<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 26, 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 0-14365
ALPHA TECHNOLOGIES GROUP, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0079338
- ---------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9465 Wilshire Blvd., Suite 717 Beverly Hills, CA 90212
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(Address of principal executive offices)
(310) 385-1494
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.03 par value 6,759,329
- ---------------------------- ---------
Class Outstanding at February 28, 1997
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ALPHA TECHNOLOGIES GROUP, INC.
FORM 10-Q
JANUARY 26, 1997
TABLE OF CONTENTS
Page No.
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PART I FINANCIAL INFORMATION......................................... 3
CONSOLIDATED BALANCE SHEETS - OCTOBER 27, 1996 AND JANUARY 26, 1997... 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTERS ENDED
JANUARY 28, 1996 AND JANUARY 26, 1997................................. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
JANUARY 28, 1996 AND JANUARY 26, 1997................................ 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................. 8
PART II - OTHER INFORMATION........................................... 10
2
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - OCTOBER 27, 1996 AND JANUARY 26, 1997
(In Thousands, Except Share and Per Share Data)
October 27, January 26,
1996 1997
----------- -----------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash $ 3,935 $ 3,131
Accounts receivable, net 12,564 11,504
Inventories, net 11,170 10,112
Prepaid expenses 1,130 1,299
-------- --------
Total current assets 28,799 26,046
PROPERTY AND EQUIPMENT, at cost 16,465 17,097
Less - Accumulated depreciation
and amortization 3,196 3,816
-------- -------
Property and equipment, net 13,269 13,281
GOODWILL, net 2,964 2,999
OTHER ASSETS, net 2,028 2,102
-------- --------
$ 47,060 $ 44,428
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable, trade $ 5,594 $ 5,046
Accrued compensation and related
benefits 1,643 1,621
Other accrued liabilities 2,537 1,947
Revolving credit facilities 11,023 9,636
Current portion of long-term debt 679 950
Current portion of other long-term
liabilities 863 754
------- -------
Total current liabilities 22,339 19,954
LONG-TERM DEBT 2,207 3,658
OTHER LONG-TERM LIABILITIES 397 336
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value;
shares authorized 180,000 - -
Common stock, $.03 par value;
shares authorized 17,000,000;
issued 7,681,733 at October 27, 1996
and 7,694,733 at January 26, 1997 230 231
Additional paid-in capital 43,474 43,507
Retained deficit (17,758) (19,410)
Cumulative translation adjustment,
net of income taxes (32) (51)
Treasury stock, at cost (1,017,981
common shares at October 27, 1996
and January 26, 1997) (3,797) (3,797)
-------- --------
22,117 20,480
-------- --------
$ 47,060 $ 44,428
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
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ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED JANUARY 28, 1996 AND JANUARY 26, 1997
(Unaudited)
(In Thousands, Except Per Share Data)
January 28, January 26,
1996 1997
---------- -----------
SALES $17,063 $17,921
COST OF SALES 13,318 15,380
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Gross profit 3,745 2,541
OPERATING EXPENSES
Research and development 334 371
Selling, general and administrative 3,065 3,355
Restructuring - 214
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Total operating expenses 3,399 3,940
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OPERATING INCOME 346 (1,399)
INVESTMENT INCOME - -
INTEREST AND OTHER INCOME (EXPENSE), net (213) (253)
------- -------
INCOME BEFORE TAXES 133 (1,652)
PROVISION FOR INCOME TAXES 59 -
------- -------
INCOME BEFORE MINORITY INTEREST 74 (1,652)
MINORITY INTEREST IN LOSSES OF
CONSOLIDATED SUBSIDIARY SUBSIDIARY 59
------- -------
NET INCOME $ 133 $(1,652)
======= =======
PER COMMON AND COMMON EQUIVALENT SHARE:
Income before minority interest $ 0.01 $ (0.25)
Minority interest $ 0.01 -
======= =======
Net income $ 0.02 $ (0.25)
======= =======
SHARES USED IN COMPUTING NET INCOME PER
COMMON EQUIVALENT SHARE 6,726 6,675
======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
4
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ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
JANUARY 28, 1996 AND JANUARY 26, 1997
(Unaudited)
(In Thousands)
January 28, January 26,
1996 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 133 $(1,652)
Adjustments to reconcile net income to net
cash (used) by operating activities:
Deferred income taxes - -
Depreciation and amortization 510 698
Minority interest in earnings
of subsidiary (59) -
Cumulative translation
adjustment 35 (18)
Changes in assets and liabilities:
Decrease in accounts receivable 1,164 1,060
(Increase) decrease in inventory (430) 1,058
(Increase) decrease in prepaid expenses (596) (169)
(Increase) decrease in goodwill (191) (84)
Increase (decrease) in accounts payable 66 (548)
(Decrease) in accrued compensation and related
benefits (580) (22)
(Decrease) in other accrued liabilities (310) (590)
(Decrease) in other long-term liabilities (41) (170)
----- -----
Total adjustments (432) 1,215
----- -----
Net cash (used) by operating activities (299) (437)
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (1,735) (632)
(Increase) decrease in other assets, net (22) (103)
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Net cash (used) by investing activities (1,757) (735)
------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 303 34
Payments to repurchase common stock - (1)
Proceeds from debt, net of repayments 378 335
------- -----
Net cash provided by financing activities 681 368
NET (DECREASE) IN CASH (1,375) (804)
------- -----
CASH, beginning of year 6,058 3,935
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CASH, end of period $ 4,683 $ 3,131
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
5
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ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
The consolidated financial statements include the accounts of Alpha Technologies
Group, Inc. ("Alpha" or the "Company") and its wholly-owned subsidiaries. All
material intercompany transactions and balances have been eliminated. The
Company through its wholly-owned subsidiaries, Wakefield Engineering, Inc.
("Wakefield") and Uni-Star Industries, Inc. ("Uni-Star"), designs, manufactures
and sells thermal management products and connectors. The Company's thermal
management products, principally heat sinks, which dissipate heat generated by
electronic components, serve the microprocessor, computer, consumer electronics,
transportation, power supply, aerospace and defense industries. The Company's
sub-miniature, micro-miniature and ultra-miniature connector products and its
backplane/midplane-type assemblies, the majority of which are custom
manufactured to meet rigid specifications, serve the aerospace, automotive,
communications, defense, factory automation, industrial controls, medical
electronics, scientific/process instrumentation and test/measurement industries.
The Company was incorporated as Synercom Technology, Inc. in Texas in 1969, and
was reincorporated in Delaware in 1983. In April 1995, it changed its name to
Alpha Technologies Group, Inc.
(2) CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of the Company, the accompanying interim unaudited consolidated
financial statements contain all material adjustments, consisting only of normal
recurring adjustments necessary to present fairly the financial condition, the
results of operations and the changes in cash flows of Alpha Technologies
Group, Inc. and Subsidiaries for interim periods. The results for such interim
periods are not necessarily indicative of results for a full year.
Users of financial information produced for interim periods are encouraged to
refer to the footnotes contained in the Annual Report to Stockholders when
reviewing interim financial results.
6
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(3) INVENTORIES
Inventories consisted of the following on October 27, January 26,
(in thousands): 1996 1997
----------- -----------
Raw materials and components $ 6,176 $ 5,811
Work in process 2,593 2,826
Finished goods 3,541 3,385
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12,310 12,022
Valuation reserve (1,140) (1,910)
------- -------
$11,170 $10,112
======= =======
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
Net Loss. The company reported a net loss of $1,652,000 or $0.25 per share for
the quarter ended January 26, 1997 compared to net income of $133,000 or $0.02
per share for the comparable quarter of fiscal 1996. The loss for the 1997
fiscal quarter includes charges for restructuring of $214,000, or $0.03 per
share, additional inventory reserves of $588,000, or $0.09 per share, and an
operating loss of $850,000, or $0.13 per share. Operations during the 1997
quarter were negatively impacted by lower sales volume of thermal management
products and a change in the mix of connector products sold. The additional
inventory reserves recorded this quarter were recognized to fully reserve the
cost of certain custom products which were built in anticipation of orders which
have not been received.
Sales. Sales for the first quarter of fiscal 1997 were $17,921,000, an increase
of $858,000 or 5.0%, compared to sales of $17,063,000 for the first quarter of
fiscal 1996. Thermal management sales increased 7.1% to $13,212,000 for the
1997 quarter from $12,331,000 for the quarter ended January 28, 1996. This
increase was due to the inclusion of $1,597,000 of sales by Lockhart Industries,
Inc., which was acquired by the Company in August 1996. Without the inclusion of
Lockhart's sales, other thermal management revenues decreased by 5.8%.
Connector sales were relatively stable for the first quarter of fiscal 1997 as
compared to the same period in fiscal 1996, however the mix of products sold
changed. Connector sales were $4,709,000 during the first quarter of fiscal 1997
and $4,732,000 during the first quarter of the prior fiscal year.
Gross Profit. The Company's overall gross profit as a percentage of total
revenues ("gross profit percentage") for the quarter ended January 26, 1997 was
14.1% versus 21.9% for the quarter ended January 26, 1996. The Company's gross
profit percentage without the inclusion of the additional inventory reserves
recorded during the quarter would have been 17.5% for the quarter ended January
26, 1997. The Company's gross profit percentage was negatively impacted by lower
thermal management sales and a change in the product mix, to lower margin
products, for connector products sold during the fiscal quarter.
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the first quarter of fiscal 1997 were $3,355,000, or
18.7% of sales, compared to $3,065,000, or 18.0% of sales, for the first quarter
of fiscal 1996. The increase in selling, general and administrative expenses
was primarily due to the inclusion of Lockhart. As a percentage of sales,
selling, general and administrative expenses, without the inclusion of Lockhart,
increased due to lower sales volume.
8
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Interest and Other Income (Net). Interest income, which was $37,000 in the
first quarter of fiscal 1997 and $57,000 in the first quarter of fiscal 1996,
was earned on excess cash. Interest expense was $338,000 and $260,000 for the
quarters ended January 26, 1997 and January 28, 1996, respectively. This
increase was due to a higher borrowing base.
Income Taxes. The company fully reserved the deferred income tax benefit
resulting from the net loss for the quarter ended January 26, 1997. For the
quarter ended January 28, 1996, the income tax benefit included a federal income
tax benefit of $30,000, a state income tax benefit of $41,000 and foreign income
tax expense of $4,000.
Minority Interest. For the quarter ended January 28, 1996, the minority
interest (20%) not acquired by the Company related to the Uni-Star business was
included in income before provision for income taxes on the consolidated
statement of operations and as a separate item on the consolidated balance sheet
and statement of cash flows. The Company now owns 100% of the outstanding
common stock of Uni-Star.
Liquidity and Capital Resources
- -------------------------------
On January 26, 1997, the Company had cash of approximately $3,131,000 compared
to $3,935,000 on October 27, 1996. For the three months ended January 26, 1997
the company used $437,000 from existing cash and advances under the loan
agreements to fund operating activities. In addition, $632,000 was used to
purchase capital equipment.
Due to the loss incurred in the first quarter of fiscal 1997, the Company was
not in compliance with all of the covenants included in the loan agreements. The
Company has received an oral waiver of non compliance in regards to the Uni-Star
loan agreement for the period ended January 26 1997. Additionally, the Company
is working on an amendment for the Wakefield loan agreement and anticipates that
such amendment will include new covenants based on projected results for fiscal
1997 and an extension of the loan agreement until April 1999.
The Company believes that its currently available cash and availability under
credit facilities should be sufficient to fund its operations in the near-term.
9
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
11.1 Statement re Computation of Per Share Earnings for the quarters
ended January 28, 1996 and January 26, 1997.
(b) Reports on Form 8-K
-------------------
There were no reports for Form 8-K filed by the Company during the quarter
ended January 26, 1997.
10
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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.
Alpha Technologies Group, Inc.
-------------------------------
(Registrant)
Date: March 12, 1997 By: /s/ Lawrence Butler
--------------------- --------------------------------------
Lawrence Butler
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 12, 1997 By: /s/ Johnny J. Blanchard
--------------------- -------------------------------------
Johnny J. Blanchard
Chief Financial Officer
(Principal Financial and
Accounting Officer)
11
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EXHIBIT INDEX
Exhibit Page No.
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11.1 Statement re Computation of Per Share Earnings for the quarters
ended January 28, 1996 and January 26, 1997.
12
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Exhibit 11.1
ALPHA TECHNOLOGIES GROUP, INC., AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
FOR THE QUARTERS ENDED JANUARY 28, 1996 AND JANUARY 27, 1997
(Unaudited)
(In Thousands, Except per Share Date)
January 28, January 26,
1996 1997
----------- -----------
Shares:
Weighted average common shares outstanding 6,077 6,675
Net common shares issuable on
exercise of stock options 649 -
------ -------
Weighted average common and common
equivalent shares outstanding 6,726 6,675
====== =======
Income before minority interest $ 74 $(1,652)
Minority interest 59 -
------ -------
Net income $ 133 $(1,652)
====== =======
Net income per common and common
equivalent share:
Income before minority interest $ 0.01 $ (0.25)
Minority interest 0.01 -
------ -------
Net income $ 0.02 $ (0.25)
====== =======
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS - JANUARY 26, 1997 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE THREE MONTHS ENDED JANUARY 26, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-START> OCT-28-1996
<PERIOD-END> JAN-26-1997
<CASH> 3,131
<SECURITIES> 0
<RECEIVABLES> 11,504
<ALLOWANCES> 0
<INVENTORY> 10,112
<CURRENT-ASSETS> 26,046
<PP&E> 17,097
<DEPRECIATION> 3,816
<TOTAL-ASSETS> 44,428
<CURRENT-LIABILITIES> 19,954
<BONDS> 3,658
0
0
<COMMON> 231
<OTHER-SE> 20,249
<TOTAL-LIABILITY-AND-EQUITY> 44,428
<SALES> 17,921
<TOTAL-REVENUES> 17,921
<CGS> 15,380
<TOTAL-COSTS> 15,380
<OTHER-EXPENSES> 3,940
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253
<INCOME-PRETAX> (1,652)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,652)
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<CHANGES> 0
<NET-INCOME> (1,652)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> 0
</TABLE>
