-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, l38v4GPFldkSEqHM8hGhcHECW4tYV1Xq3orK4z7pdS1IGF5XWT7IkeaRSr9SNI5V Gice7EfEZ8j3kBtTR8cZuQ== 0000938347-95-000007.txt : 19950725 0000938347-95-000007.hdr.sgml : 19950725 ACCESSION NUMBER: 0000938347-95-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950531 FILED AS OF DATE: 19950724 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RANDOM ACCESS INC CENTRAL INDEX KEY: 0000766588 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 840971697 STATE OF INCORPORATION: CO FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13864 FILM NUMBER: 95555425 BUSINESS ADDRESS: STREET 1: 8000 E ILIFF AVE CITY: DENVER STATE: CO ZIP: 80231 BUSINESS PHONE: 3037459600 MAIL ADDRESS: STREET 1: 8000 ILIFF AVENUE CITY: DENVER STATE: CO ZIP: 80231 FORMER COMPANY: FORMER CONFORMED NAME: EMPIRE VIDEO CORP DATE OF NAME CHANGE: 19880328 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended May 31, 1995 [ ] 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 0-13864 RANDOM ACCESS, INC. (Exact name of registrant as specified in its charter) Colorado 84-0971697 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 8000 East Iliff Avenue, Denver, CO 80231 (Address of principal executive offices and zip code) 303-745-9600 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) 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 such shorter period that the registrant was required it file such reports), and (2) has been subject to such requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of the Registrant's common stock outstanding as of the close of business July 19, 1995 was 6,759,911. INDEX Part I Financial Information: Item (1) Consolidated Financial Statements: Balance Sheets 3-4 Statements of Operations 5 Statements of Cash Flows 6-8 Notes to Consolidated Financial Statements 9-10 Item (2) Management's Discussion and Analysis of Financial Condition and Results of Operations 11-14 Part II Other Information 15-16 Signatures 17 RANDOM ACCESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) MAY 31, 1995 AND AUGUST 31, 1994
May 31, August 31, 1995 1994 ----------- ----------- ASSETS CURRENT ASSETS: Cash $287,000 $530,000 Receivables, less allowance for doubtful accounts of $375,000 and $300,000 , respectively: Trade accounts 38,874,000 37,372,000 Vendors 1,801,000 1,229,000 Income tax refund 184,000 129,000 Other 922,000 500,000 Notes receivable 549,000 310,000 Inventories, net 11,389,000 6,603,000 Prepaid expenses 575,000 536,000 Prepaid income taxes 1,142,000 Deferred income taxes 282,000 210,000 ----------- ----------- Total current assets 56,005,000 47,419,000 ----------- ----------- PROPERTY AND EQUIPMENT: Land 1,163,000 1,163,000 Land improvements 242,000 169,000 Building 7,145,000 2,047,000 Construction in progress 593,000 Computer equipment and software 6,730,000 3,756,000 Furniture and equipment 3,200,000 2,171,000 Leasehold improvements 325,000 758,000 Vehicles 146,000 171,000 ----------- ----------- Total 18,951,000 10,828,000 Less accumulated depreciation and amortization (4,000,000) (2,431,000) ----------- ----------- Property and equipment, net 14,951,000 8,397,000 OTHER ASSETS: Franchise rights and vendor authorizations, net of accumulated amortization of $82,000 and $57,000, respectively 249,000 171,000 Goodwill and other intangible assets, net of accumulated amortization of $180,000 and $26,000, respectively 3,215,000 239,000 Notes receivable 89,000 Deposits and other 102,000 68,000 ----------- ----------- Total other assets 3,566,000 567,000 ----------- ----------- TOTAL $74,522,000 $56,383,000 =========== =========== See notes to consolidated financial statements.
RANDOM ACCESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) MAY 31, 1995 AND AUGUST 31, 1994
May 31, August 31, 1995 1994 ----------- ----------- LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES: Revolving line of credit $24,594,000 $8,858,000 Current maturities of obligations under capital leases 291,000 424,000 Current maturities of long-term debt 1,384,000 58,000 Trade accounts payable 23,711,000 22,423,000 Sales and other taxes payable 1,044,000 1,204,000 Income taxes payable 42,000 Other current liabilities 2,786,000 1,773,000 ----------- ----------- Total current liabilities 53,810,000 34,782,000 ----------- ----------- NON-CURRENT LIABILITIES: Obligations under capital leases, net of current maturities 190,000 386,000 Long-term debt, net of current maturities 2,492,000 1,728,000 Deferred revenue 22,000 30,000 Deferred tax liability 234,000 215,000 ----------- ----------- Total non-current liabilities 2,938,000 2,359,000 ----------- ----------- MINORITY INTEREST 343,000 374,000 ----------- ----------- SHAREHOLDERS' EQUITY: Common stock, $.0001 par value; authorized 50,000,000 shares; issued 6,764,911 shares and outstanding 6,759,911, shares and respectively 1,000 1,000 Additional paid-in capital 13,756,000 13,756,000 Retained earnings 3,692,000 5,111,000 ----------- ----------- 17,449,000 18,868,000 Treasury shares at cost, 5,000 shares (18,000) ----------- ----------- Total shareholders' equity 17,431,000 18,868,000 ----------- ----------- TOTAL $74,522,000 $56,383,000 =========== =========== See notes to consolidated financial statements.
RANDOM ACCESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS AND NINE MONTHS ENDED MAY 31, 1995 AND AUGUST 31, 1994
1995 1994 1995 1994 ----------- ----------- ----------- ----------- NET SALES $57,223,000 $50,120,000 $178,704,000 $139,392,000 COST OF SALES 47,788,000 44,070,000 150,605,000 120,497,000 ----------- ----------- ----------- ----------- Gross profit 9,435,000 6,050,000 28,099,000 18,895,000 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 11,068,000 6,602,000 28,859,000 17,790,000 ----------- ----------- ----------- ----------- Operating income (loss) (1,633,000) (552,000) (760,000) 1,105,000 OTHER INCOME (EXPENSE): Interest expense (692,000) (178,000) (1,622,000) (407,000) Other income 1,000 73,000 153,000 148,000 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (2,324,000) (657,000) (2,229,000) 846,000 INCOME TAX BENEFIT (PROVISION) 846,000 265,000 810,000 (319,000) ----------- ----------- ----------- ----------- NET INCOME (LOSS) ($1,478,000) ($392,000) ($1,419,000) $527,000 =========== =========== =========== =========== EARNINGS (LOSS) PER SHARE ($0.22) ($0.06) ($0.21) $0.08 =========== =========== =========== =========== WEIGHED AVERAGE NUMBER OF SHARES OUTSTANDING 6,763,000 6,843,000 6,769,000 6,797,000 =========== =========== =========== =========== See notes to consolidated financial statements.
RANDOM ACCESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDED MAY 31, 1995 AND 1994
1995 1994 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income ($1,419,000) $527,000 ------------ ------------ Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 1,628,000 739,000 Reserve for doubtful trade accounts receivable 75,000 55,000 (Gain) loss on disposal of assets (3,000) 3,000 Reserve for sales returns (4,000) 14,000 Reserve for obsolete inventories 454,000 451,000 Deferred income taxes (25,000) Minority interest in loss of subsidiary (31,000) (6,000) Changes in operating assets and liabilities, net of effects from purchase or sale of businesses: Accounts and notes receivable (1,233,000) (6,114,000) Inventories (3,648,000) (3,080,000) Prepaid expenses (1,170,000) (278,000) Other assets (21,000) (14,000) Trade accounts payable (1,209,000) 7,105,000 Other current liabilities 464,000 409,000 ------------ ------------ Total adjustments (4,723,000) (716,000) ------------ ------------ Net cash (used in) provided by operating activ (6,142,000) (189,000) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Cash expenditures for property and equipment (7,084,000) (2,093,000) Proceeds from sale or disposal of assets 167,000 41,000 Purchase of common stock for treasury (18,000) Payment for purchase of business, net of cash acquir (2,865,000) (495,000) ------------ ------------ Net cash used in investing activities (9,800,000) (2,547,000) ------------ ------------ See notes to consolidated financial statements.
RANDOM ACCESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDED MAY 31, 1995,1994
1995 1994 -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings under revolving line of credit $200,903,000 $111,602,000 Principal payments on revolving line of credit (185,195,000) (108,176,000) Proceeds from issuance of long-term debt 361,000 Principal payments on obligations under capital leases (317,000) (256,000) Principal payments on long-term debt (53,000) (510,000) -------------- -------------- Net cash provided by financing activities 15,699,000 2,660,000 -------------- -------------- NET INCREASE IN CASH (243,000) (76,000) CASH AT BEGINNING OF PERIOD 530,000 304,000 -------------- -------------- CASH AT END OF PERIOD $287,000 $228,000 ============== ============== SUPPLEMENTAL DISCLOSURE CASH FLOW INFORMATION Cash paid for: Interest $1,325,000 $312,000 Income taxes 707,000 997,000 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Capital lease obligations for new equipment $249,000 Issuance of common stock for purchase of land 94,000 Long-term debt for purchase of equipment $782,000 Note receivable from sale of cable division 131,000 The Company Acquired an 87% interest in Total Access Limited liability Company. In conjunction with the acquisition liabilities were assumed as follows: Fair value of assets acquired $2,739,000 Cash paid for ownership interest (519,000) Minority interest (384,000 -------------- $1,836,000 ============== The Company acquired certain assets and liabilities of Documatrix, Inc. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired $2,777,000 Cash paid at closing (775,000) -------------- Liabilities assumed $2,002,000 ============== See notes to consolidated financial statements.
RANDOM ACCESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASHFLOWS (Unaudited) NINE MONTHS ENDED AMY 31, 1995 AND 1994
The Company acquired 100% of the outstanding stock of Advanced Systems and Peripherals, Inc. In connection with the acquisition, liabilities were assumed as follows: Fair value of assets acquired $4,359,000 Cash paid at closing (2,367,000) Note payable to owner of company (1,000,000) Cash acquired 267,000 -------------- Liabilities assumed $1,259,000 ============== See notes to consolidated financial statements.
RANDOM ACCESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) THREE MONTHS AND NINE MONTHS ENDED May 31, 1995 AND 1994 1. Basis of Presentation: The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments necessary for fair presentation of the Company's unaudited financial statements for the three months and nine months ended May 31, 1995 and 1994 have been included. Such adjustments consist only of normal recurring items. The results of operations for the interim periods are not necessarily indicative of the results to be expected for a full fiscal year. The Company's August 31, 1994 financial statements and notes thereto, which are included in the Annual Report in Form 10-K, should be read in conjunction with this Form 10-Q. 2. Proposed Merger: On May 15,1995 the Company entered into a Merger Agreement with Entex Information Services, Inc., ("ENTEX") whereby the Company's board of directors recommended that shareholders approve a cash merger with ENTEX at a price of $3.50 per share for the Company's common stock. On June 27, 1995 the price per share was reduced to $3.25 due primarily to the Company's anticipated operating loss for the quarter ended May 31, 1995. It is anticipated that a meeting of the Company's shareholders will be held in September 1995 to vote upon the proposed merger with ENTEX. An affirmative vote of the holders of two-thirds of the Company's outstanding common stock is required to approve the merger. 2. Acquisitions: On April 8, 1994 the Company acquired all of the common stock of JLV Enterprises, Inc. (JLV), a Colorado corporation involved in the business of design, consulting, sales and installation of wide area computer networks and video conferencing systems and consulting for high speed data telecommunications, by issuing 275,000 shares of the Company's common stock. This acquisition has been accounted for as a pooling of interests and, accordingly, the Company's consolidated financial statements have been restated for all periods prior to the acquisition to include the results of operations, financial positions and cash flows of JLV. For the period from December 1, 1993 through February 28, 1994 JLV's net sales and net loss were approximately $1,165,000 and $6,000, respectively. On February 15, 1995 the Company acquired certain assets and liabilities of Documatrix Corporation, a Colorado corporation, for cash in the amount of approximately $775,000, an assumption of approximately $2,002,000 in liabilities and certain contingent earnout rights. In connection with the acquisition, the Company recognized $1,667,000 of goodwill. On March 3, 1995, the Company acquired all of the outstanding common stock of Advanced Systems and Peripherals, Inc. ("ASAP") for cash in the amount of $2,100,000, the issuance of a note payable in the amount of $1,000,000 and certain contingent earnout rights. The Company recorded approximately $1,450,000 of goodwill in connection with this transaction. 3. Litigation and legal proceedings: The Company and its chairman, among six other businesses and individuals were named as defendants in a civil action which was filed in September 1994. This complaint alleged that the plaintiff is entitled to recover damages based on claims against the Company by a former owner of a business which served, and continues to serve, as a minority subcontractor to the Company. In May 1995 the Company and the other defendants settled this suit; the Company contributed $125,000 to the settlement. The Company is the subject of an inquiry by the Central Regional Office of the Securities & Exchange Commission located in Denver, Colorado, in connection with marketing development funds provided to the Company by its vendors. Management believes that unresolved discrepancies amount to less than $90,000 and can be fully resolved with the Company's vendors. The discrepancies represent a small percentage of the Company's total operating income for the two-year period under review, and therefore, in management's view, these discrepancies are not material. Management further believes that the Company continues to enjoy excellent relationships with its vendors. In July 1995 the Company and its chairman, among five other businesses and individuals were named as defendants in a civil action. The complaint alleges that the plaintiff is entitled to recover unspecified damages based upon claims against the Company by a Denver, Colorado based, minority- owned competitor of the Company. No trial date has been set for the matter. Management of the Company believes that it has certain meritorious defenses and intends to defend the case vigorously; however, the ultimate outcome of this litigation cannot presently be determined. Accordingly, no provision for any loss that may result upon resolution of this matter has been made to the accompanying financial statements. 4. Related Party Receivables: As of May 31, 1995, the Company had note receivables from officers and employees in the total amount of $175,000. These notes bear interest at rates ranging from 8% to 10% per annum and are due upon demand. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following table sets forth for the periods indicated, the percentage of total revenue represented by certain items reflected in the Company's Consolidated Statements of Operations.
Three Months Ended Nine Months Ended 1995 1994 1995 1994 Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 83.5 87.9 84.3 86.4 ----- ----- ----- ----- Gross profit 16.5 12.1 15.7 13.6 Selling, general and administrative expenses 19.3 13.2 16.1 12.8 ----- ----- ----- ----- Operating income (2.8) (1.1) (0.4) 0.8 Interest expense (1.2) (0.4) (0.9) (0.3) Other income 0.0 0.2 0.1 0.1 ----- ----- ----- ----- Income before income taxes (4.1) (1.3) (1.2) 0.6 Income tax expense 1.5 0.5 0.8 (0.2) ----- ----- ----- ----- Net income (2.6)% (0.8)% (0.4)% 0.4% ===== ===== ===== =====
Three Months Ended May 31, 1995 Versus Three Months Ended May 31, 1994 For the three month period ended May 31, 1995, revenues increased by approximately $7,103,000, a 14.2% increase, compared to the same period of the previous year. Increased revenues due to the addition of locations through the acquisition of Documatrix Inc., and Advanced Systems and Peripherals, Inc., were approximately $3,604,000. The remaining revenue growth can be attributed to continued revenue growth in existing locations and a significant increase in service and training revenues and was not the result of significant price increases. Service and training revenues increased from approximately $1,395,000 for the three months ended May 31, 1994 to approximately $5,681,000 for the three months ended May 31, 1995, an increase of 307%. Gross profit as a percentage of sales increased from 12.1% for the three months ended May 31, 1994 to 16.5% for the three months ended May 31, 1995. This increase is directly related to the significant increase in higher margin service, training and imaging revenues. Selling, general and administrative expenses increased by approximately $4,466,000 for the period ended May 31, 1995 compared to the same period in 1994. As a percentage of sales, there was an increase from 15.2% for the three months ended May 31, 1994 to 19.3% for the same period in 1995. The major portion of the increase was attributed to increased salaries, wages and payroll taxes of approximately $3,020,000. Other significant increases included approximately $190,000 in higher occupancy expenses, $115,000 increased insurance expenses, $102,000 increased travel and entertainment, $112,000 increased professional fees, and $411,000 in depreciation and amortization expense. These increases are primarily due to expansion of existing branch sales offices, significant expansion of training facilities at existing branch locations and staffing increases to support new service contracts. In addition, additional supporting staff required in the Company's corporate headquarters contributed to the increase in expenses for the period. Interest expense increased from approximately $178,000 for the three months ended May 31, 1994 to approximately $692,000 for the three months ended May 31, 1995. This increase is due to increased borrowing rates as a result of increases in the prime lending rate and to significant increases in borrowing required to finance working capital needs, purchases of property and equipment, construction period payments on the Company's new warehouse and office facilities and cash payments required in connection with the Company's acquisition during the period. Nine Months Ended May 31, 1995 Versus Nine Months Ended May 31, 1994 For the nine months ended May 31, 1995 revenues increased by approximately $39,312,000, or 28.2% from the comparable period ended May 31, 1994. This increase can be attributed to continued revenue growth in existing locations and a significant increase in service and training revenues and was not the result of significant price increases. Service and training revenues increased from approximately $4,623,000 for the nine months ended May 31, 1994 to approximately $14,182,000 for the nine months ended May 31, 1995, or 207%. Gross profit as a percentage of sales increased from 13.6% to 15.7% for the nine months ended May 31, 1995 compared to the nine months ended May 31, 1994. This increase is directly related to the significant increase in higher margin service, training and imaging revenues. Selling, general and administrative expenses increased by approximately $11,069,000 for the nine month period ended May 31, 1995 compared to the same period in 1994. As a percentage of sales, there was an increase from 12.8% for the nine months ended May 31, 1994 to 16.1% for the same period in 1995. The major portion of the increase was attributed to increased salaries, wages and payroll taxes of approximately $7,698,000. Other significant increases included, $368,000 in insurance expenses, $285,000 in higher communications expenses, $170,000 in travel expenses, $414,000 in occupancy expense, $256,000 in legal and professional fees, $177,000 in advertising expenses and $451,000 in depreciation and amortization expense. These increases are primarily due to expansion of existing branch sales offices, significant expansion of training facilities at existing branch locations and staffing increases to support new service contracts. In addition, additional supporting staff required in the Company's corporate headquarters contributed to the increase in expenses for the period. Interest expense for the comparative periods increased from approximately $407,000 for the nine months ended May 31, 1994 to approximately $1,622,000 for the nine months ended May 31, 1995. This increase is due both to increased borrowing rates as a result of increases in the prime lending rate and to significant increases in borrowing required to finance working capital needs and purchases of property and equipment and cash payments required in connection with the Company's acquisition during the period. Liquidity and Capital Resources as of May 31, 1995 Versus August 31, 1994 Working capital at May 31, 1995 was approximately $2,195,000 compared to approximately $12,637,000 at August 31, 1994. The decrease in working capital was due to the following: (1) increasing levels of debt necessary to finance working capital needs to support significantly higher sales levels; (2) purchases of property and equipment: (3) construction period payments on the Company's new warehouse and office facilities; and (4) cash payments required in connection with the Company's acquisition during the period. On March 3, 1995 the Company acquired ASAP for $2,100,000 in cash, a $1,000,000 promissory note due June 3, 1995, which was subsequently paid on June 30, 1995 and certain contingent earnout rights. On May 5, 1994 the Company signed a three year agreement with ITT Commercial Finance for a new credit facility which was amended May 2, 1995. This facility provides the Company with a $40,000,000 line of credit, which provides for $15,000,000 for floor planning and $25,000,000 in revolving debt. This facility is secured by accounts receivable, inventories and equipment. Advances on the revolving debt line are available for up to 85% of eligible receivables less than ninety days old. Advances on the floor plan portion are made as required for purchases of inventories and are secured primarily by inventories with any shortfalls being secured by eligible accounts receivable. Covenants of the facility prevent the Company from paying dividends, merging with another entity, disposing of assets or borrowing funds without the prior written consent of the lender. The credit facility also requires that the Company maintain certain financial ratios including a current ratio of 1.05 to 1, a debt to tangible net worth ratio of 4 to 1 and a minimum tangible net worth and subordinated debt of $14,000,000. The interest rate on the accounts receivable line of credit is 1.25% per annum above prime rate with the floor of the prime rate set at 6%. As of May 31, 1995 the interest rate charged the Company was 10.25%. In addition the Company is charged an unused facility fee of .25% per annum on the daily average of the unused amount of the accounts receivable line and the unused facility fee is paid monthly. The Company can terminate the agreement on ninety days written notice but must pay a fee of $2,000 per month for the number of whole or fractional months remaining in the original term of the agreement. The floor plan portion of the facility is interest free for thirty days and is generally paid within the thirty day grace period in order that no additional interest charges are incurred. At May 31, 1995 the Company had outstanding borrowings of approximately $11,298,000 on the floor plan loan and approximately $27,778,000 on the accounts receivable line of credit. At the discretion of the lender, the Company may exceed its maximum borrowing limits for limited periods of time. The Company also maintains a floor plan financing agreement for certain of its inventory purchases with IBM Commercial Credit Corp. Borrowings under this line are collateralized by inventories and certain receivables. This line carries no interest for the first 30 days of borrowing, and is generally paid within the thirty day grace period so as not to incur interest charges. Under this arrangement the Company could borrow up to a maximum of $2,000,000. Borrowings on this floor planning agreement at May 31, 1995 were approximately $643,000. On June 30, 1995 the Company obtained mortgage financing in the amount of $5,400,000 on its corporate headquarters from MetLife Capital Financial Corporation. Net proceeds to the Company amounted to approximately $2,500,000 after borrowing costs, payment on the prior mortgage of approximately $1,800,000 and payment of the $1,000,000 promissory note incurred in the March 1995 purchase of Advanced Systems and Peripherals, Inc. The term of the loan is fifteen years with payments due monthly and interest accruing at the rate equal to the average weekly yield of 30 Day Commercial Paper in effect from time to time plus 2.5%. During a twelve month window commencing July 1, 1996 the Company shall have a one time option to fix the interest rate for the remaining term at the then current weekly average yield of 10-Year U.S. Treasury Notes plus 2.5%. The Company must notify the lender in writing at least ten days before such election shall be effective and such election shall be effective only for succeeding complete months. The initial interest rate is 8.59%. During the six months ended May 31, 1995, the Company's operating activities utilized cash of approximately $6,142,000 primarily for increased levels of inventories, notes receivable and prepaid taxes. This increase was primarily financed through increased borrowings on the accounts receivable line of credit. Inventories increased to meet future forecasted sales demand. Management has implemented a series of purchasing controls intended to significantly reduce inventory levels in the coming months. These controls may help to facilitate an improved working capital position in the fourth quarter. Investing activities utilized approximately $9,800,000 during the period ended May 31, 1995 which consisted of expenditures for property and equipment of $7,084,000 and acquisition of businesses of $2,865,000. Net cash flows from financing activities provided approximately $15,699,000, primarily from net borrowings on the company's line of credit facility. PART II -- OTHER INFORMATION Item (1) Legal Proceedings SEC Investigation The Company is the subject of an inquiry by the Central Regional Office of the Securities and Exchange Commission ("SEC") located in Denver, Colorado, in connection with marketing development funds provided to the Company by its vendors. The Company, with the assistance of its independent accounting firms, has researched and investigated the matter and, based upon these investigations, the Company believes that unresolved discrepancies regarding marketing development funds amount to less than $90,000. Management believes that these remaining discrepancies can be fully resolved with the Company's vendors. The SEC's Central Regional Office has given the Company indications that its inquiry will be completed in mid-1995 and that it will make its recommendation to the SEC's Washington, D.C. office at that time as to whether any action should be taken. The SEC inquiry relates primarily to a two-year period ended August 31, 1993. During this period, the Company received approximately $3,000,000 in vendor incentives comprised of marketing development funds, price protection programs, rebates and other vendor-sponsored programs. The amount of the remaining discrepancies represents a small percentage of the Company's total operating income for the two-year period under review and, therefore, in management's view, the remaining discrepancies are not material. Management has taken action to strengthen the Company's procedures in the area of marketing development funds. Management further believes that the Company continues to enjoy excellent relationships with its vendors. Civil Lawsuit On September 7, 1994 a lawsuit was filed in the United States District Court for the District of Colorado by Frank O.J. Lane of New Mexico naming eight corporate and individual defendants including the Company and its chairman, Bruce Milliken. The suit sought damages pursuant to various theories arising from Mr. Lane's July 1993 sale, to a third party, of the stock he owned in a company which serves as a subcontractor to the Company. In May 1995 the Company and the other defendants settled this suit; the Company contributed $125,000 to the settlement. In July 1995 the Company and its chairman, along with five other businesses and individuals, were named as defendants in a civil action. The complaint alleges that the plaintiff is entitled to recover unspecified damages based upon claims against the Company by a Denver, Colorado based, minority- owned competitor of the Company. No trial date has been set for the matter. Management of the Company believes that it has certain meritorious defenses and intends to defend the case vigorously. Item (2) Changes in Securities Not applicable Item (3) Default Upon Senior Securities Not applicable Item (4) Submission of Matters to a Vote of Security Holders Not applicable Item (5) Other Information Not applicable Item (6) Exhibits and Reports on Form 8-K (a) Exhibits -- Not Applicable (b) Reports on Form 8-K -- The Company filed a Current Report on Form 8-K dated May 15, 1995 stating that. 1. The Company had entered a Merger Agreement with Entex Information Services, Inc. (ENTEX) whereby the Company's board of directors had recommended that shareholder approve a cash merger with ENTEX at a price of $3.50 share for the Company's Common stock. 2. The Company had settled its lawsuit involving Frank O. J. Lane with the Company's portion of the Settlement amounting to $125,000. 3. Yoav Stern, a member of the Company's board of directors, had resigned from the board for personal reasons. 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. Random Access, Inc. Date: July 21, 1995 By: /s/ Bruce A. Milliken. Bruce A. Milliken Chairman of the Board Date: July 21, 1995 By: /s/ John Gierscher John Gierscher Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 3RD QTR 10-Q
5 1,000 Aug-31-1994 Sep-01-1994 May-31-1995 9-MOS 287 0 42705 375 11389 56005 18951 4000 74522 53810 2682 0 0 1 17448 74522 57223 57233 47788 47788 11068 0 692 (2324) (846) (1478) 0 0 0 (1478) (.22) (.22)
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