<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 July 30, 2000
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)
11990 San Vicente Blvd., Suite 350
----------------------------------
(Address of principal executive offices)
(310) 566-4005
--------------
(Registrant's telephone number, including area code)
306 Pasadena Ave. South Pasadena, CA 91030
------------------------------------------
(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 6,742,445
---------------------------- -----------
Class Outstanding at August 31, 2000
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC.
FORM 10-Q
JULY 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION..................................................................... 3
ITEM 1. FINANCIAL STATEMENTS...................................................................... 3
CONSOLIDATED BALANCE SHEETS - OCTOBER 31, 1999 AND JULY 30, 2000.................................... 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTERS AND NINE MONTHS ENDED
AUGUST 1, 1999 AND JULY 30, 2000.................................................................... 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE QUARTERS AND
NINE MONTHS ENDED AUGUST 1, 1999 AND JULY 30, 2000.................................................. 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED AUGUST 1, 1999
AND JULY 30, 2000................................................................................... 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................................................................................... 10
PART II - OTHER INFORMATION......................................................................... 15
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - OCTOBER 31, 1999 AND JULY 30, 2000
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
Restated
October 31, July 30,
1999 2000
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 233 $12,492
Accounts receivable, net 7,092 9,461
Inventories, net 5,004 6,289
Net assets of discontinued operations 6,061 1,947
Prepaid expenses 700 939
------------ -----------
Total current assets 19,090 31,128
PROPERTY AND EQUIPMENT, at cost 18,165 19,532
Less - Accumulated depreciation and amortization 8,467 10,279
------------ -----------
Property and equipment, net 9,698 9,253
GOODWILL, net 1,883 1,747
OTHER ASSETS, net 2,291 2,234
------------ -----------
TOTAL ASSETS $32,962 $44,362
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable, trade $ 3,836 $ 5,519
Accrued compensation and related benefits 1,325 1,617
Other accrued liabilities 1,496 1,715
Current portion of long-term debt 1,080 1,080
------------ -----------
Total current liabilities 7,737 9,931
REVOLVING CREDIT FACILITY 2,799 -
LONG-TERM DEBT 3,780 2,470
OTHER LONG-TERM LIABILITIES 144 129
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value; shares authorized 180,000 - -
Common stock, $.03 par value; shares authorized 17,000,000; issued
7,959,007 at October 31, 1999 and 8,095,899 at July 30, 2000 239 243
Additional paid - in capital 43,828 44,252
Retained deficit (19,739) (6,859)
Accumulated other comprehensive loss (22) --
Treasury stock, at cost (1,394,353 common shares at October 31, 1999 and
July 30, 2000) (5,804) (5,804)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 18,502 31,832
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $32,962 $44,362
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTERS AND NINE MONTHS ENDED
AUGUST 1, 1999 AND JULY 30, 2000
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
---------------------- ----------------------
Restated Restated
August 1, July 30, August 1, July 30,
1999 2000 1999 2000
--------- --------- --------- --------
<S> <C> <C> <C> <C>
SALES $12,056 $16,244 $35,652 $43,486
COST OF SALES 8,893 11,167 26,944 30,683
--------- --------- --------- --------
Gross profit 3,163 5,077 8,708 12,803
OPERATING EXPENSES
Research and development 185 212 559 637
Selling, general and administrative 1,954 2,231 5,971 6,250
--------- --------- --------- --------
Total operating expenses 2,139 2,443 6,530 6,887
--------- --------- --------- --------
OPERATING INCOME 1,024 2,634 2,178 5,916
INTEREST INCOME (EXPENSE), net (205) (158) (716) (556)
OTHER INCOME (EXPENSE), net 1 (27) 22 149
--------- --------- --------- --------
INCOME BEFORE TAXES 820 2,449 1,484 5,509
PROVISION FOR INCOME TAXES -- (50) - (50)
--------- --------- --------- --------
INCOME BEFORE DISCONTINUED OPERATIONS 820 2,399 1,484 5,459
GAIN ON SALE OF DISCONTINUED OPERATIONS, net of income tax -- 6,478 -- 6,478
INCOME FROM DISCONTINUED OPERATIONS, net of income tax 382 227 1,083 943
--------- --------- --------- --------
NET INCOME $ 1,202 $ 9,104 $ 2,567 $12,880
========= ========= ========= ========
EARNINGS PER COMMON SHARE
BASIC
-----
Income before discontinued operations $ 0.12 $ 0.36 $ 0.21 $ 0.81
Gain on sale of discontinued operations -- $ 0.97 -- $ 0.97
Income from discontinued operations $ 0.05 $ 0.03 $ 0.16 $ 0.14
--------- --------- --------- --------
NET INCOME $ 0.17 $ 1.36 $ 0.37 $ 1.92
========= ========= ========= ========
DILUTED
-------
Income before discontinued operations $ 0.11 $ 0.32 $ 0.21 $ 0.75
Gain on sale of discontinued operations -- $ 0.87 -- $ 0.88
Income from discontinued operations $ 0.06 $ 0.03 $ 0.15 $ 0.13
--------- --------- --------- --------
NET INCOME $ 0.17 $ 1.22 $ 0.36 $ 1.76
========= ========= ========= ========
SHARES USED IN COMPUTING NET INCOME
PER SHARE
Basic 6,944 6,692 6,937 6,700
========= ========= ========= ========
Diluted 7,235 7,470 7,062 7,320
========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE
QUARTERS AND NINE MONTHS ENDED AUGUST 1, 1999 AND JULY 30, 2000
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
---------------------- ----------------------
Restated Restated
August 1, July 30, August 1, July 30,
1999 2000 1999 2000
--------- --------- --------- --------
<S> <C> <C> <C> <C>
NET INCOME $1,202 $9,104 $2,567 $12,880
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment 3 15 86 29
--------- --------- --------- --------
COMPREHENSIVE INCOME $1,205 $9,119 $2,653 $12,909
========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED AUGUST 1, 1999 AND JULY 30, 2000
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Restated
August 1, July 30,
1999 2000
---------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,567 $ 12,880
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,924 1,977
Gain on sale of equipment 9 --
Income from discontinued operation (1,083) (943)
Gain on sale of discontinued operation -- (6,478)
Net cash provided by discontinued operation 1,705 1,124
Stock option compensation expense 56 --
Cumulative translation adjustment 86 15
Changes in assets and liabilities:
Increase in accounts receivable (123) (2,369)
Decrease (increase) in inventory 1,451 (1,285)
Increase in prepaid expenses (374) (264)
Increase (decrease) in accounts payable (1,791) 987
Increase in accrued compensation and related benefits 137 292
Decrease in other liabilities (600) (720)
---------- --------
Net cash provided by operating activities 3,964 5,216
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 81 --
Proceeds from business divestiture -- 12,300
Purchase of property and equipment (512) (1,367)
Decrease in other assets, net 2 28
---------- --------
Net cash (used in) provided by investing activities (429) 10,961
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 31 191
Proceeds from revolving credit lines 43,131 49,752
Payments on revolving credit lines (49,124) (52,551)
Proceeds from term debt 5,400 --
Payments on term debt (4,064) (1,310)
---------- --------
Net cash used in financing activities (4,626) (3,918)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,091) 12,259
---------- --------
CASH AND CASH EQUIVALENTS, beginning of period 1,387 233
---------- --------
CASH AND CASH EQUIVALENTS, end of period $ 296 $ 12,492
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization
Alpha Technologies Group, Inc. ("Alpha" or the "Company"), through its
wholly owned subsidiaries, manufactures thermal management products and custom
designed subsystems.
Thermal management products, principally heat sinks, are primarily
fabricated aluminum extrusions that have high surface area to volume ratios and
are engineered to dissipate unwanted heat generated by electronic components. As
systems become increasingly more powerful and packaging becomes smaller, the
need to dissipate heat becomes more important to the reliability and
functionality of electronic systems. The Company's thermal management products
serve the microprocessor, computer, automotive, telecommunication, industrial
controls, transportation, power supply, factory automation, consumer
electronics, aerospace and defense industries.
Custom designed subsystems are operational sub-units integrated into major
networks for data transmission, retrieval and transfer. The Company designs,
fabricates and tests custom designed subsystems for the defense industry, the
telecommunications industry and certain commercial markets.
During the third quarter of fiscal 2000, the Company's connector operation
was sold and the subsystems operation was reclassified as an asset held for sale
so that the Company could focus on its growing thermal management business. (See
Footnote 4: Discontinued Operations)
(2) Restated and Consolidated Financial Statements
On July 28, 2000, the Company sold its connector business located in South
Pasadena, California and Swindon England, which operated under the trade names
Microdot Connectors and Microdot Connectors Europe, Ltd. to Tyco Electronics
Corporation. The 1999 financial statements have been restated to reclassify (i)
the assets and liabilities of such business to "Net Assets of Discontinued
Operation" and (ii) the results of such business to "income from discontinued
operation". In addition, the board has approved the sale of the Company's
subsystems business. Accordingly, the 1999 financial statements have also been
restated to reclassify (i) the assets and liabilities of Alpha's subsystem
business to "Net Assets of Discontinued Operation" and (ii) the results of such
business to "income from discontinued operation".
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
7
<PAGE>
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. All material intercompany transactions
and balances have been eliminated. Certain prior year amounts have been
reclassified to conform to fiscal 2000 presentation.
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.
(3) Inventories
<TABLE>
<CAPTION>
Inventories consisted of the following on Restated
(in thousands): October 31, July 30,
1999 2000
----------- ----------
<S> <C> <C>
Raw materials and components $ 2,260 $2,576
Work in process 1,882 2,439
Finished goods 2,024 1,716
----------- ----------
6,166 6,731
Valuation reserve (1,162) (442)
----------- ----------
$ 5,004 $6,289
=========== ==========
</TABLE>
Inventory reserves decreased due to the write off of inventory which was
reserved for in prior years.
(4) Discontinued Operations
On July 28, 2000, pursuant to a Stock Purchase Agreement (the "Agreement"),
the Company sold its connector business, Uni-Star Industries, Inc. ("Uni-Star"
or the "Business") to Tyco Electronics Corporation and Tyco Electronics UK Ltd.
(the "Buyer"). The sale included 100% of the outstanding stock of Uni-Star
Industries, Inc. and Microdot Connectors Europe, Ltd. (a wholly owned UK
subsidiary of Uni-Star) and the agreement by Alpha and certain of their
affiliates not to engage in the connector business for five years.
Alpha received $12,300,000, in cash subject to reduction if Uni-Star's Net
Assets (as defined in the Stock Purchase Agreement) is determined to be less
than $3,986,000 as of the closing date. The purchase price was a negotiated
amount between Buyer and Seller. The sale resulted in a gain of approximately
$6,478,000, net of state income tax expense of $640,000. The tax provision
recorded on the gain on sale is not at statutory rates due to the Company's
utilization of its net operating loss carryforwards.
In addition, the board has approved the sale of the Company's subsystems
business (Malco Technologies, Inc.). Accordingly, the results of operations for
the Company's connector business which was sold and its sub-systems business are
reflected in the accompanying consolidated financial statements as discontinued
operations. Previously these businesses were reported as the "Connector Segment"
and "Subsystems segment" for reporting purposes.
8
<PAGE>
Summary operating results of the discontinued operations are as follows:
<TABLE>
<CAPTION>
Connector Operations - Sold July 28, 2000 Quarter Ended Nine Months Ended
------------------------- -------------------------
(in thousands) August 1, July 30, August 1, July 30,
1999 2000 1999 2000
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Sales $2,504 $2,479 $8,272 $7,058
Costs and expenses 2,264 2,304 7,519 6,463
----------- ---------- ----------- ----------
Net income of discontinued operation sold $ 240 $ 175 $ 753 $ 595
=========== ========== =========== ==========
<CAPTION>
Subsystems Operations Held For Sale Quarter Ended Nine Months Ended
------------------------- -------------------------
(in thousands) August 1, July 30, August 1, July 30,
1999 2000 1999 2000
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Sales $1,509 $1,250 $4,620 $4,292
Costs and expenses 1,367 1,198 4,290 3,944
----------- ---------- ----------- ----------
Net income of discontinued operation held for sale $ 142 $ 52 $ 330 $ 348
=========== ========== =========== ==========
</TABLE>
No income tax provision was provided in income from discontinued operations
due to the Company's use of its net operating loss carryforwards.
Summary Balance Sheet Data For Connector Operation -- Sold July 28, 2000
<TABLE>
<CAPTION>
October 31,
1999
-------------
<S> <C>
Current assets $3,212
Property plant and equipment 1,515
Non-current assets 244
Current liabilities (836)
Non-current liabilities (149)
-------------
$3,986
=============
</TABLE>
Summary Balance Sheet Data For Subsystem Operation Held For Sale
<TABLE>
<CAPTION>
October 31, July 30,
1999 2000
------------- ----------
<S> <C> <C>
Current assets $2,248 $2,102
Property plant and equipment 249 204
Non-current assets 480 444
Current liabilities (818) (778)
Non-current liabilities (84) (25)
------------- ----------
$2,075 $1,947
============= ==========
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
---------------------
On July 28, 2000, pursuant to a Stock Purchase Agreement (the "Agreement"),
the Company sold its connector business, Uni-Star Industries, Inc. ("Uni-Star"
or the "Business") to Tyco Electronics Corporation and Tyco Electronics UK Ltd.
(the "Buyer"). The sale included 100% of the outstanding stock of Uni-Star
Industries, Inc. and Microdot Connectors Europe, Ltd. (a wholly owned UK
subsidiary of Uni-Star) and the agreement by Alpha and certain of their
affiliates not to engage in the connector business for five years.
In addition, the board has approved the sale of the Company's subsystems
business, Malco Technologies, Inc. Accordingly, the results of operations for
the Company's connector business which was sold and its sub-systems business are
reflected in the accompanying consolidated financial statements as discontinued
operations. Previously these businesses were reported as the "Connector Segment"
and "Subsystems segment" for reporting purposes.
Quarter to Quarter Comparison
-----------------------------
Net Income and Income from Continuing Operations. Net income for the third
quarter of fiscal 2000 was $9,104,000, which includes $2,399,000 in income from
continuing operations, a $6,478,000 gain from the sale of the Company's
connector business and $227,000 in income from discontinued operations. Net
income for the 1999 quarter was $1,202,000 including $820,000 from continuing
operations and $382,000 from discontinued operations. The increase in income
from continuing operations is primarily due to an increase in sales and gross
margin from the Company's thermal management business.
Sales. Sales for the third quarter of fiscal 2000 increased 34.7% to
$16,244,000 from $12,056,000 for the same period of fiscal 1999. Management
believes that the increase in sales is due to the Company's ability to better
serve its thermal management customers including improvements in customer
service, shorter lead times, and better on-time delivery.
Gross Profit. The Company's overall gross profit as a percentage of total
revenues ("gross profit percentage") for the third quarter of fiscal 2000 was
31.3% compared to 26.2% for the 1999 fiscal quarter. The increase in gross
profit percentage is a result of the increase in sales and the effects of
programs to forgo lower margin sales, enhance productivity and lower costs. In
addition, the Company continues to focus on improving manufacturing
efficiencies.
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the third quarter of fiscal 2000 were $2,231,000, or
13.7% of sales, compared to $1,954,000, or 16.2% of sales, for
10
<PAGE>
the 1999 quarter. SG&A expenses as a percentage of sales, decreased due to
higher sales volume without a proportional increase in SG&A expenses in the 2000
quarter as compared to the prior year.
Interest and Other Income (Net). Interest expense was $158,000 and $205,000
for the third quarter of fiscal 2000 and 1999, respectively. This decrease was
due to a decrease in the average outstanding borrowing base partially offset by
an increase in the effective interest rate paid on outstanding debt. The
effective interest rate increased due to the market increase in the base rate
used to calculate the interest charged on the Company's debt (See "Liquidity and
Capital Resources" below).
Provision for Income Tax. Income from continuing operations reflects a
$50,000 state income tax provision. The Company's tax provision is not at
statutory rates due to the Company's utilization of its net operating loss
carryforwards. The Company expects to record a net tax provision of between 15-
20% in the fourth quarter of fiscal 2000 and at the full statutory rate of
between 36-40% for its fiscal 2001.
Gain on sale of discontinued operation. On July 28, 2000, pursuant to a
Stock Purchase Agreement (the "Agreement"), the Company sold its connector
business, Uni-Star Industries, Inc. ("Uni-Star" or the "Business") to Tyco
Electronics Corporation and Tyco Electronics UK Ltd. (the "Buyer"). The sale
included 100% of the outstanding stock of Uni-Star Industries, Inc. and Microdot
Connectors Europe, Ltd. (a wholly owned UK subsidiary of Uni-Star) and the
agreement by Alpha and certain of their affiliates not to engage in the
connector business for five years. The Company received $12,300,000, in cash
subject to reduction if Uni-Star's Net Assets (as defined in the Stock Purchase
Agreement) is determined to be less than $3,986,000 as of the closing date. The
purchase price was a negotiated amount between Buyer and Seller.
Nine Months to Nine Months Comparison
-------------------------------------
Net Income and Income from Continuing Operations. Net income for the first
nine months of fiscal 2000 was $12,880,000 which includes $5,459,000 in income
from continuing operations, a $6,478,000 gain from the sale of the Company's
connector business and $943,000 in income from discontinued operations. Net
income for the first nine months of fiscal 1999 was $2,567,000 including
$1,484,000 from continuing operations and $1,083,000 from discontinued
operations. The increase in income from continuing operations is primarily due
to the increase in sales and gross margin from the Company's thermal management
business.
Sales. The Company's sales for the first nine months of fiscal 2000
increased 22.0% to $43,486,000 from $35,652,000 for the same period of fiscal
1999. Management believes that the increase in sales is due to the Company's
ability to better serve its thermal management customers including improvements
in customer service, shorter lead times, and better on-time delivery.
Gross Profit. The Company's gross profit as a percentage of total revenues
("gross profit percentage") for the first nine months of fiscal 2000 was 29.4%
compared to 24.4% for the 1999 period. This increase was
11
<PAGE>
due to the effects of programs to forgo lower margin sales, enhance productivity
and lower costs. In addition, the Company has continued to focus on
manufacturing efficiencies.
Selling, General and Administrative Expense. Selling, general and
administrative expenses for the nine months of fiscal 2000 were $6,250,000, or
14.3% of sales, compared to $5,971,000, or 16.7% of sales, for the 1999 period
which included $180,000 accrued in the first quarter of 1999 for the
cancellation of a contractual obligation. SG&A expenses (excluding the
additional accrual in 1999), as a percentage of sales, decreased due to higher
sales volume without a proportional increase in SG&A expenses in the first half
of 2000 as compared to the prior year.
Interest and Other Income (Net). Interest expense was $556,000 and $716,000
for the first nine months of fiscal 2000 and 1999, respectively. This decrease
was due to a decrease in the average outstanding borrowing base partially offset
by an increase in the effective interest rate paid on outstanding debt. The
effective interest rate increased due to the market increase in the base rate
used to calculate the interest charged on the Company's debt (See "Liquidity and
Capital Resources" below). The Company recorded other income (net) for the first
nine months of fiscal 2000 of $149,000 which was primarily a result of a
$160,000 reversal of the accrual expensed in prior periods for environmental
litigation related to the Company's Lockhart facility. In April 2000, the
parties reached a settlement under which the suit was dismissed.
Provision for Income Tax. Income from continuing operations reflects a
$50,000 state income tax provision. The Company's tax provision is not at
statutory rates due to the Company's utilization of its net operating loss
carryforwards. The Company expects to record a net tax provision of between 15-
20% in the fourth quarter of fiscal 2000 and at the full statutory rate of
between 36-40% for its fiscal 2001.
Gain on sale of discontinued operation. On July 28, 2000, pursuant to a
Stock Purchase Agreement (the "Agreement"), the Company sold its connector
business, Uni-Star Industries, Inc. ("Uni-Star" or the "Business") to Tyco
Electronics Corporation and Tyco Electronics UK Ltd. (the "Buyer"). The sale
included 100% of the outstanding stock of Uni-Star Industries, Inc. and Microdot
Connectors Europe, Ltd. (a wholly owned UK subsidiary of Uni-Star) and the
agreement by Alpha and certain of their affiliates not to engage in the
connector business for five years. The Company received $12,300,000, in cash
subject to reduction if Uni-Star's Net Assets (as defined in the Stock Purchase
Agreement) is determined to be less than $3,986,000 as of the closing date. The
purchase price was a negotiated amount between Buyer and Seller.
12
<PAGE>
Liquidity and Capital Resources
On July 30, 2000, the Company had cash of approximately $12,492,000
compared to $233,000 on October 31, 1999. The Company was able to operate with a
low level of cash because of its ability to draw on its revolving credit line
daily. For the nine months ended July 30, 2000, $5,216,000 in cash was provided
by operating activities and $12,300,000 was provided from the sale of the
Company's connector business. During the first nine months of fiscal 2000, the
Company used $1,367,000 in investing activities for capital equipment purchases
and will spend between $1,500,000 to $2,000,000 in the fourth quarter to improve
manufacturing capabilities, add capacity and to refurbish and upgrade existing
machinery. The Company used $4,109,000 to reduce debt for first nine months of
fiscal 2000.
Effective April 16, 1999, the Company and its subsidiaries (hereinafter
referred to as "Borrowers") became parties to a loan and security agreement (the
"Agreement") with a commercial lender. The Agreement provides for revolving
loans of up to $10,500,000, a $5,400,000 term note payable monthly over five
years, and an equipment acquisition facility of up to $3,000,000. The advances
on the revolving loans are based on the eligible accounts receivable and
inventories and the advances on the equipment acquisition facility may be used
only for the purpose of funding capital equipment purchases by the Borrowers.
The maturity date of the Agreement is April 15, 2004.
On July 30, 2000, there was no outstanding balance on the revolving credit
facility. Interest accrues on the revolving credit facility at the prime rate
announced by First Union National Bank plus .25% (9.75% per annum on July 30,
2000). There is an unused line fee equal to .5% per annum on the difference
between $10,500,000 and the average daily outstanding principal balance of
Revolving Loans during each month payable monthly in arrears on the first day of
each month. The $5,400,000 term note accrues interest at the prime rate
announced by First Union National Bank plus .25% (9.75% per annum on July 30,
2000) and is payable in fifty-nine (59) equal monthly installments of $90,000
beginning April 30, 1999 and a final installment equal to all unpaid principal
on March 31, 2004, together, in each instance, with interest thereon to the date
of payment. On July 30, 2000, $3,550,000 was outstanding on the term loan and
there were no borrowings on the equipment acquisition facility. In connection
with the sale of Uni-Star and the release of Uni-Star as a borrower under the
credit facilities, on July 28, 2000, the Company made a $500,000 payment on the
term loan. The obligations under the Agreement are secured by a first lien on
and assignment of all of the assets of the Borrowers which in aggregate total
$44,362,000 on July 30, 2000.
Working capital (which excludes amounts due under the revolving credit
facility) on July 30, 2000 was $21,197,000 compared to $11,353,000 on October
31, 1999. The increase in working capital during the first nine months of fiscal
2000 is primarily due to proceeds derived from the sale of the Company's
connector business. The Company believes its currently available cash,
anticipated cash flow from operations and availability under its credit facility
is sufficient to fund its operations in the near-term.
13
<PAGE>
Forward Looking Statements
In conjunction with the provisions of the "Safe Harbor" section of the Private
Securities Litigation Reform Act of 1995, this quarterly report Form 10-Q may
contain forward-looking statements pertaining to future anticipated projected
plans, performance and developments, as well as other statements relating to
future operations. All such forward-looking statements are necessarily only
estimates of future results and there can be no assurance that actual results
will not materially differ from expectations. Further information on potential
factors which could affect the Company, 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 materials, fluctuations in operating results, ability to
retain and attract personnel including management and other risks detailed
herein and in the Company's other filings with the Securities and Exchange
Commission.
14
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
There are no material pending legal proceedings against the Company and, to
the Company's knowledge, no such proceedings are threatened.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
11.1 Statement re Computation of Per Share Earnings for the quarters
and nine months ended August 1, 1999 and July 30, 2000.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
The Company filed a Form 8-K dated July 28, 2000 reporting that the
Company, pursuant to a Stock Purchase Agreement (the "Agreement") dated July 28,
2000, sold its connector business, Uni-Star Industries, Inc. ("Uni-Star" or the
"Business") to Tyco Electronics Corporation and Tyco Electronics UK Ltd. (the
"Buyer"). The sale included 100% of the outstanding stock of Uni-Star
Industries, Inc. and Microdot Connectors Europe, Ltd. (a wholly owned UK
subsidiary of Uni-Star) and the agreement by Alpha and certain of their
affiliates not to engage in the connector business for five years.
Alpha received $12,300,000, in cash subject to reduction if Uni-Star's Net
Assets (as defined in the Stock Purchase Agreement) is determined to be less
than $3,986,000 as of the closing date. The purchase price was a negotiated
amount between Buyer and Seller.
15
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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: September 8, 2000 By: /s/ Lawrence Butler
-------------------------- -----------------------------------------
Lawrence Butler
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: September 8, 2000 By: /s/ Johnny J. Blanchard
-------------------------- -----------------------------------------
Johnny J. Blanchard
Chief Financial Officer
(Principal Financial and Accounting
Officer)
16
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EXHIBIT INDEX
Exhibit Page No.
------- --------
11.1 Statement re Computation of Per Share Earnings for the
quarters and nine months ended August 1, 1999 and July 30,
2000.
27.1 Financial Data Schedule
17
