<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1994.
For the Quarterly period ended Oct 31, 1998
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from............to...........
Commission File Number: 33-20783-D
ALPHA BYTES, INC.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
COLORADO 84-1064958
----------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
521 BUFFALO AVENUE, NIAGARA FALLS, NEW YORK 14303
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
716-284-2465
-----------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such reports), and (2) had been subject to
such filing requirements for the past 90 days.
[X] YES [ ] NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by sections 12, 13, or 15 (d) of the Securities
exchange Act of 1934.
[ ] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS
There were 7,468,002 shares of common stock outstanding having a par value of
$.0002 per share as of October 31, 1998
1
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NUMBER
- ------ ---------------------------------------------------------- -----------
<S> <C> <C>
Item 1 Consolidated Balance Sheet, 3
October 31, 1998 (unaudited)
Consolidated Statement of Stockholders' Equity, 3
October 31, 1998 (unaudited)
Consolidated Statement of Earnings for Quarter ended 4
October 31, 1998 (unaudited)
Consolidated Statement of Cash Flow For the Quarter ended 6
October 31, 1998 (unaudited)
Notes to Financial Statements 7 - 8
Item 2 Management Discussion and Analysis of Financial Conditions 9
and Results of Operations
PART II OTHER INFORMATION 10
- ------- -----------------
</TABLE>
2
<PAGE>
ALPHA BYTES, INC.
CONSOLIDATED BALANCE SHEET
AS AT OCTOBER 31, 1998
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Oct 31 Oct 31
Note 1998 1997
---------- ------------ -----------
<S> <C> <C> <C>
ASSETS
CURRENT:
Cash & equivalents $1,247,880 $1,132,903
Accounts receivable & work in progress 413,540 311,551
Prepaid expenses & sundry assets 29,180 19,973
---------- ----------
1,690,600 1,464,427
---------- ----------
LONG TERM:
Accounts Receivable and Work in Progress $ - $ 352,334
Capital assets 2 96,203 82,761
---------- ----------
96,203 435,095
---------- ----------
TOTAL ASSETS 1,786,803 1,899,522
========== ==========
LIABILITIES
Current:
Accounts payable & accrued liabilities $ 50,623 $ 57,265
Income taxes payable - net 118,586 128,525
Deferred Income Taxes 54,590 246,400
Unearned revenue - 2,657
---------- ----------
223,799 434,847
---------- ----------
LONG TERM:
Loans payable to directors $ - $ 52,165
---------- ----------
- 52,165
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock 3 $ 250,968 $ 250,468
Less Treasury Stock at cost (123,160) -
Share Purchase Warrants 17,000 16,000
Retained Earnings 1,619,632 1,135,896
Unrealized Gain of Investments - 96,399
Foreign exchange adjustment (201,436) (86,253)
---------- ----------
1,563,004 1,412,510
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 1,786,803 1,899,522
========== ==========
</TABLE>
3
<PAGE>
ALPHA BYTES, INC.
CONSOLIDATED STATEMENT OF EARNINGS
QUARTER ENDED OCTOBER 31, 1998
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Oct 31 Oct 31
Notes 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUE $425,624 $416,714
-------- --------
EXPENSES
Professional fees 27,888 -
Wages, management & consulting fees 166,688 $114,315
General and administrative 49,820 135,055
Travel & promotion 14,505 28,808
Amortization 10,759 5,448
Interest 181 39
Loss on investments 89,696 -
R&D tax credits claimed - (30,000)
-------- --------
359,537 253,665
-------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES $ 66,087 $123,294
Provision for income taxes: 21,493 49,427
-------- --------
NET EARNINGS (LOSS) $ 44,594 $ 73,867
======== ========
EARNINGS (LOSS) PER SHARE 4 0.01 0.01
======== ========
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AS AT JULY 31, 1998 - (SEE NOTE 7)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Capital Stock Options Treasury Stock
--------------------- -------------------- ---------------------
Number Number Number
of Shares Amount of Shares Amount of Shares Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS AT
JANUARY 31, 1997 7,413,002 245,468 164,000 16,000
Net earnings 1998
Foreign exchange
adjustment for 1998
Unrealized holding gain on
restricted marketable sec.
Employee Share Opt. Issued as
comp, for services recd 100,000 1,000
Shares issued as compensation
for services received 55,000 5,500
Purchase of stock on open mkt. 145,000 (112,332)
Dividend paid
----------------------------------------------------------------------
BALANCE AS AT
JANUARY 31, 1998 7,468,002 250,968 264,000 17,000 145,000 (112,332)
Net earnings for 3 month prd.
Foreign exchange adjustment
Purchase of Stock on open mkt 22,500 (10,828)
----------------------------------------------------------------------
BALANCE AS AT
APRIL 30, 1998 7,468,002 250,968 264,000 17,000 167,500 (123,160)
Net earnings for 3 month prd.
Foreign exchange adjustment
----------------------------------------------------------------------
BALANCE AS AT
JULY 31, 1998 7,468,002 250,968 264,000 17,000 167,500 (123,160)
Net earnings for 3 month prd.
Foreign exchange adjustment
----------------------------------------------------------------------
BALANCE AS AT
OCTOBER 31, 1998 7,468,002 250,968 264,000 17,000 167,500 (123,160)
=====================================================================
<CAPTION>
Unrealized Foreign
----------- ----------
Retained Gain on Exchange
Earnings Investment Adjustment TOTAL
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCE AS AT
JANUARY 31, 1997 872,125 343,267 (64,418) 1,412,442
Net earnings 1998 500,768 500,768
Foreign exchange
adjustment for 1998 (63,389) (63,389)
Unrealized holding gain on
restricted marketable sec. (343,267) (343,267)
Employee Share Opt. Issued as
comp, for services recd 1,000
Shares issued as compensation
for services received 5,500
Purchase of stock on open mkt. (112,332)
Dividend paid (25,000) (25,000)
-----------------------------------------------
BALANCE AS AT
JANUARY 31, 1998 1,347,893 0 (127,807) 1,375,722
Net earnings for 3 month prd. 88,360 88,360
Foreign exchange adjustment 5,362 5,362
Purchase of Stock on open mkt (10,828)
-----------------------------------------------
BALANCE AS AT
APRIL 30, 1998 1,436,253 0 (122,445) 1,458,616
Net earnings for 3 month prd. 138,785 138,785
Foreign exchange adjustment (50,631) (50,631)
-----------------------------------------------
BALANCE AS AT
JULY 31, 1998 1,575,038 0 (173,076) 1,546,770
Net earnings for 3 month prd. 44,594 44,594
Foreign exchange adjustment (28,360) (28,360)
-----------------------------------------------
BALANCE AS AT
OCTOBER 31, 1998 1,619,632 0 (201,436) 1,563,004
===============================================
</TABLE>
See accompanying notes
5
<PAGE>
ALPHA BYTES, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
QUARTER ENDED OCTOBER 31, 1998
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Oct 31 Oct 31
1998 1997
----------- ----------
<S> <C> <C>
CASH WAS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net earnings (loss) $ 44,594 $ 73,867
Amortization 10,759 5,448
Deferred income taxes - -
---------- ----------
55,353 79,315
Changes in non-cash working capital items:
Accounts receivable & work in progress 95,326 (96,261)
Income & investment tax credits received - -
Income taxes payable 1,202 18,087
Prepaid expenses & sundry assets (4,266) 55
Accounts payable & accrued liability 2,687 (51,080)
Unearned revenue - (49,800)
---------- ----------
150,302 (99,684)
---------- ----------
FINANCING ACTIVITIES
Issue of shares - 5,000
Issue of employee share options - -
Purchase of stock for treasury - -
Foreign exchange adjustment (28,360) (11,438)
Dividends paid - (25,000)
Loans payable to directors - (26,993)
Vehicle loan - -
Loan Payable - -
---------- ----------
(28,360) (58,431)
---------- ----------
INVESTING ACTIVITIES
Long term accounts receivable - -
Net purchases of capital assets (5,661) (9,719)
Sundry investments - net - (274,480)
Marketable securities - restricted - -
---------- ----------
(5,661) (284,199)
---------- ----------
INCREASE (DECREASE) IN CASH 116,281 (442,314)
CASH & EQUIVALENTS BEGINNING OF THE PERIOD 1,131,599 1,575,217
---------- ----------
CASH & EQUIVALENTS AT THE END OF PERIOD 1,247,880 1,132,903
========== ==========
</TABLE>
6
<PAGE>
ALPHA BYTES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED OCTOBER 31, 1998
(EXPRESSED IN U.S. DOLLARS)
1. ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
All subsidiaries have been included in the consolidated financial
statements. The consolidated wholly-owned subsidiaries at October 31, 1998
were as follows:
Alphabytes Computer Corporation (Canada) - ("Alphabytes Canada")
Alpha Bytes Computer Corporation (USA) - ("Alpha Bytes US")
(b) CAPITAL ASSETS
Capital assets are stated at cost less accumulated amortization.
Amortization is calculated at the following annual rates:
<TABLE>
<S> <C>
Furniture and equipment 20% declining balance
Vehicles 30% declining balance
Computer hardware 30% declining balance
Computer software 100% declining balance
</TABLE>
(c) FOREIGN CURRENCY
The financial statements are expressed in U.S. dollars. Current assets and
liabilities denominated in Canadian dollars at quarter end are translated
into U.S. dollars at the rates of exchange prevailing on that date.
Transactions in foreign currencies are recorded in U.S. dollars at the
rates of exchange prevailing on the date of transactions. Exchange gains
and losses are reflected in the income.
Exchange gains and losses resulting from the consolidation of the Canadian
subsidiary are reflected as an adjustment to the stockholders equity.
(d) INVESTMENT TAX CREDITS
Investment tax credits are accounted for as a reduction of research and
development costs in the year the credits become available, provided there
is reasonable assurance that they will be realized. Otherwise they are
reflected in the year claimed as a reduction of other expresses.
2. CAPITAL ASSETS
<TABLE>
<CAPTION>
Accumulated Balance
Cost Depreciation 31 Oct, 98 31 Oct 97
<S> <C> <C> <C> <C>
Furniture & equipment $ 59,372 $ 35,503 $ 23,869 $ 34,383
Vehicles 38,315 34,462 3,853 7,102
Computer hardware 103,153 37,948 65,205 41,273
Computer software 19,044 15,768 3,276 3
--------- --------- -------- --------
$ 219,884 $ 123,681 $ 96,203 $ 82,761
--------- --------- -------- --------
</TABLE>
3. CAPITAL STOCK
The company is authorized to issue 30,000,000 common shares. The company
had outstanding options to purchase shares as follows:
<TABLE>
<CAPTION>
DATE ISSUED # OF SHARES EXERCISE PRICE EFFECTIVE DATE EXPIRY DATE
<S> <C> <C> <C> <C>
Oct 31, 1995 54,500 $ 0.01 May 01, 1996 Oct 31, 2000
May 31, 1996 54,500 $ 0.01 Oct 31, 1996 May 31, 2001
Nov 01, 1996 54,500 $ 0.01 Apr 30, 1997 Nov 01, 2001
Oct 01, 1997 100,000 $ 0.01 Oct 01, 1997 Oct 01, 2002
Oct 01, 1998 100,000 $ 0.01 Oct 01, 1998 Oct 01, 2003
</TABLE>
7
<PAGE>
4. EARNINGS (LOSS) PER SHARE
Earnings per share is calculated using the weighted average number of
common shares outstanding and common share equivalents. The average number
of shares outstanding under this assumption would be as follows:
Quarter Ended Oct. 31, 1998 - $ 7,468,002
5. COMMENTS - LEASES OF PREMISES
The company is committed under existing leases to the following minimum
annual rents:
Year ending January 31, 1998 - $ 38,000
January 31, 1999 - $ 38,000
January 31, 2000 - $ 39,000
January 31, 2001 - $ 40,000
January 31, 2002 - $ 41,000
8
<PAGE>
PART I
------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
Alpha Bytes Computer Corporation and Alphabytes Computer Corporation
(together called the Alpha Bytes Inc.) work in conjunction with each
other in producing, marketing, installing, and supporting the software
produced by these companies. The financial information regarding the
parent company and its two subsidiaries are presented on a consolidated
basis.
For the quarter ending October 31, 1998 revenues were $425,624 compared
to $416,714 for the similar period ending October 31, 1997, reflecting
a 2% increase. Expenses were 359,537 quarter ended October 31, 1998
versus $ 253,665 for the quarter ended October 31, 1997. The gross
profit for the quarter ending on October 31, 1998 were $66,087 compared
to $123,294 for the period ending October 31, 1997.
The cash and Investment certificates position of the company was
$1,247,880 on October 31, 1998, compared to $1,132,903 on October 31,
1997. Retained earnings at the end of October 31, 1998 were $1,619,632
compared to $1,135,896 on October 31, 1997.
For the nine months ending October 31, 1998, the company revenues were
$1,352,365 compared to revenues of $1,138,034 a year ago, an increase
of 19%. Net earnings were $271,739 compared with $288,771 in the 3/rd/
quarter of 1997.
In this quarter, the continued expenditures of H-NET, the company's
Internet transaction processing system is the reason earnings declined
while revenue increased 19%. Due to the high importance of this project
that while seeking additional funding, the company is continuing
development of H-NET with internally generated cash. The company's
expanded its H-NET(R) operations by adding one more technical analyst
to this team headed by Ray Coty, Vice President of H-NET Operations.
Management believes that Alpha Bytes, Inc. ("the Company") has the cash
funds and necessary liquidity to meet the needs of the company over the
next year, assuming sales and development efforts conform to the
standards historically set.
However, to fully maximize the potential presented by the key events
presented below, management believes that approximately $3,000,000 will
need to be raised. The funds will be primarily used to increase
marketing efforts and for the production of marketing material, as well
as the continued development of H-NET(R). Marketing efforts would be
increased by hiring an appropriate number of sales staff, and by
increasing the number of national and regional industry trade shows and
conferences attended. It is anticipated that the funds will be raised
through private placement or a secondary offering in the current fiscal
year.
CURRENT PLANS
-------------
The key events that occurred over the quarter end July 31, 1998 were
the marketing of the cross-platform, windows (Registered Trade Mark of
Microsoft, Inc.) compatible version of its Home Office Management
(HO/2/) system, the Point Of Sale(POS/2/) system and the Lab Management
(LAB/2/) systems. This integrated product line is currently being
installed in some of the largest Ophthalmic chain in the world.
The company was accepted by Microsoft as a "Certified Solution Provider
Partner". This allows the company to;
- use the Microsoft name against its products and accept referral
business from Microsoft
- join in Microsoft advertising, trade shows & utilize Microsoft
services in all aspects of product development
- use Microsoft's systems labs to test against existing and to-be-
released products
The company completed development of its 32 bit version of the POS/2/
system and began development of the 32 bit version of the LAB/2/ system.
The company will also continue its development of the H-NET(R). With
additional capital commitments. Portions of Phase I of this Internet driven
transaction network are due to be released in the 1/st/ quarter of '99.
9
<PAGE>
PART II
-------
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
The Company is not a party to any material litigation.
ITEM 2. CHANGES IN SECURITIES
- ------- ---------------------
There were no changes in the Security position of the Company during
the current quarter.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ------- -------------------------------
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
NONE
ITEM 5. OTHER INFORMATION
- ------- -----------------
NONE
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
- ------- --------------------------------
NONE.
10
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act 1934, the Registrant duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Alpha Bytes INC.
By /s/ Anton Stephens
-----------------------------
Anton Stephens
President and Director
(Principal Executive Officer)
Date Dec 15, 1998
By /s/ Christine Stephens
-----------------------------
Christine Stephens
Secretary and Director
Date: Dec 15, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, This
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By /s/ Anton Stephens
-----------------------------
Anton Stephens
President and Director
(Principal Executive Officer)
Date: Dec 15, 1998
By /s/ Christine Stephens
-----------------------------
Christine Stephens
Secretary and Director
Date: Dec 15, 1998
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 237,078
<SECURITIES> 1,010,802
<RECEIVABLES> 413,540
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,690,600
<PP&E> 219,884
<DEPRECIATION> 123,681
<TOTAL-ASSETS> 1,786,803
<CURRENT-LIABILITIES> 223,799
<BONDS> 0
0
0
<COMMON> 250,968
<OTHER-SE> 1,312,036
<TOTAL-LIABILITY-AND-EQUITY> 1,786,803
<SALES> 425,624
<TOTAL-REVENUES> 425,624
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 359,536
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 66,088
<INCOME-TAX> 21,493
<INCOME-CONTINUING> 44,595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,595
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
