --------
Net increase (decrease) in cash and cash equivalents................ (3,993) 3,339
Cash and cash equivalents, beginning of period...................... 8,948 5,518
-------- --------
Cash and cash equivalents, end of period............................ $ 4,955 $ 8,857
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
RETIX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. GENERAL
The consolidated financial statements include the accounts of Retix and
its wholly-owned subsidiaries (the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation. The interim
consoli-dated financial statements are unaudited. In the opinion of
management, the interim financial statements include all adjustments,
consisting of only normal, recurring adjustments, necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows. The Company's fiscal year ends on the Saturday nearest to
December 31. For simplicity of presenta-tion, the Company has described the
fiscal year ended December 28, 1996 as December 31, 1996 and has described
the thirteen weeks ended June 29, 1996 and June 27, 1997 as the six months
ended June 30, 1996 and 1997, respectively.
It is suggested that these consolidated financial statements and the
accompany-ing notes be read in conjunction with the audited consolidated
financial statements and the accompanying notes for the year ended December
31, 1996 included in the Company's Annual Report. The results of operations
for the six month period ended June 30, 1997 are not necessarily indicative
of results that may be expected for the full year.
2. CASH AND SHORT-TERM INVESTMENTS
Cash and short term investments consist of the following (in thousands):
<TABLE>
June 30, December 31,
1997 1996
----------- ------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents......................... $ 4,955 $ 8,948
Short-term investments............................ 7,888 7,748
----------- ------------
$12,843 $16,696
----------- ------------
----------- ------------
</TABLE>
Cash equivalents consist of short term investments with original
maturities of six months or less.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
June 30, December 31,
1997 1996
----------- ------------
(unaudited)
<S> <C> <C>
Raw materials and component parts................. $ 631 $ 136
Work-in-process................................... 170 1,196
Finished goods.................................... 426 412
----------- ------------
$ 1,227 $ 1,744
----------- ------------
----------- ------------
</TABLE>
Work-in-process and finished goods inventories consist of material,
direct labor and overhead associated with the manufacturing process.
5
<PAGE>
RETIX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
4. STATEMENT OF CASH FLOWS
Increases (decreases) in operating cash flows arising from changes in
operating assets and liabilities consist of the following (in thousands):
<TABLE>
Six Months Ended June 30,
1997 1996
-------- --------
<S> <C> <C>
Trade accounts receivable............................................... $1,063 $ 62
Inventories............................................................. 617 190
Prepaid expenses and other current assets............................... (63) 94
Accounts payable........................................................ (35) 978
Accrued wages and related liabilities................................... (170) (221)
Accrued restructuring expenses.......................................... (147) (2,176)
Other accrued liabilities............................................... (418) (16)
Deferred revenue........................................................ (5) --
-------- --------
Increase (decrease) in operating assets and liabilities.............. $ 842 $(1,089)
-------- --------
-------- --------
</TABLE>
Financing and investing activities during the six months ended June 30,
1997 which affected recognized assets or liabilities but that did not result
in cash receipts or cash payments were not significant.
5. PER SHARE INFORMATION
Earnings per share is computed using the weighted average number of
shares outstanding and dilutive common stock equivalents from the Company's
stock option plans, calculated using the treasury stock method. Such common
stock equivalents are excluded from the loss per share calculation as their
effect is anti-dilutive for the period ending June 30, 1997.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements, primary earnings per share will be
replaced by basic earnings per share from which the dilutive effect of stock
options will be excluded. The impact of adopting Statement No. 128 will
result in no change in primary loss per share for the periods ended June 30,
1997 and June 30, 1996 due to the anti-dilutive effect of common stock
equivalents during these periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"SAFE HARBOR" Statements under the Private Securities Litigation Reform
Act of 1995: Except for the historical information presented, the matters
discussed in this Quarterly Report on Form 10-Q are forward looking
statements that involve risks and uncertainties, including the size and
timing of license fees closed during the quarter, the likely continued
significant percentage of quarterly revenues recorded in the last
month of the quarter which makes forecasting difficult and subject to a
substantial risk of variance with actual results, the timely development and
acceptance of new and enhanced TMN-based, ATM-access and wireless software
products in existing and new markets, the acceptance of new technologies like
TMN and ATM, the impact of competitive products and pricing, the dependence
on key partners and alliances, the ability to attract and retain qualified
key personnel and the other risks detailed from time to time in the Company's
public disclosure filings with the U.S. Securities and Exchange Commission
(SEC). Copies of the most recent Forms 10K and 10Q are available upon
request from Retix's Investor Relations Department.
The following discussion should be read in conjunction with the
unaudited consolidated financial statements and accompanying notes, included
in Part I -Item 1 of this Quarterly Report, and the audited consolidated
financial statements and accompanying notes and Management's Discussion and
Analysis of Financial Condition and Results of Operations for the year ended
December 28, 1996 contained in the Company's Annual Report.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
NET REVENUES. Net revenues decreased 8.5% to $7,497,000 for the three
months ended June 30, 1997 and decreased 11.4% to $13,972,000 for the six
months ended June 30, 1997 as compared to $8,190,000 and $15,771,000 for the
three and six month periods ended June 30, 1996, respectively. Revenues
generated by the Company's TMN and wireless software product lines increased
56.2% to $5,869,000 and 28.0% to $9,643,000 during the three and six month
periods ended June 30, 1997, as compared to the same periods of 1996. The
increase in software sales for the three and six month periods for 1997 is
primarily due to $1.9 million in final billings related to the discontinuance
of the pACT-based two way paging messaging products as well as a 13% increase
in revenues associated with TMN-based software products and services. Sales
of internetworking products declined 63.3% to $1,628,000 and 47.4% to
$4,331,000, respectively, for the three and six months ended June 30, 1997 as
compared to the same periods of 1996.
Sales generated by the Company's TMN software business consist of
network management software and service revenues primarily from source
license fees, royalties and services, including professional services,
technical support and maintenance. Source license fees consist primarily of
licenses of the Company's TMN-based software solutions and development
platforms and typically have accounted for a substantial portion of total
revenue in each quarter. Source license revenue is recognized upon transfer
of the source code to the customer, provided there are no significant
remaining obligations and collectibility is deemed probable by management in
accordance with Statement of Position 91-1. The increase in revenues during
the second quarter of 1997 as compared to the same period of the prior year
included a 13.0% increase in TMN-based source license fees and a 27.2%
increase in professional services, offset by a decline in legacy OSI
workgroup products revenues. The Company believes such increases in revenues
reflect the broadening demand for TMN-based solutions in markets associated
with leading-edge telecommunications technologies such as digital cellular,
Sonet/SDH and broadband networks. The Company believes continued increases
in revenue in the future will be primarily dependent upon the further
acceptance of new technologies like ATM, the timely deployment and acceptance
of standards-based solutions such as TMN and alliances with key partners to
develop compelling solutions for the management of public telecommunications
networks.
Internetworking revenues consist primarily of the Company's new high
speed multi-service broadband access products that enable telecommunications
service providers to extend broadband services to corporate users as well as
sales of legacy multi-protocol router, local and remote LAN bridge and
Ethernet switch products to private enterprises. Broadband access product
revenues increased 29.4% during the six months ended June 30, 1997 as
compared to the same period of 1996, while legacy product sales declined by
55.8% during the same period. As the Company has previously reported, this
decline in legacy product revenues is attributable to several factors,
including the successful completion of certain large end-user programs in the
United States, the closure of unprofitable sales channels and narrowing of
internetworking product lines in 1996 and the marketing and distribution
resources of larger competitors affecting the Company's ability to gain or
retain market share in the general distribution enterprise networking market.
Further decreases in quarterly internetworking revenues are anticipated
during 1997 as the Company migrates to its new generation of broadband access
products. The Company believes increased internetworking revenues in the
future will be primarily dependent on expansion of distribution channels as
well as the success of the Company with regard to enhancing its presence in
the broadband services market through the development of its next generation
of multi-service broadband access products. The Company has planned
additional product and feature introductions to its broadband access
product-line in the second half of 1997, primarily targeted at the
transparent multimedia services (TMS) and internet access markets, with
subsequent upgrades and volume production projected for the second half of
1997 and beyond.
The Company intends to introduce several new products and enhanced
features to existing products during 1997 to expand its position in the
internetworking, TMN and wireless data markets; however, net revenues and
operating results of future periods may be adversely affected if the Company
experiences additional delays in releasing new products, if such new products
are not accepted by the market-place, or if the Company experiences
unanticipated decreases in other product revenues.
Sales to third party customers outside of North America comprised
approximately 43.2% of net revenues for the six months ended June 30, 1997 as
compared to 58.3% for the same period in 1996. The Company's high percentage
of sales to customers outside of North America has historically been due
primarily to relatively strong demand for internetworking products within
Europe and Asia Pacific and to strong international demand for its TMN and
OSI technology software.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
GROSS MARGIN. Cost of revenues consists primarily of manufacturing
costs (material, labor, packaging, documentation and overhead) and, to a
lesser extent, royalties paid under licensing agreements and warranty costs.
Gross margin for the three and six months ended June 30, 1997, respectively,
was 77.0% and 70.7% of net revenues as compared to 65.7% and 64.6% for the
same periods of 1996, respectively. Favorable trends in gross margins during
the first half of 1997 include a 3.7 margin point increase associated with
internetworking product shipments and a shift in the Company's revenue mix to
69.0% of net revenues from software-based products and services as compared
to approximately 47.8% during the six months ended June 30, 1996. Offsetting
these factors was an increase in the mix of professional services and
nonrecurring engineering project revenues, which have significantly lower
gross margins than software products, to 10.9% of the Company's net revenues
during the six months ended June 30, 1997 as compared to 6.5% during the same
period of 1996. Gross margins on internetworking hardware product shipments
improved in the first half of 1997 as compared to the same period of 1996 as
substantial operating efficiencies, including the elimination of excess
production capacities were achieved as a result of the restructuring efforts
implemented in the first half of 1996. The Company anticipates continued
pricing pressures in the internetworking product areas and, although the
Company is responding with a shift to outsourced manufacturing production and
reductions in product costing as well as changes to pricing structures and
distribution strategies, margins may fluctuate and could decline in future
periods.
RESEARCH AND DEVELOPMENT. The Company continues to make significant
investments in research and development to develop new enterprise and
broadband access internetworking products, as well as to expand its expertise
in TMN and wireless data technologies and to continue sustaining support of
its product offerings. The major components of research and development
expenses are engineering salaries, employee benefits and associated overhead,
purchased software, fees to outside contractors, the cost of facilities and
depreciation of capital equipment. For the three months ended June 30,
1997, the Company's research and development expenses decreased 1.7% to
$2,550,000 from $2,593,000 for the same period in 1996. For the six months
ended June 30, 1997, the Company's research and development expenses
increased 9.9% to $5,632,000 from $5,126,000 for the same period in 1996. As
a percentage of revenue, research and development expenses were 34.0% and
40.3% for the three and six months ended June 30, 1997, respectively, as
compared to 31.7% and 32.5% for the same periods in 1996. The increase in
research and development expense for the six months ended June 30, 1997 as
compared to the same period in 1996 is primarily due to a decision by Vertel,
the Company's TMN software subsidiary, to expand its emphasis on the
development of integrated platform solutions and generic network management
applications. This decision resulted in a variety of charges, including
$516,000 in costs associated with software technology purchases during the
first quarter of 1997. The Company expects to continue to make significant
investments in the development of new products and feature enhancement to
existing product lines, although such expenses may fluctuate from quarter to
quarter both in absolute dollars and as a percentage of revenue depending on
the status of various development projects and the level of custom
engineering services that are reallocated to costs of revenue.
SALES AND MARKETING. Sales and marketing expenses increased 16.1% to
$3,258,000 for the three months ended June 30, 1997 as compared to $2,807,000
for the same period in 1996. For the six months ended June 30, 1997, the
Company's sales and marketing expenses increased 24.9% to $6,696,000 from
$5,359,000 for the same period in 1996. Sales and marketing expenses as a
percentage of net revenues increased to 43.5% and 47.9% for the three and six
months ended June 30, 1997 as compared to 34.3% and 34.0% for the same period
in 1996. The significant increase in the absolute amount of sales and
marketing expenses in 1997 as compared to 1996 reflected higher selling costs
from an increasing mix of TMN-based software revenues generated in developing
territories, increased sales and marketing activities at Vertel during the
first half of 1997 as compared to 1996 and costs associated with the
introduction of the Company's broadband access product, Sonoma Access, in the
second quarter of 1997. These activities were aimed at increasing the
industry-wide adoption rate of TMN-based solutions and broadening market
development opportunities through activities such as the Global TMN Summit
co-sponsored by Vertel in February 1997 and growth of offices and sales
activities around the world. The Company intends to continue to expand its
sales and marketing functions to support anticipated broader market adoption
of TMN and demand for broadband access products.
Sales and marketing expenses consist primarily of personnel and related
costs relative to the Company's selling, sales support and marketing
activities, including marketing programs such as trade shows and other
promotional costs. The Company believes that substantial sales and marketing
expenditures are essential to developing opportunities for revenue growth and
to renewing the Company's competitive position. Sales and marketing expenses
are expected to continue to comprise a significant percentage of the
Company's total expenses because of costs associated with supporting a
worldwide organization of sales and service functions necessary to meet the
needs of the Company's customer base and to respond to
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
the opportunities in the rapidly growing telecommunications networking market-
place. The Company anticipates that sales and marketing expenses will increase
in absolute dollars, although such expenses may fluctuate from quarter to
quarter both in absolute dollars and as a percentage of revenue.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased 14.3% and 22.5% to $1,305,000 and $2,904,000 for the three and six
months ended June 30, 1997, respectively, as compared to $1,142,000 and
$2,370,000 for the same periods in 1996. General and administrative expenses
as a percentage of net revenues increased to 17.4% and 20.8% for the three
and six months ended June 30, 1997, respectively, as compared to 13.9% and
15.0% for the same periods in 1996. The increase in absolute spending for
general and administrative costs in the second quarter of 1997 as compared to
the same period of 1996 is primarily due to wind-down costs associated with
the decision to cease development of pACT-based two way paging messaging
products. The increase in absolute spending during the initial six months of
1997 is also due to $499,000 in redeployment and consolidation charges for
Vertel in support of its acceleration in development of integrated network
management solutions.
LOSS FROM OPERATIONS. The Company incurred a loss from operations of
$1,338,000 for the three months ended June 30, 1997 as compared to $1,162,000
for the same period of 1996 and a loss of $5,357,000 for the first half of
1997 as compared to $2,672,000 for the same period of 1996. The losses from
operations are attributable to declines in internetworking revenues and gross
profit, increases in operating expenses for Vertel, offset by an increase in
gross margin percentages associated with internetworking product shipments
and final billings in the second quarter of 1997 related to the pACT network
discontinuance.
There can be no assurance that the Company will be able to regain
profitability or resume revenue growth on a quarterly or annual basis. The
Company's expense levels are based in part on its expectation of future
revenues. As a result of failure to meet these expectations, the Company has
had to undertake several reorganizations to date. Delays in new product
introductions or product enhancements or the introduction of unsuccessful
products could adversely affect the Company. If revenues are below
expectations, results of operations may be adversely affected.
OTHER INCOME. For the three months ended June 30, 1997 other income,
consisting of interest income, net of interest expense, currency gains and
losses, and various other items decreased by $146,000, or 69.2% as compared
to the same period in 1996 and by $283,000, or 90.7%, for the first six
months of 1997 as compared to the same period in 1996. The decrease is
primarily due to the increases in foreign tax withholdings on international
sales and decreases in interest income as a result of declining cash balances
during the corresponding periods.
PROVISION FOR INCOME TAXES. The Company recorded no provision for
income taxes on a pre-tax loss of $1,273,000 in the second quarter of 1997.
A valuation allowance against the total amount of net deferred tax assets has
been established. As a result of the increase in the valuation allowance,
the Company has net deferred tax assets of approximately $27 million for
which no benefit has been provided at June 30, 1997. These net deferred tax
assets will be realized to the extent that the Company operates profitably in
the future during the respective carryforward periods.
LIQUIDITY AND CAPITAL RESOURCES At June 30, 1997 the Company's principal
sources of liquidity consisted of $12,843,000 in cash, cash equivalents and
short-term investments. The Company's cash management system includes a
sweep account which enables the Company to consolidate its operating cash
into a central account daily and advance cash to the Company's subsidiaries
to fund operating cash requirements.
Cash, cash equivalents and short-term investments decreased $3,853,000
or 23.1% during the six months ended June 30, 1997. The decrease in cash is
primarily attributable to the operating loss of $5,357,000 in the same
period. The operating losses were offset by, among other things, $1,063,000
in cash flow increases from the collection of accounts receivable during the
quarter.
The Company believes that existing sources of liquidity, capital
resources and funds from operations will satisfy the Company's anticipated
cash needs through the end of the year. From time to time, the Company may
also consider the acquisition of, or evaluate investments in, certain
products and businesses complementary to the Company's business. Any such
acquisition or investment may require additional capital resources.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to, nor
is their property the subject of, any material pending legal proceedings.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.49 Stock Transfer Agreement between Retix, Vertel Corporation
and Wireless Solutions dated June 10, 1997
(b) REPORTS ON FORM 8-K
None.
10
<PAGE>
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.
RETIX
(Registrant)
Date: August 11, 1997 /S/ Steven M. Waszak
------------------------------
Steven M. Waszak
Vice President of Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
11
<PAGE>
EXHIBIT 10.49
STOCK TRANSFER AGREEMENT
This Stock Transfer Agreement (the "AGREEMENT") is made as of June 10, 1997
between Retix, a California corporation ("RETIX"), Vertel Corporation, a
California corporation ("VERTEL") and Wireless Solutions, a California
corporation ("WIRELESS").
RECITALS
Retix is the sole shareholder of Wireless and the majority shareholder
of Vertel. Retix, Wireless and Vertel wish to engage in a series of
transactions pursuant to which (1) Retix will transfer to Vertel all of the
shares of capital stock of Wireless held by Retix (which transfer shall be
treated as a capital contribution by Retix to Vertel), (2) Vertel will issue
to Retix shares of Vertel's Preferred Stock, and (3) Wireless will assign to
Retix cash in the amount of $1,000,000 (which funds shall be used to retire
an equivalent amount of indebtedness of Vertel to Retix).
AGREEMENT
In consideration of the mutual promises contained in this Agreement, and
for other good and valuable consideration, receipt of which is hereby
acknowledged, Vertel and Retix hereby agree as follows:
1. CLOSING. The closing of the transactions contemplated hereby (the
"CLOSING") shall take place immediately upon the execution of this document
by both parties, or such other date as the parties hereto shall mutually
agree. The date of the Closing is hereinafter referred to as the "CLOSING
DATE").
2. TRANSFER OF WIRELESS SHARES TO VERTEL.
(a) CAPITAL CONTRIBUTION. At the Closing, Retix shall transfer to
Vertel an aggregate of 17,000,000 shares (the "WIRELESS SHARES") of Wireless'
Preferred Stock, representing all of the issued and outstanding shares of
Wireless, which transfer shall be treated as a capital contribution by Retix to
Vertel. At the Closing, subject to the terms and conditions of this Agreement,
Retix shall deliver to Vertel a certificate or certificates representing the
Wireless Shares, registered in the name of Retix, duly endorsed by Retix for
transfer to Vertel or accompanied by an Assignment Separate from Certificate
duly executed by Retix in favor of Vertel. On submission of the certificate or
certificates to Wireless for transfer, Wireless shall cause to be issued to
Vertel a certificate representing the Wireless Shares, registered in the name of
Vertel.
(b) INVESTMENT REPRESENTATIONS. The agreement to transfer the
Wireless Shares is made in reliance upon Vertel's representation to Retix, which
by Vertel's execution of this Agreement, Vertel hereby confirms, that the
Wireless Shares and the shares of Common Stock issuable upon conversion of the
Wireless Shares (collectively, the "SECURITIES") to be acquired by Vertel will
be acquired for investment for Vertel's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and that
Vertel has no present intention of selling, granting any participation in, or
otherwise distributing the same.
<PAGE>
Vertel understands that the Securities have not been, and will not be,
registered under the Securities Act, by reason of a specific exemption from
the registration provisions of the Securities Act which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy
of Vertel's representations as expressed herein. Vertel understands that the
Securities are characterized as "RESTRICTED SECURITIES" under the federal
securities laws inasmuch as they are being acquired from Retix in a
transaction not involving a public offering and that under such laws and
applicable regulations such Securities may be resold without registration
under the Securities Act only in certain limited circumstances. Vertel is
aware of the provisions of Rule 144 promulgated under the Securities Act
which permit limited resale of securities purchased in a private placement
subject to the satisfaction of certain conditions. Vertel understands that
no public market now exists for any of the securities issued by Retix, that
Retix has made no assurances that a public market will ever exist for the
Securities.
(c) LEGENDS. Vertel authorizes Wireless and its agents to place on
each certificate for Wireless Shares which Vertel may receive pursuant to
this Agreement a legend stating that such Wireless Shares have not been
registered under the Act or any state securities law and setting forth the
aforementioned restrictions on transfer, including the following legends:
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE
OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
(WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT STATING
THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SAID ACT."
(ii) Any other legend required by the California Commissioner
of Corporations and any other state securities law.
3. ISSUANCE OF VERTEL SHARES TO RETIX.
(a) ISSUANCE; DELIVERY. At the Closing, Vertel shall issue to Retix
an aggregate of 1,423,500 shares of Vertel's Preferred Stock (the "VERTEL
SHARES," and collectively with the Wireless Shares, the "SHARES"). At the
Closing, Vertel will deliver to Retix a certificate or certificates representing
the Vertel Shares.
(b) INCORPORATION BY REFERENCE. Vertel and Retix are also parties to
a Preferred Stock Purchase Agreement dated June 10, 1997 (the "STOCK PURCHASE
AGREEMENT"). The terms of Sections 3 ("Representations and Warranties of the
Company"), Section 4 ("Representations and Warranties of the Purchaser"),
Section 5 ("Conditions to Closing of Purchaser"), Section 6 ("Conditions to
Closing of Company") and Section 7 ("Affirmative Covenants of the Company") are
incorporated into this Agreement by reference. The term "Purchaser" as used in
such sections shall refer to Retix, the term "Company" as used in such sections
shall refer to Vertel, and the terms "Shares" and "Preferred" as used in such
sections shall refer to the Vertel Shares.
<PAGE>
4. ASSIGNMENT. In contemplation of the transfer of the Wireless Shares
pursuant to this Agreement and the consolidation of Wireless and Vertel,
Wireless hereby assigns and conveys to Retix cash in the aggregate amount of
$1,000,000. Such funds shall be used by Retix to retire an equivalent amount of
indebtedness of Vertel to Retix.
5. NO REPRESENTATIONS OR WARRANTIES. Except as expressly provided in
this Agreement, no representations or warranties are given by any party with
respect to any of the businesses of the parties hereto (whether their own
respective businesses or that of any other party). Each party represents that
it has a full understanding of the respective businesses of the parties hereto
and has received all information requested in connection with the transactions
contemplated by this Agreement. As such, except as expressly provided in this
Agreement, all transactions that are the subject of this Agreement shall be
deemed to be on an "as is" basis.
6. WIRELESS CONSENT. Wireless fully consents to the transfer of the
Wireless Shares under this Agreement, but makes no representation or warranty
as to the legality of the transfer of the Wireless Shares hereunder.
7. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State
of California, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. Except as expressly set
forth herein, this Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter herein and merges
all prior discussions between them. No modification of or amendment to this
Agreement, nor any waiver of any rights under this Agreement, shall be
effective unless in writing signed by the parties to this Agreement. The
failure by either party to enforce any rights under this Agreement shall not
be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (i) such provision shall be excluded from this Agreement,
(ii) the balance of the Agreement shall be interpreted as if such provision
were so excluded and (iii) the balance of the Agreement shall be enforceable
in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their
respective counsel, if any; accordingly, this Agreement shall be deemed to be
the product of all of the parties hereto, and no ambiguity shall be construed
in favor of or against any one of the parties hereto.
<PAGE>
(e) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient when delivered personally
or sent by telegram or fax or forty-eight (48) hours after being deposited in
the U.S. mail, as certified or registered mail, with postage prepaid, and
addressed to the party to be notified at such party's principal executive
office or as subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
[Signature Page Follows]
<PAGE>
The parties hereto have executed this Agreement as of the date first set
forth above.
RETIX, VERTEL CORPORATION,
a California Corporation a California Corporation
By:________________________ By:________________________
Title:_____________________ Title:_____________________
WIRELESS SOLUTIONS,
a California corporation
By:________________________
Title:_____________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10Q DATED JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> JUN-28-1997
<CASH> 4,955
<SECURITIES> 7,888
<RECEIVABLES> 3,634<F1>
<ALLOWANCES> 1,492
<INVENTORY> 1,227
<CURRENT-ASSETS> 19,233<F2>
<PP&E> 1,234<F3>
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,651
<CURRENT-LIABILITIES> 8,992
<BONDS> 0
0
0
<COMMON> 227
<OTHER-SE> 12,243
<TOTAL-LIABILITY-AND-EQUITY> 21,651<F4>
<SALES> 7,497
<TOTAL-REVENUES> 7,497
<CGS> 1,722
<TOTAL-COSTS> 8,835<F5>
<OTHER-EXPENSES> (65)<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,273)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,273)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,273)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
<FN>
<F1>IS NET OF ALLOWANCES
<F2>INCLUDES PREPAID & OTHER CURRENT ASSETS OF $1,529
<F3>IS NET OF DEPRECIATION
<F4>INCLUDES $189 OF LONG TERM OBLIGATIONS
<F5>INCLUDES OPERATING EXPENSES OF $7,113
<F6>INCLUDES INTEREST INCOME, NET.
</FN>
</TABLE>
