Document/Exhibit Description Pages Size
1: 10-Q Form 10-Q - May 28, 1995 14 59K
2: EX-10.139 Loan and Security Agreement - Silicon Valley Bank 34± 151K
3: EX-10.140 Warrant to Purchase 50,000 Shares 6 36K
4: EX-10.141 Registration Rights Agreement 7± 36K
5: EX-10.142 Antidilution Agreement 5± 22K
6: EX-10.143 Collateral Assignment, Patent Mortgage Agrmnt 17 54K
7: EX-10.144 Security Agreement 19± 79K
8: EX-10.145 Continuing Guaranty 14± 58K
9: EX-27 Financial Data Schedule 1 7K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MAY 28, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ -- _____ to ____ -- ____
Commission File Number 0-10558
ALPHA MICROSYSTEMS
(Exact name of registrant as specified in its charter)
[Download Table]
CALIFORNIA 95-3108178
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2722 S. FAIRVIEW STREET, SANTA ANA, CA 92704
(Address of principal executive offices)
Registrant's telephone number, including area code: (714) 957-8500
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
--- ---
As of July 7, 1995, there were 6,572,953 shares of the registrant's common
stock outstanding.
-1-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALPHA MICROSYSTEMS
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
[Download Table]
(Unaudited)
May 28, Feb. 26,
1995 1995
----------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 3,083 $ 3,289
Accounts receivable, net 4,710 4,844
Inventories 1,771 1,948
Subsidiary held for sale - 269
Notes receivable 290 -
Prepaid expenses and other current assets 566 564
-------- --------
Total current assets 10,420 10,914
-------- --------
Property and equipment at cost 15,492 14,824
Less accumulated depreciation and amortization 11,517 11,220
-------- --------
Net property and equipment 3,975 3,604
Service contracts, net 937 1,039
Software costs, net 1,399 1,302
Goodwill, net 820 864
Other assets, net 167 179
-------- --------
$ 17,718 $ 17,902
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,275 $ 1,863
Deferred revenue 2,948 2,775
Other accrued liabilities 1,436 1,857
Accrued salaries and wages 473 836
Current portion of long-term debt 373 395
-------- --------
Total current liabilities 7,505 7,726
Long-term debt 110 140
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; 6,557,403 shares
issued and outstanding at May 28, 1995 and
February 26, 1995 21,224 21,224
Accumulated deficit (11,068) (11,119)
Unamortized restricted stock plan expense (19) (19)
Foreign currency translation adjustment (34) (50)
-------- --------
Total shareholders' equity 10,103 10,036
-------- --------
$ 17,718 $ 17,902
======== ========
See accompanying notes.
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ALPHA MICROSYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
[Download Table]
Three Months Ended
-------------------------
May 28, May 29,
1995 1994
------ -------
Net sales:
Product $3,919 $ 4,868
Service 4,626 5,139
------ -------
Total net sales 8,545 10,007
------ -------
Cost of sales:
Product 2,380 3,094
Service 3,088 3,189
------ -------
Total cost of sales 5,468 6,283
------ -------
Gross Margin 3,077 3,724
Selling, general and administrative expense 2,751 3,251
Research and development expense 531 636
------ -------
Total operating expenses 3,282 3,887
------ -------
Income (loss) from operations (205) (163)
Interest income (29) (25)
Interest expense 4 2
Other (income) expense, net (216) 25
Foreign exchange (gain) loss (15) (18)
------ -------
Total other (income) expenses (256) (16)
------ -------
Income (loss) before taxes 51 (147)
(Benefit) provision for income taxes - 2
------ -------
Net income (loss) $ 51 $ (149)
====== =======
Net income (loss) per share $ 0.01 $ (0.02)
====== =======
Number of shares used in the
computation of per share amounts 6,579 6,612
====== =======
See accompanying notes.
-3-
ALPHA MICROSYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
[Download Table]
Three Months Ended
--------------------------
May 28, May 29,
1995 1994
------- -------
Cash flow from operating activities:
Net income (loss) $ 51 $ (149)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Gain on sale of fixed assets (211) -
Depreciation and amortization 509 659
Provision for losses on accounts receivable 2 4
Inventory provision 45 40
Other changes in operating assets and liabilities:
Accounts receivable 332 (39)
Inventories 132 (42)
Prepaid expenses and current assets 8 (87)
Accounts payable and other
accrued liabilities (71) 92
Accrued salaries and wages (362) (173)
Deferred revenue 174 (91)
Other, net 30 1
------ ------
Net cash provided (used) by
operating activities 639 215
------ ------
Cash flow from investing activities:
Proceeds from sale of fixed assets 200 -
Acquisition of businesses - (572)
Purchases of equipment (644) (182)
Capitalization of software costs (327) (90)
Other, net 6 1
------ ------
Net cash used in investing activities (765) (843)
------ ------
Cash flows from financing activities:
Issuance of stock - 33
Principal debt repayments (113) (332)
------ ------
Net cash provided by
financing activities (113) (299)
------ ------
Effect of exchange rate changes on cash 33 27
------ ------
Increase (decrease) in cash and
cash equivalents (206) (900)
Cash and cash equivalents at beginning of period 3,289 6,251
------ ------
Cash and cash equivalents at end of period $3,083 $5,351
====== ======
See accompanying notes
-4-
ALPHA MICROSYSTEMS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM ACCOUNTING POLICY
In the opinion of management of Alpha Microsystems (the "Company" or
"Alpha Micro"), the accompanying unaudited condensed consolidated financial
statements contain all adjustments necessary to fairly present the consolidated
financial position of the Company at May 28, 1995, and the consolidated results
of operations and cash flows for the quarters ended May 28, 1995, and May 29,
1994. These condensed consolidated financial statements do not include all
disclosures presented annually under generally accepted accounting principles
and, therefore, they should be read in conjunction with the Company's annual
report on Form 10-K for the year ended February 26, 1995.
The results of operations for the quarter ended May 28, 1995, are not
necessarily indicative of the results to be expected for the full fiscal year.
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.
PER SHARE INFORMATION
Per share information is based upon the weighted average common and
common equivalent shares outstanding during the quarter ended May 28, 1995, and
the weighted average common shares outstanding during the quarter ended May 29,
1994.
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 quarter-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 stated at the lower of cost (first-in, first-out
method) or market. Inventories, net of reserves for excess and obsolete
inventories, of $1,833,000 and $1,723,000 at May 28, 1995, and February 26,
1995, respectively, comprise the following:
-5-
[Download Table]
(IN THOUSANDS)
------------------------
MAY 28, FEBRUARY 26,
1995 1995
------- ------------
Raw materials $ 368 $ 581
Work in process 5 180
Finished goods 1,398 1,187
------ ------
$1,771 $1,948
====== ======
3. DEBT
On July 10, 1995, the Company signed an agreement for a revolving line
of credit up to a maximum limit of $2,000,000, based upon 70% of the eligible
accounts receivable and under which letters of credit and the foreign exchange
portion shall not exceed in the aggregate at any one time $500,000. Borrowing
under the line of credit will bear interest of prime plus one and one half
percent (1.5%) and the commitment fee for the first year is $15,000. In
addition, the Company has agreed to issue 50,000 warrants to the lender after
the 40,000 warrants the lender previously received have been returned and
canceled.
The line of credit is secured by substantially all of the Company's
assets. Its availability will be subject to financial covenants requiring that
the Company maintain a quick ratio of not less than 1.3 to 1, a tangible net
worth of not less than $6,500,000, and a ratio of total liabilities to tangible
net worth of no more than 1.0 to 1. The agreement also includes covenants which
require that the Company must not have two or more consecutive quarterly losses
or an aggregate year-to-date loss of over $300,000, and the Company must make a
net profit on a consolidated basis for fiscal 1996. Currently, the Company has
no outstanding bank borrowings.
4. NOTE RECEIVABLE
As part of the consideration for selling the Belgian subsidiary to a
member of local management, the Company received a note for 15,000,000 Belgian
francs which is payable over the next two years.
5. SUBSEQUENT EVENT
On June 9, 1995, the Company acquired the ongoing service contracts
and certain related assets of Van Meter Enterprises, Inc., DBA Alpha
Technology, for a purchase price of $162,000. The purchase price will be paid
over a period of sixteen months, and the ultimate price and cash paid will be
conditional upon the revenues of the contracts purchased.
6. TAXES
The Company has significant federal net operating loss carryforwards
totaling approximately $15.0 million at February 26, 1995, which begin expiring
in 2006. As a result, the Company recorded no tax provision for the quarter
ended May 28, 1995. 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 ended February 26, 1995, the Company has experienced an
approximate 41% change in ownership.
-6-
7. GOODWILL AND INTANGIBLES
Management routinely evaluates events or conditions that might
diminish the fair market value of intangible assets. Intangible assets include
acquired service contracts, capitalized computer software costs and goodwill.
The book value of goodwill and acquired service contracts is associated with
the acquisition of companies or assets. Software cost is the accumulation of
capitalized development costs or the assigned value of software associated with
an acquisition.
8. CONTINGENCIES
LITIGATION
Two former employees of Alpha Microsystems Belgium S.A. ("AMB") have
asserted that AMB is in breach of its obligations under Belgium employment law
to pay salaries for up to two years in certain circumstances and have asserted
that the Company has direct liability for these obligations. The employees have
offered to settle their claim for $1.2 million. Management of the Company
believes that the claim is without merit and plans to vigorously defend the
Company against these claims.
-7-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SUMMARY
The following table was derived from the Condensed Consolidated Statements of
Operations as a percentage of net sales for the quarters ended May 28, 1995 and
May 29, 1994:
[Download Table]
RELATIONSHIP TO NET SALES
-------------------------
THREE MONTHS ENDED
-------------------------
MAY 28, MAY 29,
1995 1994
------- -------
Net sales 100.0% 100.0%
Cost of sales 64.0 62.8
----- -----
Gross margin 36.0 37.2
Selling general and administrative expense 32.2 32.5
Research and development expense 6.2 6.4
Interest income (0.3) (0.2)
Other (income) expense, net (2.5) 0.2
Foreign exchange (gain) loss (0.2) (0.2)
----- -----
Income (loss) from operations before taxes 0.6 (1.5)
Provision (benefit) for income taxes - -
----- -----
Net income (loss) 0.6% (1.5)%
===== =====
GENERAL
The Company, which for its first decade was principally a designer and
vendor of computer hardware and related systems software, has been
transitioning its business to focus on areas offering higher growth potential.
The transition process has been difficult, and the Company has found it
necessary to make mid-course adjustments in response to market pressures.
Accordingly, during the last five years the Company has sustained periods of
substantial losses and major write-offs. In addition, there have been
significant management changes. While there has been progress in certain
product lines and operations, the Company has also been plagued by delays in
new product development, unanticipated product launch problems with its new
PANDA product which required a significant additional manpower commitment,
difficulties in building and maintaining the services operation, and lean
financial resources.
The Company's strategy is to strengthen its distribution channels,
concentrate on vertical markets, and expand its already broad base of support
services, including field maintenance and networking. In support of its
strategy, the Company has continued its efforts to consolidate European
operations, reduce expenses and establish new asset management techniques, and
shift toward system assembly and integration. The Company has altered its
strategy to adapt to changes in a highly competitive and dynamic marketplace.
Management will continue to monitor market and business conditions and will be
flexible in considering future shifts in strategy as appropriate.
During the first quarter of fiscal 1996, the Company made a small
profit of $51,000, or $0.01 per share, which was primarily associated with the
sale of its PICK distributed database product ("PICK"). PICK was sold on March
24, 1995 for $300,000 and generated a gain on sale of $211,000. As anticipated,
-8-
revenues declined as a result of the sale of the PICK and VSO product lines and
lower demand for the Company's traditional products. In response, management
has reduced expenses accordingly.
The Company's strategic marketing efforts continued to progress during
the first quarter. The Company obtained two new orders for PANDA from southern
California school districts, and has been test marketing the system in
additional regions, such as Texas, Virginia and Florida. The Company's early
test version of its AlphaHealthCare dental practice management software has
been introduced to key dental industry opinion leaders and has been well
received. This new product, currently in development, is scheduled to be
introduced during the last half of fiscal 1996.
Based upon the favorable market response, the Company intends to
significantly expand its sales and marketing resources for both vertical
products. While it is unlikely that revenues for these products will increase
sufficiently to offset the additional investment in the short term, the Company
believes that its capabilities to gain a larger market share over the long term
will be significantly enhanced.
RESULTS OF OPERATIONS
Three Months Ended May 28, 1995 and May 29, 1994
Net sales decreased $1,462,000, or 14.6%, to $8,545,000 for the
quarter ended May 28, 1995, from $10,007,000 for the quarter ended May 29,
1994. Total product revenues declined $949,000, or 19.5%, to approximately
$3,919,000 from approximately $4,868,000 for the comparable period.
Sales of the Company's traditional products declined $1,134,000,
offset by an increase of $185,000 in sales of the Company's vertical products.
Lower demand for the Company's traditional products, the sale of the PICK and
VSO product lines, and lower revenues from Belgian customers accounted for most
of the decline in product revenues. PICK and VSO revenues accounted for
approximately $200,000 in the quarter just ended, compared to approximately
$500,000 in the first quarter of fiscal 1995. The Belgian subsidiary, Alpha
Microsystems Belgium, S.A., which was sold to a member of its Belgian
management team at the end of fiscal 1995, had accounted for $437,000 in
revenues in the first quarter of fiscal 1995. In the first quarter of 1996,
sales to the Belgian company accounted for $193,000 in revenues; the decrease
was offset somewhat by the elimination of overhead and other expenses
associated with a subsidiary.
Total services revenues declined $513,000, or 10.0%, to $4,626,000 in
the quarter just ended from $5,139,000 for the same period in the prior year.
The decrease is attributable both to a reduction in services revenues from
prior acquisitions (Alpha Computer Services, Inc. and MGI Group International,
Inc.) and in traditional AMOS-based service contracts. The Company has been
successful in expanding its base of support services, including field
maintenance and networking, and intends to invest additional resources in this
area.
Total gross margin for the Company for the quarter ended May 28, 1995,
decreased to 36.0%, compared to 37.2% during the same period last year. Product
gross margin for the quarter ended May 28, 1995 increased to 39.3% compared to
36.4% during the same period in the prior year. The increase in product gross
margin was primarily due to a higher percentage of software support revenues
with a higher gross margin in the quarter just ended.
Service business gross margin declined to 33.2% during the quarter
ended May 28, 1995, from 37.9% during the same period in the prior year. The
decline was primarily due to reductions in cost of goods sold, primarily labor
costs, not fully offsetting the revenue decline. However, the sales
organization reduced selling, general and administrative expenses which
assisted in partially offsetting the overall impact of the service revenue
decline. To improve revenues, the service organization is focusing on obtaining
new
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contracts for its networking support services, supporting vertical markets with
services, and increasing third party services.
Selling, general and administrative expenses decreased $500,000 to
$2,751,000 for the quarter ended May 28, 1995, compared to $3,251,000 in the
quarter ended May 29, 1994. Approximately $237,000 of this decrease was due to
the absence of the Belgian subsidiary. The Company has invested additional
resources and efforts to enhance its position in its vertical markets, which
accounted for an increase of $290,000 in selling, general and administrative
expenses to $785,000 for the quarter ended May 28, 1995, compared to $495,000
for the same period in the prior fiscal year.
On March 24, 1995, the Company sold to Sequoia Systems, Inc. for
$100,000 cash and $200,000 in note receivable its rights to reproduce and
license to others Pick64+ distributed database software. The transaction
generated a gain on sale of $211,000.
Research and development expenses incurred for the quarter just ended
decreased by $105,000 to $531,000 from $636,000 during the same period in the
prior fiscal year. This reduction is primarily due to refocusing the Company's
resources on new software development, $327,000 of which has been capitalized.
The Company reported net income of $51,000 for the quarter just ended,
compared to a net loss of $149,000 for the quarter ended May 29, 1994 for the
above-mentioned reasons, adjusted by immaterial differences in the foreign
exchange gain and the tax provision.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended May 28, 1995, the Company's working
capital decreased $273,000 to $2,915,000 from $3,188,000 at February 26, 1995.
Net cash and cash equivalents decreased during the quarter ended May 28, 1995
by $206,000 to $3,083,000, primarily to finance the Company's move to its new
facilities. Net cash provided by operating activities for the quarter ended May
28, 1995 was $639,000, compared to $215,000 for the same period in the previous
fiscal year.
Inventories decreased to $1,771,000 at May 28, 1995, from $1,948,000
at February 26, 1995. Net accounts receivable decreased to $4,710,000 from
$4,844,000 respectively, for the same comparable periods. The decrease is
primarily associated with the decline in business activity.
On July 10, 1995, the Company signed an agreement for a revolving line
of credit up to a maximum limit of $2,000,000, based upon 70% of the eligible
accounts receivable and under which letters of credit and the foreign exchange
portion shall not exceed in the aggregate at any one time $500,000. Borrowing
under the line of credit will bear interest of prime plus one and one half
percent (1.5%) and the commitment fee for the first year is $15,000. In
addition, the Company has agreed to issue 50,000 warrants to the lender after
the 40,000 warrants the lender previously received have been returned and
canceled.
The line of credit is secured by substantially all of the Company's
assets. Its availability is subject to financial covenants requiring that the
Company maintain a quick ratio of not less than 1.3 to 1, a tangible net worth
of not less than $6,500,000, and a ratio of total liabilities to tangible net
worth of no more than 1.0 to 1. The agreement also includes covenants which
require that the Company must not have two or more consecutive quarterly losses
or an aggregate year-to-date loss of over $300,000, and the Company must make a
net profit on a consolidated basis for fiscal 1996. Currently, the Company has
no outstanding bank borrowings.
As part of the Company's continuing efforts to reduce expenses, it has
entered into a new 66-month lease for and has moved into a 66,200 square foot
facility located within one mile of its prior 104,000 square foot facility. The
new lease, which began on July 1, 1995 and expires on December 31, 2000, will
provide significant savings.
-10-
The average annual rent for the new facility is $285,000, compared to
$680,000 in fiscal 1995 for the current facility. In addition, the Company
negotiated a cash rent reduction in exchange for paying the up-front cost of
certain leasehold improvements, and the Company has an option to extend the new
lease term for an additional three years.
The leasehold improvements for which the Company is responsible
include office construction, plumbing, wiring and general tenant improvements.
The Company estimates that the cost of these improvements is approximately
$700,000, which will be depreciated over the life of the lease. The cost of
these improvements, which was partially paid in the first quarter, is the
primary reason that Net property and equipment increased to $3,975,000 at May
28, 1995, compared to $3,604,000 at February 26, 1995.
The Company believes that current cash position augmented by operating
activities, supplemented as necessary with funds expected to be available under
the Company's line of credit, will provide it with sufficient resources to
finance its working capital requirements for the remainder of the fiscal year.
The Company's future capital requirements depend on a variety of factors,
including, but not limited to, the rate of decline in the traditional business,
the success and timing and amount of investment required to penetrate the
vertical markets, and service revenue growth or decline.
-11-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) See Exhibit Index.
(b) No Form 8-K was filed during the first quarter ended
May 28, 1995.
-12-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALPHA MICROSYSTEMS
(Registrant)
[Download Table]
Date: July 10, 1995 By: /s/ Douglas J. Tullio
------------------------
President and
Chief Executive Officer
Date: July 10, 1995 By: /s/ Michael J. Lowell
------------------------
Vice President and
Chief Financial Officer
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EXHIBIT INDEX
[Download Table]
Sequentially
Exhibit Numbered
Number Description of Documents Page
------ ------------------------ ----
10.139 Loan and Security Agreement by and between Registrant
and Silicon Valley Bank dated July 10, 1995.
10.140 Warrant to Purchase 50,000 shares of common stock issued
to Silicon Valley Bank dated July 10, 1995.
10.141 Registration Rights Agreement by and between Registrant
and Silicon Valley Bank dated July 10, 1995.
10.142 Antidilution Agreement by and between Registrant and
Silicon Valley Bank dated July 10, 1995.
10.143 Collateral Assignment, Patent Mortgage and Security
Agreement by and between Registrant and
Silicon Valley Bank dated July 10, 1995.
10.144 Security Agreement by and between AlphaHealthCare, Inc.,
and Silicon Valley Bank dated July 10, 1995.
10.145 Continuing Guaranty by and between AlphaHealthCare, Inc.,
and Silicon Valley Bank dated July 10, 1995.
27. Financial Data Schedule.
-14-
Dates Referenced Herein and Documents Incorporated by Reference
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