<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, 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 7,823,002 shares of common stock outstanding having a par value of
$.0002 per share as of October 31, 1999
1
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
Part I Financial Information Page Number
- ------ --------------------- -----------
<S> <C> <C>
Item 1 Consolidated Balance Sheet, 3
October 31, 1999 (unaudited)
Consolidated Statement of Earnings for Quarter Ended 4
October 31, 1999 (unaudited)
Consolidated Statement of Stockholders Equity 5
Consolidated Statement of Cash Flow for Quarter Ended 6
October 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>
ALPHA BYTES, INC.
2
<PAGE>
CONSOLIDATED BALANCE SHEET
AS AT OCTOBER 31, 1999
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Oct. 31 Oct. 31
Note 1999 1998
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current:
Cash $ 435,119 $ 237,078
Available-for-sale securities 2 619,570 1,010,802
Accounts receivable 219,222 413,540
Income taxes recoverable 82,257 -
Prepaid expenses and sundry assets 33,127 29,180
---------- ----------
1,389,295 1,690,600
Long term:
Capital assets 3 80,319 96,203
---------- ----------
TOTAL ASSETS $1,469,614 $1,786,803
========== ==========
LIABILITIES
Current:
Accounts payable and accrued liabilities $ 29,509 $ 50,624
Income taxes payable - 118,586
Deferred income taxes payable 66,180 54,590
---------- ----------
TOTAL LIABILITIES 95,689 223,800
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock 4 427,222 250,968
Less Treasury Stock at cost (134,639) (123,160)
Share purchase warrants 90 17,000
Retained earnings 1,642,226 1,828,077
Unrealized holding gain (loss) on available-for-sale securities (379,256) (208,445)
Foreign exchange adjustment (181,718) (201,437)
---------- ----------
1,373,925 1,563,003
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,469,614 $1,786,803
========== ==========
</TABLE>
3
<PAGE>
ALPHA BYTES, INC.
CONSOLIDATED STATEMENT OF EARNINGS
QUARTER ENDED OCTOBER 31, 1999
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Oct. 31 Oct 31
1999 1998
---- ----
<S> <C> <C> <C>
REVENUE
Sales $263,650 $ 425,624
Investment income 9,886 118,751
-------- ---------
273,536 544,375
EXPENSES
Research and development 6 71,047 -
Wages, management and consulting fees 47,178 166,688
Professional fees 9,304 27,888
General and administrative 1,535 50,002
Travel and promotion 115,478 14,505
Amortization 7,823 10,759
-------- ---------
252,364 269,842
EARNINGS BEFORE INCOME TAXES 21,172 274,533
Provision for income taxes: 8,730 21,493
-------- ---------
NET EARNINGS (LOSS) $ 12,442 $ 253,040
======== =========
EARNINGS PER SHARE 7 $ 0.002 $ 0.032
======== =========
</TABLE>
4
<PAGE>
ALPHA BYTES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
QUARTER ENDED OCTOBER 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)
Net earnings for 3 months ended October 31, 1999
Foreign exchange adjustment
Unrealized loss on available for sale securities
Purchase of treasury stock 3,700 (27,665)
Exercise of option 25,000 25 (2,500) (25)
Gain on sale of treasury stock 23,885 (3,000) 2,220
--------- ------- ------- ------- --------- --------
BALANCE AS AT OCTOBER 31, 1999 7,823,002 427,222 9,000 90 149,405 (134,639)
========= ======= ======= ======= ========= ========
<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
Net earnings for 3 months ended October 31, 199 12,442 12,442
Foreign exchange adjustment 3,814 3,814
Unrealized loss on available for sale securities
Purchase of treasury stock (42,082) (42,082)
Exercise of option (27,665)
Gain on sale of treasury stock 26,105
--------- -------- -------- ---------
BALANCE AS AT OCTOBER 31, 1999 1,642,226 (379,256) (181,718) 1,373,925
========= ======== ======== =========
</TABLE>
5
<PAGE>
ALPHA BYTES, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
QUARTER ENDED OCTOBER 31, 1999
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Oct. 31 Oct. 31
1999 1998
---- ----
<S> <C> <C>
CASH WAS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net earnings $ 12,442 $ 253,040
Amortization 7,823 10,759
-------- ---------
20,265 263,799
-------- ---------
Changes in non-cash working capital items:
Accounts receivable (26,136) 95,326
Prepaid expenses and sundry assets 643 -
Accounts payable and accrued liabilities 3,301 2,688
Income taxes payable (net of ITC) - 1,202
Income taxes recoverable (16,735) ( 4,266)
-------- ---------
(18,663) 358,749
-------- ---------
FINANCING ACTIVITIES
Unrealized holding loss on available for sale securities (42,082) (208,445)
Gain on sale of treasury stock 23,885 -
Disposition (Purchase) of stock for treasury (25,445) -
Foreign exchange adjustment 3,814 (28,361)
-------- ---------
(39,828) (236,806)
-------- ---------
INVESTING ACTIVITIES
Net purchase of capital asset (4,438) (5,662)
Net purchase of available for sale securities 283,582 21,884
Marketable securities - restricted - -
-------- ---------
279,144 16,222
-------- ---------
INCREASE IN CASH AND AVAILABLE-FOR-SALE
SECURITIES 220,653 138,165
Cash and available-for-sale securities at the beginning 214,466 98,913
-------- ---------
Of the period
CASH AND AVAILABLE-FOR-SALE SECURITIES
AT THE END OF THE PERIOD $435,119 $ 237,078
======== =========
</TABLE>
6
<PAGE>
ALPHA BYTES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED OCTOBER 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 October 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 Oct, 99 31 Oct, 98
<S> <C> <C> <C> <C>
Furniture & equipment $ 58,209 $ 39,719 $18,490 $23,113
Leasehold Improvements 1,163 640 523 756
Vehicles 38,315 35,618 2,697 3,853
Computer hardware 116,554 59,074 57,480 65,205
Computer software 20,549 19,420 1,129 3,276
-------- -------- ------- -------
$234,790 $154,471 $80,319 $96,203
-------- -------- ------- -------
</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:
2,250 employee share options with an exercise price of $0.01 per share
expiring October 31, 2000
2,250 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
4. EARNINGS (LOSS) PER SHARE
7
<PAGE>
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 October 31, 1999 - 7,823,002
5. COMMENTS - Leases of premises
The company is committed under existing leases to the following minimum
annual rents:
Year ending January 31, 1999 - $ 38,000
January 31, 2000 - $ 39,000
January 31, 2001 - $ 40,000
January 31, 2002 - $ 41,000
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 October 31, 1999 and October 31, 1998.
8
<PAGE>
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 $263,650 for the quarter year ended Oct 31, 1999 generating a
gross profit of $ 21,172 as compared to revenues of $425,624 for the quarter
ended Oct 31 1998, which generated a gross profit of $274,533. The expected R&D
credits, which would increase the profitability, were not calculated into this
quarter
Expenses were $252,364 for the quarter ended Oct 31,1999 as compared to $269,842
for the period ending on Oct 31, 1998. Earnings were $ 12,442 for the quarter
ended Oct 31,1999 as compared to $253,040 for the period ending Oct 31, 1998.
Both revenues and earnings were higher in this quarter in comparison with the
previous two quarters.
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 $71,047 in R&D in quarter and through
careful cost tracking, the company made a profit. The comparative revenue
figures were lower in the 3rd 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 the company investing its own cash for the development
of H-NET(R) and some product holdbacks.
The cash position of the company increased to $435,119 from $237,078 the
previous comparative quarter, providing a healthy cash reserve. Retained
earnings were $1,642,226 compared to $1,828,077on Oct 31, 1998. Current assets
as a whole changed from $1,690,600 to $1,389,295 mostly due to value changes in
the available-for-sale securities.
The overall decline in the Revenue and Earnings are directly attributed to the
company's R&D($71,047) investment into H-NET(R) and some holdback on the release
of the new versions of the systems until 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 more web development staff 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 and
the company carried out various tests 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.
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
9
<PAGE>
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.
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
10
<PAGE>
President and Director
(Principal Executive Officer)
Date October 10, 1999
By
Christine Stephens
Secretary and Director
Date: October 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: October 10, 1999
By
Christine Stephens
Secretary and Director
Date: October 10, 1999
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 435,119
<SECURITIES> 619,570
<RECEIVABLES> 219,222
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,389,295
<PP&E> 234,790
<DEPRECIATION> 154,471
<TOTAL-ASSETS> 1,469,614
<CURRENT-LIABILITIES> 95,689
<BONDS> 0
0
0
<COMMON> 427,222
<OTHER-SE> 946,703
<TOTAL-LIABILITY-AND-EQUITY> 1,469,614
<SALES> 263,650
<TOTAL-REVENUES> 273,536
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 252,364
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,501
<INCOME-PRETAX> 21,172
<INCOME-TAX> 8,730
<INCOME-CONTINUING> 12,442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,442
<EPS-BASIC> 0.002
<EPS-DILUTED> 0.002
</TABLE>
