-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C6eS6A0Kym8a+/KVtrkKwtqt9fmU7EXQJxLqrg7AEpc5KxFRRNw6BxM/3zqltRPl HpfEg/e3FkdaChvQQouKBw== 0000861289-96-000030.txt : 19960816 0000861289-96-000030.hdr.sgml : 19960816 ACCESSION NUMBER: 0000861289-96-000030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED LOGIC RESEARCH INC CENTRAL INDEX KEY: 0000861289 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 330084573 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18753 FILM NUMBER: 96612155 BUSINESS ADDRESS: STREET 1: 9401 JERONIMO ROAD CITY: IRVINE STATE: CA ZIP: 92718 BUSINESS PHONE: 7145816770 MAIL ADDRESS: STREET 1: ADVANCED LOGIC RESEARCH INC STREET 2: 9401 JERONIMO CITY: IRVINE STATE: CA ZIP: 92718 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-18753 ADVANCED LOGIC RESEARCH, INC. A Delaware Corporation IRS Employer ID No. 33-0084573 9401 Jeronimo Road Irvine, California 92718 (714) 581-6770 __________________________ Indicate by check mark whether the Registrant (l) 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 ___. There were 12,245,021 shares of the Registrant's Common Stock, par value $.01 per share, outstanding on July 31, 1996. Advanced Logic Research, Inc. Index Page Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets at June 30, 1996 and September 30, 1995 3 Consolidated Statements of Operations for the three and nine months ended June 30, 1996 and 1995 4 Consolidated Statements of Cash Flows for the nine months ended June 30, 1996 and 1995 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 PART I. FINANCIAL INFORMATION Item 1. Financial Statements ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
(unaudited) June 30, September 30, ASSETS 1996 1995 Current assets: Cash and cash equivalents $53,651 $46,580 Trade accounts receivable, less allowance for doubtful accounts of $2,060 and $1,999 at June 30, 1996 and September 30, 1995, respectively 27,963 26,524 Inventories 28,167 27,088 Prepaid expenses and other assets 1,444 1,692 Deferred income taxes 3,134 1,858 Total current assets 114,359 103,742 Equipment, furniture and fixtures, net 2,777 2,764 Other assets 470 714 $117,606 $107,220 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $8,759 $11,607 Accrued expenses 14,273 10,528 Payable to affiliates 213 330 Income taxes 1,709 1,506 Total current liabilities 24,954 23,971 Stockholders' equity: Preferred stock, $.01 par value; 2,500,000 shares authorized; none issued Common stock, $.01 par value; 25,000,000 shares authorized; 12,244,369 and 11,668,871 issued and outstanding at June 30, 1996 and September 30, 1995, respectively 122 117 Additional paid-in capital 57,871 54,675 Retained earnings 33,373 26,803 Adjustments for foreign currency translation 1,286 1,654 Total stockholders' equity 92,652 83,249 $117,606 $107,220 See accompanying notes to consolidated financial statements.
ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share data) (unaudited)
Three Months Ended Nine Months Ended June 30, June 30 1996 1995 1996 1995 Net sales $50,230 $45,951 $162,416 $139,028 Cost of sales 38,868 36,792 127,575 113,387 Gross profit 11,362 9,159 34,841 25,641 Operating expenses: Selling, general and administrative 5,903 5,764 18,843 16,256 Engineering, research and development 1,451 1,314 4,094 3,558 Royalty expense, net 1,725 1,239 5,056 3,903 Total operating expenses 9,079 8,317 27,993 23,717 Operating income 2,283 842 6,848 1,924 Interest income 664 728 1,966 1,926 Interest expense (18) (2) (53) (5) Income before taxes 2,929 1,568 8,761 3,845 Provision for income taxes 733 391 2,191 961 Net income $2,196 $1,177 $6,570 $2,884 Net income per common and common equivalent share $0.18 $0.10 $0.54 $0.25 Common and common equivalent shares used in per share calculation 12,377 11,736 12,175 11,629 See accompanying notes to consolidated financial statements.
ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)
Nine Months Ended June 30, 1996 1995 Cash flows from operating activities: Net income $6,570 $2,884 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,058 1,397 Gain on disposal of equipment (87) (50) Provision for losses on accounts receivables 166 221 Deferred income tax benefit (1,276) (272) Change in assets and liabilities: Trade accounts receivable (1,819) 2,687 Inventories (1,303) (11,336) Prepaid expenses and other assets 459 2,507 Accounts payable (2,843) 8,222 Accrued expenses 3,748 1,536 Payable to affiliates (117) (2,348) Income taxes 203 1,479 Net cash provided by operating activities 4,759 6,927 Cash flows from investing activities - Purchase of equipment, furniture and fixtures (993) (846) Cash flows from financing activities - Issuance of stock under stock option plan 3,201 150 Effect of foreign exchange rate change on cash 104 (75) Net increase in cash and cash equivalents 7,071 6,156 Cash and cash equivalents at beginning of period 46,580 40,836 Cash and cash equivalents at end of period $53,651 $46,992 Supplemental disclosure of cash flow information: Cash paid (refunded) during the period for: Interest $53 $2 Income taxes $422 ($2,498) See accompanying notes to consolidated financial statements.
Advanced Logic Research, Inc. and Subsidiaries Notes to Unaudited Consolidated Financial Statements Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared by Advanced Logic Research, Inc., (the "Company") pursuant to Securities and Exchange Commission regulations. In the opinion of management, the unaudited financial statements include all adjustments, consisting of only normal recurring accruals, necessary for a fair presentation. The results of operations for the interim period are not necessarily indicative of results to be expected for the full year. These consolidated financial statements should be read in conjunction with the financial statements included in the Company's 1995 Form 10-K as filed with the Securities and Exchange Commission on December 27, 1995. Net Income Per Share Information Net income per share is computed using the weighted average number of common shares and dilutive common stock options outstanding, at the average market price for the period, which are considered common stock equivalents. Fully diluted income per share amounts are not presented because they approximate primary net income per share. Cash Equivalents Cash equivalents are highly liquid investments with an original maturity of three months or less, consisting primarily of commercial paper, variable-rate demand notes, short-term government obligations and other money market instruments. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value) and consist of the following (in thousands):
- ---------------------------------------------------------------------------- March 31, September 30, 1996 1995 - ---------------------------------------------------------------------------- Raw materials and component parts $9,080 $10,944 Work in process 5,630 3,647 Finished goods 13,457 12,497 ---------- ---------- $28,167 $27,088 ====== ======
Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations Results of Operations: The following table presents the results of operations for the Company for the period indicated as a percentage of net sales.
Three Months Ended Nine Months Ended, June 30, June 30, 1996 1995 1996 1995 Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 77.4% 80.1% 78.6% 81.6% Gross profit 22.6% 19.9% 21.4% 18.4% Operating expenses: Selling, general and administrative 11.8% 12.5% 11.6% 11.7% Engineering, research and development 2.9% 2.9% 2.5% 2.5% Royalty expense, net 3.4% 2.7% 3.1% 2.8% Total operating expenses 18.1% 18.1% 17.2% 17.0% Operating income 4.5% 1.8% 4.2% 1.4% Interest income, net 1.3% 1.6% 1.2% 1.4% Income before taxes 5.8% 3.4% 5.4% 2.8% Provision for income taxes 1.4% 0.8% 1.4% 0.7% Net income 4.4% 2.6% 4.0% 2.1%
Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations This report contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed under "Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations -- Factors That May Affect Future Results." Net Sales Three Months Ended June 30, Nine Months Ended June 30, 1996 1995 % Inc. 1996 1995 % Inc. (In thousands) Net sales by distribution channel VARs and dealers $30,278 $31,653 (4%) $100,657 $94,372 7% Direct 10,454 8,889 18% 32,786 24,436 34% OEM 4,794 3,234 48% 15,525 11,179 39% Distributors and others 4,704 2,175 116% 13,448 9,041 49% Total 50,230 $45,951 9% $162,416 $139,028 17% Net sales by geographic location U.S. $32,955 $27,056 22% $102,132 $78,539 30% International 17,275 18,895 (9%) 60,284 60,489 0% Total $50,230 $45,951 9% $162,416 $139,028 17% Net sales for the nine months ended June 30, 1996 increased by 17% to $162.4 million from $139.0 million for the nine months ended June 30, 1995. For this period, sales to U.S. customers increased by 30% to $102.1 million with growth occurring in all domestic sales channels while flat international sales reflected a softness in European sales. For the nine months ended June 30, 1996, the 49% increase in net sales through the distributors and others sales channel represented the addition of a new distributor in April 1996 coupled with increased sales to the Company's existing distributors. Increased sales to all the Company's OEM customers contributed to the 39% sales growth through this channel. Sales growth in the direct channel was driven by increased sales to government entities which more than tripled from the similar prior year period. The 7% growth in sales through the value added reseller ("VAR") channel was due to a 26% increase in sales to U.S. VARs mitigated by a 6% decline in sales to international VARs. The flat sales to international customers for the nine months ended June 30, 1996 reflected a 21% decline in sales through the Company's European subsidiaries offset by a 19% growth in sales to Asia-Pacific customers through the Company's subsidiary in Singapore. There was a 1% increase in export sales made from the U.S. For the nine months ended June 30, 1996, system unit sales were flat at approximately 62,000 systems compared to the similar prior year period. However, due to the Company's continued focus on servers and high-end desktop systems and the demand for system configurations which include more memory, larger disk drives and additional peripherals in general, the average system selling price increased by 13% to $2,169 per system for the nine months ended June 30, 1996 from $1,920 per system for the nine months ended June 30, 1995. For the three months ended June 30, 1996, net sales increased by 9% compared to the similar prior year period. Sales growth occurred in all U.S. sales channels while sales to international customers declined by 9%. Sales through the Company's European subsidiaries declined by 32%, partially due to a strong U.S. dollar and weakness in the German economy, while sales through the Company's subsidiary in Singapore increased by 30%. Export sales from the U.S. declined by 32% due to a softness in sales to the Company's customers in Russia and Latin America. Gross Profit Three Months Ended June 30, Nine Months Ended June 30, 1996 1995 1996 1995 (In thousands) Net sales $50,230 $45,951 $162,416 $139,028 Gross profit 11,362 9,159 34,841 25,641 Percentage of net sales 22.6% 19.9% 21.4% 18.4% Gross profit margins for the nine months ended June 30, 1996 improved to 21.4% from 18.4% for the corresponding period in fiscal 1995. Contributing to the improvement were lower component costs from both effective component sourcing and engineering design changes, and the introduction of new higher margin products such as the Revolution Quad6. For the three months ended June 30, 1996, gross profit margins improved to 22.6% from 19.9% for the comparable period of fiscal 1995 and the improvement was attributable to the factors previously discussed. Operating Expenses Selling, General and Administrative. Three Months Ended June 30, Nine Months Ended June 30 1996 1995 1996 1995 (In thousands) Net sales $50,230 $45,951 $162,416 $139,028 Selling, general and administrative expenses 5,903 5,764 18,843 16,256 Percentage of net sales 11.8% 12.5% 11.6% 11.7% Selling, general and administrative expenses increased by 16% to $18.8 million for the nine months ended June 30, 1996 compared to $16.3 million for the corresponding prior fiscal period. Expanded product advertising related to new product introductions and specific channels of distribution, and special product promotional incentives principally accounted for the increase in expenses. Also contributing to the increase were higher payroll and payroll- related costs associated with the addition of sales personnel. For the three months ended June 30, 1996, selling, general and administrative expenses increased by 2% compared to the corresponding prior fiscal period. A foreign exchange gain and other income of $0.2 million partially offset a growth in payroll and advertising expenses which increased compared to the similar prior year period due to the factors previously discussed. Engineering, Research and Development. Three Months Ended June 30, Nine Months Ended June 30 1996 1995 1996 1995 (In thousands) Net sales $50,230 $45,951 $162,416 139,028 Engineering, research and development expenses 1,451 1,314 4,094 3,558 Percentage of net sales 2.9% 2.9% 2.5% 2.5% Engineering, research and development expenses increased by 15% to $4.1 million for the nine months ended June 30, 1996 from $3.6 million for the comparable prior fiscal period. Increases in payroll and payroll-related costs associated with increased personnel and higher engineering material and product certification expenses from ongoing product development and enhancement principally accounted for the increase. Because of the 17% growth in revenue, engineering and development costs as a percentage of sales remained unchanged at 2.5% for the nine months ended June 30, 1996 from the comparable prior year period. For the three months ended June 30, 1996, engineering, research and development expenses increased by 10% to $1.5 million compared to the comparable prior fiscal period. The growth was principally due to increases in payroll, payroll-related costs and engineering material expenses associated with increased personnel and ongoing product development. Royalty Expense, Net Net royalty expense for the nine months ended June 30, 1996 increased to 3.1% of net sales, compared to 2.8% for the corresponding period of fiscal 1995. This increase was principally related to an increase in the royalty rate to its maximum on the Company's products covered by the license agreement with IBM. For the three months ended June 30, 1996, net royalty expense increased to 3.4% of net sales compared to 2.7% for the corresponding period of fiscal 1995. Interest Income, Net For the nine months ended June 30, 1996 and June 30, 1995, the Company had net interest income of $1.9 million. A higher average cash and cash equivalent balance during the first nine months of fiscal 1996 was offset by lower rates of return on short-term investments compared to the similar period of fiscal 1995. Income Taxes The Company's tax expense for the first nine months of fiscal 1996 was based on estimated effective annual rates. The effective tax rate for the three and nine months ended June 30, 1996 was 25% which was unchanged from the tax rate for the comparable prior year periods. Liquidity and Capital Resources June 30, 1996 September 30, 1995 (In thousands) Cash and cash equivalents $53,651 $46,580 Working capital 89,405 79,771 Current ratio 4.6 4.3 Debt --- --- Stockholders' equity 92,652 83,249 The Company's cash and cash equivalents increased by $7.1 million to $53.7 million at June 30, 1996 compared to $46.6 million at September 30, 1995. Operating activities generated $4.8 million while the exercise of stock options generated $3.2 million and the purchase of equipment, furniture and fixtures used $1.0 million. The Company generated $6.6 million from net income and $3.7 million from an increase in accrued expenses. However, increases in accounts receivable and inventories used $1.8 million and $1.3 million, respectively, while a decrease in accounts payable used $2.8 million. The increase in accrued expenses was principally related to increases in royalties payable, cooperative advertising and other promotional marketing accruals. Average sales days outstanding increased to 50 days at June 30, 1996 from 45 days at September 30, 1995. The increase in inventories was related to the stocking of components associated with the release of new products. The decline in accounts payable stemmed from the timing of inventory purchases during the quarter and the Company's payment cycle. The Company's primary credit facility continues to be a $15.0 million revolving line with Heller Financial, Inc. which expires in August 1998. The line is secured by the Company's assets and availability is subject to a borrowing base requirement. The facility contains certain net worth, profitability, financial ratio and other covenants with which the Company was in compliance during the first nine months of fiscal 1996. The Company has not borrowed against this credit line. In addition, to meet short-term working capital needs ALR International, the Company's subsidiary in Singapore, has an uncommitted revolving credit line of approximately $4.4 million. At June 30, 1996, ALR International had no borrowings against this credit line. The Company believes that its existing cash resources, combined with anticipated cash flows from future operating activities, supplemented as necessary with funds available under existing credit agreements, will provide it with sufficient resources to meet present and reasonably foreseeable working capital requirements and other cash needs. Nonetheless, the Company may, at its discretion, draw upon its credit facilities in any amount up to the credit limit at any time. Factors That May Affect Future Results The personal computer industry is intensely competitive. The principal elements of competition among personal computer manufacturers are pricing, product quality and reliability, compatibility, price/performance characteristics, marketing and distribution capability, service and support, reputation and the capability to deliver products in large volumes. ALR competes with a large number of manufacturers most of which have significantly greater financial, marketing and technological resources than ALR. There can be no assurance that ALR will be able to continue to compete effectively. The Company does business worldwide. Global and/or regional economic factors and potential changes in laws and regulations affecting the Company's business, including without limitation, currency fluctuations, changes in monetary policy and tariffs, and federal, state and international laws regulating the environment, could impact the Company's future results of operations. The microcomputer market is characterized by rapid technological change and product obsolescence, often resulting in short product life cycles and rapid price declines. The Company's success will continue to depend primarily on its ability to continue to reduce costs through manufacturing efficiencies, the continued market acceptance of its existing products and its ability to develop and introduce similarly acceptable new products. There can be no assurance that ALR will successfully develop new products or that the new products it develops will be introduced in a timely manner and receive substantial market acceptance. There also can be no assurance that new products will be introduced in a way that will not adversely affect sales of the Company's existing products. The Company's operating results could be adversely affected if ALR is unable to manage its product transitions successfully. The Company generally utilizes standard parts and components available from multiple vendors. However, certain parts and components used in the Company's systems are available from a single source. If, contrary to its expectations, the Company is unable to obtain sufficient quantities of any single-sourced components, the Company will experience delays in product shipments. The Company offers its products directly and through indirect channels of distribution. Changes in the financial condition of, or in the Company's relationship with, OEM customers, distributors and other indirect channel partners could cause actual operating results to vary from those expected. Also, the Company's customers generally order products on an as-needed basis. Therefore, virtually all product shipments in a given fiscal quarter result from orders received in that quarter. The Company anticipates that the rate of new orders will vary significantly from month to month. Because ALR operates with a limited backlog, the Company's manufacturing plans and expenditure levels are based primarily on sales forecasts. Consequently, if anticipated sales and shipments in any quarter do not occur when expected, expenditure and inventory levels could be disproportionately high and the Company's operating results for that quarter, and potentially future quarters, would be adversely affected. From time to time, certain companies have asserted exclusive patent, copyright and other intellectual property rights to technologies that are important to the microcomputer industry. ALR evaluates each claim relating to its products and, if appropriate, seeks a license to use the protected technology. There can be no assurance that the Company would be able to obtain licenses to use such technology or that such licenses could be obtained on terms that would not have a material adverse effect on the Company. If the Company or its suppliers are unable to license protected technology used in ALR's products, ALR could be prohibited from marketing such products. The Company could also incur substantial costs to redesign its products or to defend any legal action taken against it. If the Company's products should be found to infringe protected technology, ALR could be required to pay damages to the infringed party. The market price of the Company's securities could be subject to fluctuations in response to quarter to quarter variations in operating results, changes in analysts' earnings estimates, market conditions in the information technology industry, as well as general economic conditions and other factors external to the Company. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 11. Statement Regarding Computation of Per Share Earnings. (b) Reports on Form 8-K: None 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. ADVANCED LOGIC RESEARCH, INC. (Registrant) Date: August 14, 1996 \s\ Gene Lu ----------------------------------------------- Gene Lu Chairman, President and Chief Executive Officer Date: August 14, 1996 \s\ Ron Sipkovich ----------------------------------------------- Ronald J. Sipkovich Vice President, Finance and Administration, Chief Financial Officer and Secretary (principal financial officer) Exhibit 11 Advanced Logic Research, Inc. and Subsidiaries Statement Regarding Computation of Per Share Earnings (Amounts in thousands, except per share amounts) Three Months Ended Nine Months Ended June 30, June 30,
1996 1995 1996 1995 Primary earnings per share:- Shares used in computing earnings per share: Weighted average number of shares outstanding 12,110 11,490 11,877 11,483 Incremental shares attributed to outstanding options 267 246 298 146 12,377 11,736 12,175 11,629 Earnings: Net income $2,196 $1,177 $6,570 $2,884 Earnings per common and common equivalent share $0.18 $0.10 $0.54 $0.25 Earnings per share - assuming full dilution:- Shares used in computing earnings per share: Weighted average number of shares outstanding 12,110 11,490 11,877 11,483 Incremental shares attributed to outstanding options 278 290 345 279 12,388 11,780 12,222 11,762 Earnings: Net income $2,196 $1,177 $6,570 $2,884 Earnings per common and common equivalent share $0.18 $0.10 $0.54 $0.25
EX-27 2 ARTICLE 5 FDS FOR 3RD QTR 10-Q
5 1,000 Sep-30-1996 Oct-01-1995 Jun-30-1996 9-MOS 53,651 0 30,023 2,066 28,167 114,359 10,643 7,866 117,606 24,954 0 0 0 122 92,530 117,606 162,416 162,416 127,575 127,575 0 166 (1,913) 8,761 2,191 6,570 0 0 0 6,570 0.54 0.54
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