1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A NO. 2 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the fiscal year ended February 22, 1998 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 ------------------- ----------------- 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 incorporation or organization) Identification No.) 2722 SOUTH 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: None Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK (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. [X] 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 May 14, 1998 on the Nasdaq National Market, a date within 60 days prior to the date of filing, was $33,757,348. As of May 14, 1998, there were 10,914,112 shares of the registrant's common stock outstanding. The purpose of this amendment is to amend Item 14(a)(1) Notes to Consolidated Financial Statements, Note No. 7 Shareholders' Equity to read as set forth herein. 2 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 ----------- Notes to Consolidated Financial Statements 34 2 3 ALPHA MICROSYSTEMS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 22, 1998 7. SHAREHOLDERS' EQUITY COMMON STOCK Under the terms of the Company's Stock Incentive Award Plan, 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 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 22, 1998, all restricted shares are 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 was recorded as a reduction of shareholders' equity in the accompanying financial statements. The Company's 1996 Non-employee Director Stock Compensation Plan provides to non-employee directors the opportunity to receive shares of common stock in lieu of cash compensation paid for services as a director, in an amount equal to the value of cash compensation otherwise paid for service as a director. The total number of shares reserved and available is 100,000 shares. At February 22, 1998, 1,542,672 shares of the Company's common stock is reserved for issuance pursuant to outstanding warrants and the Company's stock option Plans. WARRANTS On May 14, 1996, the Company filed a Registration Statement to register 4,442,069 shares of Common Stock issuable upon the exercise of warrants issued by the Company, of which 4,082,069 were issued in connection with its November 29, 1993, Shareholder Rights Offering and subsequent Public Offering, and the remainder were issued in consideration of services rendered to the Company. The Company redeemed its Redeemable Public Warrants on June 17, 1996, pursuant to its notice of redemption issued on May 14, 1996. Total shares issued from the exercise of redeemed warrants and other concurrently exercised warrants were 4,103,719, resulting in total gross proceeds of approximately $10,102,000. The proceeds from the exercise of all warrants, net of expenses, were $9,486,000. In connection with a public offering in fiscal 1993, Company granted to its underwriter a warrant to purchase 139,315 Units, with an exercise price of $1.95 per Unit, expiring November 1, 1998. Each Unit consists of one share of common stock and one Underlying Warrant to purchase one share of common stock. The exercise price of the Underlying Warrants is $2.50 and expire November 1, 1998. Pursuant to the terms of an amendment to the loan agreement signed in October 1996, the Company agreed to issue 25,000 warrants to the bank which are exercisable for five years at $1.625 per share. Also in October 1996, the Company issued a warrant to purchase 300,000 shares of common stock exercisable for five years at $3.00 per share to its financial advisor. As of February 22, 1998, the Company has 464,315 warrants outstanding (603,630 including the Underlying Warrants) and 1,004,939 options outstanding, or a total of 1,469,254 shares under options and warrants (1,608,569 including the Underlying Warrants). 3 4 OPTIONS The Company has a non-qualified stock option plan (the "1984 Plan") which provides for the grant, from time to time, of options to purchase up to 465,000 shares of Common Stock to eligible employees. In June 1996, the Board terminated the 1984 Plan and no further options may be granted. Outstanding options will remain exercisable. As of February 22, 1998, the Company's 1993 Employee Stock Option Plan provides for the Board to award up to 925,000 shares of common stock to employees of the Company. The Company's 1993 Director Stock Plan provides to non-employee directors automatic grants of non-statutory stock options at exercise prices equal to the fair market value of the Company's common stock on the date of grant, up to an aggregate of 100,000 shares of common stock. The following table contains a summary of transactions related to Incentive and Non-Qualified Stock Options for the fiscal years 1996, 1997, and 1998: NON-QUALIFIED STOCK OPTIONS INCENTIVE STOCK OPTIONS ------------------------------ ----------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE SHARES PRICE PER SHARE SHARES PRICE PER SHARE ------- ---------------- ------ ---------------- Outstanding at February 26, 1995 327,653 $1.79 328,702 $1.88 Granted 15,000 $1.25 122,500 $1.47 Expired/canceled (110,568) $1.63 (136,763) $1.88 -------- -------- Outstanding at February 25, 1996 232,085 $1.64 314,439 $1.72 Granted 7,500 $2.69 621,000 $2.62 Expired/canceled (39,315) $2.84 (222,500) $2.50 Exercised (37,770) $1.73 (25,000) $1.63 ------- ------- Outstanding at February 23, 1997 162,500 $1.38 687,939 $2.28 Granted 7,500 $1.43 330,000 $1.23 Expired/canceled (10,000) $1.94 (133,000) $1.61 Exercised (40,000) $0.94 -- -- ------- ------- ----- Outstanding at February 22, 1998 120,000 $1.71 884,939 $1.99 ======= ======= Exercisable at February 25, 1996 205,585 $1.78 253,189 $1.78 February 23, 1997 155,000 $1.57 313,439 $2.07 February 22, 1998 114,375 $1.74 380,939 $2.25 Available for grant: February 25, 1996 236,978 235,561 February 23, 1997 57,500 212,061 February 22, 1998 50,000 15,061 Options outstanding at February 22, 1998, under the non-qualified stock option plan are exercisable at $1.94. The weighted average remaining life of these options as of year-end is approximately 0.1 years. 4 5 Options outstanding at February 22, 1998, under the incentive stock option plan have exercise prices and weighted average remaining lives as follows: 22,500 shares at $0.78 with a remaining life of 2.2 years, 409,439 shares at $1.38 to $1.88 with a remaining life of 2.6 years, 303,000 shares at $3.00 per share with a remaining life of 3.3 years and 150,000 shares at $1.03 per share with a remaining life of 4.8 years. Pro forma information regarding net loss and loss per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing method with the following weighted average assumptions: risk-free interest rate of 6% for 1998, 1997, and 1996; volatility factors of the expected market price of the Company's common stock of 0.6 for all three years; and a weighted average expected life of the options of five years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows: (IN THOUSANDS, EXCEPT PER SHARE INFORMATION) 1998 1997 1996 ------- ------- ------- Pro forma net loss $(3,516) $(2,873) $(3,575) Pro forma basic and diluted loss per share: $ (0.32) $ (0.30) $ (0.54) The per share weighted average fair value of options granted during 1998, 1997, and 1996 were $0.71, $1.48, and $0.66, respectively. The effect of applying Statement 123 for providing pro forma disclosures is not likely to be representative of the effects on reported net income (loss) for future years. 5 6 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: July 15, 1998 ALPHA MICROSYSTEMS By: /s/ DOUGLAS J. TULLIO ---------------------------------- Douglas J. Tullio President, Chief Executive Officer 6