<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 July 31, 1999
[ ] 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)
905-475-3249
-----------------------------------------------------------------
(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 7,820,502 shares of common stock outstanding having a par value of
$.0002 per share as of July 31, 1999
1
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
Part I Financial Information Page Number
- ------ --------------------- -----------
<S> <C> <C>
Item 1 Consolidated Balance Sheet, 3
July 31, 1999 (unaudited)
Consolidated Statement of Earnings for Quarter Ended 4
July 31, 1999 (unaudited)
Consolidated Statement of Stockholders Equity 5
Consolidated Statement of Cash Flow for Quarter Ended 6
July 31, 1999
Notes to Financial Statements 7 - 8
Item II 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 JULY 31, 1999
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Jul. 31 Jul. 31
Note 1999 1998
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Current:
Cash $ 214,466 $ 98,913
Available-for-sale securities 2 903,152 1,032,686
Accounts receivable 193,084 508,866
Income taxes recoverable 65,522 -
Prepaid expenses and sundry assets 33,770 24,914
---------- ----------
1,409,994 1,665,379
Long term:
Capital assets 3 83,704 101,301
---------- ----------
TOTAL ASSETS $1,493,698 $1,766,680
========== ==========
LIABILITIES
Current:
Accounts payable and accrued liabilities $ 26,208 $ 47,936
Income taxes payable - 117,384
Deferred income taxes payable 66,180 54,590
---------- ----------
TOTAL LIABILITIES 92,388 219,910
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock 4 385,427 250,968
Less Treasury Stock at cost (109,195) (123,160)
Share purchase warrants 18,000 17,000
Retained earnings 1,629,784 1,575,038
Unrealized holding gain (loss) on available-for-sale securities (337,174) -
Foreign exchange adjustment (185,532) (173,076)
---------- ----------
1,401,310 1,546,770
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,493,698 $1,766,680
========== ==========
</TABLE>
3
<PAGE>
ALPHA BYTES, INC.
CONSOLIDATED STATEMENT OF EARNINGS
QUARTER ENDED JULY 31, 1999
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Jul. 31 Jul. 31
1999 1998
---------- ----------
<S> <C> <C> <C>
REVENUE
Sales $220,908 $502,974
Investment income (817) (24,283)
-------- --------
220,091 478,691
EXPENSES
Research and development 6 86,368 -
Wages, management and consulting fees 54,800 161,336
Professional fees 9,542 32,080
General and administrative 12,488 42,218
Travel and promotion 13,727 19,974
Amortization 7,323 4,887
-------- --------
184,248 260,495
EARNINGS BEFORE INCOME TAXES 35,843 218,196
Provision for income taxes: 17,492 79,411
-------- --------
NET EARNINGS (LOSS) $ 18,351 $138,785
======== ========
EARNINGS PER SHARE 7 $ 0.002 $ 0.019
======== ========
</TABLE>
4
<PAGE>
ALPHA BYTES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
QUARTER ENDED JULY 31, 1999
(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, 1999 7,468,002 250,968 364,000 18,000 172,500 (126,776)
Net earnings for 3 months ended April 30, 1999 - - - - - -
Foreign exchange adjustment for 1999 - - - - - -
Unrealized loss on available for sale securities - - - - - -
Gain on sale of treasury stock 69,763 (10,600) 7,817
--------- ------- -------- ------ -------- --------
BALANCE AS AT APRIL 30, 1999 7,468,002 320,731 364,000 18,000 161,900 (118,959)
Net earnings for 3 months ended July 31, 1999 - - - - - -
Foreign exchange adjustment - - - - - -
Shares issued as compensation for Services received - - - - (4,195) 3,082
Unrealized loss on available for sale securities - - - - - -
Exercise of options 352,500 17,885 352,500 (17,885) - -
Gain on sale of treasury stock 64,696 (9,000) 6,613
--------- ------- -------- ------ -------- --------
BALANCE AS AT JULY 31, 1999 7,820,502 403,312 11,500 115 148,705 (109,264)
========= ======= ======== ====== ======== ========
<CAPTION>
Unrealized
Holding Loss
on Available- Foreign
Retained -For-Sale Exchange
Earnings Securities Adjustment Total
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE AS AT JANUARY 31, 1999 1,648,779 (293,458) (161,265) 1,336,248
Net earnings for 3 months ended April 30, 1999 (37,345) - - (37,345)
Foreign exchange adjustment for 1999 - - (20,823) (20,823)
Unrealized loss on available for sale securities - (29,247) - (29,247)
Gain on sale of treasury stock 69,763
--------- ---------- ----------- ---------
BALANCE AS AT APRIL 30, 1999 1,611,434 (322,705) (182,088) 1,326,413
Net earnings for 3 months ended July 31, 1999 18,350 - - 18,350
Foreign exchange adjustment - - (3,444) (3,444)
Shares issued as compensation for Services received - - - 3,082
Unrealized loss on available for sale securities - (14,469) - (14,469)
Exercise of options - - - -
Gain on sale of treasury stock 71,309
--------- ---------- ----------- ---------
BALANCE AS AT JULY 31, 1999 1,629,784 (337,174) (185,532) 1,401,241
========= ========== =========== =========
</TABLE>
5
<PAGE>
ALPHA BYTES, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
QUARTER ENDED JULY 31, 1999
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Jul. 31 Jul. 31
1999 1998
---------- ----------
<S> <C> <C>
CASH WAS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net earnings $ 18,350 $ 138,785
Amortization 7,323 4,887
--------- ---------
25,673 143,672
--------- ---------
Changes in non-cash working capital items:
Accounts receivable (67,826) (169,964)
Prepaid expenses and sundry assets (12,354) (3,449)
Accounts payable and accrued liabilities (23,655) (11,523)
Income taxes recoverable (48,378) (10,019)
--------- ---------
(126,540) (51,283)
--------- ---------
FINANCING ACTIVITIES
Unrealized holding loss on available for sale securities (14,469) -
Disposition (Purchase) of stock for treasury 74,460 -
Foreign exchange adjustment (3,444) (50,631)
--------- ---------
56,547 (50,631)
--------- ---------
INVESTING ACTIVITIES
Net purchase of capital asset - (29,723)
Net purchase of available for sale securities (130,454) (51,504)
Marketable securities - restricted - -
--------- ---------
(130,454) (81,227)
--------- ---------
INCREASE IN CASH AND AVAILABLE-FOR-SALE
SECURITIES (200,447) (183,141)
Cash and available-for-sale securities at the beginning 414,913 282,054
--------- ---------
Of the period
CASH AND AVAILABLE-FOR-SALE SECURITIES
AT THE END OF THE PERIOD $ 214,466 $ 98,913
========= =========
</TABLE>
6
<PAGE>
ALPHA BYTES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JULY 31, 1999
(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 July 31, 1999
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:
Furniture and equipment - 20% declining balance
Vehicles - 30% declining balance
Computer hardware - 30% declining balance
Computer software - 100% declining balance
(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 Jul, 99 31 Jul, 98
<S> <C> <C> <C> <C>
Furniture & equipment $ 59,372 $ 39,213 $20,159 $ 25,285
Vehicles 38,315 35,357 2,958 4,226
Computer hardware 112,117 53,502 58,615 70,079
Computer software 20,549 18,577 1,972 1,711
-------- -------- ------- --------
$230,353 $146,649 $83,704 $101,301
-------- -------- ------- --------
</TABLE>
3. CAPITAL STOCK
The company is authorized to issue 30,000,000 common shares. The company
has granted outstanding options to purchase shares as follows:
3,500 employee share options with an exercise price of $0.01 per share
expiring October 31, 2000
3,500 employee share options with an exercise price of $0.01 per share
expiring May 31, 2001
4,500 employee share options with an exercise price of $0.01 per share
expiring October 31, 2001
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 July 31, 1999 - 7,820,502
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
- -------------
The following discussion and analysis relate to factors, which have affected the
financial condition and results of operations of the Company for its quarter
ended July 31, 1999 and July 31, 1998.
Alpha Bytes Computer Corporation and Alphabytes Computer Corporation (together
called Alpha Bytes INC) work in conjunction with each other in producing,
marketing, installing and supporting the software produced by these companies.
Alpha Bytes, INC. has no active income save for the activities of the Alpha
Bytes Group. Therefore, the financial information regarding the parent company
and its two subsidiaries are presented on a consolidated basis.
Revenues were $220,091 for the quarter year ended Jul 31, 1999 generating a
gross profit of $ 35,843 as compared to revenues of $478,691 for the quarter
ended Jul 31 1998, which generated a gross profit of $218,196. The expected R&D
credits were not calculated into this quarter.
Expenses were $184,248 for the quarter ended Jul 31,1999 as compared to $260,495
for the period ending on Jul 31, 1998.
Earnings were $ 18,351 for the quarter ended Jul 31,1999 as compared to $138,785
for the period ending Jul 31, 1998.
Overall, the major costs were R&D for the H-NET(R) project, which began in the
1st Qtr, wages and commissions, management fees, office and general, and rents
for both periods. The company invested $86,368 in R&D in this quarter and
through careful cost tracking, the company made a profit. The comparative
revenue figures were lower in the 2nd Qtr due to product implementation and
shipments held back until the Phase I H-NET(R) components are incorporated and
the beta testing is complete. The earnings declined over the previous
comparative quarter, primarily due to product holdbacks and the company
investing its own cash for the development of H-NET(R).
The cash position of the company increased to $214,466 from $ 98,913 in the
previous comparative quarter, providing a healthy cash reserve. Retained
earnings also rose from $1,575,038 to $1,629,784 on Jul 31, 1999. Current assets
as a whole changed from $1,665,379 to $1,409,994.
The overall decline in the Revenue and Earnings are directly attributed to the
company's R&D($86,368) investment into H-NET(R) and its holdback on the release
of the new versions of the systems till Phase I of H-NET(R) is incorporated into
these products and the beta testing is complete. The company expects to be back
on track towards the latter part of this year with Phase I, H-NET(R) services
incorporated and the beta testing complete. It is expected that these products
will be marketed aggressively through fiscal 2000, where the impact will be even
greater. Expected R&D credits, which would increase the profitability, were not
calculated into this quarter. The company further expanded its H-NET(R)
operations by adding one more technical analyst in this quarter.
The company continued its development of the Internet based transaction
processor, H-NET(R). The first " Live" installations went ahead on schedule
during the latter part of June 1999. Prior testing carried out on the high power
Compaq database servers, the digital link and the networks together with the
high speed digital ISDN Centrex micro-link proved to be invaluable as the beta
testing of H-NET has proceeded smoothly and without major surprises. Previous
testing of the value added network, the Extra net, the certificate site, the
file transfer sites, the secure fund transfer site, the random cryptology key
generator and the virtual data mapping/translating sites has also helped in the
beta testing.
The company initiated development of the H-NET portal for the Vision Care
Industry. It is anticipated strategic partnerships established with Providers,
Payors, Suppliers and Laboratories will substantially strengthen Alpha Bytes'
relationships with key players and trading partners as well as broaden Alpha
Bytes' offering and assist in aggregating a critical mass of users.
"Year 2000 Issue"
---------------
All of the companies new systems are year 2000 compatible and the company does
not expect the "Year 2000" issue to affect its operations, networks, operating
systems or the computers.
9
<PAGE>
PART II
-------
Item 1. Legal Proceedings
- -------------------------
AlphaBytes Computer Corporation (AB), the Canadian subsidiary of Alpha Bytes
INC., is a party to litigation against Gunther Slaton, Sally Engle and
Profitable Packaging Concepts (PPC) Inc. stemming from perpetrated agreements
relating to the operations of Systems By Design Inc (SDI), a company in the
packaging business. In April 1997, an arbitrator in NY issued an award in favor
of Slaton, Engle and PPC, against AB, Anton Stephens, SDI and Peter Markus
jointly and severally. This award totals approximately $405,000, including
interest.
A motion to vacate the award of the arbitrator has been granted by the New York
Supreme Court in part, with reference by the Court to the Arbitrator to consider
whether a previously undisclosed judgment held by Slaton against Peter Markus,
who was to have represented Alpha Bytes and Stephens at the original
arbitration, prejudiced their defense in that proceeding. Mr. Markus, purporting
to be a New York attorney, failed to submit any documents in the defense of the
claim and failed to put forth any counterclaim on behalf of Alpha Bytes or
Stephens even though there was strong evidence available of losses sustained in
this transaction, which had been brokered by Markus.
In the event the order is not vacated, according to Canadian Law any order
against a Canadian company will need to be re-heard in a Canadian Court prior to
enforcement. In the opinion of Management, the ultimate disposition of these
matters will have no material adverse effect on the company's financial
position, results of operations or liquidity.
This matter is in a state of limbo in the court system.
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 Form 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
Anton Stephens
President and Director
(Principal Executive Officer)
Date September 10, 1999
By
Christine Stephens
Secretary and Director
Date: September 10, 1999
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
Anton Stephens
President and Director
(Principal Executive Officer)
Date: September 10, 1999
By
Christine Stephens
Secretary and Director
Date: September 10, 1999
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 214,466
<SECURITIES> 903,152
<RECEIVABLES> 193,084
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,409,994
<PP&E> 230,353
<DEPRECIATION> 146,649
<TOTAL-ASSETS> 1,493,698
<CURRENT-LIABILITIES> 92,388
<BONDS> 0
0
0
<COMMON> 385,427
<OTHER-SE> 1,015,883
<TOTAL-LIABILITY-AND-EQUITY> 1,493,698
<SALES> 220,907
<TOTAL-REVENUES> 220,091
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 184,248
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184
<INCOME-PRETAX> 35,842
<INCOME-TAX> 17,492
<INCOME-CONTINUING> 18,350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,350
<EPS-BASIC> 0.002
<EPS-DILUTED> 0.002
</TABLE>
