<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 April 27, 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 980, Beverly Hills, CA 90212
-------------------------------------------------------
(Address of principal executive offices)
(310)-385-1494
--------------
(Registrant's telephone number, including area code)
9465 Wilshire Blvd., Suite 717 Beverly Hills, CA 90212
------------------------------------------------------
(Former address of principal executive offices)
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 6,687,180
---------------------------- ---------
Class Outstanding at May 31, 1997
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC.
FORM 10-Q
APRIL 27, 1997
TABLE OF CONTENTS
Page No.
--------
PART I FINANCIAL INFORMATION.................................................3
CONSOLIDATED BALANCE SHEETS - OCTOBER 27, 1996 AND APRIL 27, 1997.............3
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS AND SIX MONTHS ENDED APRIL 28, 1996 AND APRIL 27, 1997.......4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 28, 1996 AND APRIL 27, 1997...................5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS....................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................10
PART II - OTHER INFORMATION..................................................14
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 APRIL 27, 1997
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
October 27, April 27,
1996 1997
------------ -----------
(Unaudited)
ASSETS
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,935 $ 2,786
Accounts receivable, net 12,564 12,589
Inventories, net 11,170 9,534
Prepaid expenses 1,130 970
------- -------
Total current assets 28,799 25,879
PROPERTY AND EQUIPMENT, at cost 16,465 17,649
Less - Accumulated depreciation
and amortization 3,196 4,534
------- -------
Property and equipment, net 13,269 13,115
GOODWILL, net 2,964 2,844
OTHER ASSETS, net 2,028 2,803
------- -------
$47,060 $44,641
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable, trade $ 5,594 $ 6,622
Accrued compensation and related
benefits 1,643 1,553
Other accrued liabilities 2,537 2,199
Revolving credit facilities 11,023 8,754
Current portion of long-term debt 679 1,243
Current portion of other long-term
liabilities 863 535
------- -------
Total current liabilities 22,339 20,906
LONG-TERM DEBT 2,207 3,128
OTHER LONG-TERM LIABILITIES 397 546
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 7,695,733 at April 27,
1997 230 231
Additional paid - in capital 43,474 43,509
Retained deficit (17,758) (19,855)
Cumulative translation adjustment,
net of income taxes (32) (27)
Treasury stock, at cost (1,017,981
common shares at October 27, 1996
and April 27, 1997) (3,797) (3,797)
------- -------
22,117 20,061
------- -------
$47,060 $44,641
======= =======
</TABLE>
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 AND SIX MONTHS ENDED APRIL 28, 1996 AND APRIL 27, 1997
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
--------------------- --------------------
April 28, April 27, April 28, April 27,
1996 1997 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES $17,726 $20,448 $34,789 $38,369
COST OF SALES 13,725 16,977 27,043 32,357
Gross profit ------- ------- ------- -------
4,001 3,471 7,746 6,012
OPERATING EXPENSES
Research and development 373 364 707 735
Selling, general and
administrative 3,228 3,303 6,293 6,658
Restructuring - - - 214
------- ------- ------- -------
Total operating expenses 3,601 3,667 7,000 7,607
------- ------- ------- -------
OPERATING INCOME (LOSS) 400 (196) 746 (1,595)
INTEREST AND OTHER INCOME
(EXPENSE), net (159) (249) (372) (502)
------- ------- ------- -------
INCOME (LOSS) BEFORE TAXES 241 (445) 374 (2,097)
PROVISION FOR INCOME TAXES 69 - 128 -
------- ------- ------- -------
INCOME (LOSS) BEFORE MINORITY
INTEREST 172 (445) 246 (2,097)
MINORTIY INTEREST IN (INCOME)
LOSSES OF SUBSIDIARY (24) - 35 -
------- ------- ------- -------
NET INCOME (LOSS) $ 148 ($445) $ 281 ($2,097)
======= ======= ======= =======
PER COMMON AND COMMON EQUIVALENT
SHARE:
Income before minority interest $ 0.02 ($0.07) $ 0.03 ($0.31)
Minority interest - - $ 0.01 -
------- ------- ------- -------
Net income $ 0.02 ($0.07) $ 0.04 ($0.31)
======= ======= ======= =======
SHARES USED IN COMPUTING NET
INCOME PER COMMON EQUIVALENT
SHARE 6,613 6,677 6,676 6,676
======= ======= ======= =======
</TABLE>
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 SIX MONTHS ENDED APRIL 28, 1996 AND APRIL 27, 1997
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
April 28, April 27,
1996 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 281 ($2,097)
Adjustments to reconcile net income to
net cash provided (used)
By operating activities:
Deferred income taxes 25 -
Depreciation and amortization 1,028 1,522
Minority interest in earnings of
subsidiary (35) -
Cumulative translation adjustment 2 5
Changes in assets and liabilities:
Decrease (increase) decrease in
accounts receivable 193 (25)
Decrease (increase) in inventories (1,028) 1,636
Decrease (increase) in prepaid expenses (474) 160
(Increase) in consulting agreements
and goodwill (244) (592)
Increase in accounts payable 862 1,028
Decrease in accrued compensation and
related benefits (639) (90)
(Decrease) in other accrued liabilities (289) (338)
(Decrease) in other long-term liabilities (303) (179)
------ -------
Total adjustments (902) 3,127
------ -------
Net cash provided (used) by operating
activities (621) 1,030
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (2,297) (1,184)
Change in goodwill - 15
(Increase) in other assets, net (40) (262)
------ -------
Net cash (used) by investing
activities (2,337) (1,431)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 303 36
Proceeds/payments of debt (net) 1,336 (784)
------ -------
Net cash provided by financing
activities 1,639 (748)
------ -------
NET (DECREASE) IN CASH (1,319) (1,149)
------ -------
CASH, beginning of year 6,058 3,935
------ -------
CASH, end of period $4,739 $ 2,786
====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
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, dissipate heat generated by
electronic components and 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 under its original corporate name, Synercom
Technology, Inc. in Texas in 1969, as a software company, and was reincorporated
in Delaware in 1983. The Company changed its name to Alpha Technologies Group,
Inc. on April 19, 1995.
(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, April 27,
(in thousands): 1996 1997
----------- -----------
Raw materials and components $ 6,176 $6,054
Work in process 2,593 2,625
Finished goods 3,541 2,860
-------- --------
12,310 11,539
Valuation reserve (1,140) (2,005)
-------- --------
$11,170 $9,534
======== ========
4. LONG-TERM DEBT
Long-term debt consisted of the following on:
<TABLE>
<CAPTION>
October 27, April 27,
1996 1997
------------ -----------
(In Thousands)
<S> <C> <C>
Variable-rate revolving credit facility $ 9,823 $ 7,312
(effective interest rates of 7.8725% and
8.75% on April 27, 1997), interest payable monthly,
principal is repaid and reborrowed based on
cash requirements
Variable-rate revolving credit commitment 1,200 1,442
(effective interest rate of 10.5% on
April 27, 1997), interest payable monthly,
principal is repaid and reborrowed based on
cash requirements
Variable-rate equipment notes 2,886 4,371
(effective interest rates of 8.75%, 8.85% and 10.5%
on April 27, 1997), payable in monthly installments
ranging from $3,444 to $37,500 plus accrued
interest, with maturities ranging from August 1997
through October 2003 ------- -------
13,909 13,125
Less current portion 11,702 9,997
------- -------
$ 2,207 $ 3,128
======= =======
</TABLE>
The revolving credit facility and a $2,250,000 variable term loan relate to a
Loan and Security Agreement (the "Loan Agreement") entered into by Wakefield in
June of 1994. The Loan Agreement was amended in May of 1995 to increase the
revolving credit facility from a maximum aggregate commitment of $4,000,000 to
$7,000,000 and to extend the term of such facility to April 30, 1997. The
equipment credit facility was increased from a maximum aggregate amount of
$600,000 to $1,050,000. The proceeds from the equipment credit facility may be
used only for the purchase of capital equipment. In addition, Wakefield entered
into an equipment term note in the amount of $265,000. The Second Amendment
dated January 30, 1996 increased the revolving credit facility from $7,000,000
to $9,000,000, made Specialty Extrusion Corp. ("Specialty"), a wholly-owned
subsidiary of Wakefield, a co-borrower under the Loan Agreement and extended
revolving loans to Specialty and made available to Specialty a $200,000
Equipment Facility Loan which was used to repay, in
7
<PAGE>
part, borrowings from Alpha. On March 29, 1996, Wakefield entered into the Third
Amendment to allow for interest payable on the Revolving Credit Loans to be
computed based on a margin above the Prime Rate and/or a margin above the London
Interbank Offered Rate ("LIBOR"). The Fourth Amendment to the Loan Agreement was
entered into October 11, 1996 to make Lockhart a co-borrower under the Loan
Agreement and extend revolving loans to Lockhart, to increase the maximum amount
of Revolving Loans that may be available to Wakefield, Specialty and Lockhart
from $9,000,000 to $12,500,000, to consolidate the outstanding term loans into a
$2,250,000 term loan, to make available a $2,500,000 equipment acquisition line
on Lockhart's equipment and to permit Wakefield to use up to $506,000 of the
Revolving Loan proceeds to repay advances to Alpha. On April 27, 1997, interest
on $6,500,000 of the revolving credit facility, accrues at the relevant adjusted
LIBOR rate plus 2.25% (7.875% per annum on April 27, 1997), and the remainder of
the revolving credit facility accrues at the bank's prime rate plus .25% (8.75%
per annum on April 27, 1997). There is an unused line fee equal to .25% per
annum on the difference between $12,500,000 and the greater of (a) the average
daily outstanding principal balance of Revolving Loans during each of the
Company's fiscal quarters and (b)$10,500,000, payable quarterly in arrears on
the first day of each fiscal quarter. The $2,250,000 term note accrues interest
at the adjusted LIBOR rate plus 225 basis points (8.75% per annum on April 27,
1997), and is payable in fifty-nine (59) equal monthly installments of $37,500
commencing December 1, 1996 and a final installment equal to all unpaid
principal on October 11, 2001, together, in each instance, with interest thereon
to the date of payment. On April 27, 1997, $1,786,905 was borrowed against the
equipment acquisition line. This note accrues interest at 8.85%, and is payable
in eighty-three (83) equal monthly installments of $22,619 commencing December
1, 1996 and a final installment equal to all unpaid principal on October 29,
2003, together, in each instance, with interest thereon to the date of payment.
The obligations under the Loan Agreement are secured by a first lien on and
assignment of all of the assets of the thermal management operations which in
aggregate total $30,156,000. On April 27, 1997, $7,312,000 was drawn on the
revolving credit facility. On April 25, 1997, Wakefield's credit facilities
expiration was extended to June 30, 1997.
In October 1996, Wakefield entered into two interest rate swap transactions with
Fleet National Bank. The agreements effectively fixed the interest rate on
floating rate debt at a rate of 8.75% for a notional principal amount of
$2,250,000 through November 1, 2001, and at a rate of 8.85% for a notional
principal amount of $1,900,000 through October 29, 2003.
On August 30, 1995, Uni-Star entered into an Accounts Receivable Loan Agreement
which included a revolving credit commitment in the aggregate principal amount
of $2,500,000 of which $1,442,000 was drawn on at April 27, 1996. Uni-Star also
entered into an equipment term loan in the amount of $750,000 and an equipment
acquisition facility of $300,000. The equipment term loan is repayable in 48
equal monthly installments of principal of $15,625 plus accrued interest,
payable on the first day of each month beginning October 1, 1995. On September
17, 1996, Uni-Star amended the loan agreement to extend its termination date to
April 30, 1997. All of the Uni-Star credit facilities are secured by a first
lien and assignment of substantially all of its assets, including without
limitation, accounts receivable, inventory, equipment and general intangibles
which in aggregate totals $10,289,000. On May 9, 1997, Uni-Star
8
<PAGE>
amended the agreements to extend the expiration date to August 31, 1997. In
addition, the amendment reduced the revolving credit commitment from $2.5
million to $1.9 million and amended the interest on the revolving credit
facility, the equipment term loan, and equipment acquisition facility to accrue
at the bank's prime rate plus 2.0% for May 1997, 2.25% for June 1997, 2.5% for
July 1997 and 2.75% for August 1997.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Quarter to Quarter Comparison
- -----------------------------
Sales. Sales for the second quarter of fiscal 1997 were $20,448,000, an
increase of $2,722,000 or 15.4%, compared to sales of $17,726,000 for the second
quarter of fiscal 1996. Thermal management sales increased 26.6% to $15,363,000
for the 1997 quarter from $12,138,000 for the quarter ended April 28, 1996. The
increase in thermal management sales for the quarter was due to internal growth
of 7.5% and the inclusion of sales by Lockhart Industries, Inc., which was
acquired in August 1996. Internal thermal management sales increased primarily
due to the higher sales of Penguin Cooler Heat Sinks, which dissipate heat
generated by microprocessors used in personal computers. These increases were
partially offset by lower sales of extruded heat sinks.
Connector sales were $5,085,000 during the second quarter of fiscal 1997
compared to $5,588,000 during the second quarter of the prior fiscal year, a
9.0% decrease, which was primarily caused by delays in programs by certain
customers and a shift to turn-key cable and connector assemblies which have
longer lead times.
Gross Profit. The Company's overall gross profit as a percentage of total
revenues ("gross profit percentage") for the quarter ended April 27, 1997 was
17.0% versus 22.6% for the quarter ended April 28, 1996. Wakefield's gross
profit percentage for the quarter was 18.2% versus 22.5% for the second quarter
of fiscal 1996. The increase in aluminum costs, competitive pricing pressure and
a change in the product mix negatively impacted the thermal management
business's gross profit margins for the quarter. Uni-Star's gross profit
percentage was 13.4% versus 22.9% for the second quarter of fiscal 1996. Gross
profit margins for connector sales decreased due to lower sales volume and a
change in the product mix.
Research and Development Expense. Research and development expenses for the
second quarter of fiscal 1997 were $364,000 compared to $373,000 for the second
quarter of fiscal 1996. Excluding Lockhart, research and development expenses
for the quarter would have been $267,000. The decrease in research and
development expenses was primarily due to a decrease in engineering staff as
well as a decrease in licensing cost for engineering software at Wakefield.
Selling, General and Administrative Expense. Selling, general and
administrative (SG&A) expenses for the second quarter of fiscal 1997 were
$3,303,000, or 16.2% of sales, compared to $3,228,000, or 18.2% of sales, for
the second quarter of fiscal 1996. Excluding Lockhart, SG&A expenses for the
quarter were $3,115,000 or 17.2% of sales. The decrease in SG&A expenses as a
percentage of sales was attributable to increased sales volume without a
proportional increase in SG&A expenses and the inclusion of Lockhart. Lockhart's
SG&A percentage of sales for the quarter was lower than the overall company's
(excluding Lockhart) percentage.
10
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Interest and Other Income (Net). Interest income, which was $30,000 in the
second quarter of fiscal 1997 and $55,000 in the second quarter of fiscal 1996,
was earned on cash held at the parent level. Interest expense was $303,000 and
$266,000 for the quarters ended April 27, 1997 and April 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 April 27, 1997. The provision
for income taxes for the quarter ended April 28, 1996, was $69,000 which
included federal income tax expense of $30,000, state income tax expense of
$16,000 and foreign income tax expense of $23,000. For the second quarter of
1996, the provision for federal income taxes includes the benefit of net
operating loss carryforwards.
Minority Interest. For the quarter ended April 28, 1996, the minority interest
(the 20% of the Uni-Star business not acquired by the Company) 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.
Net Income/Loss. Net Loss for the quarter was $445,000, compared to net income
of $148,000 for the quarter ended April 28, 1996. The decrease in net income was
primarily attributable to the aforementioned decrease in gross profit.
Six Months to Six Months Comparison
- -----------------------------------
Sales. Sales for the first six months of fiscal 1997 increased $3,580,000, or
10.3%, to $38,369,000 from $34,789,000 for the comparable period of fiscal 1996.
Thermal management sales increased 16.8% to $28,575,000 for the 1997 period from
$24,469,000 for the first six months of fiscal 1996. The increase in thermal
management sales for the first six months of fiscal 1997 was due to the
inclusion of sales by Lockhart Industries, Inc., which was acquired in August
1996. Internal thermal management sales increased primarily due to the higher
sales of Penguin Cooler Heat Sinks, which dissipate heat generated by
microprocessors used in personal computers. These increases were partially
offset by lower sales of extruded heat sinks.
Connector sales were $9,794,000 during the six months ended April 27, 1997
compared to $10,320,000 during the first six months of the prior fiscal year, a
5.1% decrease, which was primarily caused by delays in programs by certain
customers and a shift to turn-key cable and connector assemblies which have
longer lead times.
Gross Profit. The Company's overall gross profit as a percentage of total
revenues for the six months ended April 27, 1996 was 15.7% compared to 22.3% for
the six months ended April 28, 1996. Wakefield's gross profit percentage for the
six months ended April 27, 1996 was 16.1% versus 22.6% for the same period of
last year. Excluding the additional inventory reserves recorded in the first
quarter, Wakefield's gross profit percentage was 18.1% for the six month period.
The increase in aluminum costs, competitive pricing pressure, additional
inventory reserves and a change in the product mix negatively impacted the
thermal management business's
11
<PAGE>
gross profit margins for the year to date period. Uni-Star's gross profit
percentage for the first six months of fiscal 1997 was 14.6% versus 21.6% for
the same period of last year. Gross profit margins for connector sales decreased
due to lower sales volume and a change in the product mix.
Research and Development Expense. Research and development expenses were
$735,000 and $707,000 for the first six months of fiscal 1997 and 1996,
respectively. Excluding Lockhart, research and development expenses for the
year to date were $547,000. The decrease in research and development expenses
was primarily due to a decrease in engineering staff as well as a decrease in
licensing cost for engineering software at Wakefield.
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the six months ended April 27, 1997 were $6,658,000,
or 17.4% of sales, compared to $6,293,000, or 18.1% of sales, for the six months
ended April 28, 1996. . Excluding Lockhart, SG&A expenses for the year to date
were $6,221,000 or 18.1% of sales. The decrease in SG&A expenses as a
percentage of sales was attributable the inclusion of Lockhart. Lockhart's SG&A
percentage of sales for the year to date was lower than the overall company's
(excluding Lockhart) percentage.
Interest and Other Income (Net). Interest income, which was $67,000 in the
first six months of fiscal 1997 and $112,000 in the comparable period of fiscal
1996, was earned on cash held at the parent level. The decrease in interest
income was primarily attributable to a decrease in the average cash balance
invested. Interest expense was $631,000 and $526,000 for the six months ended
April 27, 1997 and April 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 six months ended April 27, 1997. The
provision for income taxes for the six months ended April 28, 1996, was $128,000
which included federal income tax expense of $30,000, state income tax expense
of $41,000 and foreign income tax expense of $57,000. Because the Company was
able to utilize net operating loss carryforwards, the effective federal income
tax rate was 8% for the six months ended April 28, 1996.
Minority Interest. For the six months ended April 28, 1996, the minority
interest (the 20% of the Uni-Star business not acquired by the Company) 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.
Net Income/Loss. Net Loss for the first six months of the fiscal year was
$2,097,000, compared to net income of $281,000 for the six months ended April
28, 1996. The decrease in net income was primarily attributable to the
aforementioned decrease in gross profit.
12
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Liquidity and Capital Resources
- -------------------------------
On April 27, 1997, the Company had cash of approximately $2,786,000 compared to
$3,935,000 on October 27, 1996. Cash provided from operating activities and
existing cash was used to reduce debt and for purchases of capital equipment.
For the six months ended April 27, 1997, $1,030,000 was provided by operations,
primarily due to a decrease in inventories and prepaid expenses. Capital
equipment purchases of $1,184,000 were made to improve manufacturing abilities
and to replace exiting machinery which had reached its end of life.
Uni-Star's loan agreement expired on April 30, 1997. On May 9, 1997, Uni-Star
and its lender amended the agreement to extend the expiration date to August 31,
1997. In addition, the amendment reduced the revolving credit commitment from
$2.5 million to $1.9 million and amended the interest rate on outstanding
amounts to the bank's prime rate plus 2.0% for May 1997, 2.25% for June 1997,
2.5% for July 1997 and 2.75% for August 1997. Management does not anticipate
that the decrease in the revolving credit commitment will have an adverse
impact on Uni-Star's business. The Company is reviewing proposals from other
institutions and plans to refinance this facility on or prior to its maturity.
The Company is also working on an extension of the Wakefield loan agreement
until the end of the current fiscal year. While no extension agreement has been
signed, the bank has orally agreed to the extension. The Company anticipates
renewing such facility at that time.
The Company believes that its currently available cash, anticipated cash flow
from operations and availability under credit facilities should be sufficient to
fund its operations in the near-term."
Safe Harbor" statement under the Private Securities Litigation Reform
Act of 1995:
This release contains forward looking statements that are subject to risk and
uncertainties, including, but not limited to, the impact of competitive products
and pricing, product demand and market acceptance, new product development,
reliance on key strategic alliances, availability of raw material, the
telecommunications regulatory environment, fluctuations in operating results and
other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
13
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders held on April 24, 1997 in New
York, New York, the stockholders elected the following management nominees:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
- ------- --------- --------------
<S> <C> <C>
Marshall D. Butler 5,578,838 69,000
Lawrence Butler 5,578,838 69,000
Donald K. Grierson 5,578,838 69,000
Frederic A. Heim 5,579,438 68,400
Warren G. Lichtenstein 5,574,024 73,814
Dr. Kenneth W. Rind 5,579,438 68,400
Michael J. Konigsberg 5,574,024 73,814
</TABLE>
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.25 Letter agreement between Uni-Star Industries, Inc. and City National
Bank dated May 9, 1997
11.1 Statement re Computation of Per Share Earnings for the quarters and
six months ended April 28, 1996 and April 27, 1997.
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports for Form 8-K filed by the Company during the quarter
ended April 27, 1997.
15
<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.
Alpha Technologies Group, Inc.
-------------------------------
(Registrant)
Date: June 11, 1997 By: /s/ Lawrence Butler
---------------------- ----------------------------
Lawrence Butler
President and Chief Executive Officer
(Principal Executive Officer)
Date: June 11, 1997 By: /s/ Johnny J. Blanchard
---------------------- ----------------------------
Johnny J. Blanchard
Chief Financial Officer
(Principal Financial and Accounting Officer)
16
<PAGE>
EXHIBIT INDEX
Exhibit Page No.
- ------- --------
10.25 Letter agreement between Uni-Star Industries, Inc. and City
National Bank dated May 9, 1997
11.1 Statement re Computation of Per Share Earnings for the quarters
and six months ended April 28, 1996 and April 27, 1997.
27 Financial Data Schedule
17
<PAGE>
Exhibit 10.25
CITY NATIONAL BANK
Special Assets Department
606 S. Olive Street, 20th Floor
Los Angeles, California 90014
(213) 347-2526
May 9, 1997
VIA CERTIFIED MAIL
Uni-Star Industries, Inc.
306 Pasadena Avenue
South Pasadena, CA 91030
Attention: Ernest Hartland, President
RE: Accounts Receivable Loan Agreement, by and between Uni-Star
Industries, Inc. ("Borrower") and City National Bank ("CNB"),
dated as of August 30, 1995, as amended ("Credit Agreement") and
Term Loans 24426 and 96802 (collectively, the "Notes")
Dear Mr. Hartland:
The Credit Agreement matured on April 30, 1997. You have requested that
CNB extend the Termination Date thereunder to August 31, 1997 to provide you
with adequate time to complete your search for alternative financing.
Uni-Star reaffirms the debt owed to CNB, as of May 7, 1997, in the
principal amount of $2,252,944.52 plus unpaid interest under the Credit
Agreement and Notes ("Present Indebtedness") and that it has no defenses or
offsets to such indebtedness.
CNB hereby agrees to forebear from exercising its rights and remedies
under the Credit Agreement or pursuant to applicable law until August 31, 1997,
with respect to all Events of Default currently existing under the Credit
Agreement. In consideration of CNB's agreement to forebear, Borrower hereby
agrees to all of the following:
1. The Revolving Credit Commitment will be reduced by $600,000 to $1,900,000.
The Borrowing base will be modified as follows:
A) i) Eighty percent (80%) of Eligible Accounts from 5/1/97 to 5/30/97. ii)
Seventy nine percent (79%) of Eligible Accounts from 6/1/97 to 6/30/97. iii)
Seventy eight (78%) of Eligible Accounts from 7/1/97 to 7/31/97. iv) Seventy
seven percent (77%) of Eligible Accounts thereafter. The foregoing percentages
are conditioned upon the maintenance of the existing dilution rate of no more
than eight percent (8%) as provided in Section 9.1.11.
In no event shall the Borrowing Base exceed the Revolving Credit Commitment.
The terms, Revolving Credit Commitment, Eligible Accounts and Dilution Rate
(except as amended in the prior paragraph) are defined in the Credit Agreement.
There will be no further advances under the Term Loan Facility and Equipment
Acquisition Facility and any advances repaid to date or during the term of the
forbearance agreement will not be available for re-borrowing;
<PAGE>
To pay CNB, on or before 5/15/97, loan fees of $3,750.
The interest rate on the Notes and Credit Agreement shall be increased to the
Prime Rate plus 2 percent (2%) per year effective 5/1/97; effective 6/1/97, the
interest rate shall be increased to the Prime rate plus 2.25 percent (2.25%) per
year; effective 7/1/97, the interest rate shall be increased to Prime plus 2.5
percent (2.5%) per year; effective 8/1/97, the interest rate shall be increased
to 2.75 percent (2.75%) per year.
To keep all payments on the Notes and under the Credit Agreement current and to
repay in full all obligations owed by Borrower to CNB on the Notes and under the
Credit Agreement no later than August 31, 1997;
In addition to that required by the Credit Agreement, to submit current
financial and collateral information to CNB at such times and in such form as
CNB may request.
7. RELEASE. Borrower intends and agrees that this Agreement will be effective
as a full, final and general release of and from all matters covered herein. In
furtherance thereof, Borrower acknowledges that Borrower is familiar with, and
that Borrower's attorney of record, if any, has advised Borrower of, California
Civil Code (S)1542, which provides as follows:
A general release does not extend to claims which the creditor does not know
or suspect to exist in his favor at the time of execution of the release, which
if known by him must have materially affected his settlement with the debtor.
Borrower expressly waives and releases any right or benefit which Borrower has
or may in the future have under California Civil Code (S)1542 to the fullest
extent that such rights or benefits may be lawfully waived and released.
Further, Borrower acknowledges that Borrower may hereafter discover facts
different from or in addition to those facts now known or believed by Borrower
to be true with respect to any or all of the matters covered by this Agreement,
and agrees that this Agreement will nevertheless be binding and remain in full
and complete force and effect.
Please be advised that CNB reserves all of its rights and remedies with
respect to (a) all currently existing Events of Default, and (b) all Events of
Default that arise after the date of this letter or due to any material adverse
change in the business, operations or conditions, financial or otherwise, of
Borrower since the date of the last financial statements received by CNB. Except
as expressly amended herein, all of the terms and conditions of the Notes and
Credit Agreement shall remain unchanged and in full force and effect. Further,
nothing in this Agreement obligates CNB to extend the Notes and Credit Agreement
beyond August 31, 1997.
Please indicate your agreement with the foregoing by signing the enclosed
copy where indicated, and returning the same to my attention. Please be advised
that CNB's agreement to this forbearance shall not become effective until CNB
has received a copy of this letter executed by Borrower and the fee set forth in
Paragraph 3 above. Capitalized terms not defined herein shall have the meaning
given them in the Notes and Credit Agreement.
Please call me if you have any questions relating to this matter.
Very truly yours,
Gregory J. Meis
Vice President
2
<PAGE>
AGREED TO AND ACCEPTED ON BEHALF OF
Uni-Star Industries, Inc. BY:
/s/ Ernest Hartland
- ----------------------------------------
Ernest Hartland, President
/s/ Johnny J. Blanchard
- ----------------------------------------
Johnny J. Blanchard, Assistant Secretary
3
<PAGE>
Exhibit 11.1
ALPHA TECHNOLOGIES GROUP, INC., AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
For the Quarters and Six Months Ended April 28, 1996 and April 27, 1997
(Unaudited)
(In Thousands, Except per Share Date)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
-------------------- --------------------
April 28, April 27, April 28, April 27,
1996 1997 1996 1997
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Shares:
Weighted average common shares
outstanding 6,192 6,677 6,135 6,676
Net common shares issuable on
exercise of stock options 421 -- 541 --
------ ------ ------ -------
Weighted average common and common
equivalent shares outstanding 6,613 6,677 6,676 6,676
====== ====== ====== =======
Income before minority interst $ 172 $ (445) $ 246 $(2,097)
Minority interest (24) -- 35 --
------ ------ ------ -------
Net income $ 148 $ (445) $ 281 $(2,097)
====== ====== ====== =======
Net income per common and common
equivalent share:
Income before minority interest $ 0.02 $(0.07) $ 0.03 $ (0.31)
Minority interest -- -- 0.01 --
------ ------ ------ -------
Net income $ 0.02 $(0.07) $ 0.04 $ (0.31)
====== ====== ====== =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET - APRIL 27, 1997 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
SIX MONTHS ENDED APRIL 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-START> OCT-28-1996
<PERIOD-END> APR-27-1997
<CASH> 2,786
<SECURITIES> 0
<RECEIVABLES> 12,589
<ALLOWANCES> 0
<INVENTORY> 9,534
<CURRENT-ASSETS> 25,879
<PP&E> 17,649
<DEPRECIATION> 4,534
<TOTAL-ASSETS> 44,641
<CURRENT-LIABILITIES> 20,906
<BONDS> 3,128
0
0
<COMMON> 231
<OTHER-SE> 19,830
<TOTAL-LIABILITY-AND-EQUITY> 44,641
<SALES> 38,369
<TOTAL-REVENUES> 38,369
<CGS> 32,357
<TOTAL-COSTS> 32,357
<OTHER-EXPENSES> 7,607
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 502
<INCOME-PRETAX> (2,097)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,097)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,097)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> 0
</TABLE>
