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SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended FEBRUARY 25, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
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Commission File Number 0-10558
ALPHA MICROSYSTEMS
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3108178
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2722 SO. FAIRVIEW STREET, SANTA ANA, CA 92704
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 957-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
UNITS TO PURCHASE COMMON STOCK AND REDEEMABLE
COMMON STOCK PURCHASE WARRANT
(Title of Class)
REDEEMABLE COMMON STOCK PURCHASE WARRANT
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. []
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing sale price of its common stock on April 26, 1996
on the Nasdaq National Market, a date within 60 days prior to the date of
filing, was $26,587,919.
As of April 26, 1996, there were 6,595,453 shares of the registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I
INTRODUCTORY NOTE
This Annual Report on Form 10-K contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act") and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. These forward-looking statements include (i) the
ability of the Company to continue to meet its financial obligations and the
continued availability of financing, (ii) the market acceptance of the
Company's hardware and software products and services, including the recently
announced AlphaCONNECT, (iii) the continued development of the Company's
technical, manufacturing, sales, marketing and management capabilities,
(iv) anticipated competition, and (v) future success of the continued
implementation of the Company's transition plan, including its ability to
effectively and efficiently manage its resources.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. The Company's future success
will be highly dependent upon its ability to develop, produce, and market
products and services that incorporate new technology, are priced competitively,
and achieve significant market acceptance. There can be no assurance that the
Company's products and services will be commercially successful or technically
advanced due to the rapid improvements in computer technology and resulting
product obsolescence. There is also no assurance that the Company will be able
to deliver commercial quantities of new products in a timely manner. The success
of new product and service introductions is dependent on a number of factors,
including market acceptance, the Company's ability to manage risks associated
with product and services transitions, the effective management of inventory
levels in line with anticipated product demand, the timely manufacturing of
products in appropriate quantities to meet anticipated demand, and the Company's
ability to manage its expenses in proportion to its revenues. There can be no
assurance that such new product and service introductions will occur without
adversely affecting the Company's revenues, cash flow, results of operations
and financial condition.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions, all of which
are difficult or impossible to predict accurately and many of which are beyond
the control of the Company. In addition, the business and operations of the
Company are subject to substantial risks which increase the uncertainty inherent
in the forward-looking statements. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
ITEM 1. BUSINESS
Alpha Microsystems (the "Company" or "Alpha Micro") is a California corporation
with its principal offices located at 2722 S. Fairview Street, Santa Ana, CA
92704 (telephone number 714/957-8500). The Company provides information
technology products and services targeted at specific market niches both
directly and through value-added resellers ("VARS") and distributors. The
Company also provides consulting, networking, software support and maintenance
services, with approximately 46 locations in North America and the United
Kingdom.
This Annual Report on Form 10-K refers to various trademarks of the Company and
certain trademarks of other companies.
GENERAL DEVELOPMENT OF THE BUSINESS
The Company was incorporated under California law on March 17, 1977. During the
last five years, the Company has completed several acquisitions including
acquisitions of product lines and subsidiaries. To expand its service business,
the Company has made various acquisitions. In fiscal 1996, the Company acquired
the assets and ongoing contract revenue of Instant Data Services and Alpha
Technology. While the Company's acquisitions have enabled it to generate
additional services revenues, there has been significant attrition in acquired
customer bases.
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As part of the Company's strategy to enter vertical markets, it acquired, in
fiscal 1994, substantially all of the assets and service contracts of CV
Systems, which provided veterinary practice administration software. In fiscal
1996, the Company sold CV Systems to Veterinary Centers of America ("VCA"), a
major user of the product. The sale resulted from market pressures from
veterinary industry consolidation and the Company's belief that it could apply
its resources toward areas with greater growth potential.
In 1991, the Company acquired an interest in Sabre, which markets a product sold
under the tradename SWORDS to cash-and-carry wholesalers. Subsequently, the
Company acquired the remaining interest in Sabre Belfast in fiscal 1995 and
acquired the remaining interest in Sabre Dublin in fiscal 1996. SWORDS was
released for sale in Ireland in fiscal 1993, and in the United Kingdom in fiscal
1994.
The Company introduced two Windows-based products, PANDA, its food service
administration software, in fiscal 1995 and Alpha 2000, its dental practice
software, in fiscal 1996. The Company has refocused its marketing strategy for
PANDA and is evaluating additional development of Alpha 2000 in an effort to
economically enhance its market acceptance. Subsequent to year-end, the Company
introduced AlphaCONNECT, an Internet/Intranet software product for data mining,
harvesting, formatting, manipulation and delivery, and for the creation of
dynamically self-updating Web pages.
The Company currently conducts its European operations directly through Alpha
Microsystems Great Britain Limited ("AMGB"). In fiscal 1996, the Company
finalized the sale of Alpha Microsystems Belgium, S.A. to a member of its
Belgian management. The Company maintains several international distributor and
dealer relationships, including its former Belgium subsidiary.
DESCRIPTION OF BUSINESS
Alpha Microsystems, founded in 1977, is a supplier of information technology
products and services targeted at specific market niches. The Company has
historically had two principal lines of business: (1) the sale of computer and
networking hardware and software products, and (2) the service of its own and
third party hardware and software products as well as installation, training,
and consulting services. In recognition of the intensely competitive nature of
the computer hardware industry and the migration towards open system
environments and away from proprietary systems such as those primarily sold by
the Company, the Company has in the last several years as part of a transition
plan focused its efforts on vertical niche markets such as dental practice
management, and the expansion of its service business. In fiscal 1996, service
revenues accounted for 55.8% of total revenues and product sales accounted for
44.2% of total revenues, as compared to fiscal 1992, when service revenues
accounted for 33.3% of total revenues and product sales accounted for 66.7% of
total revenues.
The following table sets forth the percentage contribution to total Company
revenues of each of these principal lines of business for the periods indicated:
Percentage of Revenues
Fiscal Year End
February 25, February 26, February 27,
1996 1995 1994
Product Revenues 44.2% 48.5% 52.3%
Service Revenues 55.8% 51.5% 47.7%
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IMPLEMENTATION OF TRANSITION PLAN
During the mid-1990s through fiscal 1996 the Company implemented a transition
plan to de-emphasize its hardware business, and focus on its software and
services businesses. At the same time, the Company has redeployed certain
assets, closed certain facilities, downsized its employment, initiated asset
management programs, and adjusted its intangibles to more accurately reflect
current market values.
CONSOLIDATION OF EUROPEAN OPERATIONS
The Company closed its Italian operation in fiscal 1994, and transferred
customer service responsibilities for Italian customers to its United Kingdom
subsidiary. The Company also closed its French subsidiary and disposed of its
Belgian subsidiary by selling it to one of the Belgian employees. As a result of
these actions, the only remaining material European operations are Alpha
Microsystems Great Britain Ltd., with offices in the United Kingdom, and Sabre
Business Systems Ltd., with offices in the United Kingdom and Ireland. This
strategic consolidation has streamlined the Company's European distribution
channels and reduced expenses associated with declining product lines.
EXPENSE REDUCTION--ASSET MANAGEMENT
The Company has taken steps to reduce operating expenses and to institute new
asset management techniques. Effective in the second quarter of fiscal 1996, the
Company moved its corporate, software development, engineering, and servicing
operations, as well as its downsized and largely outsourced hardware
manufacturing operation, into a smaller facility in Santa Ana, California, and
terminated its previous lease. The new facility is approximately 60% of the size
of the previous headquarters, and lease rates are substantially lower. The
Company has instituted asset management techniques to maximize available working
capital while funding software development; the techniques have included close
management of physical inventories and a focus on improving collections. As a
result of these efforts the Company's inventories have been reduced from
$6,124,000 at the end of fiscal 1992 to $943,000 at the end of fiscal 1996. The
Company has also reduced its personnel worldwide from 392 at the end of fiscal
1995 to 321 at the end of fiscal 1996.
EXPENSE REDUCTION--DE-EMPHASIS OF HARDWARE BUSINESS
The Company has de-emphasized its hardware business, and has significantly
reduced the expenses associated with this line of business. Steps taken have
included a substantial shrinkage in the Company's hardware workforce and sales
force, the outsourcing of subassemblies and certain product lines, the
reduction of floor space allocated to hardware integration, and a substantial
reduction in hardware engineering expense. The Company has also re-organized its
hardware business as a division within Alpha Microsystems Services Organization
("AMSO"), resulting in a reduction of personnel expenses associated with
hardware products.
INTANGIBLE WRITE-DOWN
The Company has written down the value of certain intangibles on its balance
sheet to more accurately reflect the current market value of such intangibles.
The latest write-down was taken at the end of fiscal 1996 and aggregated
$1,995,000; this write-down was associated with certain vertical software
products and goodwill.
EMPHASIS ON SOFTWARE AND SERVICE
The Company has redirected some of its available resources and assets toward the
development and sale of software and information technology services. The
Company's investment in the development and introduction of new products
contributed to its losses and negative cash flow during each of the fiscal
years 1995 and 1996.
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INTRODUCTION OF NEW PRODUCTS
The Company has introduced numerous new products during fiscal 1996 and the
first part of fiscal 1997. These include Alpha 2000 software for dental practice
management, PANDA enhancements for the Company's customers in institutional
foodservice administration, and the new AlphaCONNECT software, which represents
what the Company anticipates is the first product in a family of
Internet/Intranet software products.
SERVICES OPERATION
The Company and its subsidiaries maintain service operations which employ
approximately 149 service personnel worldwide (approximately 129 in North
America and 20 in Europe) to provide service and technical support to the
Company's users and certain dealers. The Alpha Microsystems Services Operation
("AMSO") provides multi-vendor hardware and software maintenance and repair
services throughout the United States and Canada via a network of 44 field
offices linked to a national dispatch and advisory center. The technical support
and service operations of the Company's European subsidiary serve the Company's
European dealers and users. Through the Alpha Micro Technical Assistance Center,
the Company responds to questions from dealers and end-users around the world by
electronic and telephone communications channels. The Company intends to expand
the service segment of its business through new service contracts, expansion of
time and material servicing, and alliances with third-party firms, although no
assurances can be given that the Company will be successful in expanding its
services operation above current levels.
AMSO's contribution to the Company's operations has increased over the past
years. On a worldwide basis, gross profit margins for service operations for
fiscal 1996, 1995, and 1994 were 30.4%, 29.8% and 38.2% respectively. The
expansion of AMSO has occurred in part through acquisitions. AMSO continues to
develop opportunities to service selected products manufactured by third parties
in an effort to more fully exploit the Company's service capabilities. AMSO's
services also include the design and installation of computer networks. Other
professional services offered by AMSO include consulting services related to
site preparation work, electrical power and cabling analysis, air conditioning,
humidity and static electricity problems, and lightning protection for computer
systems.
During fiscal year 1996, AMSO began development of a direct sales and marketing
group with a view toward expanding AMSO through this direct sales and marketing
group. AMSO's sales efforts are concentrated on securing contracts for service
of open systems such as IBM RS6000s and Microsoft and Novell networks. AMSO
will also continue to investigate acquisitions, but only on an opportunistic
basis.
PRODUCTS
HARDWARE
COMPUTER SYSTEMS. The Company supports its customers and VAR
distribution channel with its family of business-oriented computer systems. The
Company's computers are based primarily on the Motorola 680XX family of
microprocessors. In addition, the Company provides an array of video display
terminals, backup subsystems, memory boards, disk drives, and other components
and accessories.
The Company's primary product line, the AM Series, is based upon the Motorola
680XX family of microprocessors and primarily includes the Eagle family of
small business computer systems. The Eagle family was first introduced in 1994
with the latest member being the Super Eagle, which commenced delivery in late
fiscal 1996. The AM Series also includes the AM-4000 as well as the recently
announced AM-6000 that is anticipated to be available toward the end of fiscal
1997. The AM-6000 is based upon the latest and most powerful member of the
Motorola 680XX family, the Motorola 68060. However, the Company can make no
assurances at this time as to the future availability of the AM-6000.
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The AM Series supports users ranging from four with the Falcon add-in
application processor for personal computing to more than 200 with the AM-4000.
The Eagle 100 Business Solution, supporting up to 16 users, currently accounts
for a substantial portion of AM Series sales.
OPERATING SYSTEMS. The primary operating system licensed with
the Company's products is AMOS, the Company's proprietary operating system. The
Company also incorporates Novell NetWare, SCO UNIX, AT&T UNIX, MS-DOS, and
Microsoft Windows, among others, into certain of its products. In addition to
operating systems software, the Company markets and distributes a variety of
software products for its hardware systems including language compilers,
development and conversion tools, networking products, application programs,
and utility programs. These currently include AlphaBASIC, AlphaLAN (a
networking product for both serial and Ethernet-based networking), AlphaWRITE
(a word processor), AlphaCALC (an electronic spreadsheet), MULTI (a
multi-tasking windowing product) and others. In addition, the Company has
introduced the widely used AcuCOBOL language compiler for its AMOS based
systems. Using AlphaTCP/IP and AlphaDDE, the AMOS-based systems capability has
been expanded to the realm of client/server technology and other applications.
AMOS. The AM Series line is supported by the Company's
proprietary operating system, AMOS, which is installed on most of the Company's
computers worldwide. AMOS is tailored to provide a combination of high
performance and ease of use, while offering the flexibility of a multi-user
system. Because the AM Series incorporates AMOS, users can generally expand or
upgrade hardware with little or no modifications to existing applications
software, as well as draw on an existing library of applications software.
INTERNET/INTRANET SOFTWARE
AlphaCONNECT. On April 3, 1996, the Company announced the
introduction of AlphaCONNECT, which the Company anticipates is a first product
in a family of software products for use in Internet/Intranet applications.
AlphaCONNECT is a software product that mines, harvests, and manipulates data
from assigned locations on corporate Intranets and local area networks (LANs),
as well as from Internet sites using HTTP (Hyper Text Transfer Protocol) and FTP
(File Transfer Protocol) standards. AlphaCONNECT then formats and delivers the
acquired data from legacy sources to popular Windows-, Windows 95- and Windows
NT-compatible horizontal applications including Microsoft Excel, Microsoft
Access, Microsoft Word, Quattro Pro, WordPerfect, Borland Paradox, and Web
browsers such as Netscape.
Based on user-specified criteria and under the control of a built-in timer,
AlphaCONNECT automatically controls the entire harvesting and updating cycle.
The software can be set up to establish connections with legacy applications or
Web sites, collect the desired data, launch the appropriate Windows application
or Web page updating routines, filter the incoming source data, map the output
to the specified destination and shut down the application when all processes
are completed. When delivering data to Windows applications, AlphaCONNECT can
create new documents or spreadsheets, or update existing ones containing
user-defined formulas, formats, and attributes.
AlphaCONNECT also facilitates the development and maintenance of dynamically
self-updating Web pages.
AlphaCONNECT beta tests were conducted at discrete customer locations, and have
also been conducted by visitors to the Company's World Wide Web page, who have
been able to download beta versions of AlphaCONNECT since April 3, 1996. These
beta tests have resulted in various enhancements to AlphaCONNECT, principally
associated with ease of use, connectivity and compatibility with various Web
browsers. The Company anticipates that it will release AlphaCONNECT for sale in
late May 1996, but no assurances can be given that it will be released for sale
at that time (or at all), or that sales of AlphaCONNECT will materialize or will
be significant.
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The Company is researching and developing additional Internet/Intranet products
for announcement in upcoming months. Some of these products are anticipated to
broaden the plug-and-play compatibility of the software for additional popular
horizontal applications, and to increase its ease of use. Other of these
products are anticipated to be plug-ins directed at specific legacy systems. No
assurance can be given that any additional products will be successfully
developed or sold.
VERTICAL MARKET SOFTWARE
ALPHA 2000. Alpha 2000, announced in mid-1995 and released
for deliveries in November 1995, is a Windows-based suite of software
applications for use in dental practices. Modules include practice management,
certain diagnostic interfaces, office utilities, and certain marketing
applications. Alpha 2000 is a successor to FOCUS, a dental practice management
system developed and installed by the Company's Alpha HealthCare subsidiary
during the 1980s. Currently, the Company believes there are approximately 800
installations of FOCUS systems, addressing the needs of approximately 2,800
health care professionals. Alpha 2000 was introduced with the goal of expanding
the marketplace addressable by Alpha HealthCare by providing industry-standard
and broadly compatible Microsoft Windows-based systems. During fiscal 1996,
sale of Alpha 2000 generated only approximately $35,000 in revenues, primarily
because the product was introduced late in the fiscal year and because the
product required further development to more fully meet the needs of the
marketplace. Principally because of its short market history, no assurances can
be given that Alpha 2000 sales will develop or increase, or that Alpha 2000
will generate substantial revenues or gross profits.
PANDA. PANDA is a software package designed for use in
institutional, primarily educational, foodservice administration applications.
The Company has approximately 15 district installations of PANDA that serve
approximately 95 primary and 38 secondary schools in the state of California.
For fiscal 1996, PANDA generated approximately $426,000 in revenues, and its
expense, principally associated with software enhancement, on-site consulting
with customers, and maintenance, substantially exceeded the gross profits
generated. The Company is currently evaluating its plans for PANDA, and expects
to continue to sell PANDA in California, to provide support to current
installations, and to continue to enhance it on a diminished expense basis.
SWORDS. SWORDS, first introduced by Sabre Business Systems in
Ireland in 1985, was acquired by the Company in its acquisition of Sabre in
1991. SWORDS is a software application designed for use by wholesalers,
distributors, and "cash-and-carry" markets in the United Kingdom and Ireland.
SWORDS, which operates in AMOS and open systems environments such as AcuCOBOL,
includes point of sale operations for both over-the-counter and check-out lane
operations, and supports mobile, remote capture functions from delivery trucks
and vans. Through a number of special features including built-in pricing
flexibility and extensive on-line history files, SWORDS provides real-time
management of gross profit margins, whether during purchase order placement or
at the point of sale. SWORDS also provides users with an extensive range of key
inventory, purchasing, sales, and management reports. SWORDS currently has
approximately 101 installations, and generated revenue of approximately
$1,791,000 in fiscal 1996. The Company expects to continue to sell the product
in the United Kingdom and Ireland. No assurances can be made that SWORDS sales
will grow from current levels.
DISTRIBUTION AND MARKETING
The Company currently markets its hardware products primarily through a network
of approximately 221 dealers and distributors, approximately 179 of which are
located in North America, Latin America, Australia and the Asia Pacific area and
the remainder of which are located in Western Europe.
The terms of most of the agreements between the Company and its dealers provide
for a non-exclusive one-year term with one-year renewals, terminable upon 60
days notice. Most dealers pay an annual fee to the Company to receive marketing,
administrative, and technical support.
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The Company's distribution to its dealers and distributors is supported by
approximately 15 sales and marketing personnel located at the Company's
headquarters as well as in various metropolitan locations throughout the United
States and England. In addition, the Company engages in direct marketing with
respect to its vertical niche operations and in its service operations.
During fiscal 1996, 1995, and 1994, approximately 30%, 30%, and 31% of the
Company's net sales were made to foreign dealers and users. The Company
distributes its products in Great Britain and Western Europe through its
subsidiary in Great Britain which, in turn, sells directly and through
independent distributors and dealers. From its headquarters in the United
States, the Company sells its products directly to distributors and independent
dealers in Mexico, Latin America, Australia, the Asia Pacific area, and other
international markets.
Historically, the Company's dealer organization has been a strength of the
Company's hardware sales program. For a variety of reasons, including the
current pressures in the computer industry to move toward open systems hardware,
increasing numbers of dealers have migrated away from the Company's traditional
hardware products or have added other competing products to their product
offerings. In addition, the computer industry market conditions continue to
threaten the viability of many computer product distributors and dealers, and
the Company's distributors and dealers are not immune to these conditions.
Sales of the Company's hardware are dependent upon several large customers,
however none of these customers represent more than 10% of the consolidated
revenues. The loss of one or more of these customers could have a material
adverse effect on the Company's results of operations.
INTEGRATION AND SUPPLIES
The Company's manufacturing process consists primarily of assembling,
integrating, and testing a wide variety of purchased electronic and
electromechanical components and subassemblies. Most components and
subassemblies are available from a number of alternative sources and certain
suppliers have provided the Company with favorable consignment arrangements.
However, a number of components and subassemblies used by the Company are
available from a single or limited number of outside suppliers. Some of these
components may periodically be in short supply and the Company has, on occasion,
experienced temporary delays or increased costs in obtaining these components.
The Company currently has more than one available source of supply for most of
its required components and subassemblies. As to those for which it does not
have more than one qualified source of supply, it believes it could redesign its
products so as to replace such single source component with alternate
components, if necessary. The Company maintains a supply of such single source
components which it believes is sufficient to enable it to continue operations
until any replacement supplier could be qualified and any necessary redesign
could be completed--with the exception of a line of Motorola microprocessors, on
which the Company's designs are dependent. The inability of the Company to
obtain the components and subassemblies necessary to enable it to fill its
then-existing orders for any reason, including, but not limited to, shortages,
product delays or work stoppages experienced by the Company's suppliers, could
have a material adverse effect on the Company's business, results of operations
and financial condition.
The Company's backlog is not significant because lead time is typically less
than one week from receipt of order to shipment. The Company buys materials
pursuant to short-term forecasts and builds inventory to a semi-finished goods
state. The finished products are then integrated based upon individual customer
orders.
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FOREIGN OPERATIONS
The Company's foreign sales to dealers and users comprise a substantial part of
the Company's total net sales (30%, 30%, and 31% in fiscal 1996, 1995, and 1994,
respectively). In fiscal 1996, approximately 59% of the Company's foreign sales
were product sales and 41% were service revenues. Currently, the Company
operates its European operations through AMGB and Sabre. See Note 11 to the
Company's Notes to Consolidated Financial Statements contained elsewhere in this
Annual Report on Form 10-K for financial information concerning the Company's
foreign operations.
The Company believes that its gross profit margins with respect to foreign sales
are not materially different from gross profit margins with respect to domestic
sales. A significant portion of international receivables and payables are in
currencies other than U.S. dollars, the value of which fluctuates in relation to
U.S. currency. Currency fluctuations can have a material adverse affect on the
Company's foreign revenue, profitability and cash flow in terms of U.S. dollars.
Foreign currency exchange gains included in the determination of income (loss)
from operations before taxes and extraordinary item were $76,000, $93,000, and
$(216,000) for the 1996, 1995, and 1994 fiscal years, respectively. To minimize
the extent to which the Company may be affected by changes in the value of
foreign currencies in relations to the U.S. dollar, from time to time the
Company hedges some of its foreign currency transactions by short-term forward
foreign exchange contracts. The Company's operations outside the United States
are subject to the usual risks and limitations attendant upon investments in
foreign countries, such as fluctuations in currency values, exchange control
regulations, wage and price controls, employment regulations, effects of foreign
investment laws, governmental instability (including expropriation or
confiscation of assets), and other potentially detrimental domestic and foreign
governmental policies affecting U.S. companies doing business abroad.
As part of its commitment to providing quality products, AMGB has obtained
certification for quality control standards for England, British Standard 5750.
WARRANTY
The Company provides a one-year parts and labor warranty on its AM-4000 system
and a one-year parts warranty on all of its other products, other than software.
Software licensed by the Company is not warranted by the Company and is licensed
"as is." Applications software provided by third parties is covered by the
warranties of the third party suppliers. The Company has not had significant
warranty problems and believes its warranty reserves are adequate based on the
Company's historical experience.
RESEARCH AND DEVELOPMENT
The Company intends to continue investing in research and development, even
though such costs may continue to be reduced as a result of the Company's move
towards OEM supplied products and systems assembly and integration. Annually,
management determines the amount of such investment after considering the
Company's profitability levels and technological standing within the industry.
Research and development expenses totaled $2,093,000, $2,239,000, and
$2,847,000 or 14.5%, 11.9%, and 13.8% of the Company's product revenue,
respectively, in fiscal years 1996, 1995, and 1994. In accordance with
Statement of Financial Accounting Standards No. 86, the Company capitalizes
certain engineering costs related to software development after technological
feasibility has been established and amortizes these costs as the respective
products are sold. See Note 1 to the Notes to Consolidated Financial Statements
included elsewhere in this Annual Report on Form 10-K.
The Company continues to utilize independent software developers where
appropriate and has entered into agreements with such developers to design,
enhance, and/or support products to be marketed by the Company. Some agreements
provide for an initial amount to be paid as a development fee and a royalty
structure based on future revenues received from the developed product. This
structure allows the Company to reduce current costs related to development and
support of such products, while deferring
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royalty costs against future revenues. The remainder of the agreements are
usually structured such that these independent software developers are
compensated on an hourly rate basis.
COMPETITION
The computer industry is characterized by rapid technological changes and
product obsolescence and the Company, in particular, faces severe competitive
pressures as many competitors have aggressively targeted the broad range of
market segments in which the Company's products and services compete. The
Company's competition includes a large number of hardware manufacturers, service
providers and software developers and re-sellers, many of which have longer
operating histories, greater name recognition, larger installed customer bases
and databases and significantly greater financial, technical and marketing
resources than the Company. Such competitors may be able to undertake more
extensive marketing campaigns and make more attractive offers to potential
employees, distribution partners, advertisers and content providers. As a
result of their greater resources, they may also be better able than the
Company to modify and enhance their products to meet changing market demands.
In addition, due to the declining popularity of proprietary systems in favor of
open systems such as Microsoft Windows, there are an ever declining number of
distributors, dealers and developers of software and related products for use
with the Company's proprietary systems, which continues to have an adverse
effect upon the Company's competitive position. There can be no assurance that
competition from existing competitors will not substantially increase, that
established or new companies will not enter the market in direct competition
with the Company or that the Company will be able to compete successfully with
such existing or new competitors.
In addition, with respect to the Company's new software product, AlphaCONNECT,
the market for Internet services and products is intensely competitive. Since
there are no substantial barriers to entry for Internet services and products,
the Company expects competition in these markets to persist, intensify and
increase in the future. The Company believes that the principal competitive
factors in these markets are name recognition, performance, ease of use and
functionality. In the future, the Company may encounter competition from on-line
service providers, Web site operators, providers of Web browser software (such
as Netscape or Microsoft) and other Internet services and products that
incorporate data retrieval, collection and conversion features into their
offerings, as well as competition from computer operating systems companies
such as Microsoft, which in the past has bundled software with its operating
systems at little or no additional cost to users. Consequently, if commercially
viable, AlphaCONNECT software will likely at some point, be subject to price
erosion due to free client software distributed by on-line service providers,
Internet access providers, operating system providers and others.
The Company's future success will depend in significant part on its ability to
adapt to rapidly changing technologies, keep its products competitively priced,
maintain and enhance its market position, adapt its services and products to
evolving industry standards, and continually improve the performance, features
and reliability of its services and products in response to both evolving
demands of the marketplace and competitive service and product offerings. There
can be no assurance that the Company will have the resources to respond to this
rapidly evolving market.
GOVERNMENTAL REGULATION
The Company's operations are subject to a number of federal, state, and local
laws relating to environmental, health, safety and labor matters applicable to
business generally. The Company believes its business is operated in substantial
compliance with all material applicable government regulations. However, there
can be no assurances that future regulations will not require the Company to
modify its products, business or operations to meet environmental, health,
safety, or labor requirements, or that the Company will be able, for financial
or other reasons, to comply with such future requirements. Failure to comply
with future governmental regulations could subject the Company to fines or
injunctions, which could result in a material adverse effect on the Company's
business, results of operations, and financial condition. Although the Company
is not aware of any claim involving violation of environmental, health, safety
or labor laws or regulations, there can be no assurance that such claim may not
arise in the future,
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which may have a material adverse effect on the Company's business, results of
operations, and financial conditions.
The currently marketed versions of the Company's multi-user systems (including
the recently announced Super Eagle) have been successfully tested by an
independent testing agency for compliance with Federal Communications Commission
requirements for electromagnetic interference in commercial environments.
LICENSES, PATENTS AND TRADEMARKS
The Company markets a variety of software programs that it has either developed
internally, acquired ownership rights to, or is marketing through license
agreements with third party vendors. Internally developed software, as well as
software in which all ownership rights, title, and interest have been acquired
from any third party vendor, is distributed to dealers and users through a
licensing system primarily in object code format. Source code to these software
programs is not licensed for distribution and the Company claims such
intellectual property protection as may be available for such source code. The
Company's proprietary AMOS operating system is marketed and maintained in this
manner. Software acquired from third party vendors pursuant to master licenses
is distributed to the Company's dealers and users for their use pursuant to a
structure of sub-licenses consistent with such master licenses.
The Company licenses the AlphaLAN network software product from U.A. Systems,
Inc. pursuant to a nonexclusive, worldwide (except India) license which was
renewed for a 3-year term ending December 31, 1998 with successive one year
renewals. Either party may terminate such agreement upon giving notice to the
other party at least 60 days prior to the end of any one year renewal period.
The Company licenses the AcuCOBOL AMOS based compiler from AcuCobol,
Incorporated pursuant to a 10 year, exclusive worldwide license commencing
October 29, 1992 and terminable by AcuCobol, Incorporated upon default by the
Company, including the Company's failure to meet certain minimum royalty
requirements. Although no assurances can be given, the Company believes it will
be able to renew its material licenses on terms which will be acceptable.
In addition to claiming standard copyright protection, the Company has
submitted a provisional patent application to the United States Patent and
Trademark Office with respect to certain aspects of its AlphaCONNECT
technology. There can be no assurance that any patent will be issued with
respect to any aspect of AlphaCONNECT. The provisional application will become
abandoned one year after filing unless the Company files a regular patent
application referencing the provisional application. The Company may decide not
to file a regular patent application or may decide to abandon prosecution prior
to issuance of a patent. In addition, there can be no assurance that the
provisional patent application will provide priority for a later filed regular
patent application. If any patent issues, there can be no assurance that any
claims allowed will be sufficiently broad to protect the Company's technology,
to deter competitors or to prevent third parties from developing equivalent
technology that does not infringe such claims, or that the patent will not
otherwise be circumvented. In addition, there can be no assurance that any
patents that may be issued will not be challenged, invalidated, or held
unenforceable, or that any rights granted thereunder would provide proprietary
protection to the Company and its investment in AlphaCONNECT. Failure of any
patents to provide protection of the Company's technology may make it easier
for the Company's competitors to offer technology equivalent to or superior to
the Company's technology.
The Company has federally registered its trademarks "AlphaBASIC," "AlphaPASCAL,"
"AlphaSERV," "AlphaRJE," "AlphaACCOUNTING," " AlphaCALC," "AlphaWRITE,"
"AlphaFORTRAN 77," "AlphaCOBOL," "AMOS," "CaseLode," "AlphaLAN," "NODESTAR,"
"Videotrax," " AMSO," "Alpha2000," "Image.Doc," and the slogan "Right. From The
Start." Several of these marks have also been registered in certain foreign
countries. The Company claims the trademark "OmniBasic" in certain foreign
countries. The Company has also registered the trademark "Alpha Micro" in
selected states and various foreign countries. In addition, the Company has
pending application for the mark "inSight/am." AlphaCONNECT is a trademark of
the Company.
To protect its intellectual property, the Company also relies in part on
agreements with strategic employees and consultants which typically include
provisions concerning confidentiality and ownership of work product. Despite
these precautions, there can be no assurance that such agreements will provide
the Company with meaningful remedies in the event of an improper use or
disclosure of proprietary information. In addition, there can be no assurance
that third parties will not assert infringement claims against the Company in
the future or that the Company will be able to resolve such claims or disputes
on terms acceptable to the Company.
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While patent, copyright and trade secret rights provide certain protection to
the Company, the Company believes that its success is less dependent on those
ownership rights than on its innovative skills, technical competence, and
marketing abilities.
EMPLOYEES
On February 25, 1996, the Company and its subsidiaries employed approximately
321 persons. The Company's ability to attract and retain qualified personnel is
a significant factor in its future success. The Company has never experienced a
work stoppage and at present no employees are represented by a labor
organization. The Company considers its employee relations to be good.
ITEM 2. PROPERTIES
As part of its continuing efforts to reduce expenses, the Company negotiated a
new 66-month lease for a 66,200 square foot facility located within one mile of
its previous 104,000 square foot facility. The new lease, which began on July 1,
1995, provides significant savings. The average annual rent for the new facility
is $285,000, compared to $680,000 for the former facility in fiscal 1995. In
addition, the Company negotiated a cash rent reduction in exchange for paying
the up-front cost of certain leasehold improvements. These leasehold
improvements included office construction, plumbing, wiring, and general tenant
improvements. The costs of these improvements was $923,000, which will be
depreciated over the life of the lease.
ITEM 3. LEGAL PROCEEDINGS
Carlos Garralda and Andre Warnier, employees of the Company's former subsidiary,
Alpha Microsystems Belgium, S.A. ("AMB"), filed an action in November 1995
against AMB and the Company in Orange County Superior Court alleging that AMB is
in breach of its obligations under Belgium employment law to pay salaries for a
notice period of up to two years following termination of employment. The
Plaintiffs allege, among other things, that the Company has alter ego liability
for these obligations. The plaintiffs are claiming compensatory damages in
excess of $780,000 and unspecified punitive damages. The Court has temporarily
stayed this lawsuit until July 18, 1996 in order to await the outcome of
virtually identical litigation instituted by the plaintiffs against AMB in
Belgium. Although no assurances as to the outcome of the litigation can be
given, management believes that its defenses to the litigation are meritorious.
In December 1995, Phoenix Marketing, Inc. dba Electronic Business Systems, Inc.,
in response to the Company's collection efforts for a past due account, filed an
amended cross-complaint alleging damages of $3,200,000 for defective
merchandise, loss of business reputation and loss of future business. Although
no assurances as to the outcome of the litigation can be given, management
believes that the plaintiff's claims are without merit. Trial is presently set
for November 1996.
The Company is currently involved in certain other claims and litigation. The
Company does not consider any of these other claims or litigation to be
material. Management has made provisions in the Company's financial statements
for the settlement of lawsuits for which unfavorable outcomes are both probable
and estimable. In the opinion of management, results of known existing claims
and litigation will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is included on the National Association of Securities
Dealers Automated Quotation ("Nasdaq") National Market under the symbol ALMI.
On November 26, 1993, the Company completed its shareholder rights offering,
which entitled shareholders to subscribe on a one-to-one basis for up to
3,095,892 units, (plus 366,999 units sold to cover over-allotments), each unit
consisting of one share of common stock and one redeemable warrant to purchase
one share of common stock. A total of 900,891 rights were exercised by
shareholders at a subscription price of $1.625. On December 8, 1993, the
subsequent public offering was completed for the sale of the remaining 2,195,001
units, as well as the over-allotment exercised by the Underwriters. The net
proceeds to the Company totaled approximately $3,894,000 of which $1,200,000 was
used to repay borrowings under the Company's line of credit.
The units were traded on the Nasdaq Small Cap System under the symbol "ALMIU."
On December 31, 1993, the warrants became detachable from the common stock and
are now traded on the Nasdaq National Market under the symbol "ALMIW." The units
discontinued trading on January 4, 1994.
The following table sets forth the range of high and low sales prices for the
Company's common stock (ALMI) for the fiscal quarters indicated, as quoted on
the Nasdaq National Market:
HIGH LOW
---- ---
Fiscal year ended February 25, 1996
- -----------------------------------
First Quarter $1 3/32 $25/32
Second Quarter 1 7/16 29/32
Third Quarter 1 7/16 15/16
Fourth Quarter 1 1/4 9/16
Fiscal year ended February 26, 1995
- -----------------------------------
First Quarter $2 3/4 $1 3/4
Second Quarter 2 1/4 1 1/2
Third Quarter 1 7/8 1 3/16
Fourth Quarter 1 3/8 3/4
On April 26, 1996, the high was $4 3/8, the low was $3 31/32, and the
approximate number of record holders of the Company's common stock was 514.
The Company has not paid dividends on its common stock, and it anticipates that
for the foreseeable future it will not pay dividends. Should the Company desire
to pay dividends, any such dividends would be subject to the prior written
consent of the Company's lender and to any preferential rights to receive
dividend payments contained in any securities subsequently issued by the
Company.
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ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR ENDED
------------------------------------------------------------------------------
FEB. 25, FEB. 26, FEB. 27, FEB. 28, FEB. 23,
1996 1995 1994 1993 1992
----------- ----------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Product sales $ 14,466 $ 18,823 $ 20,582 $ 28,261 $ 32,881
Service revenues 18,297 19,962 18,747 16,781 16,439
----------- ----------- ---------- ----------- ----------
Net sales 32,763 38,785 39,329 45,042 49,320
Cost of sales 22,967 27,385 23,876 28,440 28,927
----------- ----------- ---------- ----------- ----------
Gross margin 9,796 11,400 15,453 16,602 20,393
Income (loss) before taxes
and extraordinary item (3,555)(3) (6,247)(2) 223 (3,819)(1) 529
Income (loss) before
extraordinary item (3,575)(3) (6,247)(2) 336 (3,732)(1) 153
Net income (loss) (3,575)(3) (6,247)(2) 336 (3,732)(1) 304
Income (loss) per share:
Income (loss) before
extraordinary item $ (0.54) $ (0.95) $ 0.08 $ (1.25) $ 0.05
Extraordinary item -- -- -- -- 0.05
----------- ----------- ---------- ----------- ----------
Net income (loss) $ (0.54) $ (0.95) $ 0.08 $ (1.25) $ 0.10
=========== =========== ========== =========== ==========
Number of shares used in the
computation of per share
amounts 6,564,882 6,580,470 4,025,090 2,993,878 2,960,582
BALANCE SHEET DATA:
Current assets $ 7,199 $ 10,914 $ 15,252 $ 15,193 $ 18,080
Current liabilities 6,377 7,726 6,936 8,985 9,158
----------- ----------- ---------- ----------- ----------
Working capital 822 3,188 8,316 6,208 8,922
Inventories 943 1,948 2,593 4,102 6,124
Total assets 13,061 17,902 23,100 20,775 25,278
Long-term obligations 201 140 154 50 350
Shareholders' equity 6,483 10,036 16,010 11,740 15,770
(1) Includes a charge of $2,676,000 for the restructuring of the Company's
operations including the closure of its operations in France and Italy.
(2) Includes charges of $972,000 for the sale of Alpha Microsystems Belgium,
S.A. and for the following write-downs: $783,000 for customer lists,
$649,000 for software associated with the Company's hardware business,
$507,000 associated with slow moving service spares, $279,000 for
severence, $694,000 for slow moving inventory associated with the Company's
hardware business, and $304,000 in anticipation of the sale of the imaging
and VSO product lines.
(3) Includes charges of $1,995,000 for the write down of intangible assets
primarily associated with the Company's Alpha HealthCare subsidiary and
PANDA division.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
SUMMARY
The following table sets forth operational data as a percentage of net sales for
the periods indicated:
RELATIONSHIP TO NET SALES
---------------------------------------
Fiscal Year Ended
---------------------------------------
Feb. 25, Feb. 26, Feb. 27,
1996 1995 1994
------- -------- --------
Net sales:
Product sales 44.2% 48.5% 52.3%
Service revenues 55.8 51.5 47.7
----- ----- -----
Total net sales 100.0% 100.0% 100.0%
Cost of sales 70.1 70.6 60.7
----- ----- -----
Gross margin 29.9% 29.4% 39.3%
Selling, general and administrative expense 36.2 40.1 31.0
Research and development expense 6.4 5.8 7.2
Interest (income) expense, net (0.2) (0.4) (0.1)
Other (income) expense (1.6) -- 0.6
----- ----- -----
Income (loss) before taxes (10.9) (16.1) 0.6
Net income (loss) (10.9)% (16.1)% 0.8%
GENERAL
The Company, which for its first decade was principally a designer and vendor of
computer hardware and related systems software, has transitioned its business to
focus on areas that the Company believes offer higher growth potential. During
this transition, the Company has found it necessary to make periodic
adjustments in response to changing market conditions and limited financial
resources. Consequently, during the last few years, the Company has incurred
substantial losses and taken significant write-offs against non-performing
assets. The Company has also been faced with significant product launch delays,
resource constraints, and management changes. The Company anticipates that it
will have to continue to be flexible in considering future shifts in strategy as
changes occur in the highly competitive and dynamic marketplace in which the
Company competes.
As part of its transition strategy, the Company has also continued to focus on
reducing expenses in line with decreasing revenues in its traditional hardware
business. The Company is currently investing additional resources in its service
business as part of its efforts to broaden its service product offerings and
enhance its service organization's sales and marketing presence. In fiscal 1996,
the Company developed its new AlphaCONNECT software product which is used for
data mining, harvesting, formatting, manipulation, and delivery, and for the
creation of self-updating Web pages, and which the Company anticipates will be
available for sale during fiscal 1997. There can be no assurance as to the
degree of customer acceptance or market potential for the AlphaCONNECT product.
Also, the Company applied resources towards its vertical software products,
PANDA and Alpha 2000, during fiscal 1996. In addition to focusing on new areas
of its business, the Company continues in its efforts to efficiently manage its
assets and to consolidate its European operations.
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During fiscal 1996, sales of both the PANDA and Alpha 2000 product lines did not
develop as anticipated. Both product lines contributed significantly to the
Company's fiscal 1996 operating loss with only minimal revenues being generated
by each of these products. As part of the Company's continuing analysis of the
net realizable value of intangible assets of these product lines, the Company
wrote off $1,389,000 in capitalized software, $373,000 for PANDA and $1,016,000
for Alpha 2000, during the fourth quarter of fiscal 1996 resulting in net
capitalized software of $349,000 for PANDA and $132,000 for Alpha 2000 as of
year-end. In addition, the Company evaluated the potential impairment of the
remaining goodwill and other intangible assets associated with the Alpha
HealthCare acquisition and wrote off $481,000 of goodwill and intangibles. The
Company has refocused its marketing strategy for PANDA and is evaluating
additional development of Alpha 2000 in an effort to economically enhance its
market acceptance.
The Company used $293,000 of cash in operations during fiscal 1996 and the cash
balance decreased to $505,000 at February 25, 1996, compared to $3,289,000 at
February 26, 1995. This decline was primarily due to investments in leasehold
improvements at the Company's new Santa Ana location of approximately $900,000,
and in vertical market products and service assets in fiscal 1996. These
investments included $470,000 for PANDA, $506,000 for Alpha 2000, and $421,000
for certain service assets.
The Company operates on a 52/53-week fiscal year ending on the last Sunday in
the month of February. Fiscal years 1996, 1995, and 1994 ended on February 25,
1996, February 26, 1995, and February 27, 1994, respectively.
The discussion herein is qualified by reference to the Introductory Note set
forth in the beginning of this Annual Report on Form 10-K.
Fiscal 1996 compared to Fiscal 1995
Revenues in fiscal 1996 of $32,763,000 decreased $6,022,000, or 15.5 percent,
compared to $38,785,000 for fiscal 1995 revenues. The largest portion of this
decrease was in product revenues which decreased $4,357,000, or 23.1 percent, to
$14,466,000 from $18,823,000 in fiscal 1995. This decrease was attributable in
part to actions taken by management during the year, such as the sale of the
Company's Pick 64, VSO (veterinary software) and imaging software, along with
the loss of sales for related hardware. In addition, product revenue decreased
due to the Company selling its Belgian subsidiary to local management during the
first quarter of fiscal 1996. These actions accounted for $2,394,000, or 54.9
percent, of the decrease in product revenues during the year. In addition, the
Company's traditional hardware business continued to decline by approximately
$1,773,000, or 19.3 percent, to $7,400,000. During fiscal 1996, European
hardware revenues decreased $1,128,000, or 18.7 percent, to $4,891,000 from
$6,019,000 in fiscal 1995.
Service revenues in fiscal 1996 decreased by $1,665,000, or 8.3 percent, to
$18,297,000 from $19,962,000 in fiscal 1995. The decrease was primarily
associated with the Company's United States operations and was mainly
attributable to a reduction in service revenue from prior acquisitions (Alpha
Computer Service, Inc. and MGI Group, International, Inc.). In addition,
revenues from the traditional proprietary service contracts declined. However,
the Company was able to stabilize its service business during fiscal 1996,
generating approximately $3,400,000 in domestic revenues during each of the four
quarters of the year with no material drop off in business during the last half
of the year. This was primarily accomplished by additional investment in service
sales and marketing personnel, increased marketing and advertising, and
expanding and enhancing its base of support services such as field maintenance,
networking, and open and mixed system operating environment support, including
AIX and IBM RS6000 support.
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The gross margin decrease of $1,604,000 to $9,796,000 in fiscal 1996 compared to
$11,400,000 for fiscal 1995 was primarily associated with lower revenues. The
gross margin percentage increase of 0.5 percentage points to 29.9 percent in
fiscal 1996 compared to 29.4 percent in fiscal 1995 was primarily associated
with the Company's write-offs to cost of goods sold of approximately $2,777,000
in the fourth quarter of fiscal 1995, compared to write-offs in the fourth
quarter of fiscal 1996 of $1,389,000, in capitalized software associated with
the PANDA and Alpha 2000 product lines. The Company has refocused its marketing
strategy for PANDA and is evaluating additional development of Alpha 2000 in an
effort to economically enhance its market acceptance.
Product gross margins in fiscal 1996 decreased by $1,213,000 to $4,238,000 from
$5,451,000 in fiscal 1995 due to the decrease in product sales in fiscal 1996
when compared to fiscal 1995. The gross margin was negatively impacted in fiscal
1995 by the write-offs taken in the fourth quarter, which was primarily
responsible for the comparative increase in fiscal 1996. Product gross margin as
a percentage of product sales for fiscal 1996 increased by 0.3 percentage points
to 29.3 percent compared to 29.0 percent in fiscal 1995 primarily due to lower
amount of write-offs taken in fiscal 1996 when compared to fiscal 1995.
Service gross margins in fiscal 1996 decreased by $391,000 to $5,558,000 from
$5,949,000 in fiscal 1995. The decrease in gross margin during fiscal 1996 was
associated with lower volume and a larger portion of the service revenues being
derived from lower margin open system contract revenues. The service gross
margin percentage for fiscal 1996 increased by 0.6 percentage points to 30.4
percent compared to 29.8 percent in fiscal 1995. The comparable higher gross
margin percentage in fiscal 1996 was primarily associated with write-offs taken
in fiscal 1995.
Selling, general and administrative expense in fiscal 1996 decreased by
$3,698,000, or 23.8 percent, to $11,855,000 from $15,553,000 in fiscal 1995.
This was primarily due to the Company's continuing cost reduction program,
which, in fiscal 1996, included consolidating its European operations,
relocating its Santa Ana operations to a lower cost facility, and reducing
headcount to 321 at February 25, 1996, from 392 at February 26, 1995. In
addition, the Company took a bad debt charge associated with selling its Belgian
operations and incurred severance expenses during fiscal 1995 of $237,000
Research and development expense in fiscal 1996 was $146,000 lower than fiscal
1995. The Company continued to develop PANDA and Alpha 2000 as well as its
AMOS-based family of products. The Company plans to enhance its AMOS product
line by introducing a new version of its operating system and upgrading the
hardware product line through the introduction of the Motorola 68060
microprocessor during the coming year.
The Company reported other income in fiscal 1996 of $597,000, which was
primarily associated with the sale of the Pick 64 product line during the first
quarter and interest income earned during the year.
The Company reported a net loss of $3,575,000, or $0.54 per share, compared to a
net loss of $6,247,000, or $0.95 per share, for fiscal 1995. The loss is
attributable to the factors described above.
Fiscal 1995 compared to Fiscal 1994
Revenues of $38,785,000 decreased $544,000, or 1.4 percent, compared to fiscal
1994 revenues of $39,329,000. This decline was attributable to a $1,759,000
decrease in product revenues, offset by an increase in service revenues of
$1,215,000.
Product revenues of $18,823,000 decreased $1,759,000, or 8.5 percent, compared
to $20,582,000 in fiscal 1994. The decrease was due primarily to the continued
decline in revenues from AMOS hardware and related software products, offset by
an increase of $1,056,000 in revenues from vertical markets. The Company's
vertical market initiative included both products and services for FOCUS dental
practice, food service, and cash-and-carry distribution administration systems.
Total vertical market revenues in fiscal 1995 and fiscal 1994 were $4,810,000
and $3,078,000, respectively. Of these totals,
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product revenues represented $2,958,000 and $1,902,000, respectively. Vertical
market revenues were higher in fiscal 1995, primarily due to full year
recognition of the Alpha HealthCare acquisition. In fiscal 1995, domestic
product revenues declined $462,000 to $12,804,000, and international product
revenues declined $1,297,000 to $6,019,000, from fiscal 1994.
Services revenues of $19,962,000 increased $1,215,000, or 6.5 percent, compared
to $18,747,000 in fiscal 1994. The increase was attributable primarily to the
acquisition of Alpha Computer Services, Inc., MTS, Inc., and Kathy Parker
Training Centers (UK) Limited, which in total represented revenues of
$2,192,000. Services revenues from vertical markets were $1,852,000 in fiscal
1995 and $1,176,000 in fiscal 1994. In fiscal 1995, domestic services revenues
increased $743,000 to $16,548,000 and international services revenues increased
$472,000 to $3,415,000.
Total gross margin decreased to 29.4 percent compared to 39.3 percent for fiscal
1994. Product gross margin decreased to 29.0 percent from 40.3 percent for the
same period. This decrease was primarily due to the write-offs incurred during
the fourth quarter of 1995, changes in product mix, and price reductions in
traditional products. Charges for write-offs in the fourth quarter included
$702,000 for various vertical market products, $694,000 for obsolete inventory,
and $42,000 for severance costs associated with work force reductions.
Services gross margin in fiscal 1995 decreased to 29.8 percent compared to 38.2
percent in fiscal 1994. This decrease was primarily associated with increased
cost of goods sold resulting from the following charges taken during the third
and fourth quarters of fiscal 1995: $507,000 to write down service parts;
$783,000 for customer lists from earlier acquisitions which did not meet
expectations; and $49,000 for severance costs.
Selling, general and administrative (SG&A) expense in fiscal 1995 increased to
$15,553,000 from $12,183,000 in fiscal year 1994. Several factors contributed to
this increase: $972,000 in bad debt expense associated with selling the Belgium
operations; $829,000 due to full year recognition of Alpha HealthCare; and
higher SG&A expense due to new and full year recognition of other acquisitions.
In addition, bad debt expense increased by $796,000, resulting from a reduction
of the reserve required and recorded in fiscal 1994.
Research and development expense in fiscal 1995 was $2,239,000, or 11.9 percent
of product revenues, compared to $2,847,000, or 13.8 percent of product
revenues, in fiscal 1994. The Company continued development of vertical market
products and the AM hardware series, in particular the Eagle family of small
business computer systems and the Falcon add-in application processor for
personal computers.
The Company reported other income of $145,000 in fiscal 1995 compared to other
expense of $200,000 in fiscal 1994. This was primarily due to a foreign currency
gain of $93,000 in fiscal 1995 compared to a loss of $216,000 in fiscal 1994.
The Company reported a net loss of $6,247,000, or $0.95 per share, compared to
net income of $336,000, or $0.08 per share, for fiscal 1994. The loss was
attributable to the factors described above, and a tax benefit recorded in
fiscal 1994 associated with the elimination of a deferred tax liability (see
Note 8 to the Consolidated Financial Statements).
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LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996, the Company's working capital decreased by $2,366,000 to
$822,000 from $3,188,000 at the end of fiscal 1995. This decrease was primarily
associated with a decline in cash due to investments in leasehold improvements
at the Company's new Santa Ana facility of approximately $900,000, vertical
market software (food service administration and dental practice management) of
$976,000, and service assets of $421,000.
Cash flow used in operations during fiscal 1996 was $293,000 compared to cash
flow from operations of $743,000 in fiscal 1995. The reduction in cash flow from
operations was primarily attributable to the net operating loss of the Company,
payment of liabilities accrued at the end of fiscal 1995, and increased
receivables in the United Kingdom associated with several large orders taken at
the end of fiscal 1996.
The Company ended fiscal 1996 with a cash balance of $505,000. The Company
currently has two credit facilities, subject to certain covenants, one with a
U.S. bank which allows for up to $2,000,000 in credit subject to the limitation
discussed below, and the other with a U.K. bank which allows for 250,000 pounds
sterling in credit. No amounts were outstanding at February 25, 1996 under the
UK facility.
The U.S. credit facility borrowings are restricted to 50% of qualified
receivables, which as of February 25, 1996, allowed for maximum borrowings of
$1,290,000, of which $500,000 was borrowed at year end. The U.S. facility
requires the Company to maintain a tangible net worth greater than $4,700,000, a
quick ratio greater than 1.0 to 1 and a debt to tangible net worth ratio of
less than 1.25 to 1, and does not permit the Company to incur losses for two
quarters resulting in an aggregate loss higher than $250,000. As of February 25,
1996, the Company was in compliance with each of these covenants.
Management believes cash flow from operations, cash balances on hand, and
potential borrowings under the Company's available credit lines will be
sufficient to meet its liquidity needs for the coming fiscal year. The Company's
future capital requirements depend on a variety of factors, including but not
limited to spare parts, accounts receivable and inventory levels, the success
and timing of the Company's introduction of AlphaCONNECT, market penetration of
vertical software products, services growth, and the rate of decline of
proprietary hardware and related software revenues. If cash flows from current
operations prove to be insufficient to support all product lines, management
intends to take action to downsize and/or eliminate, if necessary, certain
product lines.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data of the Company
are listed and included under Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the
executive officers and directors of the Company as of May 2, 1996.
Name Age Position
---- --- --------
Clarke E. Reynolds 75 Chairman of the Board of Directors
Douglas J. Tullio 53 President, Chief Executive Officer and Director
Michael J. Lowell 37 Vice President and Chief Financial Officer
John F. Glade 53 Vice President, Engineering and Manufacturing, Secretary and Director
Philip D. Smith 46 Vice President, and President of Alpha HealthCare
Rockell N. Hankin 49 Director
Richard E. Mahmarian 59 Director
Clarke E. Reynolds has served as Chairman of the Board of Directors of the
Company since May, 1991 and has been a director of the Company since 1989. Mr.
Reynolds served as Chief Executive Officer of the Company from January 1991 to
August 1991, as President from November 1990 to May 1991, as Vice Chairman of
the Board from October 1990 to May 1991, and as Chief Operating Officer of the
Company from November 1990 to May 1991. Mr. Reynolds provided independent
consulting services to the Company from 1984 through 1990, was an employee of
the Company from November 1990 through May 1993, and presently provides
independent consulting services to the Company. Mr. Reynolds was previously
employed by NCR Corporation for over 47 years, during which time Mr. Reynolds
held a variety of sales and marketing and general management positions including
Vice President Pacific Region, Managing Director and Chairman of the Board NCR
United Kingdom, Vice President NCR Europe and Vice President Executive Office.
Mr. Reynolds serves as a Director of Sparta, Inc., which provides a wide range
of scientific, engineering and technical assistance services, primarily for the
U.S. military services and the Department of Defense.
Douglas J. Tullio has served as President, Chief Executive Officer and a
Director of the Company since 1991. Mr. Tullio also served as Chief Operating
Officer from May 1991 to March 1994. Mr. Tullio joined the Company in January
1990 and served as Executive Vice President of the Company and President of the
Company's subsidiaries, Rexon Business Machines and AMS Computers. (In April
1990, these subsidiaries were merged into the Company.) From 1984 to 1989, he
worked for General Automation, Inc., in the positions of President and member of
the Board of Directors, Executive Vice President, Vice President, General
Manager and Vice President of Sales and Marketing.
Michael J. Lowell has served as Vice President and Chief Financial Officer of
the Company since March 1995. Prior to joining the Company, he was Vice
President and Chief Financial Officer for Wahlco Environmental Systems, Inc.
(NYSE:WAL). Mr. Lowell held various positions at Wahlco and at its parent,
Pacific Diversified Capital Company (PDC), which he joined in 1987. He served as
Vice President, Finance and Chief Financial Officer for PDC, and as Chief
Financial Officer for two of PDC's subsidiaries, Integrated Information Systems
and Phase One Development. Prior to his appointment as Chief Financial Officer
at Wahlco, he served as Vice President, Finance and Treasurer.
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Before joining PDC and Wahlco, Mr. Lowell served as a Division Controller at
Ducommun Electronics Group, Inc.
John F. Glade was appointed a Director in May 1996 and has served as Secretary
of the Company since January 1987 and Vice President, Engineering and
Manufacturing since May 1988. Mr. Glade joined the Company as Director of
Engineering in September 1978, served as Vice President, Engineering from
February 1979 until June 1985 and served as Vice President, Advanced Products
Development from June 1985 until May 1988. He also served as Secretary of the
Company from February 1983 to August 1985 and a Director of the Company from
1979 through 1994.
Philip D. Smith has served as President of Alpha HealthCare, one of the
Company's subsidiaries, since December 1995, as Vice President of the Company
since March 1995 and as Vice President, Domestic Sales and Marketing from 1993
to 1995. He joined the Company in 1989 after the Company acquired Fujitsu
Microelectronics. From 1983 to 1989, he held various sales and marketing
positions at Fujitsu, culminating in National Sales Director at Fujitsu
Microelectronics in 1988. Prior to joining Fujitsu, Mr. Smith served at Xerox
Corporation and Data General in sales and management positions.
Rockell N. Hankin, who has served as a Director of the Company since 1987, is a
senior partner of Hankin & Co., which was established in June 1986 and provides
consulting services. Mr. Hankin is also a Director of Semtech Corporation (ASE),
which manufactures electronic components, a Director of House of Fabrics (in
reorganization) (NYSE), a national retail chain which markets sewing supplies
and crafts, a Director of Quidel (NMS), which manufactures and distributes rapid
diagnostic tests for medical applications and a Director of Sparta, Inc., which
provides a wide range of scientific, engineering and technical assistance
services, primarily for the U.S. military services and the Department of
Defense.
Richard E. Mahmarian, who has served as a Director of the Company since 1995, is
Vice Chairman of the Board and Executive Vice President of RJS, Inc., a
manufacturer of bar code printers, verification scanners, software, and
consumable products. Mr. Mahmarian has been a principal of RJS, Inc. since 1987,
when it was purchased in a leveraged buyout. Prior to joining RJS, Inc., he held
various management positions for Manx Engineering Corporation, Bell & Howell
Company, Northrop Corporation and NCR Corporation.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16(a)"), requires the Company's directors and executive officers, and persons
who own more than ten percent of the Company's common stock, to file with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc. initial reports of ownership and reports of changes in ownership
of Common Stock. Officers, directors and greater than ten-percent shareholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended February 25, 1996 all such
reports required pursuant to Section 16(a) by the Company's officers, directors
and greater than ten-percent beneficial owners were timely filed, other than
reports required to reflect stock awards granted by the Stock Option Committee
under the Company's Stock Award Plan to Mr. Tullio and Mr. Glade in the amount
of 15,000 and 7,500 shares respectively, which were inadvertantly not filed.
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ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth for each of the Company's
executive officers earning in excess of $100,000 during the fiscal year ended
February 25, 1996, compensation allocated or paid on or before May 1, 1996, for
services in all capacities with the Company and its subsidiaries during the
fiscal year ended February 25, 1996.
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------
Annual Compensation Awards
------------------- ------
Other Securities
Annual Underlying All Other
Name and Compen- Restricted Stock Options/ Compen-
Principal Position Year Salary($) Bonus($) sation ($) Award(s) ($)(1) SARs (#)(2) sation(3)
- ------------------ ---- --------- --------- ---------- --------------- ----------- ---------
Douglas J. Tullio President and CEO 1996 217,713 28,894 * -- 15,000 --
1995 206,400 28,359(4) * 5,859 -- 514
1994 199,125 80,000 * -- 251,939 2,332
Philip D. Smith 1996 131,993(5) -- * -- 40,000 --
Vice President, Sales and Marketing 1995 114,821 -- * -- -- 321
1994 126,037 -- * -- -- --
John F. Glade 1996 131,211 7,500 * -- 7,500 --
Vice President, Engineering and 1995 133,262 17,430(4) * 2,930 -- 365
Manufacturing, and Secretary 1994 119,187 40,000 * -- 10,000 1,391
Michael J. Lowell 1996 114,014 16,686 * -- 40,000 --
Vice President, Chief Financial Officer 1995 -- -- * -- -- --
1994 -- -- * -- -- --
- --------------------------
* Aggregate amount does not exceed 10% of the total of annual salary and
bonus reported for the named executive officer.
(1) The number of aggregate restricted unvested stock holdings outstanding
as of February 25, 1996 was 11,250 and the aggregate value of such
restricted stock was $8,438. Stock awards to Mr. Tullio and Mr. Glade
as additional compensation for fiscal 1995 vest 50% on May 5, 1996,
with the remaining 50% vesting on May 5, 1997. Although the Company
has not paid and does not anticipate paying dividends, any dividends
paid would accrue to the benefit of the grantees.
(2) All options were granted under the 1993 Alpha Microsystems Employee
Stock Option Plan, excepting options granted to Mr. Glade in fiscal
1994 representing 10,000 shares, which were granted under the
Company's Nonqualified Stock Option Plan.
(3) Consists solely of Company contributions to the Employee Profit
Sharing and Savings Plan.
(4) Includes awards of stock in the following amounts: for fiscal 1995:
Tullio: $5,859, and Glade: $2,930.
(5) Includes commissions of $3,039 paid to Mr. Smith.
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Stock Options Grants
The following table provides information on stock options granted under the 1993
Alpha Microsystems Employee Stock Option Plan to the executive officers named in
the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
-----------------------------------------
Individual Grants Potential Realizable Value
at Assumed Annual Rates
of Stock Price
Appreciation for Option Term
----------------------------------------------------------------------------------------------------
Percent of
Number of Total
Securities Options/
Underlying SARs
Options/ Granted to Exercise Market
SARs Employees or Price on
Granted in Fiscal Base Price Date of Expiration
Name (#) Year ($/Sh) Grant Date 5% ($) 10% ($)
- ----------------- ---------- ---------- ---------- -------- ---------- ------ -------
Douglas J. Tullio 15,000 12% $ .78125 $ .78125 5/5/00 $3,200 $7,100
Philip D. Smith 40,000 33% $ 1.625 $ 1.00 4/3/00 -- --
John F. Glade 7,500 6% $ .78125 $ .78125 5/5/00 $1,600 $3,550
Michael J. Lowell 40,000 33% $ 1.625 $ 1.00 4/3/00 -- --
- ----------------
(1) All options were granted under the 1993 Alpha Microsystems Employee
Stock Option Plan. Options granted to Mr. Tullio and Mr. Glade become
exercisable as follows: 50% on date of grant, 25% on the first
anniversary date of the grant, and 25% on the second anniversary date
of the grant. Options granted to Mr. Smith and Mr. Lowell become
exercisable as follows: 25% on the first anniversary date, 25% on the
second anniversary date, 25% on the third anniversary date, and 25% on
the fourth anniversary date. In the event that the employment of
optionee shall be terminated, otherwise than by reason of death or
permanent disability or misconduct, the option and all rights
terminate on the 30th day after termination of employment.
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Fiscal Year-End Values of Outstanding Stock Options
The following table provides information with respect to the named executive
officers concerning unexercised stock options held as of the end of the
Company's 1996 fiscal year.
FISCAL YEAR-END OPTION/VALUES
Number of Securities
Underlying Unexercised Value of Unexercised In-The-
Options at FY-End (#) Money Options at FY-End ($)
--------------------------- -----------------------------
Number of
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ------------ -------- ----------- ------------- ----------- -------------
Douglas J. Tullio -- -- 246,455 70,484 -- --
Philip D. Smith -- -- -- 40,000 -- --
John F. Glade -- -- 8,750 8,750 -- --
Michael J. Lowell -- -- -- 40,000 -- --
Compensation of Directors
Directors who are employees of the Company do not receive additional
compensation for acting as a member of the Board of Directors or any committee
thereof. Outside directors receive a monthly retainer of $2,000, and a fee of
$1,000 for each Board meeting and committee meeting (excluding telephonic
meetings) attended in excess of 12 each year, with all Board and committee
meetings held in a single day to be deemed as one meeting. In addition,
directors are reimbursed for their reasonable travel expenses incurred for
attendance at such meetings. In December 1995, the outside directors
elected to defer these director fees, and, subject to shareholder approval and
compliance with Section 16b-3 promulgated under the Exchange Act, certain
directors agreed to accept directors' fees in stock in lieu of cash.
In June 1993, the Company entered into a Consulting Agreement with Mr. Reynolds
whereby Mr. Reynolds agrees to provide consulting services to the Company. Under
the agreement, the Company pays to Mr. Reynolds a retainer of $2,000 per month.
The agreement may be terminated by either party upon 30 days' written notice.
Employment Agreements and Guaranteed Severance Payments
The Company has entered into employment agreements with Messrs. Tullio and
Glade. The agreements establish each employee's base salary and entitle each
employee to receive benefits, vacation and sick leave in accordance with the
Company's policies. The agreements are not for any specified term as either
party may terminate the employment relationship at any time in accordance with
the terms of the agreements. The agreements also contain provisions concerning
the non-disclosure by the employee of Company proprietary information and the
ownership of inventions conceived or made by the employee during the period of
employment with the Company. Pursuant to such employment agreements, under
certain circumstances, if an officer is terminated, voluntarily or
involuntarily, as a result of a "change in control" of the Company during the
term of his employment, the officer shall be entitled to monthly severance
payments for a period ranging under the individual agreements from 90 days to as
much as eighteen (18) months (the "Severance Period") following the effective
date of such termination. The term "change in control" means any of the
following: (a) merger or consolidation of the Company; (b) sale of all or
substantially all of the assets of the Company; (c) sale of more than 50% of the
outstanding common stock of the Company by any person or persons; or (d) change
of identity of at least a majority of the Board of
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Directors within a twelve-month period. The severance payments are based upon
the average total compensation paid to such officer during the previous fiscal
year (excluding any non-cash compensation). The severance payments shall be
reduced by any compensation, fees or remuneration received by such officer
during the Severance Period. The Company is also obligated to continue to
provide medical and dental benefits to the officer during the Severance Period.
Additionally, any rights the officer may have in connection with Company's stock
options and stock awards and the Company's profit sharing plan shall continue
uninterrupted during the Severance Period, to the extent permitted by applicable
tax law, other laws and the Company plans. The severance payments to the
executive officers are required, under certain circumstances, to be placed in a
trust to ensure payment.
In addition to the foregoing, Mr. Tullio is entitled to receive severance
payments and a continuation of employee benefits following termination if
termination is for any reason other than for causes arising out of breach of
Company policy or illegal acts. Such severance payments and benefits are for up
to six (6) months for Mr. Tullio.
The Company has also entered into an agreement with Michael J. Lowell, its Vice
President and Chief Financial Officer, pursuant to which Mr. Lowell is entitled
to receive six months termination pay at his base rate of pay in effect at the
time of termination if his employment is terminated by the Company for any
reason other than misconduct, fraud, or other unlawful acts.
Indemnification Agreements
The Company has entered into indemnification agreements with its directors and
certain key officers which provide such individuals with contractual
indemnification rights similar in scope to the applicable sections of the
Company's Bylaws. Such indemnification agreements apply retroactively as well as
prospectively to any actions taken by the indemnified parties while serving as
officers or directors of the Company. Such indemnification agreements also
provide that the Company shall indemnify such persons to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the indemnification agreement, the Company's Articles of
Incorporation, the Company's Bylaws or by statute.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee for fiscal 1996 was composed of Messrs.
Hankin, Hathaway (a former director), Mahmarian, and Reynolds. Mr. Reynolds is
Chairman of the Board and has served the Company in the past in numerous
executive positions, including Chief Executive Officer.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains certain information as of May 1, 1996 as to each
director, each individual included in the Summary Compensation Table, all
officers and directors as a group, and each person who, to the knowledge of the
Company, was the beneficial owner of 5% or more of the outstanding shares of
Common Stock. Persons named in the following table have sole voting and
investment powers with respect to all shares shown as beneficially owned by
them, subject to community property laws where applicable, and other information
contained in the footnotes to the table. Information with respect to beneficial
ownership is based on the Company's Common Stock records and data supplied to
the Company by its shareholders.
Name or Identity Number of Shares Beneficially Percent of
of Group Owned (1) Class
--------------------- ----------------------------- -----------
Brinson Partners, Inc. 937,000(2) 13.5
John F. Glade 203,950(3) 3.1
Rockell N. Hankin 16,000(4) *
Richard E. Mahmarian - (4) *
Clarke E. Reynolds 39,500(4) *
Douglas J. Tullio 314,205 4.6
Philip D. Smith 18,000 *
Michael J. Lowell 10,000 *
All directors and officers
as a group (7 persons) 601,655 8.7
- --------------------------
* Does not exceed 1% of the outstanding shares of Common Stock of the
Company.
(1) Includes shares issuable upon exercise of options and warrants which
are presently exercisable or will become exercisable on or before July
1, 1996. Options and warrants representing the right to acquire a
total of 346,955 shares are presently exercisable or will become
exercisable on or before July 1, 1996, by all officers and directors,
as a group. Also includes shares escrowed under the Company's Stock
Incentive Award Plan.
(2) Based upon information provided to the Company by such shareholder in
a Schedule 13D dated February 9, 1996, on behalf of itself and Brinson
Trust Company, Brinson Holdings, Inc., SBC Holding (USA), and Swiss
Bank Corporation. The shares beneficially owned include 598,000
actually owned and 339,000 which could be acquired through exercise of
warrants. The business address of Brinson Partners, Inc., Brinson
Holdings, Inc. and Brinson Trust Company is 209 South LaSalle,
Chicago, Illinois 60604-1295. The business address of SBC Holding
(USA), Inc. is 222 Broadway, new York, New York 10038. The business
address of Swiss Bank Corporation is Aeschenplatz 6 CH-4002, Basel,
Switzerland.
(3) Includes 27,500 shares owned directly by Mr. Glade individually and
160,200 shares held in a revocable trust of which Mr. Glade and his
wife, Alana L. Glade, are sole trustees. Mr. and Mrs. Glade, acting
jointly, have the power to vote and dispose of such shares.
(4) Does not include shares issuable in lieu of directors fees, subject to
shareholder approval.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
28
29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements are referenced in Part II Item
8 and submitted herewith:
Page Number
-----------
Report of Independent Auditors F-1
Consolidated Balance Sheets at February 25, 1996 F-2
and February 26, 1995
Consolidated Statements of Operations for the years F-3
ended February 25, 1996, February 26, 1995, and
February 27, 1994
Consolidated Statements of F-4
Shareholders' Equity for the years
ended February 25, 1996, February 26,
1995, and February 27, 1994
Consolidated Statements of Cash Flows F-5
for the years ended February 25,
1996, February 26, 1995, and February
27, 1994
Notes to Consolidated Financial Statements F-6
(2) The following financial statement schedule for the fiscal years
1994, 1995, and 1996 is submitted herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or the required information is presented in the financial
statements or notes thereto.
(3) The list of exhibits contained in the Index to Exhibits is
submitted herewith.
(b) No reports on Form 8-K were filed during the fourth quarter of fiscal
1996.
29
30
(c) 1. The Index of Exhibits is as follows:
2. Exhibits:
2.1 Agreement of Purchase and Sale by and between Registrant and Alpha
Computer Services, Inc., dated February 24, 1994 (incorporated herein
by reference to Exhibit 2.9 to the Quarterly Report on Form 10-Q for
the quarter ended May 29, 1994)
2.2 Agreement to transfer shares by and between Registrant and Alpha
Microsystems Great Britain, Mr. Patrick Bolle, and Alpha Microsystems
Belgium dated February 28, 1995 (incorporated herein by reference to
Exhibit 2.10 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 26, 1995 (the "1995 10-K")
3.1 Amended Articles of Incorporation of Registrant dated as of September
28, 1984 (incorporated herein by reference to Exhibit 4.0 to the
Quarterly Report on Form 10-Q of Registrant for the Quarter Ended
August 26, 1984)
3.2 Amended and Restated Bylaws, as amended, of Registrant (incorporated
herein by reference Exhibit 3.2 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 28, 1988)
3.3 Amendment to Article III, Section 2 of the Amended and Restated Bylaws
of Registrant dated August 18, 1989 (incorporated herein by reference
to Exhibit 3.3 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended August 27, 1989)
3.4 Amendment to Article II of the Amended and Restated Bylaws of
Registrant dated August 21, 1991 (incorporated herein by reference to
Exhibit 3.7 to the Quarterly Report on Form 10-Q of Registrant for the
Quarter Ended August 25, 1991)
3.5 Amendment and Restatement to Article IV of the Articles of
Incorporation of Registrant dated June 24, 1992 (incorporated herein
by reference to Exhibit 10.71 to the Quarterly Report on Form 10-Q of
Registrant for the Quarter Ended May 31, 1992)
4.1 Warrant to purchase 50,000 shares of Common Stock dated July 10, 1995,
issued to Silicon Valley Bank (incorporated herein by reference to
Exhibit 10.140 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended May 28, 1995 (the "May 1995 10-Q")
4.2 Registration Rights Agreement by and between Registrant and Silicon
Valley Bank dated July 10, 1995 (incorporated herein by reference to
Exhibit 10.141 to the May 1995 10-Q)
4.3 Antidilution Agreement by and between Registrant and Silicon Valley
Bank dated July 10, 1995 (incorporated herein by reference to Exhibit
10.142 to the May 1995 10-Q)
4.4 Warrant to purchase 10,000 shares of Common Stock dated as of December
1, 1993, issued to John Westergaard
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31
4.5 Warrant to purchase 170,000 shares of Common Stock dated as of
December 17, 1993 issued to Dominick & Dominick, Inc.
4.6 Warrant to purchase 60,000 shares of Common Stock dated as of December
17, 1993 issued to John F. Doss
4.7 Warrant to purchase 60,000 shares of Common Stock dated as of December
17, 1993 issued to John R. Doss
4.8 Warrant to purchase 10,000 shares of Common Stock dated as of December
17, 1993 issued to Jonathan T. McKeage
4.9 Underwriters' Warrant to purchase 85,137 units dated April 30, 1996
issued to Barclay Investments, Inc.
4.10 Underwriters' Warrant to purchase 4,000 units dated April 30, 1996
issued to Robert G. Palmeiro
4.11 Underwriters' Warrant to purchase 14,379 units dated April 30, 1996
issued to G. L. Cabot Henderson
4.12 Underwriters' Warrant to purchase 10,000 units dated April 30, 1996
issued to Edward R. Henderson
4.13 Underwriters' Warrant to purchase 56,758 units dated April 30, 1996
issued to James F. Twaddell
4.14 Form of First Amendment to Underwriters' Warrant entered into between
the Registrant and each of Barclay Investments, Inc., Princeton
Securities Corporation, Robert G. Palmeiro, G. L. Cabot Henderson,
Edward R. Henderson and James F. Twaddell
4.15 Form of warrant certificate of Registrant (incorporated herein by
reference to Exhibit 4.3 to Amendment No. 4 to Registration
Statement on Form S-2, Registration No. 33-66424, of Registrant
("Amendment No. 4 to Form S-2") filed with the Securities and
Exchange Commission on November 1, 1993)
4.16 Form of Warrant Agreement with Mellon Securities Trust Company
(incorporated herein by reference to Exhibit 4.1 to Amendment No. 1
to Registration Statement on Form S-2, Registration No. 33-66424, of
Registrant ("Amendment No. 1 to Form S-2") filed with the Securities
and Exchange Commission on September 30, 1993)
4.17 Form of Underwriters' Warrant (incorporated herein by reference to
Exhibit 4.2 to Amendment No. 4 to Form S-2)
*10.1 Registrant's Second Amended and Restated Incentive Stock Option Plan
(incorporated herein by reference to Exhibit 4.1 to the Post-Effective
Amendment No. 1 to the Registration Statement on Form S-8 of
Registrant (Registration No. 2-76012) (the "Amended S-8") filed on May
12, 1983)
*10.2 Form of Incentive Stock Option Agreement (incorporated herein by
reference to Exhibit 10.1 to Amendment No. 1 of the Form S-2
Registration Statement filed with the Securities and Exchange
Commission on September 30, 1993)
*10.3 Form of Amended and Restated Incentive Stock Option Agreement
(incorporated herein by reference to Exhibit 10.51 to the Amendment
No. 2 of the Form S-2 Registration Statement filed with the Securities
Exchange Commission on October 15, 1993)
*10.4 Third Amended and Restated Incentive Stock Option Plan of Registrant
(incorporated herein by reference to Exhibit 10.9 to the Annual Report
on Form 10-K of Registrant for the Year Ended February 26, 1984)
*10.5 Stock Incentive Award Plan of Registrant (incorporated herein by
reference to Exhibit 10.21 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 26, 1984)
*10.6 Non-Qualified Stock Option Plan of Registrant (incorporated herein by
reference to Exhibit 10.22 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 26, 1984)
*10.7 Form of Incentive Option Agreement for use in connection with Third
Amended and Restated Incentive Stock Option Plan (incorporated herein
by reference to Exhibit 4.7 to the Post-Effective Amendment No. 1 to
the Registration Statement on Form 8 of the Registrant (Registration
Statement No. 2-9252) filed on August 23, 1984)
*10.8 Form of Non-Qualified Stock Option Agreement for use in connection
with Non-Qualified Stock Option Plan (incorporated herein by reference
to Exhibit 4.8 to the Post-Effective Amendment No. 1 to the
Registration Statement on Form 8 of the Registrant (Registration
Statement No. 29252) filed on August 23, 1984)
*10.9 Form of Stock Incentive Award and Escrow Agreement for use in
connection with the Stock Incentive Award Plan (incorporated herein by
reference to Exhibit 4.9 to the Post-Effective Amendment No. 1 to the
Registration Statement on Form 8 of the Registrant (Registration
Statement No. 2-9252) filed on August 23, 1984)
*10.10 Revised Form of Non-Qualified Stock Option Agreement for use in
connection with Non-Qualified Stock Option Plan (incorporated herein
by reference to Exhibit 10.30 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 23, 1986)
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32
*10.11 Form of Contingent Non-Qualified Stock Option Agreement for use in
connection with Non-Qualified Stock Option Plan (incorporated herein
by reference to Exhibit 10.31 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 23, 1986)
*10.12 Alpha Microsystems Profit Sharing Trust Agreement between Alpha
Microsystems and Bank of America N.T. & S.A. as Trustee dated May 24,
1985 (incorporated herein by reference to Exhibit 10.32 to the Annual
Report on Form 10-K of Registrant for the Year Ended February 23,
1986)
*10.13 Alpha Microsystems Profit Sharing Plan (as amended and restated) dated
May 15, 1986 (incorporated herein by reference to Exhibit 10.33 to the
Annual Report on Form 10-K of Registrant for the Year Ended February
23, 1986)
*10.14 Acceptance of Trust by Trustee dated September 30, 1986 pursuant to
Registrant's Profit Sharing Plan (incorporated herein by reference to
Exhibit 10.29 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 22, 1987)
*10.15 First Amendment dated March 1, 1987 to the Registrant's Profit Sharing
Plan (incorporated herein by reference to Exhibit 10.30 to the Annual
Report on Form 10-K of Registrant for the Year Ended February 22,
1987)
*10.16 Revised Form of Non-Qualified Stock Option Agreement for use in
connection with Non-Qualified Stock Option Plan (incorporated herein
by reference to Exhibit 10.31 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 22, 1987)
*10.17 Indemnification Agreement dated October 23, 1987 by and between Alpha
Microsystems and John F. Glade (incorporated herein by reference to
Exhibit 10.34 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended November 22, 1987)
*10.18 Indemnification Agreement dated October 23, 1987 by and between Alpha
Microsystems and Rockell N. Hankin (incorporated herein by reference
to Exhibit 10.36 to the Quarterly Report on Form 10-Q of Registrant
for the Quarter Ended November 22, 1987)
*10.19 Indemnification Agreement dated October 23, 1987 by and between Alpha
Microsystems and Harry L. Hathaway (incorporated herein by reference
to Exhibit 10.39 to the Quarterly Report on Form 10-Q of Registrant
for the Quarter Ended November 22, 1987)
*10.20 Second Amendment to Alpha Microsystems Profit Sharing Plan dated
January 22, 1988 (incorporated herein by reference to Exhibit 10.31 to
the Annual Report on Form 10-K of Registrant for the Year Ended
February 28, 1988)
*10.21 Alpha Microsystems Profit Sharing Plan Amendments Under IRS Notice
88-131 dated May 24, 1989 (incorporated herein by reference to Exhibit
32
33
10.38 to the Quarterly Report on Form 10-Q of Registrant for the
Quarter Ended May 28, 1989)
*10.22 Alpha Microsystems Profit Sharing Plan Amendment dated December 15,
1989 (incorporated herein by reference to Exhibit 10.45 to the
Quarterly Report on Form 10-Q of Registrant for the Quarter Ended
November 26, 1989)
*10.23 Employment Agreement by and between the Registrant and Douglas J.
Tullio dated January 8, 1990 (incorporated herein by reference to
Exhibit 10.49 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended November 26, 1989)
*10.24 Indemnification Agreement by and between the Registrant and Douglas J.
Tullio dated January 8, 1990 (incorporated herein by reference to
Exhibit 10.50 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended November 26, 1989)
*10.25 Non-Qualified Stock Option Agreement by and between the Registrant and
Douglas J. Tullio dated January 8, 1990 (incorporated herein by
reference to Exhibit 10.51 to the Quarterly Report on Form 10-Q of
Registrant for the Quarter Ended November 26, 1989)
*10.26 Addendum to Employment Agreement by and between the Registrant and
Douglas J. Tullio dated May 21, 1990 (incorporated herein by reference
to Exhibit 10.54 to the Annual Report on Form 10-K of Registrant for
the Year Ended February 25, 1990)
*10.27 Revised Form of Non-Qualified Stock Option Agreement for use in
connection with Registrant's Non-Qualified Stock Option Plan
(incorporated herein by reference to Exhibit 10.59 to the Quarterly
Report on Form 10-Q of Registrant for the Quarter Ended August 26,
1990)
*10.28 Indemnification Agreement by and between Registrant and Clarke E.
Reynolds dated June 16, 1989 (incorporated herein by reference to
Exhibit 10.67 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 23, 1992)
*10.29 Stock Incentive Award and Escrow Agreement by and between Registrant
and John F. Glade for 9,000 shares of the Company's common stock dated
August 11, 1992 (incorporated herein by reference to Exhibit 10.81 to
the Quarterly Report on Form 10-Q of Registrant for the Year Ended
August 30, 1992)
*10.30 Stock Incentive Award and Escrow Agreement by and between Registrant
and Clarke E. Reynolds for 9,000 shares of the Company's common stock
dated August 11, 1992 (incorporated herein by reference to Exhibit
10.80 to the Quarterly Report on Form 10-Q of Registrant for the
Quarter Ended August 30, 1992)
*10.31 Stock Incentive Award and Escrow Agreement by and between Registrant
and Douglas J. Tullio for 14,000 shares of the Company's common stock
dated August 11, 1992 (incorporated herein by reference
33
34
to Exhibit 10.79 to the Quarterly Report on Form 10-Q of Registrant
for the Quarter Ended August 30, 1992)
*10.32 Non-Qualified Stock Option Agreement by and between Registrant and
Douglas J. Tullio for 40,000 shares of the Company's common stock
dated August 21, 1992 (incorporated herein by reference to Exhibit
10.76 to the Quarterly Report on Form 10-Q of Registrant for the Year
Ended August 30, 1992)
*10.33 Non-Qualified Stock Option Agreement by and between the Registrant and
Clarke E. Reynolds for 10,000 shares of the Company's Common Stock
dated April 20, 1993 (incorporated herein by reference to Exhibit
10.73 to Amendment No. 1 to Form S-2)
*10.34 Non-Qualified Stock Option Agreement by and between the Registrant and
Douglas J. Tullio for 60,000 shares of the Company's Common Stock
dated April 20, 1993 (incorporated herein by reference to Exhibit
10.74 to Amendment No. 1 to Form S-2)
*10.35 Non-Qualified Stock Option Agreement by and between the Registrant and
John Glade for 10,000 shares of the Company's Common Stock dated April
20, 1993 (incorporated herein by reference to Exhibit 10.75 to
Amendment No. 1 to Form S-2)
*10.36 Form of Stock Option Agreement by and between the Registrant and
Douglas J. Tullio dated August 31, 1993 (incorporated herein by
reference to Exhibit 10.85 to Amendment No. 1 to Form S-2)
*10.37 Consulting Agreement by and between the Registrant and Clarke E.
Reynolds dated June 1, 1993 (incorporated herein by reference to
Exhibit 10.87 to Amendment No. 1 to Form S-2)
*10.38 Alpha Microsystems 1993 Employee Stock Option Plan (incorporated
herein by reference to Exhibit 10.109 to the Quarterly Report on Form
10-Q for the quarter ended May 29, 1994)
10.39 Alpha Microsystems 1993 Directors' Stock Option Plan (incorporated
herein by reference to Exhibit 10.110 to the Quarterly Report on Form
10-Q for the quarter ended May 29, 1994)
10.40 Non-Qualified Stock Option Agreement by and between Registrant and
Clarke E. Reynolds dated May 31, 1994 (incorporated herein by
reference to Exhibit 10.109 to the Quarterly Report on Form 10-Q for
the quarter ended November 27, 1994)
*10.41 Non-Qualified Stock Option Agreement by and between Registrant and
Rockell N. Hankin dated May 31, 1994 (incorporated herein by reference
34
35
to Exhibit 10.111 to the Quarterly Report on Form 10-Q for the quarter
ended November 27, 1994)
*10.42 Non-Qualified Stock Option Agreement by and between Registrant and
Harry L. Hathaway dated May 31, 1994 (incorporated herein by reference
to Exhibit 10.112 to the Quarterly Report on Form 10-Q for the quarter
ended November 27, 1994)
10.43 Industrial Lease between Fairview Investors Ltd. and Registrant dated
October 28, 1994 (incorporated herein by reference to Exhibit 10.113
to the Quarterly Report on Form 10-Q for the quarter ended November
27, 1994)
*10.44 Separation Agreement and Agreement to provide consulting services by
and between Registrant and John D. Murray dated December 22, 1994
(incorporated herein by reference to Exhibit 10.114 to the Quarterly
Report on Form 10-Q for the quarter ended November 27, 1994)
10.45 Letter to John Murray from Sumitomo Bank dated January 5, 1995
amending the Loan Agreement (incorporated herein by reference to
Exhibit 10.115 to the Quarterly Report on Form 10-Q for the quarter
ended November 27, 1994)
*10.46 First Amended and Restated Non-Qualified Stock Option Plan of
Registrant dated August 18, 1989 (incorporated herein by reference to
Exhibit 19.14 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended August 27, 1989)
*10.47 First Amendment to Stock Incentive Award Plan of Registrant dated
August 15, 1990 (incorporated herein by reference to Exhibit 19.16 to
the Quarterly Report on Form 10-Q of Registrant for the Quarter Ended
August 26, 1990)
*10.48 First Amendment to Employment Agreement by and between Registrant and
John F. Glade dated May 3, 1991 (incorporated herein by reference to
Exhibit 19.8 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 23, 1992)
*10.49 First Amendment to Employment Agreement by and between Registrant and
Douglas J. Tullio dated May 3, 1991 (incorporated herein by reference
to Exhibit 19.10 to the Annual Report on Form 10-K of Registrant for
the Year Ended February 23, 1992)
*10.50 Second Amendment and Restatement to the Non-Qualified Stock Option
Plan of Alpha Microsystems dated June 24, 1992 (incorporated herein by
reference to Exhibit 10.70 to the Quarterly Report on Form 10-Q for
the Quarter Ended May 31, 1992)
*10.51 Second Amendment and Restatement of the Alpha Microsystems Profit
Sharing Plan dated July 1, 1992 (incorporated herein by reference to
Exhibit 10.72 to the Quarterly Report on Form 10-Q for the Quarter
Ended May 31, 1992)
35
36
10.52 Memorandum to Lease by and between Registrant and Fairview Investors,
Ltd. dated January 24, 1995 (incorporated herein by reference to
Exhibit 10.136 to the 1995 10-K)
*10.53 Separation Agreement and General Release by and between Registrant and
Gerald Knight dated March 10, 1995 (incorporated herein by reference
to Exhibit 10.137 to the 1995 10-K)
10.54 Letter to Mike Lowell from Silicon Valley Bank dated May 3, 1995 re:
new credit line (incorporated herein by reference to Exhibit 10.138 to
the 1995 10-K)
10.55 Loan and Security Agreement by and between Registrant and Silicon
Valley Bank dated July 10, 1995 (incorporated herein by reference to
Exhibit 10.139 to the May 1995 10-Q)
10.56 Collateral Assignment, Patent Mortgage and Security Agreement by and
between Registrant and Silicon Valley Bank dated July 10, 1995
(incorporated herein by reference to Exhibit 10.143 to the May 1995
10-Q)
10.57 Security Agreement by and between Alpha HealthCare, Inc., and Silicon
Valley Bank dated July 10, 1995 (incorporated herein by reference to
Exhibit 10.144 to the May 1995 10-Q)
10.58 Continuing Guaranty by and between Alpha HealthCare, Inc., and
Silicone Valley Bank dated July 10, 1995 (incorporated herein by
reference to Exhibit 10.145 to the May 1995 10-Q)
*10.59 Agreement to Grant Nonqualified Stock Option by and between Registrant
and Clarke E. Reynolds dated July 14, 1995 (incorporated herein by
reference to Exhibit 10.146 to the Quarterly Report on Form 10-Q for
the Quarter Ended August 27, 1995 (the "August 1995 10-Q")
*10.60 Agreement to Grant Nonqualified Stock Option by and between Registrant
and Rockell N. Hankin dated July 14, 1995 (incorporated herein by
reference to Exhibit 10.147 to the August 1995 10-Q)
*10.61 Agreement to Grant Nonqualified Stock Option by and between Registrant
and Harry L. Hathaway dated July 14, 1995 (incorporated herein by
reference to Exhibit 10.148 to the August 1995 10-Q)
*10.62 Agreement to Grant Nonqualified Stock Option by and between Registrant
and Richard E. Mahmarian dated July 14, 1995 (incorporated herein by
reference to Exhibit 10.149 to the August 1995 10-Q)
10.63 Amendment to Loan Agreement by and between Registrant and Silicon
Valley Bank dated November 30, 1995 (incorporated herein by reference
to Exhibit 10.150 to the Quarterly Report on Form 10-Q for the Quarter
Ended November 26, 1995 (the "November 1995 10-Q")
*10.64 Agreement to Grant Incentive Stock Option (Pursuant to 1993 Employee
Stock Option Plan) between Registrant and Philip D. Smith
36
37
dated April 3, 1995 for 40,000 shares of common stock (incorporated
herein by reference to Exhibit 10.151 to the November 1995 10-Q)
*10.65 Agreement to Grant Incentive Stock Option (Pursuant to 1993 Employee
Stock Option Plan) between Registrant and Michael J. Lowell dated
April 3, 1995 for 40,000 shares of common stock (incorporated herein
by reference to Exhibit 10.152 to the November 1995 10-Q)
*10.66 Agreement to Grant Incentive Stock Option (Pursuant to 1993 Employee
Stock Option Plan) between Registrant and Randy Parks dated April 3,
1995 for 10,000 shares of common stock (incorporated herein by
reference to Exhibit 10.153 to the November 1995 10-Q)
*10.67 Agreement to Grant Incentive Stock Option (Pursuant to 1993 Employee
Stock Option Plan) between Registrant and Peggy Denson dated April 3,
1995 for 10,000 shares of common stock (incorporated herein by
reference to Exhibit 10.154 to the November 1995 10-Q)
*10.68 Agreement to Grant Incentive Stock Option (Pursuant to 1993 Employee
Stock Option Plan) between Registrant and Douglas J. Tullio dated May
5, 1995 for 15,000 shares of common stock (incorporated herein by
reference to Exhibit 10.155 to the November 1995 10-Q)
*10.69 Agreement to Grant Incentive Stock Option (Pursuant to 1993 Employee
Stock Option Plan) between Registrant and John F. Glade dated May 5,
1995 for 7,500 shares of common stock (incorporated herein by
reference to Exhibit 10.156 to the November 1995 10-Q)
10.70 Amendment to Loan Agreement by and between Registrant and Silicon
Valley Bank dated February 7, 1996
10.71 Amendment to Loan Agreement by and between Registrant and Silicon
Valley Bank dated March 7, 1996
10.72 Engagement Letter between Registrant and Sutro & Co. Incorporated
dated May 2, 1996
21 Subsidiaries
23 Consent of Independent Auditors
24 Power of Attorney (included on signature pages of this Annual Report)
27 Financial Data Schedule
(*Denotes Management Contract or Compensation Plan)
37
38
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Alpha Microsystems
We have audited the accompanying consolidated balance sheets of Alpha
Microsystems as of February 25, 1996 and February 26, 1995, and the related
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended February 25, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Alpha
Microsystems at February 25, 1996 and February 26, 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
February 25, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Orange County, California
April 29, 1996
38
39
ALPHA MICROSYSTEMS
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
February 25, February 26,
1996 1995
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 505 $ 3,289
Accounts receivable, net of allowance for
doubtful accounts of $927 and $1,004 at
February 1996 and 1995, respectively 5,241 4,844
Inventories 943 1,948
Subsidiary held for sale -- 269
Note receivable 159 --
Prepaid expenses and other current assets 351 564
-------- --------
Total current assets 7,199 10,914
Property and equipment, at cost 16,710 14,824
Less accumulated depreciation
and amortization 12,435 11,220
-------- --------
Net property and equipment 4,275 3,604
Service contracts, net 793 1,039
Software costs, net 535 1,302
Goodwill, net 170 864
Other assets, net 89 179
-------- --------
$ 13,061 $ 17,902
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ 500 $ --
Accounts payable 1,694 1,863
Deferred revenue 2,678 2,775
Other accrued liabilities 837 1,857
Accrued salaries and wages 476 836
Current portion of long-term debt 192 395
-------- --------
Total current liabilities 6,377 7,726
Long-term debt 201 140
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 5,000,000
shares authorized; none issued -- --
Common stock, no par value; 20,000,000
shares authorized; 6,595,453 and
6,572,953 shares issued and outstanding
at February 25, 1996 and February 26,
1995, respectively 21,242 21,224
Accumulated deficit (14,694) (11,119)
Unamortized restricted stock plan expense (18) (19)
Foreign currency translation adjustment (47) (50)
-------- --------
Total shareholders' equity 6,483 10,036
-------- --------
$ 13,061 $ 17,902
======== ========
See accompanying notes.
39
40
ALPHA MICROSYSTEMS
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Year Ended
-------------------------------------------
February 25, February 26, February 27,
1996 1995 1994
------------ ------------ ------------
Net sales:
Product $ 14,466 $ 18,823 $ 20,582
Service 18,297 19,962 18,747
----------- ----------- -----------
Total net sales 32,763 38,785 39,329
----------- ----------- -----------
Cost of sales:
Product 10,228 13,372 12,288
Service 12,739 14,013 11,588
----------- ----------- -----------
Total cost of sales 22,967 27,385 23,876
----------- ----------- -----------
Gross Margin 9,796 11,400 15,453
Selling, general and
administrative expense 11,855 15,553 12,183
Research and development
expense 2,093 2,239 2,847
----------- ----------- -----------
Total operating expenses 13,948 17,792 15,030
----------- ----------- -----------
Income (loss) from operations (4,152) (6,392) 423
Interest income (93) (150) (125)
Interest expense 38 17 88
Other (income) expense, net (466) 81 21
Foreign exchange (gain) loss (76) (93) 216
----------- ----------- -----------
Total other (income) expenses (597) (145) 200
----------- ----------- -----------
Income (loss) before taxes (3,555) (6,247) 223
(Benefit) provision for income taxes 20 -- (113)
----------- ----------- -----------
Net income (loss) $ (3,575) $ (6,247) $ 336
=========== =========== ===========
Net income (loss) per share $ (0.54) $ (0.95) $ 0.08
=========== =========== ===========
Number of shares used in the
computation of per share amounts 6,564,882 6,580,470 4,025,090
=========== =========== ===========
See accompanying notes.
40
41
ALPHA MICROSYSTEMS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended February 25, 1996
(In thousands, except share data)
Unamortized Foreign
Common Stock Restricted Currency
------------------- Accumulated Stock Plan Translation
Shares Amount Deficit Expenses Adjustment Total
--------- ------- ----------- ---------- ----------- -------
Balance at February 28, 1993 3,085,579 $17,878 $ (5,208) $(85) $(240) $11,740
Net income -- -- 336 -- -- 336
Issuance of stock and redeemable
warrants net of offering costs
of $1,717 3,462,891 3,894 -- -- -- 3,894
Foreign currency translation -- -- -- -- (30) (30)
Exercise of stock options
($1.00 to $2.00 per share) 10,738 19 -- -- -- 19
Amortization -- -- -- 51 -- 51
--------- ------- -------- ---- ----- -------
Balance at February 27, 1994 6,559,208 21,186 (4,872) (34) (270) 16,010
Net loss -- -- (6,247) -- -- (6,247)
Foreign currency translation -- -- -- -- 220 220
Exercise of stock options
($1.00 to $2.00 per share) 13,745 38 -- -- -- 38
Amortization -- -- -- 15 -- 15
--------- ------- -------- ---- ----- -------
Balance at February 26, 1995 6,572,953 21,224 (11,119) (19) (50) 10,036
Net loss -- -- (3,575) -- -- (3,575)
Foreign currency translation -- -- -- -- 3 3
Restricted stock award 22,500 18 -- (18) -- --
Amortization -- -- -- 19 -- 19
--------- ------- -------- ---- ----- -------
Balance at February 25, 1996 6,595,453 $21,242 $(14,694) $(18) $ (47) $ 6,483
========= ======= ======== ==== ===== =======
See accompanying notes.
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42
ALPHA MICROSYSTEMS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
------------------------------------------------
February 25, February 26, February 27,
1996 1995 1994
------------ -------------- -----------
Cash flow from operating activities:
Net income (loss) $(3,575) $(6,247) $ 336
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Loss from sale of subsidiary -- 972 --
Non-current asset write-down 1,995 1,431 --
Depreciation and amortization 2,325 3,388 2,271
Gain on sale of fixed assets (282) -- --
Provision for losses on accounts receivable (21) 467 (329)
Inventory provision 196 694 (96)
Restricted stock plan expense amortization 19 15 51
Forgiveness of vacation -- -- 40
Other changes in operating assets and liabilities:
Accounts receivable (376) (132) 547
Inventories 811 (109) 1,727
Prepaid expenses and current assets 412 (494) 183
Accounts payable and other accrued liabilities (1,256) 847 (1,325)
Accrued salaries and wages (359) 79 (191)
Deferred revenue (133) (142) (351)
Other, net (49) (26) 8
------- ------- -------
Net cash provided by (used in) operating activities (293) 743 2,871
------- ------- -------
Cash flow from investing activities:
Proceeds from sale of fixed assets 440 -- --
Acquisition of business (149) (84) (271)
Acquisition of service assets (94) (511) (631)
Purchases of spares and equipment (1,730) (984) (1,509)
Capitalization of software costs (976) (977) (410)
Sale of subsidiary -- (357) --
Purchase of intangibles -- -- (149)
Other, net -- (30) 9
------- ------- -------
Net cash used in investing activities (2,509) (2,943) (2,961)
------- ------- -------
Cash flows from financing activities:
Proceeds from line of credit 500 -- 400
Issuance of common stock -- 38 3,913
Debt repayments (463) (915) (1,688)
------- ------- -------
Net cash provided by (used in) financing activities 37 (877) 2,625
------- ------- -------
Effect of exchange rate changes on cash (19) 115 3
------- ------- -------
Increase (decrease) in cash and cash equivalents (2,784) (2,962) 2,538
Cash and cash equivalents at beginning of period 3,289 6,251 3,713
------- ------- -------
Cash and cash equivalents at end of period $ 505 $ 3,289 $ 6,251
======= ======= =======
Supplemental information:
Cash paid for:
Interest expense $ 38 $ 21 $ 91
Income tax payments (refunds), net $ (64) $ (139) $ (74)
See accompanying notes.
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43
ALPHA MICROSYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 25, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of Alpha
Microsystems and its subsidiaries (the "Company"). Significant intercompany
accounts and transactions have been eliminated in consolidation. Certain
reclassifications have been made to the prior years' consolidated financial
statements to conform to the fiscal 1996 presentation.
THE BUSINESS
Alpha Microsystems, founded in 1977, is a supplier of information technology
products and services targeted at specific market niches. The Company has
historically had two principal lines of business: (1) the integration and sale
of computer systems for sale through VARs along with software-based systems for
vertical market niche markets, such as dental practice management; and (2) the
provision of information technology services such as maintenance, software
support, training, consulting, and network installation and monitoring. The
Company has recently commenced a new line of business: the development and sale
of broad horizontal software products, such as the recently introduced
AlphaCONNECT Internet/Intranet software for data mining, harvesting, formatting,
manipulation, and delivery, and for the creation of dynamically self-updating
Web pages.
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 periods.
Actual results could differ from those estimates.
FISCAL YEAR
The Company operates on a 52/53-week fiscal year ending on the last Sunday in
the month of February. Fiscal years 1996, 1995, and 1994 ended on February 25,
1996, February 26, 1995, and February 27, 1994, respectively.
OPERATIONS
During fiscal 1996, the Company continued to monitor market and business
conditions of its various products in light of limited financial resources and
consideration of its long-term business strategy. In the fourth quarter, the
Company altered its marketing and development plans for approaching the food
service administration and dental practice management marketplaces. As part of
this reassessment, the Company determined that net capitalized software and
other intangible assets associated with its products addressing these
marketplaces were impaired and wrote off $1,995,000 of such assets during the
fourth quarter of fiscal 1996.
43
44
The net loss from operations in fiscal 1996 was $3,575,000, or $0.54 per share,
on revenues of $32,763,000. This compares to a net loss in fiscal 1995 of
$6,247,000, or $0.95 per share, on revenues of $38,785,000.
Cash flow used in operations during fiscal 1996 was $293,000 compared to cash
flow from operations in fiscal 1995 of $743,000. During fiscal 1996, the cash
balance decline of $2,784,000 was primarily associated with expenditures
pertaining to the relocation of the Company's Santa Ana facility, the
development of vertical market software products, and the acquisition of service
assets. The Company ended the year with a cash balance of $505,000.
Management believes cash flow from operations, cash balances on hand and
potential borrowings under the Company's credit lines will be sufficient to meet
the liquidity needs for the coming fiscal year. The Company has a $2,000,000
line of credit, subject to certain conditions, for its domestic operation(see
note 5). In addition, the Company's United Kingdom subsidiary has a 250,000
pounds sterling line of credit, subject to certain conditions. If cash flows
from current operations prove to be insufficient to support all product lines,
management intends to take action to downsize and/or eliminate, if
necessary, certain product lines.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
The straight-line method of depreciation is used for the following classes of
assets for financial statement purposes and is based on the following estimated
useful lives:
Years
-----
Machinery and equipment 3 to 5
Leasehold improvements 1 to 6
Service parts 5
Major classes of property and equipment were as follows:
Feb. 25, Feb. 26,
(In thousands) 1996 1995
- -----------------------------------------------------------------------
Machinery and equipment $ 7,577 $ 6,904
Leasehold improvements 1,364 492
Service parts 7,769 7,428
------- -------
$16,710 $14,824
------- -------
Depreciation expense was $1,729,000, $1,933,000, and $1,078,000 for fiscal years
1996, 1995 and 1994, respectively.
INTANGIBLE ASSETS
Intangible assets include acquired service contracts, capitalized computer
software costs and goodwill. The book value of goodwill and service contracts
are associated with the acquisition of companies or assets. Software cost is the
accumulation of capitalized software development costs or the assigned value of
software associated with an acquisition.
44
45
The straight-line amortization period for intangible assets is dependent on
their expected economic life. The amortization period for the major classes of
intangible assets is as follows:
Years
-----
Service contracts 5
Capitalized software 3 to 5
Goodwill 5 to 10
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets over the asset's life are less than the carrying
value. The Company has adopted SFAS 121 and as a result wrote off $481,000 in
goodwill and service contracts related to Alpha HealthCare, during the fourth
quarter of fiscal 1996.
In accordance with SFAS No. 86, "Accounting for the Costs of Computer Software
to Be Sold, Leased, or Otherwise Marketed," the Company capitalizes certain
engineering costs related to software development after technological
feasibility has been established and amortizes these costs as the respective
products are sold. However, in no event is the amortization less than that which
would be achieved by amortizing such costs on a five-year straight-line basis
from the date of product release. Capitalized software costs, net of accumulated
amortization of $3,256,000 and $1,319,000, were $535,000 and $1,302,000 at
February 25, 1996 and February 26, 1995, respectively. Total amortization
expense charged to cost of product sales for the fiscal years 1996, 1995 and
1994 was approximately $186,000, $689,000 and $372,000, respectively.
In addition, management routinely evaluates events or conditions that might
diminish the carrying value of intangible assets pursuant to SFAS No. 86. During
the fourth quarter of fiscal 1996, management reforecast revenues and cash flow
for each capitalized software asset's anticipated service life and as a result
of this analysis, the Company wrote down accumulated capitalized software
development costs of $373,000 for its PANDA product line and $1,016,000 for its
Alpha HealthCare product line to their respective revised net realizable value.
WARRANTIES
The Company accrues estimated costs of product warranties as revenues from sales
are recognized, or if some event necessitates a change in the level of reserves
for potential warranties. Products are typically warranted for twelve months.
DEFERRED REVENUE
Deferred revenue is revenue billed in advance for service contracts and is
recognized ratably over the contract period or as the services are performed.
REVENUE RECOGNITION
The Company recognizes revenue on its hardware and software sales on delivery,
and recognizes revenue on its service sales and post contract customer support
on a straight-line basis over the contract period. When significant obligations
remain after a software product has been delivered, revenue is not recognized
until obligations have been completed or are no longer significant. The costs of
any insignificant obligations are accrued when the related revenue is
recognized. Revenue is recognized only when collection of the resulting
receivable is probable.
45
46
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred. Substantially all
research and development expenses are related to developing new products and
designing significant improvements to existing products.
INCOME TAXES
Deferred tax assets and liabilities reflect the impact of temporary differences
between amounts of assets and liabilities for financial reporting purposes, such
amounts measured by tax laws and the expected future tax consequences of net
operating loss carryforwards.
PER SHARE DATA
Earnings (loss) per share is calculated using the weighted average number of
common and common equivalent shares outstanding during the period. The weighted
average shares outstanding for fiscal 1996 and 1995 are calculated solely on the
basis of weighted average number of common shares outstanding. The number of
weighted average shares outstanding for fiscal 1994 was calculated based upon
the weighted average number of common shares outstanding and dilutive stock
options and warrants, reduced by the number of common shares assumed to have
been repurchased with the proceeds from the exercise of such instruments.
TRANSLATION OF FOREIGN CURRENCIES
The Company's foreign entities use the local currency as the functional
currency. The Company translates all foreign entity assets and liabilities at
year-end exchange rates, all income and expense accounts at average rates, and
records adjustments resulting from translation in a separate component of
shareholders' equity.
2. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined on the
first-in, first-out method. Inventories, net of reserves for excess and obsolete
inventories of $1,726,000 and $1,723,000 at February 25, 1996 and February 26,
1995, respectively, comprise the following:
Feb. 25, Feb. 26,
(In thousands) 1996 1995
------ ------
Raw materials $ 116 $ 581
Work in process -- 180
Finished goods 827 1,187
------ ------
$ 943 $1,948
====== ======
3. ACQUISITIONS AND DISPOSALS
In December, 1995, the Company acquired the remaining shares of Sabre Business
Systems, Dublin, Ireland for approximately $149,000, bringing the Company's
ownership to 100%.
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On September 15, 1995, the Company acquired the ongoing service contracts and
certain related assets of Instant Data Systems Incorporated ("IDS") for a
purchase price of $300,000, plus a potential bonus payment of $50,000. The
purchase price will be paid over eighteen months, and the ultimate price and
cash paid may be adjusted downward based upon the contract revenue purchased. On
June 1, 1995, the Company acquired the assets of Alpha Technology for $161,000.
The purchase price will be paid over 18 months and the ultimate price may be
adjusted based upon the contract revenue purchased.
On April 3, 1995, the Company sold its subsidiary, Alpha Microsystems Belgium,
S.A., to a member of its Belgium local management resulting in a loss of
$972,000 which was provided for as of February 26, 1995. The sale agreement
allows the Company to maintain its distribution channel in Belgium and to avoid
any potential future losses from this subsidiary; net losses from this
subsidiary in 1995 and 1994 were $206,000 and $167,000, respectively.
In fiscal 1995 and 1994, the Company acquired certain assets of various service
companies, including service contracts, service parts and accounts receivable.
The cost of these acquisitions was $1,918,000 and $776,000, in fiscal 1995 and
1994, respectively, of which the non-cash portion was $1,407,000 and $208,000,
in fiscal 1995 and 1994, respectively. In fiscal 1995, the most significant
acquisition was that of the service contracts and related assets of Alpha
Computer Services, Inc. ("ACS"), completed in March 1994. ACS was purchased for
$1,520,000, of which $238,000 was paid in cash, $1,156,000 in notes payable over
a period of twenty-two months, and the Company assumed $126,000 in liabilities.
In May 1994, the Company acquired certain assets and ongoing service contracts
from MTS, Inc.("MTSI") for a purchase price of approximately $195,000.
In addition, in March 1994, the Company acquired the remaining shares of Sabre
Business Systems, Belfast, Ireland, for approximately $84,000, bringing the
Company's ownership to 100%. In May 1994, Alpha Microsystems Great Britain (UK)
Limited acquired certain assets and liabilities of Kathy Parker Training
Centers, U.K., for approximately $137,000.
All acquisitions have been accounted for as purchases and the acquired
operations have been included in the consolidated statements of operations from
the dates of acquisition.
4. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution profit sharing plan covering
substantially all of its full-time employees. Contributions to the plan are at
the sole discretion of the Company's Board of Directors and cannot exceed the
maximum allowable deduction for federal income tax purposes. There were no
discretionary Company contributions for fiscal 1996, 1995 and 1994.
During the year ended February 24, 1991, the Company implemented a program
whereby the voluntary contributions of the employees are matched at a rate of
50% of employee contributions up to a total of 5.0% of the employee's salary.
During the first quarter of fiscal 1994, the employer match portion of the
employee contribution was reduced from 50% to 20% up to a total of 5.0% of an
employee's salary. During fiscal 1996 and 1995, the employer matched 60% of the
employee contribution for participants with an annual income of less than
$29,999. Matching contributions were $32,000, $42,000 and $99,000 for fiscal
1996, 1995 and 1994, respectively.
5. DEBT
The Company and its wholly-owned subsidiary, Alpha HealthCare, have a line of
credit, subject to certain conditions, for borrowing up to a maximum limit of
$2,000,000, with letters of credit in the aggregate not to exceed $500,000. The
line of credit, which expires on July 9, 1996, is secured by substantially all
of the Company's United States based assets and its availability is subject to
borrowings not exceeding fifty percent (50%) of qualified accounts receivable.
The maximum potential borrowings at February 25, 1996, were $1,290,000 of which
$500,000 was
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borrowed. The credit line agreement contains certain covenants including:
tangible net worth being $4,700,000 or higher, and the Company maintaining a
quick asset ratio of 1.00 to 1 and a debt to tangible net worth ratio of greater
than 1.25 to 1. In addition, the Company can not incur an after tax loss in two
fiscal quarters where the aggregate loss of the two quarters exceeds $250,000.
Borrowings under this line of credit bear interest of prime plus two and one
half percent (2.5%), which was 10.75% at February 25, 1996. In addition, the
Company issued the bank 50,000 warrants to purchase an equal number of shares
at a price of $1.21875 per share (see Note 7).
On January 24, 1996 the Company's United Kingdom subsidiary received a 250,000
pounds sterling Credit Facility from a bank, subject to certain conditions
including the United Kingdom subsidiary maintaining minimum levels of tangible
net worth and other financial covenants. The borrowings under this facility will
bear interest at 2.25% per annum over the bank's base rate.
6. FOREIGN CURRENCY GAINS (LOSSES)
Foreign currency exchange gains (losses) included in the determination of income
(loss) from operations before taxes and extraordinary item were $76,000, $93,000
and $(216,000) for fiscal 1996, 1995 and 1994, respectively. The Company had no
forward exchange contracts outstanding at February 25, 1996.
7. COMMON STOCK
On November 26, 1993, the Company completed its shareholder rights offering,
which entitled shareholders to subscribe on a one-for-one basis for up to
3,095,892 units (plus 366,999 units sold to the Underwriters to cover
over-allotments), each unit consisting of one share of common stock and one
redeemable warrant to purchase one share of common stock. A total of 900,891
rights were exercised by shareholders at a subscription price of $1.625. On
December 8, 1993, the subsequent public offering was completed for the sale of
the remaining 2,195,001 units as well as the over-allotment exercised by the
Underwriters. The net proceeds to the Company totaled approximately $3,894,000
of which $1,200,000 was used to repay borrowings under the Company's line of
credit.
On July 10, 1995, in exchange for a new line of credit and 40,000 warrants
previously issued, the Company issued 50,000 new warrants with an exercise price
of $1.21875 to its bank. In fiscal 1994, the Company agreed to sell to its
financial advisor a redeemable warrant to purchase 300,000 shares of common
stock exercisable at $2.50 per share and to issue a redeemable warrant to
purchase 10,000 shares of common stock exercisable at $2.50 per share to a
financial group in exchange for services.
Under the terms of the Company's Stock Incentive Award Plan, the Stock Option
Committee of the Board of Directors is authorized to award up to 150,000
restricted shares of common stock. These shares are issued subject to certain
transfer restrictions, including the passage of time, ranging from one to ten
years. The Committee may, at the time an award is made, prescribe additional
conditions for the lapse of restrictions. The Company has granted 131,050
restricted shares of common stock to certain employees, without cost. The shares
are subject to forfeiture under certain circumstances, and 25% of such shares
will vest each year, beginning on the date of grant. As of February 25, 1996,
119,800 of these restricted shares had vested. Unearned compensation was
recognized for the market value of the restricted shares on the date of grant
and is amortized ratably over the vesting period. The unamortized unearned
compensation value is recorded as a reduction of shareholders' equity in the
accompanying consolidated balance sheet.
8. INCOME TAXES
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The provision (benefit) for income taxes consists of the following:
(In thousands)
1996 1995 1994
--------- --------- -----
Federal:
Current $ -- $ -- $ --
Deferred -- -- (87)
Foreign:
Current 20 -- (26)
Deferred -- -- --
======= ======= =====
$ 20 $ -- $(113)
======= ======= =====
A reconciliation of income tax expense (benefit) to the statutory U.S. federal
income tax rate follows:
1996 1995 1994
------ ------ ------
Statutory U.S. federal
income tax rate (benefit) (34.0)% (34.0)% 34.0%
Changes in taxes resulting from:
Foreign losses & excess rates 1.4 6.0 --
Net operating losses utilized -- -- (37.0)
Reduction of excess tax -- -- (50.7)
Domestic losses with no
tax benefit 28.0 28.0 --
Other items, net 5.3 -- 3.0
------ ------ ------
Effective tax rate 0.7% --% (50.7)%
====== ====== ======
United States and foreign income (loss) before taxes based on income are as
follows:
(In thousands)
1996 1995 1994
------- ------- -----
Domestic $(3,714) $(4,912) $ 242
Foreign 159 (1,335) (19)
------- ------- -----
$(3,555) $(6,247) $ 223
======= ======= =====
Deferred tax assets and liabilities reflect the impact of temporary differences
between amounts of assets and liabilities for financial reporting purposes, such
amounts measured by tax laws and the expected future tax consequences of net
operating loss carryforwards. Temporary differences and net operating loss
carryforwards which give rise to deferred tax assets and liabilities recognized
in the balance sheet are as follows:
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(In thousands) 1996 1995
------- -------
Deferred tax assets:
Net operating loss carryforwards $ 6,520 $ 5,463
Accrued tax credits 899 885
Accruals not currently deductible for
tax purposes 353 645
Depreciation -- 77
Translation adjustment 67 70
Other 3 3
Valuation allowance (7,365) (7,106)
------- -------
Total deferred tax asset 447 37
------- -------
Deferred tax liabilities:
Depreciation (338) --
Capitalized software (139) (37)
------- -------
Total deferred tax liability 447 (37)
------- -------
Net deferred tax asset $ -- $ --
======= =======
The Company has federal net operating loss carryforwards totaling approximately
$17,500,000 at February 25, 1996, which begin expiring in 2006. If
there is a greater than 50% change in the Company's ownership during any
three-year period, the utilization of the net operating loss and general
business credit carryforward can be limited. During the last three-year period
the Company has experienced an approximate 41% change in ownership.
9. COMMITMENTS AND CONTINGENCIES
As part of the Company's continuing efforts to reduce expenses, it entered into
a 66-month lease for a 66,200 square foot facility located within one mile of
its former 104,000 square foot facility. The new lease began on July 1, 1995 and
expires on December 31, 2000. The average annual rent for the new facility is
$285,000 compared to $680,000 in fiscal 1995 for the old facility.
The leasehold improvements for which the Company is responsible include office
construction, plumbing, wiring and general tenant improvements. The cost of the
leasehold improvements for its new Santa Ana facility was $923,000, which is
being depreciated over the life of the lease.
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The Company leases its manufacturing and office facilities and certain equipment
under operating leases which expire on various dates through 2013. Rent expense
during fiscal years 1996, 1995, and 1994 was $1,966,000, $2,255,000, and
$2,202,000, respectively. The Company's annual minimum lease commitment under
non-cancelable operating leases are as follows:
(In thousands)
1997 $ 1,443
1998 845
1999 604
2000 574
2001 483
2002 and thereafter 2,508
--------
$ 6,457
========
In the normal course of business, the Company provides credit to its customers
who are principally distributors of its products and original equipment
manufacturers who incorporate the Company's products into equipment which they
resell to end users. The Company performs ongoing credit evaluations of its
customers and maintains allowances for potential credit losses which, when
realized, have been within the range of management's expectations. As of
February 25, 1996, the Company had no significant concentrations of credit risk
other than two European customers which each had accounts receivable balances
over $300,000. Both of these customers have placed and paid for large orders in
the past.
The Company's current involvement with litigation is as follows:
Carlos Garralda and Andre Warnier, employees of the Company's former subsidiary,
Alpha Microsystems Belgium, S.A. ("AMB"), filed an action in November 1995
against AMB and the Company in Orange County Superior Court alleging that AMB is
in breach of its obligations under Belgium employment law to pay salaries for a
notice period of up to two years following termination of employment. The
Plaintiffs allege, among other things, that the Company has alter ego liability
for these obligations. The plaintiffs are claiming compensatory damages in
excess of $780,000 and unspecified punitive damages. The Court has temporarily
stayed this lawsuit until July 18, 1996 in order to await the outcome of
virtually identical litigation instituted by the plaintiffs against AMB in
Belgium. Although no assurances as to the outcome of the litigation can be
given, management believes that its defenses to the litigation are meritorious.
In December 1995, Phoenix Marketing, Inc. dba Electronic Business Systems, Inc.,
in response to the Company's collection efforts for a past due account, filed an
amended cross-complaint alleging damages of $3,200,000 for defective
merchandise, loss of business reputation and loss of future business. Although
no assurances as to the outcome of the litigation can be given, management
believes that the plaintiff's claims are without merit. Trial is presently set
for November 1996.
The Company is currently involved in certain other claims and litigation. The
Company does not consider any of these other claims or litigation to be
material. Management has made provisions in the Company's financial statements
for the settlement of lawsuits for which unfavorable outcomes are both probable
and estimable. In the opinion of management, results of known existing claims
and litigation will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
10. STOCK OPTIONS
During fiscal 1985, the Company adopted a Non-Qualified Stock Option Plan
("Non-Qualified Plan"). The Non-Qualified Plan provides for the granting of
options at prices which must be at least 50% of the fair
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market value of the shares at either date of grant, date of employment, or date
an employment agreement became binding. The Non-Qualified Plan was amended in
fiscal 1990 to extend the plan indefinitely. In the event of termination,
non-qualified stock options outstanding will continue to be in effect until
expiring under each individual option agreement.
In May 1992, the Non-Qualified Plan was amended to increase the shares
authorized for grant under the Plan from 235,000 shares to 465,000 shares.
In August 1993, the Board of Directors adopted the Company's 1993 Employee Stock
Option Plan, which was approved at the 1994 annual meeting of shareholders, that
enables the Board of Directors to award up to 550,000 shares of common stock to
employees of the Company.
In April 1994, the Board of Directors adopted the Company's 1993 Director Stock
Plan, which was approved at the 1994 annual meeting of shareholders, that
provides to non-employee Directors automatic grants of non-statutory stock
options at exercise prices at fair market value of common stock on the date of
grant, up to an aggregate of 100,000 shares of common stock.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No.
123). The Company will be required to adopt SFAS No. 123 in Fiscal 1997. As
provided by the provisions of SFAS No. 123, the Company intends to continue to
account for employee stock options in accordance with APB Opinion No. 25 and to
adopt the "disclosure only" alternative described in SFAS No. 123.
The following table contains a summary of transactions related to Incentive and
Non-Qualified Stock Options for the year ended February 25, 1996:
Non-Qualified Stock Options Incentive Stock Options
------------------------------ -------------------------
Shares Price per share Shares Price per share
-------- --------------- ------ ---------------
Outstanding at
February 26, 1995 307,653 $1-5 328,702 $1.875
Granted 22,500 $1-2 100,000 1.625
Expired/canceled (110,568) $1-2 (136,763) 1.875
Exercised -- -- -- --
-------- --------
Outstanding at
February 25, 1996 219,585 291,939
======== ========
Exercisable at
February 26, 1995 231,653 $1-5 82,176 $1.875
February 25, 1996 189,335 $1-5 95,970 1.875
Available for grant:
February 26, 1995 61,410 221,298
February 25, 1996 149,478 258,061
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11. INDUSTRY SEGMENT INFORMATION
The Company operates in two business segments: the manufacture and sale of
computer systems, software and related products, and the servicing of computer
systems and related products.
Operations by business segment are as follows:
(In thousands) PRODUCT SERVICE CORPORATE CONSOLIDATED
1996
Net sales $ 14,466 $18,297 $ -- $ 32,763
Operating income (loss) (4,785) 2,849 (2,016) (4,152)
Identifiable assets 7,431 4,651 979 13,061
Depreciation and
amortization expense 773 1,230 322 2,325
Capital expenditures 427 496 901 1,824
1995
Net sales $ 18,823 $19,962 $ -- $ 38,785
Operating income (loss) (7,349) 2,690 (1,773) (6,392)
Identifiable assets 8,134 5,020 4,748 17,902
Depreciation and
amortization expense 1,322 1,880 186 3,388
Capital expenditures 578 845 72 1,495
1994
Net sales $ 20,582 $18,747 $ -- $ 39,329
Operating income (loss) (2,739) 4,314 (1,152) 423
Identifiable assets 11,004 5,267 6,829 23,100
Depreciation and
amortization expense 990 1,173 108 2,271
Capital expenditures 655 1,413 72 2,140
Identifiable assets by industry segment include both assets directly identified
with operations and an allocated share of jointly used assets. Corporate assets
consist primarily of cash and other assets. Depreciation and amortization
expense exclude intangible asset write-downs. Capital expenditures include
purchases of equipment and acquisitions of service assets. The effect of
capitalizing software costs is included in the product sales segment.
Intersegment transfers are recorded at cost.
The Company operates in the United States and through foreign subsidiaries in
Europe. Total consolidated foreign sales (including export sales of $906,000,
$1,596,000 and $1,523,000 in fiscal 1996, 1995 and 1994, respectively) were
$9,776,000, $11,639,000 and $12,324,000 for fiscal 1996, 1995 and 1994,
respectively.
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OPERATIONS BY GEOGRAPHIC AREA
(In thousands) UNITED CANADA EUROPE & ADJUSTMENTS & CONSOLIDATED
STATES AUSTRALIA ELIMINATIONS
1996
Sales to unaffiliated customers $ 23,893 $621 $ 8,249 $ -- $ 32,763
Transfers between
geographic areas 1,147 -- -- (1,147) --
-------- ---- -------- ------- --------
Net sales $ 25,040 $621 $ 8,249 $(1,147) $ 32,763
======== ==== ======== ======= ========
Net income (loss) $ (3,723) $221 $ (83) $ 9 $ (3,576)
Identifiable assets $ 15,351 $160 $ 5,070 $(7,520) $ 13,061
1995
Sales to unaffiliated customers $ 28,743 $609 $ 9,433 $ -- $ 38,785
Transfers between
geographic areas 1,518 -- -- (1,518) --
-------- ---- -------- ------- --------
Net sales $ 30,261 $609 $ 9,433 $(1,518) $ 38,785
======== ==== ======== ======= ========
Net income (loss) $ (5,005) $166 $ (1,397) $ (11) $ (6,247)
Identifiable assets $ 19,827 $277 $ 5,947 $(8,149) $ 17,902
1994
Sales to unaffiliated customers $ 28,527 $543 $ 10,259 $ -- $ 39,329
Transfers between
geographic areas 1,613 -- -- (1,613) --
-------- ---- -------- ------- --------
Net sales $ 30,140 $543 $ 10,259 $(1,613) $ 39,329
======== ==== ======== ======= ========
Net income (loss) $ (116) $132 $ 12 $ 308 $ 336
Identifiable assets $ 23,335 $285 $ 8,232 $(8,752) $ 23,100
No single customer or other foreign geographic area accounted for as much as 10%
of the Company's sales.
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ALPHA MICROSYSTEMS
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Additions
Beginning Charged to Balance at
of Year Expense Deductions End of Year
-------- ---------- ---------- -----------
Allowance for
doubtful receivables:
February 25, 1996 $1,004 $ (21) $ 56 $ 927
February 26, 1995 1,728 467 1,191 1,004
February 27, 1994 2,573 (329) 516 1,728
Reserve for inventories:
February 25, 1996 $1,723 $ 196 $ 193 $1,726
February 26, 1995 1,430 694 401 1,723
February 27, 1994 2,509 (96) 983 1,430
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SIGNATURES
Pursuant to the requirements of Section 13 pr 159d) 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.
ALPHA MICROSYSTEMS
Date: May 3, 1996 By: /s/ DOUGLAS J. TULLIO
---------------------------
Douglas J. Tullio
President, Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Clarke E. Reynolds,
Douglas J. Tullio and John F. Glade, and each and any of them, as
attorneys-in-fact and agents with full powers of substitution to sign on his
behalf, individually and in the capacity stated below, and to file any
amendments to this Annual Report on Form 10-K with the Securities and Exchange
Commission, granting to said attorneys-in-fact and agents full power and
authority to perform any other act on behalf of the undersigned required to be
done in the premises.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: May 3, 1996 By: /s/ CLARKE E. REYNOLDS
--------------------------------
Clarke E. Reynolds
Chairman of the Board
Date: May 3, 1996 By: /s/ DOUGLAS J. TULLIO
--------------------------------
Douglas J. Tullio
President, Chief Executive Officer,
Director
Date: May 3, 1996 By: /s/ JOHN F. GLADE
--------------------------------
John F. Glade
Vice President, Engineering and
Manufacturing, Secretary and Director
Date: May 3, 1996 By: /s/ MICHAEL J. LOWELL
--------------------------------
Michael J. Lowell
Vice President
Chief Financial Officer
Date: May 3, 1996 By: /s/ ROCKELL N. HANKIN
--------------------------------
Rockell N. Hankin
Director
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Date: May 3, 1996 By: /s/ RICHARD E. MAHMARIAN
--------------------------------
Richard E. Mahmarian
Director
57
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EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Pages
- ------- ----------- ------------
2.1 Agreement of Purchase and Sale by and between Registrant and Alpha
Computer Services, Inc., dated February 24, 1994 (incorporated herein
by reference to Exhibit 2.9 to the Quarterly Report on Form 10-Q for
the quarter ended May 29, 1994)
2.2 Agreement to transfer shares by and between Registrant and Alpha
Microsystems Great Britain, Mr. Patrick Bolle, and Alpha Microsystems
Belgium dated February 28, 1995 (incorporated herein by reference to
Exhibit 2.10 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 26, 1995 (the "1995 10-K")
3.1 Amended Articles of Incorporation of Registrant dated as of September
28, 1984 (incorporated herein by reference to Exhibit 4.0 to the
Quarterly Report on Form 10-Q of Registrant for the Quarter Ended
August 26, 1984)
3.2 Amended and Restated Bylaws, as amended, of Registrant (incorporated
herein by reference Exhibit 3.2 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 28, 1988)
3.3 Amendment to Article III, Section 2 of the Amended and Restated Bylaws
of Registrant dated August 18, 1989 (incorporated herein by reference
to Exhibit 3.3 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended August 27, 1989)
3.4 Amendment to Article II of the Amended and Restated Bylaws of
Registrant dated August 21, 1991 (incorporated herein by reference to
Exhibit 3.7 to the Quarterly Report on Form 10-Q of Registrant for the
Quarter Ended August 25, 1991)
3.5 Amendment and Restatement to Article IV of the Articles of
Incorporation of Registrant dated June 24, 1992 (incorporated herein
by reference to Exhibit 10.71 to the Quarterly Report on Form 10-Q of
Registrant for the Quarter Ended May 31, 1992)
4.1 Warrant to purchase 50,000 shares of Common Stock dated July 10, 1995,
issued to Silicon Valley Bank (incorporated herein by reference to
Exhibit 10.140 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended May 28, 1995 (the "May 1995 10-Q")
4.2 Registration Rights Agreement by and between Registrant and Silicon
Valley Bank dated July 10, 1995 (incorporated herein by reference to
Exhibit 10.141 to the May 1995 10-Q)
4.3 Antidilution Agreement by and between Registrant and Silicon Valley
Bank dated July 10, 1995 (incorporated herein by reference to Exhibit
10.142 to the May 1995 10-Q)
4.4 Warrant to purchase 10,000 shares of Common Stock dated as of December
1, 1993, issued to John Westergaard
59
Sequentially
Exhibit Numbered
Number Description Pages
- ------- ----------- ------------
4.5 Warrant to purchase 170,000 shares of Common Stock dated as of
December 17, 1993 issued to Dominick & Dominick, Inc.
4.6 Warrant to purchase 60,000 shares of Common Stock dated as of December
17, 1993 issued to John F. Doss
4.7 Warrant to purchase 60,000 shares of Common Stock dated as of December
17, 1993 issued to John R. Doss
4.8 Warrant to purchase 10,000 shares of Common Stock dated as of December
17, 1993 issued to Jonathan T. McKeage
4.9 Underwriters' Warrant to purchase 85,137 units dated April 30, 1996
issued to Barclay Investments, Inc.
4.10 Underwriters' Warrant to purchase 4,000 units dated April 30, 1996
issued to Robert G. Palmeiro
4.11 Underwriters' Warrant to purchase 14,379 units dated April 30, 1996
issued to G. L. Cabot Henderson
4.12 Underwriters' Warrant to purchase 10,000 units dated April 30, 1996
issued to Edward R. Henderson
4.13 Underwriters' Warrant to purchase 56,758 units dated April 30, 1996
issued to James F. Twaddell
4.14 Form of First Amendment to Underwriters' Warrant entered into between
the Registrant and each of Barclay Investments, Inc., Princeton
Securities Corporation, Robert G. Palmeiro, G. L. Cabot Henderson,
Edward R. Henderson and James F. Twaddell
4.15 Form of warrant certificate of Registrant (incorporated herein by
reference to Exhibit 4.3 to Amendment No. 4 to Registration
Statement on Form S-2, Registration No. 33-66424, of Registrant
("Amendment No. 4 to Form S-2") filed with the Securities and
Exchange Commission on November 1, 1993)
4.16 Form of Warrant Agreement with Mellon Securities Trust Company
(incorporated herein by reference to Exhibit 4.1 to Amendment No. 1
to Registration Statement on Form S-2, Registration No. 33-66424, of
Registrant ("Amendment No. 1 to Form S-2") filed with the Securities
and Exchange Commission on September 30, 1993)
4.17 Form of Underwriters' Warrant (incorporated herein by reference to
Exhibit 4.2 to Amendment No. 4 to Form S-2)
*10.1 Registrant's Second Amended and Restated Incentive Stock Option Plan
(incorporated herein by reference to Exhibit 4.1 to the Post-Effective
Amendment No. 1 to the Registration Statement on Form S-8 of
Registrant (Registration No. 2-76012) (the "Amended S-8") filed on May
12, 1983)
*10.2 Form of Incentive Stock Option Agreement (incorporated herein by
reference to Exhibit 10.1 to Amendment No. 1 of the Form S-2
Registration Statement filed with the Securities and Exchange
Commission on September 30, 1993)
*10.3 Form of Amended and Restated Incentive Stock Option Agreement
(incorporated herein by reference to Exhibit 10.51 to the Amendment
No. 2 of the Form S-2 Registration Statement filed with the Securities
Exchange Commission on October 15, 1993)
*10.4 Third Amended and Restated Incentive Stock Option Plan of Registrant
(incorporated herein by reference to Exhibit 10.9 to the Annual Report
on Form 10-K of Registrant for the Year Ended February 26, 1984)
*10.5 Stock Incentive Award Plan of Registrant (incorporated herein by
reference to Exhibit 10.21 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 26, 1984)
*10.6 Non-Qualified Stock Option Plan of Registrant (incorporated herein by
reference to Exhibit 10.22 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 26, 1984)
*10.7 Form of Incentive Option Agreement for use in connection with Third
Amended and Restated Incentive Stock Option Plan (incorporated herein
by reference to Exhibit 4.7 to the Post-Effective Amendment No. 1 to
the Registration Statement on Form 8 of the Registrant (Registration
Statement No. 2-9252) filed on August 23, 1984)
*10.8 Form of Non-Qualified Stock Option Agreement for use in connection
with Non-Qualified Stock Option Plan (incorporated herein by reference
to Exhibit 4.8 to the Post-Effective Amendment No. 1 to the
Registration Statement on Form 8 of the Registrant (Registration
Statement No. 29252) filed on August 23, 1984)
*10.9 Form of Stock Incentive Award and Escrow Agreement for use in
connection with the Stock Incentive Award Plan (incorporated herein by
reference to Exhibit 4.9 to the Post-Effective Amendment No. 1 to the
Registration Statement on Form 8 of the Registrant (Registration
Statement No. 2-9252) filed on August 23, 1984)
*10.10 Revised Form of Non-Qualified Stock Option Agreement for use in
connection with Non-Qualified Stock Option Plan (incorporated herein
by reference to Exhibit 10.30 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 23, 1986)
60
Sequentially
Exhibit Numbered
Number Description Pages
- ------- ----------- ------------
*10.11 Form of Contingent Non-Qualified Stock Option Agreement for use in
connection with Non-Qualified Stock Option Plan (incorporated herein
by reference to Exhibit 10.31 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 23, 1986)
*10.12 Alpha Microsystems Profit Sharing Trust Agreement between Alpha
Microsystems and Bank of America N.T. & S.A. as Trustee dated May 24,
1985 (incorporated herein by reference to Exhibit 10.32 to the Annual
Report on Form 10-K of Registrant for the Year Ended February 23,
1986)
*10.13 Alpha Microsystems Profit Sharing Plan (as amended and restated) dated
May 15, 1986 (incorporated herein by reference to Exhibit 10.33 to the
Annual Report on Form 10-K of Registrant for the Year Ended February
23, 1986)
*10.14 Acceptance of Trust by Trustee dated September 30, 1986 pursuant to
Registrant's Profit Sharing Plan (incorporated herein by reference to
Exhibit 10.29 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 22, 1987)
*10.15 First Amendment dated March 1, 1987 to the Registrant's Profit Sharing
Plan (incorporated herein by reference to Exhibit 10.30 to the Annual
Report on Form 10-K of Registrant for the Year Ended February 22,
1987)
*10.16 Revised Form of Non-Qualified Stock Option Agreement for use in
connection with Non-Qualified Stock Option Plan (incorporated herein
by reference to Exhibit 10.31 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 22, 1987)
*10.17 Indemnification Agreement dated October 23, 1987 by and between Alpha
Microsystems and John F. Glade (incorporated herein by reference to
Exhibit 10.34 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended November 22, 1987)
*10.18 Indemnification Agreement dated October 23, 1987 by and between Alpha
Microsystems and Rockell N. Hankin (incorporated herein by reference
to Exhibit 10.36 to the Quarterly Report on Form 10-Q of Registrant
for the Quarter Ended November 22, 1987)
*10.19 Indemnification Agreement dated October 23, 1987 by and between Alpha
Microsystems and Harry L. Hathaway (incorporated herein by reference
to Exhibit 10.39 to the Quarterly Report on Form 10-Q of Registrant
for the Quarter Ended November 22, 1987)
*10.20 Second Amendment to Alpha Microsystems Profit Sharing Plan dated
January 22, 1988 (incorporated herein by reference to Exhibit 10.31 to
the Annual Report on Form 10-K of Registrant for the Year Ended
February 28, 1988)
*10.21 Alpha Microsystems Profit Sharing Plan Amendments Under IRS Notice
88-131 dated May 24, 1989 (incorporated herein by reference to Exhibit
61
Sequentially
Exhibit Numbered
Number Description Pages
- ------- ----------- ------------
10.38 to the Quarterly Report on Form 10-Q of Registrant for the
Quarter Ended May 28, 1989)
*10.22 Alpha Microsystems Profit Sharing Plan Amendment dated December 15,
1989 (incorporated herein by reference to Exhibit 10.45 to the
Quarterly Report on Form 10-Q of Registrant for the Quarter Ended
November 26, 1989)
*10.23 Employment Agreement by and between the Registrant and Douglas J.
Tullio dated January 8, 1990 (incorporated herein by reference to
Exhibit 10.49 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended November 26, 1989)
*10.24 Indemnification Agreement by and between the Registrant and Douglas J.
Tullio dated January 8, 1990 (incorporated herein by reference to
Exhibit 10.50 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended November 26, 1989)
*10.25 Non-Qualified Stock Option Agreement by and between the Registrant and
Douglas J. Tullio dated January 8, 1990 (incorporated herein by
reference to Exhibit 10.51 to the Quarterly Report on Form 10-Q of
Registrant for the Quarter Ended November 26, 1989)
*10.26 Addendum to Employment Agreement by and between the Registrant and
Douglas J. Tullio dated May 21, 1990 (incorporated herein by reference
to Exhibit 10.54 to the Annual Report on Form 10-K of Registrant for
the Year Ended February 25, 1990)
*10.27 Revised Form of Non-Qualified Stock Option Agreement for use in
connection with Registrant's Non-Qualified Stock Option Plan
(incorporated herein by reference to Exhibit 10.59 to the Quarterly
Report on Form 10-Q of Registrant for the Quarter Ended August 26,
1990)
*10.28 Indemnification Agreement by and between Registrant and Clarke E.
Reynolds dated June 16, 1989 (incorporated herein by reference to
Exhibit 10.67 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 23, 1992)
*10.29 Stock Incentive Award and Escrow Agreement by and between Registrant
and John F. Glade for 9,000 shares of the Company's common stock dated
August 11, 1992 (incorporated herein by reference to Exhibit 10.81 to
the Quarterly Report on Form 10-Q of Registrant for the Year Ended
August 30, 1992)
*10.30 Stock Incentive Award and Escrow Agreement by and between Registrant
and Clarke E. Reynolds for 9,000 shares of the Company's common stock
dated August 11, 1992 (incorporated herein by reference to Exhibit
10.80 to the Quarterly Report on Form 10-Q of Registrant for the
Quarter Ended August 30, 1992)
*10.31 Stock Incentive Award and Escrow Agreement by and between Registrant
and Douglas J. Tullio for 14,000 shares of the Company's common stock
dated August 11, 1992 (incorporated herein by reference
62
Sequentially
Exhibit Numbered
Number Description Pages
- ------- ----------- ------------
to Exhibit 10.79 to the Quarterly Report on Form 10-Q of Registrant
for the Quarter Ended August 30, 1992)
*10.32 Non-Qualified Stock Option Agreement by and between Registrant and
Douglas J. Tullio for 40,000 shares of the Company's common stock
dated August 21, 1992 (incorporated herein by reference to Exhibit
10.76 to the Quarterly Report on Form 10-Q of Registrant for the Year
Ended August 30, 1992)
*10.33 Non-Qualified Stock Option Agreement by and between the Registrant and
Clarke E. Reynolds for 10,000 shares of the Company's Common Stock
dated April 20, 1993 (incorporated herein by reference to Exhibit
10.73 to Amendment No. 1 to Form S-2)
*10.34 Non-Qualified Stock Option Agreement by and between the Registrant and
Douglas J. Tullio for 60,000 shares of the Company's Common Stock
dated April 20, 1993 (incorporated herein by reference to Exhibit
10.74 to Amendment No. 1 to Form S-2)
*10.35 Non-Qualified Stock Option Agreement by and between the Registrant and
John Glade for 10,000 shares of the Company's Common Stock dated April
20, 1993 (incorporated herein by reference to Exhibit 10.75 to
Amendment No. 1 to Form S-2)
*10.36 Form of Stock Option Agreement by and between the Registrant and
Douglas J. Tullio dated August 31, 1993 (incorporated herein by
reference to Exhibit 10.85 to Amendment No. 1 to Form S-2)
*10.37 Consulting Agreement by and between the Registrant and Clarke E.
Reynolds dated June 1, 1993 (incorporated herein by reference to
Exhibit 10.87 to Amendment No. 1 to Form S-2)
*10.38 Alpha Microsystems 1993 Employee Stock Option Plan (incorporated
herein by reference to Exhibit 10.109 to the Quarterly Report on Form
10-Q for the quarter ended May 29, 1994)
10.39 Alpha Microsystems 1993 Directors' Stock Option Plan (incorporated
herein by reference to Exhibit 10.110 to the Quarterly Report on Form
10-Q for the quarter ended May 29, 1994)
10.40 Non-Qualified Stock Option Agreement by and between Registrant and
Clarke E. Reynolds dated May 31, 1994 (incorporated herein by
reference to Exhibit 10.109 to the Quarterly Report on Form 10-Q for
the quarter ended November 27, 1994)
*10.41 Non-Qualified Stock Option Agreement by and between Registrant and
Rockell N. Hankin dated May 31, 1994 (incorporated herein by reference
63
Sequentially
Exhibit Numbered
Number Description Pages
- ------- ----------- ------------
to Exhibit 10.111 to the Quarterly Report on Form 10-Q for the quarter
ended November 27, 1994)
*10.42 Non-Qualified Stock Option Agreement by and between Registrant and
Harry L. Hathaway dated May 31, 1994 (incorporated herein by reference
to Exhibit 10.112 to the Quarterly Report on Form 10-Q for the quarter
ended November 27, 1994)
10.43 Industrial Lease between Fairview Investors Ltd. and Registrant dated
October 28, 1994 (incorporated herein by reference to Exhibit 10.113
to the Quarterly Report on Form 10-Q for the quarter ended November
27, 1994)
*10.44 Separation Agreement and Agreement to provide consulting services by
and between Registrant and John D. Murray dated December 22, 1994
(incorporated herein by reference to Exhibit 10.114 to the Quarterly
Report on Form 10-Q for the quarter ended November 27, 1994)
10.45 Letter to John Murray from Sumitomo Bank dated January 5, 1995
amending the Loan Agreement (incorporated herein by reference to
Exhibit 10.115 to the Quarterly Report on Form 10-Q for the quarter
ended November 27, 1994)
*10.46 First Amended and Restated Non-Qualified Stock Option Plan of
Registrant dated August 18, 1989 (incorporated herein by reference to
Exhibit 19.14 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended August 27, 1989)
*10.47 First Amendment to Stock Incentive Award Plan of Registrant dated
August 15, 1990 (incorporated herein by reference to Exhibit 19.16 to
the Quarterly Report on Form 10-Q of Registrant for the Quarter Ended
August 26, 1990)
*10.48 First Amendment to Employment Agreement by and between Registrant and
John F. Glade dated May 3, 1991 (incorporated herein by reference to
Exhibit 19.8 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 23, 1992)
*10.49 First Amendment to Employment Agreement by and between Registrant and
Douglas J. Tullio dated May 3, 1991 (incorporated herein by reference
to Exhibit 19.10 to the Annual Report on Form 10-K of Registrant for
the Year Ended February 23, 1992)
*10.50 Second Amendment and Restatement to the Non-Qualified Stock Option
Plan of Alpha Microsystems dated June 24, 1992 (incorporated herein by
reference to Exhibit 10.70 to the Quarterly Report on Form 10-Q for
the Quarter Ended May 31, 1992)
*10.51 Second Amendment and Restatement of the Alpha Microsystems Profit
Sharing Plan dated July 1, 1992 (incorporated herein by reference to
Exhibit 10.72 to the Quarterly Report on Form 10-Q for the Quarter
Ended May 31, 1992)
64
Sequentially
Exhibit Numbered
Number Description Pages
- ------- ----------- ------------
10.52 Memorandum to Lease by and between Registrant and Fairview Investors,
Ltd. dated January 24, 1995 (incorporated herein by reference to
Exhibit 10.136 to the 1995 10-K)
*10.53 Separation Agreement and General Release by and between Registrant and
Gerald Knight dated March 10, 1995 (incorporated herein by reference
to Exhibit 10.137 to the 1995 10-K)
10.54 Letter to Mike Lowell from Silicon Valley Bank dated May 3, 1995 re:
new credit line (incorporated herein by reference to Exhibit 10.138 to
the 1995 10-K)
10.55 Loan and Security Agreement by and between Registrant and Silicon
Valley Bank dated July 10, 1995 (incorporated herein by reference to
Exhibit 10.139 to the May 1995 10-Q)
10.56 Collateral Assignment, Patent Mortgage and Security Agreement by and
between Registrant and Silicon Valley Bank dated July 10, 1995
(incorporated herein by reference to Exhibit 10.143 to the May 1995
10-Q)
10.57 Security Agreement by and between Alpha HealthCare, Inc., and Silicon
Valley Bank dated July 10, 1995 (incorporated herein by reference to
Exhibit 10.144 to the May 1995 10-Q)
10.58 Continuing Guaranty by and between Alpha HealthCare, Inc., and
Silicone Valley Bank dated July 10, 1995 (incorporated herein by
reference to Exhibit 10.145 to the May 1995 10-Q)
*10.59 Agreement to Grant Nonqualified Stock Option by and between Registrant
and Clarke E. Reynolds dated July 14, 1995 (incorporated herein by
reference to Exhibit 10.146 to the Quarterly Report on Form 10-Q for
the Quarter Ended August 27, 1995 (the "August 1995 10-Q")
*10.60 Agreement to Grant Nonqualified Stock Option by and between Registrant
and Rockell N. Hankin dated July 14, 1995 (incorporated herein by
reference to Exhibit 10.147 to the August 1995 10-Q)
*10.61 Agreement to Grant Nonqualified Stock Option by and between Registrant
and Harry L. Hathaway dated July 14, 1995 (incorporated herein by
reference to Exhibit 10.148 to the August 1995 10-Q)
*10.62 Agreement to Grant Nonqualified Stock Option by and between Registrant
and Richard E. Mahmarian dated July 14, 1995 (incorporated herein by
reference to Exhibit 10.149 to the August 1995 10-Q)
10.63 Amendment to Loan Agreement by and between Registrant and Silicon
Valley Bank dated November 30, 1995 (incorporated herein by reference
to Exhibit 10.150 to the Quarterly Report on Form 10-Q for the Quarter
Ended November 26, 1995 (the "November 1995 10-Q")
*10.64 Agreement to Grant Incentive Stock Option (Pursuant to 1993 Employee
Stock Option Plan) between Registrant and Philip D. Smith
65
Sequentially
Exhibit Numbered
Number Description Pages
- ------- ----------- ------------
dated April 3, 1995 for 40,000 shares of common stock (incorporated
herein by reference to Exhibit 10.151 to the November 1995 10-Q)
*10.65 Agreement to Grant Incentive Stock Option (Pursuant to 1993 Employee
Stock Option Plan) between Registrant and Michael J. Lowell dated
April 3, 1995 for 40,000 shares of common stock (incorporated herein
by reference to Exhibit 10.152 to the November 1995 10-Q)
*10.66 Agreement to Grant Incentive Stock Option (Pursuant to 1993 Employee
Stock Option Plan) between Registrant and Randy Parks dated April 3,
1995 for 10,000 shares of common stock (incorporated herein by
reference to Exhibit 10.153 to the November 1995 10-Q)
*10.67 Agreement to Grant Incentive Stock Option (Pursuant to 1993 Employee
Stock Option Plan) between Registrant and Peggy Denson dated April 3,
1995 for 10,000 shares of common stock (incorporated herein by
reference to Exhibit 10.154 to the November 1995 10-Q)
*10.68 Agreement to Grant Incentive Stock Option (Pursuant to 1993 Employee
Stock Option Plan) between Registrant and Douglas J. Tullio dated May
5, 1995 for 15,000 shares of common stock (incorporated herein by
reference to Exhibit 10.155 to the November 1995 10-Q)
*10.69 Agreement to Grant Incentive Stock Option (Pursuant to 1993 Employee
Stock Option Plan) between Registrant and John F. Glade dated May 5,
1995 for 7,500 shares of common stock (incorporated herein by
reference to Exhibit 10.156 to the November 1995 10-Q)
10.70 Amendment to Loan Agreement by and between Registrant and Silicon
Valley Bank dated February 7, 1996
10.71 Amendment to Loan Agreement by and between Registrant and Silicon
Valley Bank dated March 7, 1996
10.72 Engagement Letter between Registrant and Sutro & Co. Incorporated
dated May 2, 1996
21 Subsidiaries
23 Consent of Independent Auditors
24 Power of Attorney (included on signature pages of this Annual Report)
27 Financial Data Schedule
(*Denotes Management Contract or Compensation Plan)