-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WyPSrjqQPTP3+ukrH7VkGhkKjongcd/n7pX+hSb0cN2ha8mDwO/fpP5ip5tv+kPL 9lRKNBBWzhYtd981zJlRVg== 0000936392-99-001336.txt : 19991117 0000936392-99-001336.hdr.sgml : 19991117 ACCESSION NUMBER: 0000936392-99-001336 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NSTOR TECHNOLOGIES INC CENTRAL INDEX KEY: 0000075448 STANDARD INDUSTRIAL CLASSIFICATION: [9995] IRS NUMBER: 952094565 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12895 FILM NUMBER: 99754227 BUSINESS ADDRESS: STREET 1: 100 CENTURY BLVD. CITY: WEST PALM BEACH STATE: FL ZIP: 33417 BUSINESS PHONE: (561) 640-3103 MAIL ADDRESS: STREET 1: 450 TECHNOLOGY PARK CITY: LAKE MARY H STATE: FL ZIP: 3274617 FORMER COMPANY: FORMER CONFORMED NAME: IMGE INC DATE OF NAME CHANGE: 19960627 FORMER COMPANY: FORMER CONFORMED NAME: IMNET INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: COMMUNICATIONS & CABLE INC DATE OF NAME CHANGE: 19890413 10-Q 1 FORM 10-Q 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 2 nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page Number ------ 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
2 3 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements nSTOR TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands)
Sept. 30, 1999 Dec. 31, (unaudited) 1998 ----------- -------- 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 ======== ========
See accompanying notes to consolidated financial statements. 3 4 nSTOR TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data)
Three Months Nine Months Ended Sept. 30, Ended Sept. 30, ----------------------------- ----------------------------- 1999 1998 1999 1998 (unaudited) (unaudited) ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============
See accompanying notes to consolidated financial statements. 4 5 nSTOR TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (dollars in thousands)
Preferred Common Stock Stock Additional ----------------------- ----------------- Paid-In Shares Amount Shares Amount Capital Deficit Total ---------- ---------- ------ -------- ---------- ---------- ---------- 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 ========== ========== ====== ======-- ========== ========== ==========
See accompanying notes to consolidated financial statements. 5 6 nSTOR TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Nine Months Ended Sept. 30, -------------------------- 1999 1998 (unaudited) (unaudited) ----------- ----------- 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 ======== ========
6 7 nSTOR TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)(concluded)
Nine Months Ended Sept. 30, -------------------------- 1999 1998 (unaudited) (unaudited) ----------- ----------- 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 ======== ========
See accompanying notes to consolidated financial statements. 7 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 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 10 (3) BALANCE SHEET COMPONENTS (in thousands) Substantially all assets are pledged as collateral for indebtedness (Note 4).
Sept.30, Dec.31, 1999 1998 (unaudited) ----------- -------- 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 ======== ========
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.
Sept.30, Dec.31, 1999 1998 (unaudited) ----------- -------- 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 ======== ========
Property and equipment are stated at cost. Depreciation is provided under the straight-line method over the estimated useful lives, principally five years. 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 ======== ========
10 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):
Sept.30, Dec.31, 1999 1998 (unaudited) ----------- -------- 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 ======== ========
(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 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 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 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 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 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 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 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 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 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 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:
Item Affirmative Negative Withheld 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
21 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 EX-10.1 2 EXHIBIT 10.1 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 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 EX-10.2 3 EXHIBIT 10.2 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 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: EX-10.3 4 EXHIBIT 10.3 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 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:____________________________________ EX-27 5 EXHIBIT 27
5 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 758 0 10,511 (1,553) 7,946 19,130 6,095 (2,475) 38,884 15,033 0 0 0 1,135 6,213 38,884 28,355 28,540 22,020 11,574 2,102 0 1,451 (8,462) 0 (8,462) 0 0 0 (8,462) (.43) (.43)
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