<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________________________
Commission File Number: 0-8354
NSTOR TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 95-2094565
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Century Blvd.
West Palm Beach, FL 33417
(Address of principal executive office)
(561) 640-3103
(Registrant's telephone number)
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 [ ]
Number of shares outstanding of the Registrant's Common Stock, par value $.05
per share, as of October 31, 1999: 22,720,061
<PAGE> 2
nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page
Number
------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30,
1999 (Unaudited) and December 31, 1998 3
Consolidated Statements of Operations
(Unaudited) for the three and nine months
ended September 30, 1999 and 1998 4
Consolidated Statements of Stockholders'
Equity (Unaudited) for the nine months
ended September 30, 1999 5
Consolidated Statement of Cash Flows
(Unaudited) for the nine months ended
September 30, 1999 and 1998 6-7
Notes to Consolidated Financial Statements
(Unaudited) 8-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-20
Item 3. Not applicable
Part II. OTHER INFORMATION 21-22
SIGNATURES 22
</TABLE>
2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
nSTOR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
Sept. 30,
1999 Dec. 31,
(unaudited) 1998
----------- --------
<S> <C> <C>
ASSETS (Notes 2 and 4)
Current assets:
Cash and cash equivalents:
Unrestricted $ 235 $ 147
Restricted (Note 4) 523 21
Accounts receivable (Note 3) 8,958 2,462
Inventories (Note 3) 7,946 3,028
Prepaid expenses and other 1,468 364
-------- --------
Total current assets 19,130 6,022
Property and equipment, net (Note 3) 3,620 1,653
Goodwill and other intangible assets,
net (Notes 2 and 3) 15,875 5,953
Restricted cash and other non-current
assets (Note 4) 259 500
-------- --------
$ 38,884 $ 14,128
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt (Note 4) $ 1,717 $ 500
Accounts payable and other 13,316 3,435
-------- --------
Total current liabilities 15,033 3,935
Long-term debt (Note 4) 16,533 7,043
Minority interests (30) --
-------- --------
Total liabilities 31,536 10,978
-------- --------
Commitments and contingencies
STOCKHOLDERS' EQUITY (Notes 2 and 5)
Preferred stock, $.01 par; shares authorized 1,000,000;
shares issued and outstanding at September 30, 1999 -
Series A, Series C, Series D, Series E and Series F
Convertible Preferred Stock, 1,667, 3,000, 2,700,
3,500 and 4,654 shares, respectively; at December 31,
1998 - Series A, C and D Convertible Preferred Stock,
1,667, 3,000 and 2,700 shares, respectively -- --
Common stock, $.05 par; shares authorized 75,000,000;
22,715,061 and 20,515,425 shares issued and outstanding
at September 30, 1999 and December 31, 1998, respectively 1,135 1,025
Additional paid-in capital 53,897 40,409
Deficit (47,684) (38,284)
-------- --------
Total stockholders' equity 7,348 3,150
-------- --------
$ 38,884 $ 14,128
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
nSTOR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
----------------------------- -----------------------------
1999 1998 1999 1998
(unaudited) (unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 17,546 $ 5,826 $ 28,355 $ 15,170
Cost of sales 12,531 5,015 22,020 12,700
------------ ------------ ------------ ------------
Gross profit 5,015 811 6,335 2,470
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative 4,639 1,945 9,521 6,638
Research and development 835 748 2,053 1,897
Depreciation and amortization 1,124 361 2,102 991
------------ ------------ ------------ ------------
Total operating expenses 6,598 3,054 13,676 9,526
------------ ------------ ------------ ------------
Loss from operations (1,583) (2,243) (7,341) (7,056)
Interest and other income 77 16 185 56
Interest expense (650) (242) (1,451) (723)
Minority interests 109 -- 145 --
------------ ------------ ------------ ------------
Net loss (2,047) (2,469) (8,462) (7,723)
Preferred stock dividends (300) (68) (606) (128)
Embedded dividends attributable to
beneficial conversion privileges and
warrants issued in connection with
Convertible Preferred Stock (6) (323) (332) (1,045)
------------ ------------ ------------ ------------
Net loss applicable to common stock ($2,353) ($2,860) ($9,400) ($8,896)
============ ============ ============ ============
Basic and diluted net loss per
common share ($.10) ($.15) ($.43) ($.47)
============ ============ ============ ============
Average number of common shares
outstanding, basic and diluted 22,692,189 18,852,103 21,895,876 18,732,882
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
nSTOR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
Preferred
Common Stock Stock Additional
----------------------- ----------------- Paid-In
Shares Amount Shares Amount Capital Deficit Total
---------- ---------- ------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December
31, 1998 20,515,425 $ 1,025 7,367 $ -- $ 40,409 ($38,284) $ 3,150
Issuance of Convertible
Preferred Stock:
Series E 3,500 -- 3,484 3,484
Series F 4,654 -- 4,633 4,633
Issuance of common stock
in connection with:
Satisfaction of borrowings 645,000 32 1,258 1,290
Exercise of options and
warrants 987,969 50 1,526 1,576
Other 566,667 28 1,118 1,146
Common stock warrants issued
in connection with:
Long-term debt 791 791
Acquisition 200 200
Common stock options granted
to non-employees 146 146
Preferred stock dividends (606) (606)
Embedded dividend attribut-
able to beneficial conver-
sion privilege of Series A
Convertible Preferred Stock 181 (181) --
Embedded dividend attributable
to common stock warrants
issued in connection with
Series E Convertible
Preferred Stock 151 (151) --
Net loss for the nine
months ended Sept. 30, 1999 (8,462) (8,462)
---------- ---------- ----- -------- ---------- ---------- ----------
Balances, Sept. 30,
1999 (unaudited) 22,715,061 $ 1,135 15,521 $ -- $ 53,897 ($47,684) $ 7,348
========== ========== ====== ======-- ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
nSTOR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended Sept. 30,
--------------------------
1999 1998
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($8,462) ($7,723)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 2,102 991
Provision for losses on accounts receivable 883 561
Provision for inventory obsolescence 782 995
Amortization of deferred financing costs 474 94
Amortization of deferred compensation 157 --
Minority interests and other (15) --
Changes in assets and liabilities, net of
effects from acquisitions:
Increase in accounts receivable (669) (754)
Decrease in inventories 516 85
Increase in prepaid expenses and other (16) (46)
Decrease in accounts payable and other (942) (2,315)
-------- --------
Net cash used by operating activities (5,190) (8,112)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (337) (434)
Cash paid for acquisitions (1,058) (379)
-------- --------
Net cash used by investing activities (1,395) (813)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) on revolving
credit facilities (2,267) (841)
Additions to other borrowings 6,880 24,155
Repayment of other borrowings (1,990) (17,996)
Issuance of preferred stock, net 1,962 3,237
Proceeds from exercise of stock options
and warrants 1,576 --
Issuance of common stock 1,000 --
Cash paid for preferred stock dividends (488) (5)
Increase in restricted cash and cash equivalents -- 503
-------- --------
Net cash provided by financing activities 6,673 9,053
-------- --------
Net increase in unrestricted cash
and cash equivalents during the period 88 128
Unrestricted cash and cash equivalents at the
beginning of the period 147 61
-------- --------
Unrestricted cash and cash equivalents at the
end of the period $ 235 $ 189
======== ========
</TABLE>
6
<PAGE> 7
nSTOR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)(concluded)
<TABLE>
<CAPTION>
Nine Months
Ended Sept. 30,
--------------------------
1999 1998
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period for interest $ 944 $ 528
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Non-Cash Investing Activities:
Acquisitions (Note 2):
Fair value of assets acquired $ 27,940 $ 527
Liabilities assumed (16,782) --
Acquisition Notes issued (5,100) --
Series F Convertible Preferred Stock issued (4,654) --
Common stock issued (146) --
Warrants issued (200) (148)
-------- --------
Cash paid $ 1,058 $ 379
======== ========
NON-CASH FINANCING ACTIVITIES:
Issuance of common stock in satisfaction of
borrowings (Note 4) $ 1,290 $ --
======== ========
Issuance of preferred stock in satisfaction
of borrowings (Note 4) $ 1,500 $ 2,500
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
nSTOR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of nStor
Technologies, Inc. and all majority owned subsidiaries (the "Company").
Significant intercompany balances and transactions have been eliminated in
consolidation.
In the opinion of management, the unaudited consolidated financial statements
furnished herein include all adjustments, consisting only of recurring
adjustments necessary for a fair presentation of the results of operations for
the interim periods presented. These interim results of operations are not
necessarily indicative of results for the entire year. The consolidated
financial statements contained herein should be read in conjunction with the
consolidated financial statements and related notes contained in the Company's
1998 Annual Report on Form 10-K/A.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required for complete financial statements.
Certain items in the 1998 consolidated financial statements have been
reclassified to conform with the current presentation. These reclassifications
had no impact on operating results previously reported.
Business
The Company is engaged as a manufacturer and supplier of high availability,
high-performance information storage and Storage Area Networking (SAN)
solutions, including external RAID (Redundant Array of Independent Disks)
solutions, desktop storage systems, advanced storage management software and
AdaptiveRAID(R) technology. nStor products are marketed through a worldwide
network of OEMs and distributors.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net Loss Per Common Share ("EPS")
The effect of including potentially dilutive securities in the EPS calculation
would have been anti-dilutive. Accordingly, basic and diluted EPS for all
periods presented are equivalent.
8
<PAGE> 9
As of September 30, 1999, outstanding potentially dilutive securities include
2,365,000 shares underlying stock options, 10,084,666 shares underlying
convertible preferred stock, 2,411,997 shares underlying warrants and 160,000
shares underlying convertible debt.
(2) ACQUISITION
Effective June 1, 1999, the Company acquired approximately 76% of the
outstanding common stock of Andataco, Inc. ("Andataco") from affiliates of W.
David Sykes ("Mr. Sykes"), Andataco's president at that time. In addition, the
Company acquired a promissory note in the amount of $5.2 million payable by
Andataco to Mr. Sykes. The aggregate purchase price was $10.5 million,
consisting of: (i) $.5 million in cash, (ii) $5.1 million in promissory notes
("Acquisition Notes" - Note 4), (iii) $4.7 million of Series F Convertible
Preferred Stock (Note 5) which is convertible into 1,551,333 shares of the
Company's common stock and (iv) warrants to purchase 155,133 shares of the
Company's common stock, exercisable upon issuance for three years at $3.30 per
share, valued at $.2 million on the date of closing using the Black-Scholes
option pricing model. In addition, the Company incurred transaction costs of $.7
million. Andataco was a publicly held company headquartered in San Diego,
California which designed, manufactured and distributed information storage
solutions for Windows NT and UNIX environments.
On July 16, 1999, the Company acquired newly issued shares of Andataco common
stock from Andataco for $.5 million in cash, increasing the Company's ownership
to 77.2% (Note 4(b)).
Pursuant to an Agreement and Plan of Merger dated August 27, 1999, on November
2, 1999, the Company acquired the remaining 22.8% of Andataco from Andataco's
minority shareholders for an aggregate purchase price of $1.8 million,
consisting of 924,000 shares of the Company's common stock. In addition, the
Company incurred transaction costs of approximately $.3 million. Pursuant to the
Merger Agreement, a wholly-owned subsidiary of the Company was merged into
Andataco with Andataco becoming a wholly-owned subsidiary of the Company (the
"Merger").
The Andataco acquisition has been accounted for using the purchase method of
accounting with assets acquired and liabilities assumed recorded at their fair
values as of the respective dates of acquisition and the results of Andataco's
operations included in the Company's consolidated financial statements from
those dates. Allocation of the purchase price of the Andataco acquisition has
been made on a preliminary basis subject to adjustment should new or additional
facts about the business become known. The excess of the aggregate purchase
price over the fair value of net assets acquired (goodwill) approximated $13
million (consisting of $10.8 million as of September 30, 1999 and $2.2 million
arising from the Merger) and is being amortized over seven years.
9
<PAGE> 10
(3) BALANCE SHEET COMPONENTS (in thousands)
Substantially all assets are pledged as collateral for indebtedness (Note 4).
<TABLE>
<CAPTION>
Sept.30, Dec.31,
1999 1998
(unaudited)
----------- --------
<S> <C> <C>
Accounts Receivable
Trade receivables $ 10,511 $ 2,964
Less allowance for doubtful accounts (1,553) (502)
-------- --------
$ 8,958 $ 2,462
======== ========
Inventories
Raw materials $ 7,321 $ 2,641
Work-in-process 369 95
Finished goods 256 292
-------- --------
$ 7,946 $ 3,028
======== ========
</TABLE>
Inventories are stated at the lower of cost or market, with cost being
determined based on the first-in, first-out (FIFO) method. Reserves are recorded
as necessary to reduce obsolete and slow moving inventory to estimated net
realizable value.
<TABLE>
<CAPTION>
Sept.30, Dec.31,
1999 1998
(unaudited)
----------- --------
<S> <C> <C>
Property and Equipment
Equipment $ 3,670 $ 1,313
Computer software 749 729
Furniture and fixtures 505 288
Leasehold improvements 875 332
Other 296 243
-------- --------
6,095 2,905
Less accumulated depreciation (2,475) (1,252)
-------- --------
$ 3,620 $ 1,653
======== ========
</TABLE>
Property and equipment are stated at cost. Depreciation is provided under the
straight-line method over the estimated useful lives, principally five years.
<TABLE>
<S> <C> <C>
Goodwill and Other Intangible Assets
Goodwill $ 17,346 $ 6,545
Intellectual assets 347 347
-------- --------
17,693 6,892
Less accumulated amortization (1,818) (939)
-------- --------
$ 15,875 $ 5,953
======== ========
</TABLE>
10
<PAGE> 11
Goodwill represents the excess cost of acquired businesses over the fair value
of net assets acquired. Intellectual assets consist of trademarks and
proprietary technology. Goodwill and intellectual assets are carried at cost and
are being amortized on a straight-line basis over seven to fifteen years.
Amortization of intangible assets was $506,000 and $879,000 for the three and
nine months ended September 30, 1999, respectively, and $122,000 and $347,000
for the three and nine months ended September 30, 1998, respectively.
(4) LONG-TERM DEBT
(a) The Company's borrowings consisted of the following (in thousands):
<TABLE>
<CAPTION>
Sept.30, Dec.31,
1999 1998
(unaudited)
----------- --------
<S> <C> <C>
Asset based revolving credit facilities:
Andataco Revolver (Note 4(b)) $ 4,481 $ --
nStor Revolver (Note 4(c)) 952 1,738
Acquisition Notes, interest at 9.5%
per annum, due July 2004 (Note 2) 5,100 --
Subordinated Notes (net of $633 and
$287 unamortized discount) (Note 4(d)) 6,167 4,713
Notes convertible into 160,000 shares
of common stock (net of $220 and $214
unamortized discount), due in 2000 620 592
Other (Note 4(e)) 930 500
-------- --------
18,250 7,543
Less current maturities (1,717) (500)
-------- --------
$ 16,533 $ 7,043
======== ========
</TABLE>
(b) Andataco Revolver
The Andataco Revolver provides for borrowings based on the lesser of $10 million
or: (i) 85% of eligible accounts receivable, as defined, plus (ii) the lesser of
$1.75 million or 23% of eligible inventory, as defined. The Andataco Revolver
currently bears interest at prime plus 1/2 percent (8.75% at September 30, 1999)
and matures in December 2002. Andataco pays a facility fee of .25% based on the
average unused portion of the maximum borrowings. Advances under the Andataco
Revolver are collateralized by substantially all assets of Andataco. The
Andataco Revolver provides for certain financial covenants, including Andataco
maintaining a certain minimum working capital and tangible net worth. During the
second quarter ended June 30, 1999, Andataco was not in compliance with the
financial covenant regarding tangible net worth; however, effective July 13,
1999, the lender agreed to waive the default, subject to, among other things,
receipt from nStor of a $.5 million capital contribution. On July 16, 1999,
nStor contributed $.5 million in cash as a capital contribution to Andataco
(Note 2).
11
<PAGE> 12
(c) nStor Revolver
The nStor Revolver provides for borrowings based on the lesser of $5 million or
80% of eligible accounts receivable, as defined, bears interest, based on prime
plus 2% (10.25% at September 30, 1999), and matures on August 3, 2000. The
Company pays a facility fee equal to 1% per annum on the total facility of $5
million. Advances under the nStor Revolver are collateralized by substantially
all assets of the Company (excluding those of Andataco), including $.5 million
reflected as Restricted Cash. The nStor Revolver provides for certain financial
covenants including current ratio and net worth requirements, limitations on
operating losses for the six month period ending December 31, 1998, and
restrictions on the incurrence of additional debt, capital expenditures and the
payment of dividends, other than preferred stock dividends. At December 31,
1998, the Company was not in compliance with the financial covenant concerning
the Company's operating loss for 1998; however, effective February 4, 1999, the
lender agreed to forbear from declaring a default. The Company has agreed to
repay the outstanding balance under the nStor Revolver by December 1999.
(d) Subordinated Notes
At September 30, 1999, the Subordinated Notes amounted to $6.8 million
(including $1.8 million borrowed from unrelated investors in January 1999). The
Subordinated Notes bear interest at 8%-10% per annum and mature on September 5,
2001, as extended. Of this amount, $5 million is collateralized by substantially
all assets of the Company (excluding those of Andataco). The Subordinated Notes
include $1 million held by H. Irwin Levy, Chairman of the Board of Directors and
a principal stockholder of the Company, or companies controlled by him
(collectively, "Mr. Levy"), $250,000 held by Bernard R. Green, a director,
$125,000 held by a company controlled by Mark F. Levy, a director and Mr. Levy's
son, and $125,000 held by a company controlled by other members of Mr. Levy's
family.
In connection with the Subordinated Notes, the Company issued warrants to
purchase 2,266,668 shares of the Company's common stock (including 600,000 in
1999). The warrants were valued under the Black-Scholes option-pricing model as
of their respective dates of issuance at an aggregate of $1.2 million (including
$.8 million in 1999) and were recorded as a discount to the Subordinated Notes,
of which $162,000 and $446,000 was amortized as interest expense for the three
and nine months ended September 30, 1999, respectively, and $41,000 and $94,000
was amortized as interest expense for the three and nine months ended September
30, 1998, respectively.
(e) Other
Included in other long-term debt at December 31, 1998 was $.3 million due to Mr.
Levy. The loan bore interest at 10% per annum and was repaid by the Company in
February 1999.
In March 1999, the Company borrowed $.8 million from Mr. Levy and $.5 million
from an unrelated private investor, respectively. Both loans bore interest at
10% per annum and were payable in September 1999. Effective as of March 30,
1999, the Company issued 645,000 of the Company's common stock (including
395,000 shares to Mr. Levy) in satisfaction of both notes.
From April 1, 1999 through June 10, 1999, Mr. Levy advanced an additional net
amount of $1.5 million to the Company (consisting of $2.3 million advanced, less
$.8 million repaid), with interest at 10% per annum. Effective June 8, 1999, the
Company issued Series E Convertible Preferred Stock with a stated value of $1.5
million in satisfaction of those borrowings (Note 5).
12
<PAGE> 13
From July 15, 1999 through November 12,1999, Mr. Levy loaned an additional net
amount of $.9 million (consisting of $1 million advanced, less $.1 million
repaid) under a promissory note which currently allows the Company to borrow up
to $1 million on a revolving basis with interest at 10% per annum, due 30 days
from demand. At September 30, 1999, the amount outstanding under this note was
$.6 million.
(5) CONVERTIBLE PREFERRED STOCK
The Company has five classes of convertible preferred stock (Series A, C, D, E
and F) with an aggregate stated value of $14.9 million (including $4.5 million
held by Mr. Levy). Series A, C and D preferred stock, with an aggregate stated
value of $6.7 million, accrues dividends at 8% per annum, payable quarterly, is
convertible at any time into an aggregate of 7,366,666 shares of the Company's
common stock, and has automatic conversion features in which each share not
converted by October 2001 (as to 2,700,000 shares) and July 2000 (as to
4,666,666 shares) is automatically converted into common stock. Series E and F
preferred stock, with an aggregate stated value of $8.2 million, accrues
dividends at 8% through June 7, 2000, 9% commencing June 8, 2000 and 10%
commencing June 8, 2001, and is convertible at any time into an aggregate of
2,718,000 shares of the Company's common stock.
In connection with the issuance of the Series E and F preferred stock in June
1999, the Company issued warrants to purchase 271,799 shares of the Company's
common stock (including 50,000 to Mr. Levy), exercisable upon issuance at $3.30
per share and expiring on June 8, 2002. The warrants issued in connection with
the Series E preferred stock (116,666 shares) were valued under the
Black-Scholes option-pricing model as of June 8, 1999 at $151,000 and were
recorded as an additional embedded dividend. The warrants issued to Mr. Sykes in
connection with the Series F preferred stock (155,133 shares) were also valued
under the Black-Scholes option-pricing model at $200,000 and were included in
the acquisition costs of Andataco (Note 2).
(6) INCOME TAXES
As of December 31, 1998, there were unused net operating loss carryforwards (the
"NOL's") for regular federal income tax purposes of approximately $18.4 million
principally expiring in 2012 and 2018, for which no financial statement benefit
had been recognized. In addition, the Company has research and development tax
credit carryforwards of approximately $802,000 which expire from 2002 through
2018 and in conjunction with the Alternative Minimum Tax ("AMT") rules, the
Company has available AMT credit carryforwards of approximately $332,000, at
December 31, 1998, which may be used indefinitely to reduce regular federal
income taxes.
At October 31, 1998, Andataco reported unused net operating loss carryforwards
for regular federal income tax purposes of approximately $13.9 million which
expire through 2018. Due to a change of control, nStor's ability to utilize
these carryforwards is limited.
(7) SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS
The Company operates predominantly in one business segment, information storage
solutions, including external RAID subsystems. During the nine months ended
September 30, 1999, one customer, Silicon Graphics, Inc., accounted for 21% of
the Company's sales.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
With the exception of discussion regarding historical information, "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains forward looking statements. Such statements are based on current
expectations subject to uncertainties and other factors which may involve known
and unknown risks that could cause actual results of operations to differ
materially from those projected or implied. Further, certain forward looking
statements are based upon assumptions about future events which may not prove to
be accurate.
Risks and uncertainties inherent in forward looking statements include, but are
not limited to, our future cash flows and ability to obtain sufficient
financing, timing and volume of sales orders, level of gross margins and
operating expenses, lack of market acceptance of our new product lines, price
competition, conditions in the technology industry and the economy in general,
our customers and vendors ability to achieve year 2000 functionality, our
ability to effectively integrate Andataco's operations with ours, as well as
legal proceedings. The economic risk associated with materials cost fluctuations
and inventory obsolescence is significant to our company. The ability to manage
our inventories through procurement and utilization of component materials could
have a significant impact on future results of operations or financial
condition. Historical results are not necessarily indicative of the operating
results for any future period.
Subsequent written and oral forward looking statements attributable to our
company or persons acting on our behalf are expressly qualified in their
entirety by cautionary statements in this Form 10-Q and in other reports filed
by our company with the Securities and Exchange Commission. The following
discussion should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto included elsewhere in this filing.
OVERVIEW
nStor Technologies, Inc. and our subsidiaries (collectively "nStor") are engaged
as manufacturers and suppliers of high-availability high-performance information
storage and Storage Area Networking (SAN) solutions, including external RAID
(Redundant Array of Independent Disks) solutions, desktop storage systems,
Network Attached Storage, data storage enclosures, advanced storage management
software solutions and AdaptiveRAID technology. We design, manufacture and sell
high performance fault tolerant data storage solutions that serve both the UNIX
and NT platforms.
nStor's activities in the information storage industry have evolved through
several acquisitions, the first of which occurred in June 1996 when we acquired
certain assets associated with the RAID business in Lake Mary, Florida, from
Seagate Peripherals, Inc. In December 1996, we acquired substantially all the
net assets of Parity Systems, Inc. In April 1998, we acquired Borg Adaptive
Technologies, Inc. which brought to our company the next generation of RAID
technology, AdaptiveRAID. In June and July 1999, we acquired approximately 77%
of the outstanding common stock of Andataco and in November 1999, we acquired
the remaining 23% of Andataco (collectively, the "Andataco Acquisition") (Note
2). Andataco is based in San Diego, California. As a result of the Andataco
Acquisition, we believe that period to period comparisons for the three and nine
months ended September 30, 1999 may not be meaningful.
14
<PAGE> 15
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS. SEPTEMBER 30, 1998
SALES
Net sales for the three months ended September 30, 1999 were $17.5 million as
compared to $5.8 million for the three months ended September 30, 1998, an
increase of $11.7 million or 202%. The increase was attributable to the Andataco
Acquisition, partially offset by delays in the market introduction of certain
new generation products and our elimination of non-storage related businesses,
including our memory and integrated system divisions.
During the second quarter, we entered into an Original Equipment Manufacturer
(OEM) agreement to supply high-performance RAID storage enclosures to Silicon
Graphics, Inc. (SGI). We began shipping products under SGI's initial purchase
order in May 1999. In the third quarter SGI announced that it had reached a
preliminary understanding with another computer systems company to form a joint
venture to assume the further development and distribution of its line of
Windows NT(R) platform-based workstations. As a direct result of this SGI
decision, actual shipments to SGI in the third quarter were below forecast and
are expected to be significantly below recent forecasts for the future. The
reduction in SGI shipments have been offset by the addition of Andataco sales
and expected replacement OEM agreements. There can be no assurance, however,
that such OEM agreements will be executed on terms acceptable to us.
COST OF SALES/GROSS MARGINS
Gross margins increased to 29% for the three months ended September 30, 1999 as
compared to 14% for the quarter ended September 30, 1998. Contributing to the
improved gross margins were the Andataco product sales and the utilization of
Andataco's sales channels to market our products. Our gross margins are
dependent, in part, on dynamic market pricing and on product mix which fluctuate
from time to time.
OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $4.6 million and $1.9 million
for the three months ended September 30, 1999 and 1998, respectively, an
increase of $2.7 million or 142%. This increase is primarily the result of the
Andataco Acquisition, which added $3.5 million in expenses for the third
quarter, which was partially offset by a $.8 million reduction in nStor
operating expenses. This reduction is primarily the result of the reduced levels
of salaries and travel costs associated with our integrated systems division
which was phased out and sold in October 1998.
RESEARCH AND DEVELOPMENT
Research and development expenses were $.8 million and $.7 million for the three
months ended September 30, 1999 and 1998, respectively. We believe that
considerable investments in research and development will be required to remain
competitive and expect that these expenses will increase in future periods.
Research and development costs are expensed as incurred and may fluctuate
considerably from time to time depending on a variety of factors. These costs
are substantially incurred in advance of related revenues, or in certain
situations, may not result in generating revenues.
15
<PAGE> 16
DEPRECIATION AND AMORTIZATION
Depreciation and amortization was $1.1 million and $.4 million for the three
months ended September 30, 1999 and 1998, respectively. The increase was
primarily due to the Andataco Acquisition (Note 2) which added $.4 of
depreciation from property and equipment and $.4 of amortization of goodwill for
the three months ended September 30, 1999.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 1999 increased to $.7
million from $.2 million in 1998 primarily as a result of indebtedness arising
from the Andataco Acquisition (Notes 2 and 4), an increase in other borrowings
and the amortization of financing costs arising from certain indebtedness (Note
4).
PREFERRED STOCK DIVIDENDS
For the quarter ended September 30, 1999, we recorded $6,000 as an embedded
dividend attributable to the beneficial conversion privilege on our Series A
Convertible Preferred Stock, as compared to $323,000 during the third quarter of
1998, which related to a series of preferred stock that was redeemed in October
1998.
For the three months ended September 30, 1999, all classes of our convertible
preferred stock ($14.9 million aggregate face amount) required cash dividends at
8% per annum which aggregated $300,000 (Note 5). For the three months ended
September 30, 1998, we had one class of preferred stock which earned $68,000 in
dividends.
NINE MONTHS ENDED SEPTEMBER 30, 1999 VS. SEPTEMBER 30, 1998
SALES
Net sales for the nine months ended September 30, 1999 were $28.4 million
representing an increase of $13.2 million or 87% over the nine months ended
September 30, 1998. The increase was attributable to the Andataco Acquisition,
partially offset by delays in market introduction of certain new generation
products and our elimination of non-storage related businesses including our
memory and integrated systems division (approximately $2.1 million in 1998). See
the quarterly discussion regarding SGI and Andataco for future sales
expectations.
COST OF SALES/GROSS MARGINS
Gross margins for the nine months ended September 30, 1999 were 22% as compared
to 16% for the nine months ended September 30, 1998. Included in cost of goods
sold for the nine months ended September 1999 was a $.8 million provision for
slow moving inventory (compared to $1.0 million in 1998). Excluding the
inventory adjustment, overall gross margins for the nine months ended September
30, 1999 were 25% as compared to 23% in 1998. Our gross margins are dependent,
in part, on dynamic market pricing and on product mix which fluctuate from time
to time.
16
<PAGE> 17
OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the nine months ended September
30, 1999 were $9.5 million as compared to $6.6 million for the nine months
ended September 30, 1998. This $2.9 million or 44% increase is primarily the
result of the Andataco Acquisition which added $4.7 million in expenses for the
nine months ended September 1999, and a $.9 million provision for uncollectible
accounts receivable (compared to $.6 million in 1998), partially offset by a
$2.7 million reduction in operating expenses at our Lake Mary location. The
reduction in expenses at that location is primarily attributable to the
elimination of expenses associated with the integrated system division which was
sold in October 1998.
RESEARCH AND DEVELOPMENT
Research and development expenses were $2.1 million and $1.9 million for the
nine months ended September 30, 1999 and 1998, respectively. Research and
development costs are expensed as incurred and may fluctuate considerably from
time to time depending on a variety of factors. These costs are substantially
incurred in advance of related revenues, or in certain situations, may not
result in generating revenues.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization was $2.1 million and $1.0 million for the nine
months ended September 30, 1999 and 1998, respectively. The increase was
primarily due to the Andataco Acquisition (Note 2) which added $.5 million of
depreciation from property and equipment and $.5 of amortization of goodwill for
the nine months ended September 30, 1999.
INTEREST EXPENSE
Interest expense for the nine months ended September 30, 1999 increased to $1.5
million from $.7 million in 1998 as a result of indebtedness arising from the
Andataco Acquisition (Notes 2 and 4), an increase in other borrowings and the
amortization of financing costs arising from certain indebtedness (Note 4).
PREFERRED STOCK DIVIDENDS
For the nine months ended September 30, 1999, we recorded $181,000 as an
embedded dividend attributable to the beneficial conversion privilege on our
Series A Convertible Preferred Stock. In addition, in connection with our Series
E Convertible Preferred Stock issued in June 1999, we recorded $151,000 as an
embedded dividend attributable to the valuation of warrants to purchase 116,666
shares of our common stock (Note 5). The aggregate embedded dividends amounted
to $332,000 for the nine months ended September 30, 1999 as compared to $1
million during the nine months ended September 30, 1998, which related to a
series of preferred stock that was redeemed in October 1998.
For the nine months ended September 30, 1999, all classes of our convertible
preferred stock ($14.9 million aggregate face amount, including $8.2 million
issued in June 1999) required cash dividends at 8% per annum which aggregated
$606,000. For the nine months ended September 30, 1998, we had one class of
preferred stock which earned $128,000 in dividends.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Net cash used by operating activities amounted to $5 million and $8.1 million
for the nine months ended September 30, 1999 and 1998, respectively. The most
significant use of cash was our loss from operations (before changes in assets
and liabilities) of $4.1 million and $5.1 million for the nine months ended
September 30,1999 and 1998, respectively. Other significant uses of cash during
1999 included a reduction of accounts payable and other liabilities of $.9
million and an increase in accounts receivables in the amount of $.7 million.
During 1998, we used cash of $2.3 million in the reduction of accounts payable
and other liabilities and $.8 million in the increase of accounts receivable.
INVESTING ACTIVITIES
Net cash used by investing activities was approximately $1.5 million and $.8
million for the nine months ended September 30, 1999 and 1998, respectively,
with $1.2 million and $.4 million, respectively, used for acquisitions (see Note
2 to Consolidated Financial Statements for a description of the 1999 Andataco
Acquisition).
FINANCING ACTIVITIES
Net cash provided by financing activities for the nine months ended September
30, 1999 was $6.7 million and primarily consisted of net borrowings of $4.9
million from private investors, including $2.6 million from Mr. Levy, of which
$1.5 million was satisfied by the issuance of convertible preferred stock and
$.8 million was satisfied by issuance of common stock; $1.6 million in proceeds
from the exercise of stock options and warrants, $1 million from the issuance of
common stock, and $2 million from the issuance of convertible preferred stock,
partially offset by net repayments on revolving credit facilities. Cash provided
by financing activities for the nine months ended September 30, 1998 amounted to
$9.1 million and included net borrowings of $6.2 million from private investors,
including $2.4 million from Mr. Levy and $3.2 million in net proceeds from the
issuance of convertible preferred stock, including $1 million from Mr. Levy.
INDEBTEDNESS RESULTING FROM THE ANDATACO ACQUISITION
In connection with the Andataco Acquisition, we issued $5.1 million in
promissory notes due in July 2004. In addition, Andataco has an asset based
revolving credit facility (Note 4) which provides for borrowings based on the
lesser of $10 million or (i) 85% of eligible accounts receivable, as defined,
plus (ii) the lesser of $1.75 million or 23% of eligible inventory, as defined.
The Andataco Revolver provides for certain financial covenants, including
Andataco maintaining a certain minimum working capital and tangible net worth.
During the quarter ended June 30, 1999, Andataco was not in compliance with the
financial covenant regarding tangible net worth; however, effective July 13,
1999, the lender agreed to waive the default, subject to, among other things,
receipt from nStor of a $.5 million capital contribution. On July 16, 1999,
nStor contributed $.5 million
18
<PAGE> 19
in cash as a capital contribution to Andataco.
NSTOR REVOLVER
The nStor Revolver, another asset based revolving credit facility, provides for
borrowings based on the lesser of $5 million or 80% of our eligible accounts
receivable, as defined (Note 4). The nStor Revolver provides for certain
financial covenants including current ratio and net worth requirements,
limitations on operating losses for the six month period ended December 31,
1998, and restrictions on the incurrence of additional debt and capital
expenditures and the payment of dividends, other than preferred stock dividends.
At December 31, 1998, we were not in compliance with the financial covenant
concerning our operating loss for 1998; however, effective February 4, 1999 the
lender agreed to forebear from declaring a default. The Company has agreed to
repay the outstanding balance under the nStor Revolver by December 1999.
FINANCING ACTIVITIES WITH PRIVATE INVESTORS
Since late 1997, and through September 30, 1999, we have obtained net cash
proceeds of approximately $23 million (including $9.4 million during the nine
months ended September 30, 1999) from private investors, consisting of $8.5
million of convertible preferred stock, $10.2 million of net borrowings
(including $1.3 million which we satisfied by issuing 645,000 shares of our
common stock and $1.5 million which we satisfied by issuing convertible
preferred stock), $3.3 million from the exercise of warrants and options to
purchase 2,439,968 shares of our common stock and $1 million from the issuance
of 500,000 shares of newly issued common stock. Of these amounts, Mr. Levy has
advanced or invested a net amount of $6.8 million.
From July 1999 through November 12, 1999, Mr. Levy advanced an additional net
amount of $.9 million under a promissory note which currently allows the Company
to borrow up to $1 million, due 30 days from demand.
We believe that amounts expected to be available under lending arrangements with
financial institutions and from Mr. Levy will be sufficient to satisfy our
working capital needs for the foreseeable future, as presently contemplated.
There can be no assurance, however, that we may not require additional capital
beyond our current forecasted needs nor that any such additional required funds
would be available on terms acceptable to us, if at all, at such time or times
as required by us.
EFFECT OF INFLATION
Inflation has not had an impact on our operations and we do not expect that it
will have a material impact in 1999.
YEAR 2000 ISSUE
As many computer systems, software programs and other equipment with embedded
chips or processors (collectively, "Information Systems") use only two digits
rather than four to define the applicable year, they may be unable to process
accurately certain data, during or after the year 2000. As a result, business
and governmental entities are at risk for possible miscalculations or systems
failures causing disruptions in their business operations. This is commonly
known as the Year 2000 ("Y2K") issue. The Y2K issue concerns not only
Information Systems used solely within a company but also concerns third
parties, such as customers, vendors and creditors, using Information Systems
that may interact with or affect a company's operations.
19
<PAGE> 20
RISKS
If needed remediations and conversions to the Information Systems are not made
on a timely basis by our materially-significant customers or vendors, we could
be affected by business disruption, operational problems, financial loss, legal
liability to third parties and similar risks, any of which could have a material
adverse effect on our operations, liquidity or financial condition. Factors
which could cause material differences in results, many of which are outside our
control, include, but are not limited to, the accuracy of representations by
manufacturers of our Information Systems that their products are Y2K compliant,
the ability of our customers and vendors to identify and resolve their own Y2K
issues and our ability to respond to unforeseen Y2K complications.
OUR STATE OF READINESS
We have implemented a Y2K readiness program with the objective of having all of
our significant Information Systems functioning properly with respect to Y2K
before January 1, 2000. The first component of our readiness program was to
identify our internal Information Systems that are susceptible to system
failures or processing errors as a result of the Y2K issue. This effort is
substantially complete and no significant issues requiring remediation or
replacement have been identified. The review of our financial systems has been
completed and no issues have been identified.
As to the second component of the Y2K readiness program, we have identified our
significant customers, vendors and creditors that are believed, at this time, to
be critical to business operations subsequent to January 1, 2000. Through the
use of questionnaires, interviews and other available means we have ascertained
that we have no significant exposure to Y2K issues at this time. However, there
can be no assurance that the representations made to us by third parties are
accurate or complete and there is a possibility that normal business operations
could be disrupted.
The third component of our Y2K readiness program was the evaluation of our
existing products', and planned future products' Y2K functionality. All of the
date dependent software which we have developed has been validated as being Y2K
compliant using commercially acceptable methods, including: expanding year
fields to four digits: windowing; and date encoding techniques. Our other
products have been verified as Y2K compliant based on the absence of date
dependencies in hardware, software and firmware code.
Y2K COSTS
Our total cost of these Y2K compliance activities is not expected to exceed
$50,000. The costs and time necessary to complete the Y2K modification and
testing processes are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no assurance that these estimates will be
achieved and actual results could differ from the estimates. Our Y2K readiness
program is an ongoing process and the estimates of costs and completion dates
for various components of the Y2K readiness program described above are subject
to change.
20
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1998, a Complaint was filed in the Supreme Court of the State of New
York by AIBC Investment Services Corp. ("AIBC") claiming that the Company and a
former officer and director, R. Daniel Smith, breached an agreement with AIBC in
which AIBC was allegedly engaged as placement agent in connection with raising
funds for the Company. Effective June 3, 1999, the action was dismissed without
prejudice.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 1, 1999, the Company held an Annual Meeting of Stockholders. At the
meeting, the shareholders approved all matters considered with the
following vote distribution:
<TABLE>
<CAPTION>
Item Affirmative Negative Withheld
<S> <C> <C> <C>
Election of Board of Directors
Bernard R. Green 25,861,061 137,494
H. Irwin Levy 25,861,227 137,328
Mark F. Levy 25,766,067 232,486
Lawrence F. Steffann 24,309,878 1,688,677
Michael L. Wise 25,867,261 131,294
Issuance of Common Stock in
connection with acquisition of
Andataco, Inc. 19,343,393 37,067 52,843
Increase number of authorized
shares to 75,000,000 from
40,000,000 19,630,284 263,350 25,442
Eliminate cumulative voting for
directors 19,584,133 234,642 100,601
Amend 1996 Stock Option Plan
to increase number of shares
reserved for issuance to
7,000,000 from 2,500,000 18,630,961 740,066 62,276
Reappoint BDO Seidman LLP as
independent auditors for
fiscal 1999 25,963,014 7,108 28,433
</TABLE>
21
<PAGE> 22
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
10.1 Modification of Demand Note dated July 15, 1999 between Registrant
and H. Irwin Levy
10.2 Form of Amended and restated Promissory Note dated January 29,
1999, between Registrant and (i) Herbert Gimelstob ($600,000), (ii)
Maurice Halperin ($600,000), (iii) Patricia Auld ($300,000) and
(iv) James P. Marden ($300,000)
10.3 Form of Amended and restated Promissory Note dated September 22,
1998, between Registrant and Bernard Marden, Herbert Gimelstob,
Fairway Partnership and H. Irwin Levy
27 Financial Data Schedule
(b) Reports on Form 8-K:
(i) The Company was not required to file Form 8-K during the quarter for
which this report is filed.
SIGNATURE
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.
nSTOR TECHNOLOGIES, INC.
(Registrant)
/s/ Jack Jaiven
November 15, 1999 ------------------------------------
Jack Jaiven
Principal Financial and
Accounting Officer
22
<PAGE> 1
EXHIBIT 10.1
ALL INDEBTEDNESS EVIDENCED HEREBY AND REFERENCED HEREIN IS SUBORDINATED IN RIGHT
OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL INDEBTEDNESS OWED TO FINOVA
CAPITAL CORPORATION
NOTE MODIFICATION AGREEMENT
THIS NOTE MODIFICATION AGREEMENT made and entered into is as of
the 15th day of July 1999, by and between H. Irwin Levy (hereinafter called
"Payee") and nStor Technologies, Inc., a Delaware corporation (hereinafter
called "Maker").
W I T N E S S E T H:
WHEREAS, Payee is the holder of a Demand Note executed by Maker dated
April 1, 1999, evidencing Maker's indebtedness to Payee in the original
principal amount of FIVE HUNDRED THOUSAND and 00/100ths U.S. Dollars (U.S.
$500,000.00) (a copy of said Demand Note is attached hereto and incorporated
herein as Exhibit "A"); and
WHEREAS, Maker desires to borrow an additional principal amount of TWO
HUNDRED FIFTY THOUSAND and 00/100ths U.S. Dollars (U.S. $250,000.00) under the
attached Demand Note, and to increase the Principal Amount of the attached
Demand Note to a total of SEVEN HUNDRED FIFTY THOUSAND and 00/100ths U.S.
Dollars (U.S. $750,000.00); and
WHEREAS, Payee is willing to lend Maker an additional sum of TWO HUNDRED
FIFTY THOUSAND AND 00/100ths U.S. Dollars (U.S. $250,000.00) and to increase the
Principal Amount of the attached Demand Note to a total Principal Amount of
SEVEN HUNDRED FIFTY THOUSAND and 00/100ths U.S. Dollars (U.S. $750,000.00); and
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, the sum of TEN and 00/100ths U.S. Dollars (U.S.
$10.00) and other good and valuable considerations, the receipt and sufficiency
whereof is hereby acknowledged, the parties do hereby agree as follows:
1. The foregoing recitals are true and correct in all respects.
2. The parties hereby agree that as of the 15th day of July 1999, Payee
shall make available to Maker an additional principal sum of TWO HUNDRED FIFTY
THOUSAND and 00/100th U.S. Dollars (U.S. $250,000.00) subject to the terms and
<PAGE> 2
conditions contained in the Demand Note, a copy of which is attached hereto and
incorporated herein as Exhibit "A".
3. The parties further agree that as of July 15, 1999, the "Principal
Amount" as that term is defined in the Demand Note attached hereto and
incorporated herein as Exhibit "A", shall hereinafter mean the total sum of
SEVEN HUNDRED FIFTY THOUSAND and 00/100ths U.S. Dollars (U.S. $750,000.00) which
Maker has made available to Payee pursuant to said Demand Note.
4. The parties hereby agree that the Principal Amount, as hereinabove
amended, which is outstanding under the line of credit, shall bear interest at
the rate of ten percent (10%) per annum, payable monthly, as set forth in the
attached Demand Note, until the Principal Amount of the Demand Note as
hereinabove amended is paid in full.
5. The parties hereby agree and acknowledge that all other terms and
conditions as set forth in the attached Demand Note shall remain the same
throughout the term of the note and shall apply to the Principal Amount of SEVEN
HUNDRED FIFTY THOUSAND and/00/100ths U.S. DOLLARS (U.S. $750,000.00).
6. The Maker hereby certifies, confirms and agrees that the Demand Note,
as hereinabove modified and amended, is in full force and effect, is valid and
enforceable in accordance with its terms and conditions, and is not subject to
any defenses or offsets of any kind or nature whatsoever.
7. This agreement shall be binding upon the parties hereto and their
respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed on the day and year first above written.
Maker:
NStor Technologies, Inc.
By: /s/ Michael L. Wise
Name: Michael L. Wise
Title: Vice President
Payee:
By: /s/ H. Irwin Levy
Name: H. Irwin Levy
<PAGE> 1
EXHIBIT 10.2
ALL INDEBTEDNESS EVIDENCED HEREBY AND REFERENCED HEREIN IS SUBORDINATED IN RIGHT
OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL INDEBTEDNESS OWED TO FINOVA
CAPITAL CORPORATION
FORM OF
NOTE MODIFICATION AND EXTENSION AGREEMENT
THIS NOTE MODIFICATION AND EXTENSION AGREEMENT made and entered
into is as of the _____ day of September 1999, by and between ___________
(hereinafter called "Payee") and nStor Technologies, Inc., a Delaware
corporation (hereinafter called "Maker").
W I T N E S S E T H:
WHEREAS, Payee is the holder of a Promissory Note executed by Maker
dated January 29, 1999, evidencing Maker's indebtedness to Payee in the original
principal amount of ______________________ and 00/100ths U.S. Dollars (U.S.
$___________) (a copy of said Promissory Note is attached hereto and
incorporated herein as Exhibit "A"); and
WHEREAS, Maker desires to modify and extend the due date for payment of
the outstanding unpaid principal balance of the indebtedness evidenced by the
attached Promissory Note from September 5, 2000 to September 5, 2001; and
WHEREAS, Payee is willing to modify and extend the due date for payment
of the outstanding unpaid principal balance of the indebtedness evidenced by the
attached Promissory Note from September 5, 2000 to September 5, 2001;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, the sum of TEN and 00/100ths U.S. Dollars (U.S.
$10.00) and other good and valuable considerations, the receipt and sufficiency
whereof is hereby acknowledged, the parties do hereby agree as follows:
1. The foregoing recitals are true and correct in all respects.
2. The parties hereby agree that the due date for payment of the
outstanding unpaid principal balance of the indebtedness evidenced by the
attached Promissory Note shall be modified and extended from September 5, 2000
to September 5, 2001.
3. The parties hereby agree and acknowledge that the "Principal Amount",
as that term is defined in the attached Promissory Note, shall continue to bear
interest at the rate of eight percent (8%) per annum, payable monthly, as set
forth in the attached Promissory
<PAGE> 2
Note, until the Principal Amount of the indebtedness evidenced by the attached
Promissory Note as hereinabove modified and extended is paid in full.
4. The parties further agree that the entire "Principal Amount" as that
term is defined in the attached Promissory Note plus all accrued interest
thereon shall hereinafter be due and payable in full on September 5, 2001.
5. The parties hereby agree and acknowledge that all other provisions
and conditions as set forth in the attached Promissory Note shall remain the
same throughout the modified and extended term of the attached Promissory Note.
6. The Maker hereby certifies, confirms and agrees that the attached
Promissory Note, as hereinabove modified and extended, is in full force and
effect, is valid and enforceable in accordance with its terms and conditions,
and is not subject to any defenses or offsets of any kind or nature whatsoever.
7. This agreement shall be binding upon the parties hereto and their
respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed on the day and year first above written.
Maker:
NStor Technologies, Inc.
By: /s/ Michael L. Wise
Name: Michael L. Wise
Title: Vice President
Payee:
By: ______________________________
Name:
<PAGE> 1
EXHIBIT 10.3
ALL INDEBTEDNESS EVIDENCED HEREBY AND REFERENCED HEREIN IS SUBORDINATED IN RIGHT
OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL INDEBTEDNESS OWED TO FINOVA
CAPITAL CORPORATION
FORM OF
NOTE MODIFICATION AND EXTENSION AGREEMENT
THIS NOTE MODIFICATION AND EXTENSION AGREEMENT made and entered
into is as of the _____ day of September 1999, by and between ___________ an
individual resident of the State of __________ (hereinafter called "Payee") and
nStor Technologies, Inc., a Delaware corporation (hereinafter called "Maker").
W I T N E S S E T H:
WHEREAS, Payee is the holder of an Amended and Restated Promissory Note
executed by Maker dated September 22, 1998, evidencing Maker's indebtedness to
Payee in the original principal amount of _________________ U.S. Dollars
(U.S._________) (a copy of said Amended and Restated Promissory Note is attached
hereto and incorporated herein as Exhibit "A"); and
WHEREAS, Maker desires to modify and extend the due date for payment of
the outstanding unpaid principal balance of the indebtedness evidenced by the
attached Amended and Restated Promissory Note from September 5, 2000 to
September 5, 2001; and
WHEREAS, Payee is willing to modify and extend the due date for payment
of the outstanding unpaid principal balance of the indebtedness evidenced by the
attached Amended and Restated Promissory Note from September 5, 2000 to
September 5, 2001;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, the sum of TEN and 00/100ths U.S. Dollars (U.S.
$10.00) and other good and valuable considerations, the receipt and sufficiency
whereof is hereby acknowledged, the parties do hereby agree as follows:
1. The foregoing recitals are true and correct in all respects.
2. The parties hereby agree that the due date for payment of the
outstanding unpaid principal balance of the indebtedness evidenced by the
attached Amended and Restated Promissory Note shall be modified and extended
from September 5, 2000 to September 5, 2001.
3. The parties hereby agree and acknowledge that the "Principal Amount",
as that term is defined in the attached Amended and Restated Promissory Note,
shall continue to
<PAGE> 2
bear interest at the rate of ten percent (10%) per annum, payable monthly, as
set forth in the attached Amended and Restated Promissory Note, until the
Principal Amount of the indebtedness evidenced by the attached Amended and
Restated Promissory Note as hereinabove modified and extended is paid in full.
4. The parties further agree that the entire "Principal Amount" as that
term is defined in the attached Amended and Restated Promissory Note plus all
accrued interest thereon shall hereinafter be due and payable in full on
September 5, 2001.
5. The parties hereby agree and acknowledge that all other provisions
and conditions as set forth in the attached Amended and Restated Promissory Note
shall remain the same throughout the modified and extended term of the attached
Amended and Restated Promissory Note.
6. The Maker hereby certifies, confirms and agrees that the attached
Amended and Restated Promissory Note, as hereinabove modified and extended,
together with the Loan Agreement and the Amended and Restated Security Agreement
referenced therein and executed on evendate therewith, are all in full force and
effect, are all valid and enforceable in accordance with their respective terms
and conditions, and are not subject to any defenses or offsets of any kind or
nature whatsoever.
7. This agreement shall be binding upon the parties hereto and their
respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed on the day and year first above written.
Maker:
nStor Technologies, Inc.
By: /S/ Michael L. Wise
Name: Michael L. Wise
Title: Vice President
Payee: _____________________
By: ______________________________________
Name: (Print)_____________________________
Title:____________________________________
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