<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 Apr 30, 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)
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 April 30, 1999
1
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
Part I Financial Information Page Number
- -----------
<S> <C> <C>
Item I Consolidated Balance Sheet, 3
April 30, 1999 (unaudited)
Consolidated Statement of Earnings for Quarter Ended 4
April 30, 1999 (unaudited)
Consolidated Statement of Stockholders Equity 5
Consolidated Statement of Cash Flow for Quarter Ended 6
April 30, 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 APRIL 30, 1999
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Apr. 30 Apr. 30
Note 1999 1998
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current:
Cash $ 414,913 $ 282,054
Available-for-sale securities 2 772,698 981,182
Accounts receivable 125,258 338,902
Income taxes recoverable 17,144 -
Prepaid expenses and sundry assets 21,416 21,465
---------- ----------
1,351,429 1,623,603
Long term:
Capital assets 3 91,027 76,465
---------- ----------
TOTAL ASSETS $1,442,456 $1,700,068
========== ==========
LIABILITIES
Current:
Accounts payable and accrued liabilities $ 49,863 $ 59,459
Income taxes payable - 127,403
Deferred income taxes payable 66,180 54,590
---------- ----------
TOTAL LIABILITIES 116,043 241,452
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock 4 320,731 250,968
Less Treasury Stock at cost (118,959) (123,160)
Share purchase warrants 18,000 17,000
Retained earnings 1,611,434 1,508,635
Unrealized holding gain (loss) on available-for-sale securities (322,705) (72,382)
Foreign exchange adjustment (182,088) (122,445)
--------- ----------
1,326,413 1,458,616
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,442,456 $1,700,068
========= ==========
</TABLE>
3
<PAGE>
ALPHA BYTES, INC.
CONSOLIDATED STATEMENT OF EARNINGS
QUARTER ENDED APRIL 30, 1999
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Apr. 30 Apr. 30
1999 1998
---------- ---------
<S> <C> <C> <C>
REVENUE
Sales $ 152,571 $ 423,767
Investment income 9,198 3,601
-------- ---------
161,769 427,368
-------- ---------
EXPENSES
Research and development 6 82,281 -
Wages, management and consulting fees 57,969 131,138
General and administrative 59,347 36,368
Travel and promotion 15,218 34,823
Professional fees 7,718 11,812
Amortization 7,324 4,885
-------- ---------
229,857 219,026
-------- ---------
EARNINGS BEFORE INCOME TAXES (68,088) 208,342
Provision for income taxes: (30,743) 47,600
-------- ---------
NET EARNINGS (LOSS) $ (37,345) $ 160,742
======== ========
EARNINGS PER SHARE 7 $ (0.005) $ 0.022
======== ========
</TABLE>
4
<PAGE>
ALPHA BYTES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
QUARTER ENDED APRIL 30, 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, 1998 7,468,002 250,968 264,000 17,000 145,000 (112,332)
Net earnings for 1999 - - - - - -
Unrealized loss on
available-for-sale
securities - - - - - -
Foreign exchange
adjustment for 1999 - - - - - -
Employee share options
issued as compensation for
services received - net - - 100,000 1,000 - -
Purchase of stock on open
market - - - - - 27,500
--------- --------- --------- ------- ------- ---------
BALANCE AS AT JANUARY 31, 1999 7,468,002 $250,968 364,000 $18,000 172,500 $(126,776)
Net earnings for 3 month
period
Foreign exchange adjustment
Shares issued as
compensation for
Services received.
Unrealized loss on
available for sale
securities
Gain on sale of treasury
stock 69,763
Purchase of stock on open
market (10,600) 7,817
BALANCE AS AT APRIL 30, 1999 7,468,002 320,731 364,000 18,000 161,900 (118,959)
========= ======== ======= ======= ======= ========
<CAPTION> Unrealized
Holding
Loss On
Unrealized Available- Foreign
Retained Gain on For-Sale Exchange
Earnings Investment Securities Adjustments Total
----------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE AS AT JANUARY 31, 1998 1,347,893 - - (127,807) 1,375,722
Net earnings for 1999 300,886 - - - 300,886
Unrealized loss on
available-for-sale
securities - - (293,458) - (293,458)
Foreign exchange
adjustment for 1999 - - - (33,458) (33,458)
Employee share options
issued as compensation for
services received - net - - - - 1,000
Purchase of stock on open
market (14,444) - - - (14,444)
---------- ---------- ---------- ----------- ----------
BALANCE AS AT JANUARY 31, 1999 $1,648,779 $ - $(293,458) $(161,265) $1,336,248
Net earnings for 3 month
period (37,345) (37,345)
Foreign exchange adjustment (20,823) (20,823)
Shares issued as
compensation for
Services received.
Unrealized loss on
available for sale
securities (29,247) (29,247)
Gain on sale of treasury
stock 69,763
Purchase of stock on open
market 7,817
BALANCE AS AT APRIL 30, 1999 1,611,434 (322,705) (293,458) (182,088) 1,326,413
========== ========== ========== =========== ==========
</TABLE>
5
<PAGE>
ALPHA BYTES, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
QUARTER ENDED APRIL 30, 1999
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Apr. 30 Apr. 30
1999 1998
----------- ----------
<S> <C> <C>
CASH WAS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net earnings $ (37,345) $160,742
Amortization 7,324 4,885
---------- --------
(30,021) 165,627
---------- --------
Changes in non-cash working capital items:
Accounts receivable 91,826 327,332
Prepaid expenses and sundry assets 5,165 (2,848)
Accounts payable and accrued liabilities 4,745 (32,965)
Income taxes payable (134,565) (27,882)
Income taxes recoverable (17,144) -
---------- --------
(79,994) 429,264
---------- --------
FINANCING ACTIVITIES
Unrealized holding loss on available for sale securities (29,247) (72,382)
Gain on purchase of treasury stock 69,763 -
Purchase of stock for treasury 7,817 (10,828)
Foreign exchange adjustment (20,823) 5,362
---------- --------
27,510 (77,848)
---------- --------
INVESTING ACTIVITIES
Long term accounts receivable and work in process - -
Net purchase of capital assets (2,813) (9,371)
Sundry investments - net - -
Marketable securities - restricted - -
---------- --------
(2,813) (9,371)
---------- --------
INCREASE IN CASH AND AVAILABLE-FOR-SALE
SECURITIES (55,297) 342,045
Cash and available-for-sale securities at the beginning of the year 1,242,908 921,191
---------- --------
CASH AND AVAILABLE-FOR-SALE SECURITIES
AT THE END OF THE YEAR $ 1,187,611 $ 1,263,236
=========== ============
</TABLE>
6
<PAGE>
ALPHA BYTES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED APRIL 30, 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 April 30, 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
Accumulated Balance
Cost Depreciation 30 Apr, 99 30 Apr, 98
Furniture & equipment $ 58,209 $ 37,544 $ 20,665 $ 25,832
Vehicles 38,315 35,096 3,218 4,599
Leasehold improvements 1,163 523 640 872
Computer hardware 112,117 48,429 63,688 44,020
Computer software 20,549 17,734 2,815 1,143
-------- -------- ------- -------
$ 219,884 $ 139,326 $ 91,027 $ 76,466
-------- -------- ------- -------
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:
53,500 employee share options with an exercise price of $0.01 per share
expiring October 31, 2000
53,500 employee share options with an exercise price of $0.01 per share
expiring May 31, 2001
54,500 employee share options with an exercise price of $0.01 per share
expiring October 31, 2001
100,000 employee share options with an exercise price of $0.01 per share
expiring October 31, 2000
100,000 employee share options with an exercise price of $0.01 per share
expiring October 31, 2003
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 Apr 30, 1999 - $ 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
- ---------------------
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 April 30, 1998 and April 30, 1999.
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 $161,769 for the quarter year ended Apr 30, 1999 generating a
gross profit of $(68,088) as compared to revenues of $427,386 for the quarter
ended Apr 30, 1998 which generated a gross profit of $208,342. The expected
R&D credits were not calculated into this quarter.
Expenses were $229,857 for the quarter ended Apr 30,1999 as compared to
$219,026 for the period ending on Apr 30, 1998.
Earnings were $(37,345) for the quarter ended Apr 30,1999 as compared to
$160,742 for the period ending Apr 30, 1998.
Overall, the major costs were R&D for the H-NET(R) project, which began in the
1th Qtr, wages and commissions, management fees, office and general, and rents
for both periods. The company invested $82,281 in R&D in this quarter and
through careful cost tracking, the company made a small loss. The comparative
revenue figures were lower in the 1st Qtr due to product implementation and
shipments held back until the Phase I H-NET(R) components are incorporated.
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 declined to $1,187,611 from $1,263,236 in the
previous comparative quarter, still providing a healthy cash reserve.
Retained earnings however, rose from $1,508,635 to $1,611,434 on Apr 30, 1999.
Current assets as a whole changed from $1,623,603 to $1,351,429.
The overall decline in the Revenue and Earnings are directly attributed to the
company's R&D ( $82,281) 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. The company expects to be back on track
towards the latter part of this year with Phase I, H-NET(R) incorporated. The
company further expanded its H-NET(R) operations by adding one more technical
analyst. It is expected that these products will be marketed aggressively
through fiscal 2000, where the impact will be even greater. Expected R&D
credits were not calculated into this quarter.
The company continued its development of the Internet based transaction
processor, H-NET(R). The first " Live" installations are on schedule for the
month of June, 1999. In preparation of the upcoming events, the company
tested, with success, the high power Compaq database servers, the digital link
and the networks together with the high speed digital ISDN Centrex micro-link.
Additionally, 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 were also
tested.
"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 a litigation against Guther 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 judgement held by Slaton against Peter Markus,
who was to have represented Alpha Bytes and Stephens at the original
arbitration, prejudiced their defence in that proceeding. Mr. Markus, purporting
to be a New York attorney, failed to submit any documents in the defence 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.
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 June 09, 1999
By /s/Christine Stephens
---------------------
Christine Stephens
Secretary and Director
Date: June 09, 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 /s/Anton Stephens
-----------------
Anton Stephens
President and Director
(Principal Executive Officer)
Date: June 09, 1999
By /s/Christine Stephens
---------------------
Christine Stephens
Secretary and Director
Date: June 09, 1999
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 414,913
<SECURITIES> 772,698
<RECEIVABLES> 125,258
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,351,429
<PP&E> 230,353
<DEPRECIATION> 139,326
<TOTAL-ASSETS> 1,442,456
<CURRENT-LIABILITIES> 716,043
<BONDS> 0
0
0
<COMMON> 320,731
<OTHER-SE> 1,005,682
<TOTAL-LIABILITY-AND-EQUITY> 1,442,456
<SALES> 152,571
<TOTAL-REVENUES> 161,769
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 229,857
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 68,088
<INCOME-TAX> 30,743
<INCOME-CONTINUING> 37,345
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,345
<EPS-BASIC> 0.005
<EPS-DILUTED> 0.005
</TABLE>
