Nstor Technologies Inc – ‘10-QT’ for 12/31/96

As of:  Wednesday, 2/19/97   ·   For:  12/31/96   ·   Accession #:  75448-97-6   ·   File #:  0-08354

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Quarterly-Transition Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-QT       12/31/96 10Q-Transition                               11±    47K 
 2: EX-27       Financial Data Schedule (Pre-XBRL)                     1      8K 

10-QT   —   12/31/96 10Q-Transition
Document Table of Contents

SECURITIES AND EXCHANGE COMMISSION              
WASHINGTON, DC  20549               

FORM 10-Q               

_____  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                  
SECURITIES EXCHANGE ACT OF 1934                                   

For the quarterly period ended ________________________________                 

OR              

X   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF                    
THE SECURITIES EXCHANGE ACT OF 1934                                 

For the transition period from November 1, 1996 to December 31, 1996            

Commission File Number:  0-8354               

nSTOR TECHNOLOGY, INC.              
(Formerly IMGE, 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) 640-3131              
(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 January 31, 1997: 18,670,477              

PART 1.   FINANCIAL INFORMATION                                                 

Item 1.   Financial Statements                                                  

The condensed financial statements included herein have     
been prepared by the registrant, without audit, pursuant to the                 
rules and regulations of the Securities and Exchange Commission.                
Certain information and footnote disclosures normally included in               
financial statements prepared in accordance with generally accepted             
accounting principles have been condensed or omitted pursuant to                
such rules and regulations; however, the registrant believes that               
the disclosures are adequate to make the information presented not              
misleading.  It is suggested that these condensed financial                     
statements be read in conjunction with the financial statements and             
the notes thereto included in the registrant's annual report on                 
Form 10-K for the fiscal year ended October 31, 1996.  In November              
1996, the Company changed its fiscal year from October 31 to                    
December 31, effective with the calendar year beginning January 1,              
1997.  The transition report is being filed hereon on Form 10-Q for             
the two months ended December 31, 1996.                                         

The condensed financial statements for the interim          
periods included herein, which are unaudited, include, in the                   
opinion of management, all adjustments (consisting only of normal               
recurring adjustments) necessary to present fairly the financial                
position and results of operations of the registrant for the                    
periods presented.  The results of operations for interim periods               
should not be considered indicative of results to be expected for               
the full year.                                                                  

nSTOR TECHNOLOGIES, INC.                                                        
CONSOLIDATED BALANCE SHEETS                                                     
(dollars in thousands) (Note 2)                                                 

                                          Dec. 31,    Oct. 31,
      ASSETS                              1996        1996
        ------                           ---------   ---------
Current assets:                                                                 
Cash and cash equivalents                        $ 4,619     $10,608        
Accounts receivable                                5,016       1,747        
Inventories (Note 3)                               4,237       1,385        
Prepaid expenses and other                           128          82        
                                         -------     -------
Total current assets                           14,000      13,822     

Deferred tax asset                                     182         182          
Property and equipment, net of $90                                              
and $51 accumulated depreciation                   1,159         694        
Goodwill and other intangible assets,                                           
net of $56 and $17 accumulated amortization        5,767         979        
                                         -------     -------
                                         $21,108     $15,677
                                         =======     =======
LIABILITIES                                         
-----------                                         
Current liabilities:                                                            
Accounts payable                                 $ 4,288     $ 1,325        
Accrued expenses and other                         2,722         652        
Royalty liability  (Note 2)                          800         800        
                                         -------     -------
Total current liabilities                       7,810       2,777     

Convertible notes due 2000 (including                                           
$198 and $197 of accrued interest)                   516         510        
                                         -------     -------
Total liabilities                               8,326       3,287     
                                         -------     -------

Commitments and contingencies (Note 4)                                          

STOCKHOLDERS' EQUITY                                          
--------------------                                          

Preferred stock, $.01 par; shares                                               
authorized 1,000,000; outstanding none                -           -         
Common stock, $.05 par; shares authorized                                       
24,000,000; outstanding 18,670,477                   934         934        
Additional paid-in capital                          30,393      29,923          
Deficit                                            (18,545)    (18,467)         
                                         -------     -------
Total stockholders' equity                     12,782      12,390     
                                         -------     -------
                                         $21,108     $15,677
                                         =======     =======

_______                                                                         
See accompanying notes to consolidated financial statements.                    

nSTOR TECHNOLOGIES, INC.                                                        
CONSOLIDATED STATEMENTS OF OPERATIONS                                           
(dollars in thousands, except per share data) (Note 2)                          

                                      Two Months Ended
                                        December 31,
                                        ----------------------
                                        1996        1995
                                        ----------  ----------

Sales                                             $ 4,739     $    -            
Cost of sales                                       3,392          -            
                                       -------     -------
Gross profit                                   1,347          -       
                                       -------     -------

Operating expenses:                                                             
Research and development                            299          -          
Selling, general and administrative               1,188          -          
                                       -------     -------
Total operating expenses                       1,487          -       
                                       -------     -------

Loss from operations                            (140)         -       

Interest income                                        87          -            
Interest expense and other                            (25)        (23)          
                                       -------     -------

Net loss                                          ($   78)   ($    23)          
                                       =======     =======

Net loss per common share                         ($ 0.00)   ($  0.00)          
                                       =======     =======

Average number of common                                                        
shares outstanding                            18,670,477   17,600,477       
                                       ==========   ==========

_______                                                                         
See accompanying notes to consolidated financial statements.                    

nSTOR TECHNOLOGIES, INC.                                                        
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                 
(dollars in thousands)                                                          

     Addi-
Common Stock    tional            
-----------------  Paid-In              
     Shares   Amount  Capital  Deficit   Total
    ---------- ------  -------  -------  -------

Balances, October                                                               
31, 1996          18,670,477  $934   $29,923 ($18,467) $12,390              

Warrant issued in                                                               
connection with                                                             
acquisition                                                                 
(Note 2)               -        -        470       -       470              

Net loss for the                                                                
two months ended                                                            
December 31, 1996      -        -         -       (78)     (78)             
    ----------  ----   -------  -------  -------
Balances, December                                                              
31, 1996          18,670,477  $934   $30,393 ($18,545) $12,782              
    ==========  ====   =======  =======  =======

_______                                                                         
See accompanying notes to consolidated financial statements.                    

nSTOR TECHNOLOGIES, INC.                                                        
CONSOLIDATED STATEMENTS OF CASH FLOWS                                           
(in thousands) (Note 2)                                                         
                            Two Months Ended
                            December 31,
                           -------------------
                           1996       1995
                           --------   --------
CASH FLOWS FROM OPERATING ACTIVITIES:                                           
Net loss                                  ($    78)  ($   23)               
Adjustments to reconcile net loss                                           
to net cash provided by                                                 
operating activities:                                                   
Depreciation and amortization               82        -             
Changes in assets and liabilities,                                  
net of effects from acquisition:                                
Increase in accounts receivable       (442)        5        
Increase in inventories               (309)       -         
Increase in other assets               (22)       -         
Increase in accounts payable,                               
accrued expenses and other                              
liabilities                          481        10      
                           -------    ------
Net cash used by operating activities           (288)       (8)                 
                           -------    ------
CASH FLOWS FROM INVESTING ACTIVITIES:                                           
Cash paid for acquisition                   (2,800)       -                 
Additions to property and equipment           (201)       -                 
                           -------    ------
Net cash used by investing activities         (3,001)       -                   
                           -------    ------
CASH FLOWS FROM FINANCING ACTIVITIES:                                           
Additions to borrowings                        350        -                 
Repayments on borrowings                    (3,050)       -                 
                           -------    ------
Net cash used by financing activities         (2,700)       -                   
                           --------   ------
Net decrease in cash during the period        (5,989)       (8)                 
Cash at the beginning of the period           10,608        15                  
                           -------    ------
Cash at the end of the period                $ 4,619    $    7                  
                           =======    ======
SUPPLEMENTAL SCHEDULE OF NON-CASH                                               
INVESTING ACTIVITIES:                                                           
Acquisition:                                                                
Fair value of assets acquired            $10,528    $   -               
Liabilities assumed                       (4,558)       -               
Borrowings repaid at closing              (2,700)       -               
Warrant issued to seller                    (470)       -               
                            -------     ------
Cash paid for acquisition            $ 2,800     $  -           
                            =======     ======
_______                                                                         
See accompanying notes to consolidated financial statements.                    

nSTOR TECHNOLOGIES, INC.                                                        
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                 

Business                                                              

Since June 3, 1996, nStor Technologies, Inc. (the "Company"),                   
through its operating subsidiary, nStor Corporation, Inc.                       
("nStor"), has been engaged in the development, manufacture and                 
marketing of a full range of disk array products, known as RAID                 
(Redundant Array of Independent Disks) subsystems (the "RAID                    
Business"), which provide users with high capacity, fault-tolerant              
storage, allow uninterrupted access to data and support a variety               
of operating systems.  Since December 1, 1996, nStor has also been              
engaged in the development, manufacture and marketing of memory                 
devices and peripheral equipment, and the integration of storage                
management solutions, digital media management and client/server                
environments for RISC-based UNIX and Windows NT Server environments             
(the "Parity Business").                                                        

Prior to the Company's acquisition of the RAID Business (effective              
June 3, 1996), the Company's only assets were securities issued by              
IMNET Systems, Inc. ("IMNET") which the Company had acquired in                 
October 1992 in exchange for substantially all of the Company's                 
operating assets.  During the time in which the Company owned the               
IMNET securities, the Company's only activities consisted of                    
monitoring its investment in IMNET and evaluating potential                     
business opportunities.  During 1996, the Company sold the IMNET                
securities.                                                                     

Fiscal Year                                                           

In November 1996, the Company changed its fiscal year from October              
31 to December 31, effective with the calendar year beginning                   
January 1, 1997.  Certain amounts in the financial statements                   
presented for the previous fiscal 1996 period have been restated to             
conform to the new fiscal 1996 presentation.                                    

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.                      

(2)  ACQUISITIONS                                                               

Effective June 3, 1996, nStor, a newly-formed subsidiary which was              
80% owned at that time, acquired the RAID Business (see Note 1 to               
Consolidated Financial Statements), consisting of certain net                   
assets of Seagate Peripherals, Inc. located in Lake Mary, Florida.              
The purchase price consisted of  $592,000 in cash, including                    
acquisition costs, and a royalty to Seagate, estimated at $800,000,             
payable based upon 5% of nStor's sales of certain products during               
the 15 month period beginning October 1, 1996.  Effective October               
31, 1996, the Company acquired the remaining 20% of nStor from R.               
Daniel Smith, the president of the nStor operating subsidiary and               
currently a director of the Company, in exchange for one million                
shares of the Company's common stock, valued at $600,000 (net of                
applicable discount).                                                           

Effective December 1, 1996, nStor acquired the Parity Business (see             
Note 1 to Consolidated Financial Statements), consisting of                     
substantially all the net assets of Parity Systems, Inc.                        
("Parity"), a privately-owned company located in Los Gatos,                     
California.  The purchase price consisted of $2.8 million in cash               
and a warrant (exercisable at any time through December 1999) to                
purchase 500,000 shares of the Company's common stock at $2.10 per              
share, valued at $470,000.  The transaction closed on December 30,              
1996, on which date nStor repaid the approximately $3 million                   
outstanding balance of Parity's bank line of credit.                            

The acquisitions have been accounted for under the purchase method              
of accounting, with assets acquired and liabilities assumed                     
recorded at estimated fair values as of the effective acquisition               
dates, and the operating results of the acquired businesses                     
included in the Company's consolidated financial statements from                
those dates.  Allocation of the purchase price of the Parity                    
Business has been made on a preliminary basis, subject to                       
adjustment should new or additional facts about the business become             
known. The excess of the purchase price of the acquisitions over                
the fair value of net assets acquired (goodwill) approximated $5.2              
million and is being amortized over periods not exceeding 15 years.             
For the two months ended December 31, 1996, amortization of                     
goodwill approximated  $42,000.                                                 

(3)  INVENTORIES                                                                

Inventories are summarized as follows (in thousands):                           

   December    October
    31, 1996    31, 1996
    --------    --------
Raw materials              $ 3,595     $ 1,164                        
Work-in-process                 88         143                        
Finished goods                 554          78                        
   -------     -------
   $ 4,237     $ 1,385
   =======     =======

(4)  CONTINGENCIES                                                              

See Part II, Item 1, for a discussion of the Company's Legal                    
Proceedings.                                                                    

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                      
CONDITION AND RESULTS OF OPERATIONS                           

Overview                                                                        

nStor acquired the RAID Business and the Parity Business, effective             
June 3, 1996 and December 1, 1996, respectively.  Allocations have              
been made to reflect the estimated fair values, as of the effective             
acquisition dates, of the net assets acquired which has resulted in             
asset bases which differ from those of the previous owners.  In                 
addition, certain of nStor's operating policies and accounting                  
procedures are different from those of the previous owners.                     
Accordingly, comparative financial data of the RAID Business and                
the Parity Business for periods prior to the effective dates of                 
acquisition are not presented in this section since they would be               
neither comparable nor informative.                                             

From the date the Company disposed of substantially all of its                  
operating assets in October 1992 in exchange for shares in IMNET                
until the acquisition of the RAID Business in June 1996, the                    
Company's only activities consisted of monitoring its investment in             
IMNET and evaluating potential business opportunities.                          
Accordingly, operating results for the two months ended December                
31, 1995 principally consisted of administrative expenses and                   
interest expense.                                                               

Results of Operations                                                           

The Company incurred a $78,000 net loss for the two months ended                
December 31, 1996 as compared to a net loss of $23,000 for the                  
corresponding period of the previous year.                                      

Sales                                                                 

For the two months ended December 31, 1996, nStor's net sales                   
amounted to $4,739,000, which amount included one month's sales                 
related to the Parity Business, which was acquired effective                    
December 1, 1996 (the "Parity Acquisition").  Future sales are                  
expected to be positively affected during 1997 by nStor's recent                
introduction of new RAID products, the completion of agreements                 
with several new OEM's and as nStor's product line is made                      
available to Parity's customer base.  For the twelve month period               
prior to the Parity Acquisition, Parity's sales were approximately              
$28.5 million. The foregoing statements regarding increases in                  
nStor's future sales are forward looking statements that may prove              
not to be accurate.  Factors that could cause such statements not               
to be accurate include, but are not limited to, increased                       
competition for nStor's products, improvements in alternative                   
technologies, a lack of market acceptance for new products                      
introduced by nStor and the failure of nStor to successfully market             
its products.                                                                   

Cost of Sales/Gross Margin                                            

Gross margins for the two months ended December 31, 1996 amounted               
to 28%.  nStor's gross margins are dependent, in part, on product               
mix which is anticipated to fluctuate from time to time.  nStor has             
been able to increase its gross margins over those achieved by its              
predecessors due to a greater emphasis on selling higher margin                 
enhanced storage devices and certain cost efficiencies.  Although               
gross margins on product sales associated with the Parity Business              
have been less than those achieved by RAID Business sales, nStor                
expects to be able to gradually increase gross margins on the                   
Parity product line during 1997 as operating efficiencies are                   
realized and nStor's component servicing capabilities allow the                 
Parity product line to be manufactured at a lower cost.  The                    
foregoing statements regarding increases in nStor's future gross                
margins are forward looking statements that may prove not to be                 
accurate.  Factors that could cause such statements not to be                   
accurate include, but are not limited to, increases in the cost of              
components or raw materials used in nStor's products, increased                 
labor costs, higher production costs for new products developed by              
nStor, decreases in the price of nStor's products, and a shift in               
product sales to less profitable products.                                      

Operating Expenses                                                    

The Company's operating expenses for the two months ended December              
31, 1996 amounted to $1,487,000, consisting of $299,000 in                      
research, development and other engineering costs and $1,188,000 in             
selling, general and administrative expenses, which amount included             
one month's operating expenses related to the Parity Business.                  
Operating expenses are expected to increase in the future due to                
the Parity Acquisition and as nStor continues to focus on                       
improvements and innovations to its existing product lines and                  
expansion of its customer base.  However, nStor expects to realize              
certain operating efficiencies in light of the Parity Acquisition               
through elimination of duplicate activities and locations during                
1997.  The foregoing statements regarding achieving operating                   
efficiencies in nStor's future operating expenses are forward                   
looking statements that may prove not to be accurate.  Factors that             
could cause such statements not to be accurate include, but are not             
limited to, difficulty in reducing or reallocating nStor's work                 
force, an inability to consolidate nStor's physical plants and                  
production capabilities, and delays in the integration of nStor's               
operational and sales efforts following the Parity Acquisition.                 

Interest income                                                       

Interest income of $87,000 for the two months ended December 31,                
1996 was earned on the remaining net proceeds received from the                 
sale of the Company's investment in IMNET, principally during early             
1996.  During the corresponding period in 1995, there was no                    
interest income.                                                                

Liquidity and Capital Resources                                                 

Net cash used by operating activities increased to $288,000 during              
the two months ended December 31, 1996, as compared to $8,000 in                
the corresponding period of the previous year, principally                      
attributable to increases in accounts receivable ($442,000) and                 
inventories ($309,000), partially offset by higher accounts                     
payable, accrued expenses and other liabilities ($481,000).  Net                
cash used by investing activities amounted to $3,001,000 for the                
two month period ended in 1996, primarily as a result of $2,800,000             
cash paid in connection with the Parity Acquisition.  Net cash used             
by financing activities amounted to $2,700,000, principally                     
representing repayment of Parity's bank line of credit at the                   
closing of the Parity Acquisition.                                              

Since the acquisition of the RAID Business in June 1996, nStor's                
working capital needs, including amounts required for the Parity                
Acquisition, have been funded by cash flow from operations and the              
Company's cash balances.  At December 31, 1996, the Company's cash              
and cash equivalents amounted to $4,619,000 of which $3,998,000 was             
invested in high quality short-term corporate securities.  nStor is             
presently negotiating for an asset-based bank line of credit to                 
finance its expanding working capital needs and maintain a high                 
level of liquidity.  Management believes that nStor's cash flow                 
generated from operations and the Company's cash balances will be               
sufficient to satisfy nStor's working capital and capital                       
expenditure needs for at least the next twelve months as currently              
planned.                                                                        

Effect of Inflation                                                             

Inflation has not had an impact on nStor's operations and the                   
Company does not expect that it will have any material impact in                
1997.                                                                           

Forward Looking Information:  Certain Cautionary Statements                     

Certain statements contained in "Management's  Discussion and                   
Analysis of Financial Condition and Results of Operations" and                  
elsewhere in this Form 10-Q, that are not related to historical                 
results, are forward looking statements.  Actual results may differ             
materially from those projected or implied in the forward looking               
statements.  Further, certain forward looking statements are based              
upon assumptions of future events which may not prove to be                     
accurate.  These forward looking statements involve risks and                   
uncertainties including but not limited to nStor's future cash                  
flows, sales, gross margins and operating expenses, the effect of               
conditions in the technology industry and the economy in general,               
legal proceedings, as well as certain other risks.  Subsequent                  
written and oral forward looking statements attributable to the                 
Company or persons acting on its behalf are expressly qualified in              
their entirety by cautionary statements in this paragraph and                   
elsewhere described in this Form 10-Q and in other reports filed by             
the Company with the Securities and Exchange Commission.                        

Part II.  Other Information                                                     

Item 1 - Legal Proceedings                                                      

In June and August 1996, the Company, two of its directors and                  
nStor were served with two separate Complaints filed in the Supreme             
Court of the State of New York, County of Nassau, in which the                  
plaintiffs claim to have had contractual and proprietary interests              
in the prospect of a transaction to purchase the RAID Business                  
acquired by nStor (see Note 2 to Consolidated Financial                         
Statements).  The plaintiffs seek compensatory damages, punitive                
damages, and equitable relief for alleged interference with the                 
plaintiffs' alleged rights.  Both cases are in preliminary stages;              
however, the Company is unaware of any facts that would support any             
of the plaintiff's claims and, accordingly, the Company believes                
that the claims are without merit.                                              

Item 6 - Exhibits and Reports on Form 8-K:                                      

(a)   Exhibits:                                                           

(27) Financial Data Schedule                                

(b)   Reports on Form 8-K:                                                

The Registrant filed reports on Form 8-K during the two     
month transition period ended December 31, 1996 as          
follows:                                                    

(i)  A report on Form 8-K dated November 5, 1996 and        
filed November 15, 1996, reporting under Item 8 - 
Change in Fiscal Year.                            

(ii) A report on Form 8-K dated November 7, 1996 and        
filed December 15, 1996, reporting under Item 5 - 
 Other Events, in which the Registrant reported that
it had changed its name from IMGE, Inc. to nStor  
Technologies, Inc.                                

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
February 19, 1997                                                     
           Jack Jaiven, Vice President
             and Principal Financial and
    Accounting Officer

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-QT’ Filing		Date		Other Filings
Filed on:		2/19/97
		1/31/97
		1/1/97
For Period End:		12/31/96		8-K,  NT 10-Q
		12/30/96		8-K/A
		12/15/96
		12/1/96
		11/15/96		8-K
		11/7/96		8-K
		11/5/96		8-K
		11/1/96
		10/31/96		10-K,  10-K/A,  DEF 14A
		10/1/96
		6/3/96
		12/31/95
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