0000861289-95-000012.txt : 19950815 0000861289-95-000012.hdr.sgml : 19950815 ACCESSION NUMBER: 0000861289-95-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 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: 95562141 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, 1995 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 11,590,221 shares of the Registrant's Common Stock, par value $.01 per share, outstanding on July 31, 1995. 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 1995 1994 Current assets: Cash and cash equivalents $46,992 $40,836 Trade accounts receivable, less allowance of $2,064 and $1,870 at June 30, 1995 and September 30, 1994, respectively 22,340 24,507 Inventories 34,553 22,555 Prepaid expenses and other assets 1,932 4,540 Deferred income taxes 1,868 1,597 Total current assets 107,685 94,035 Equipment, furniture and fixtures, net 2,865 3,316 Other assets 786 578 $111,336 $97,929 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Payable to affiliates $271 $2,619 Accounts payable 17,535 9,024 Accrued expenses 11,115 9,425 Income taxes 1,479 0 Total current liabilities 30,400 21,068 Stockholders' equity: Preferred stock, $.01 par value; 2,500,000 shares authorized; none issued Common stock, $.01 par value; 25,000,000 shares authorized; 11,516,320 and 11,478,347 issued and outstanding at June 30, 1995 and September 30, 1994, respectively 115 115 Additional paid-in capital 53,992 53,842 Retained earnings 24,815 21,931 Adjustments for foreign currency translation 2,014 973 Total stockholders' equity 80,936 76,861 $111,336 $97,929 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, 1995 1994 1995 1994 Net sales $45,951 $37,774 $139,028 $135,648 Cost of sales 36,792 32,896 113,387 115,548 Gross profit 9,159 4,878 25,641 20,100 Operating expenses: Selling, general and administrative 5,764 5,155 16,256 14,298 Engineering, research and development 1,314 1,087 3,558 3,271 Royalty expense, net 1,239 1,149 3,903 4,409 Total operating expenses 8,317 7,391 23,717 21,978 Operating income (loss) 842 (2,513) 1,924 (1,878) Interest income 728 334 1,926 942 Interest expense (2) - (5) (80) Income (loss) before taxes 1,568 (2,179) 3,845 (1,016) Income tax expense (benefit) 391 (654) 961 (305) Net income (loss) $1,177 ($1,525) $2,884 ($711) Net income per common and common equivalent share $0.10 ($0.13) $0.25 ($0.06) Common and common equivalent shares used in per share calculation 11,736 11,478 11,629 11,419 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, 1995 1994 Cash flows from operating activitites: Net income (loss) $2,884 ($711) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,397 2,040 (Gain) loss on disposal of equipment (50) 206 Provision for losses on accounts receivables 221 (144) Deferred income tax expense (benefit) (272) 1,409 Change in assets and liabilities: Trade accounts receivable 2,687 1,788 Inventories (11,336) 10,656 Prepaid expenses and other assets 2,507 2,085 Payable to affiliates (2,348) 2,007 Accounts payable 8,222 (7,231) Accrued expenses 1,536 739 Income taxes 1,479 (221) Net cash provided by operating activities 6,927 12,623 Cash flows from investing activities - Purchase of equipment, furniture and fixtures (846) (826) Cash flows from financing activities - Net repayments to bank 0 (316) Repayments under notes payable 0 (6,000) Issuance of common stock under stock option plan 150 360 Net cash provided by (used in) financing activities 150 (5,956) Effect of foreign exchange rate change on cash (75) 266 Net increase in cash and cash equivalents 6,156 6,107 Cash and cash equivalents at beginning of period 40,836 34,447 Cash and cash equivalents at end of period $46,992 $40,554 Supplemental disclosure of cash flow information: Cash paid (refunded) during the period for: Interest $2 $118 Income taxes ($2,498) ($3,586) See accompanying notes to consolidated financial statements.
Advanced Logic Research, Inc. 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 1994 Form 10-K as filed with the Securities and Exchange Commission on December 23, 1994. Net Income (Loss) Per Share Information Net income (loss) 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 (loss) per share amounts are not presented because they approximate primary net income (loss) per share or are anti-dilutive. 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):
---------------------------------------------------------------------------- June 30, September 30, 1995 1994 ---------------------------------------------------------------------------- Raw materials and component parts $ 17,858 $ 7,782 Work in process 951 3,244 Finished goods 15,744 11,529 ------ ------- $34,553 $22,555 ====== ======
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, 1995 1994 1995 1994 Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 80.1 87.1 81.6 85.2 Gross profit 19.9 12.9 18.4 14.8 Operating expenses: Selling, general and administrative 12.5 13.6 11.7 10.5 Engineering, research and development 2.9 2.9 2.5 2.4 Royalty expense, net 2.7 3.0 2.8 3.3 Total operating expenses 18.1 19.5 17.0 16.2 Operating income (loss) 1.8 (6.6) 1.4 (1.4) Interest income, net 1.6 0.9 1.4 0.7 Income (loss) before taxes 3.4 (5.7) 2.8 (0.7) Income tax expense (benefit) 0.8 (1.7) 0.7 (0.2) Net income (loss) 2.6% (4.0%) 2.1% (0.5%)
Management's Discussion and Analysis of Financial Condition and Results of Operations Net Sales Net sales for the nine months ended June 30, 1995 increased by 2% to $139.0 million from $135.6 million for the nine months ended June 30, 1994. During this period sales to U.S. customers increased by 10% to $78.5 million while sales to international customers declined by 6% to $60.5 million. In October 1994, the Company entered into an OEM agreement with UNISYS Corporation for certain high-end products which complemented the Company's existing OEM relationships with Siemens Nixdorf in the U.S. and Germany. The addition of UNISYS principally accounted for the $7.5 million increase in U.S. OEM sales during the nine months ended June 30, 1995 compared to the corresponding nine months in fiscal 1994. For the nine month period ended June 30, 1995, sales made directly to government, corporate and individual end-users increased by 48% to $27.2 million compared to the corresponding nine month period in fiscal 1994 reflecting the success of the Company's programs to sell directly to large corporate and government accounts. The Company's principal channel of distribution continues to be dealers and value-added reseller. For the nine months ended June 30, 1995, sales to this channel in the U.S. increased by 2% to $33.7 million compared to the similar prior year period and represented 43% of sales to U.S. customers. With the termination of distribution agreements and a reorientation of the Company's sales channel focus, sales to distributors and national retail organizations declined by 32% to $8.2 million for the nine months ended June 30, 1995 compared to the corresponding prior year period. The decline in sales to international customers for the nine months ended June 30, 1995 compared to the similar prior year period was due to a 24% decline in sales in the Asia-Pacific region through the Company's subsidiary in Singapore which was in part related to a reorientation of marketing and sales efforts towards high-end desktop systems and servers. Partially offsetting this decline was an 11% increase in sales to European and Latin American customers which was principally driven by increased sales to several major European customers serviced through the Company's subsidiaries in Germany and the United Kingdom. Due to the Company's continued focus on servers and high-end desktop systems and the market's acceptance of these products, the average system selling price for the nine months ended June 30, 1995 increased by 20% to $1,916 per system from $1,594 per system for the similar period of fiscal 1994. Sales of servers and high-end desktop systems comprised 52% of total sales for the nine months of fiscal 1995 compared to 25% for the similar prior year period. Net sales for the three months ended June 30, 1995 were $46.0 million compared to $37.8 million for the three months ended June 30, 1994. The 22% increase in sales was principally due to the growth in sales to OEM customers and sales made directly to government, corporate and individual end-users. Gross Profit Gross profit margins for the nine months ended June 30, 1995 improved to 18.4% from 14.8% for the corresponding period in fiscal 1994. Contributing to the improvement has been the ongoing implementation of the Company's client/server and high-end product strategy which continues a shift in sales to high-end desktop systems and servers, which typically generate greater gross profit margins than the Company's entry-level and mid-range systems. Also contributing to the improvement in the gross profit margins compared to the similar prior year period were lower vendor component costs, particularly on CPUs, and the continuing effects of engineering design improvements implemented by the Company. For the three months ended June 30, 1995, gross profit margins improved to 19.9% from 12.9% for the three months ended June 30, 1994 and from 17.8% for the previous quarter ended March 31, 1995. As stated previously, improved margins resulted principally from a shift in sales to high-end desktop systems and servers and lower vendor costs on key components. Operating Expenses Selling, General and Administrative. Selling, general and administrative expenses increased by 14% to $16.3 million for the nine months ended June 30, 1995 compared to $14.3 million for the corresponding prior fiscal period. Expanded product advertising and increased dealer co-operative promotional activities principally accounted for the increase in expenses. Also contributing to the increase were higher payroll and payroll-related costs and a reduction in bad debt reserves during fiscal 1994. As a percentage of sales, selling, general and administrative expenses increased to 11.7% compared to 10.5% for the nine months ended June 30, 1994. For the three months ended June 30, 1995, selling, general and administrative expenses increased by 12% to $5.8 million compared to $5.2 million for the three months ended June 30, 1994, with the increase due to the factors previously stated. Engineering, Research and Development. Engineering, research and development expenses increased by 9% to $3.6 million for the nine months ended June 30, 1995 from $3.3 million for the comparable prior fiscal period. Increases in payroll and payroll-related costs associated with increased headcount and higher engineering material expense from ongoing product development principally accounted for the increase. As a percentage of sales, engineering and development costs increased to 2.5% for the nine months ended June 30, 1995 from 2.4% for the comparable prior year period.[RT1] For the three months ended June 30, 1995 engineering, research and development expenses increased by 21% to $1.3 million from $1.1 million for the three months ended June 30, 1994. In addition to the factors previously stated, higher outside professional service fees associated with product design, testing and certification contributed to the increase in expenses. Net Royalty Expense Net royalty expense for the three and nine months ended June 30, 1995 was $1.2 million and $3.9 million and represented 2.7% and 2.8% of sales, respectively. For the three and nine months ended June 30, 1994, net royalty expense was $1.1 million and $4.4 million and represented 3.0% and 3.3% of sales, respectively. The decline in net royalty expense as a percentage of sales for fiscal 1995 compared to fiscal 1994 was primarily because certain of the Company's products are exempt from royalties. Interest Income, Net For the three and nine months ended June 30, 1995, the Company had net interest income of $.7 million and $1.9 million, respectively compared to $.3 million and $.9 million in the corresponding fiscal 1994 periods. The increases were attributable to greater average cash and cash equivalents balances and increased rates of return on short-term investments complemented by lower interest expense due to the repayment of outstanding bank debt in January 1994. Income Taxes The Company's tax expense for the three and nine months ended June 30, 1995 was based on estimated effective annual rates. The effective tax rate for the three and nine months ended June 30, 1995 was 25% compared to a tax rate for the comparable prior year periods of 30%. The decrease in the effective tax rate was primarily attributable to a change in the earnings mix among the Company's subsidiaries located in various taxing jurisdictions. Liquidity and Capital Resources The Company's cash and cash equivalents increased to $47.0 million at June 30, 1995 compared to $40.8 million at September 30, 1994. The $6.2 million increase in cash and cash equivalents during the nine month period was principally the result of the Company's income from operations and the receipt of income tax refunds. Inventories increased to $34.6 million at June 30, 1995 from $22.6 million at September 30, 1994 principally due to increased purchases of key components which are in limited supply or have a long delivery lead time. The increase in inventories was partially offset by an increase in net trade payables and a decrease in accounts receivable resulting primarily from improved collection efficiency. The Company had no bank debt outstanding at June 30, 1995 and September 30, 1994. The Company's primary credit facility continues to be a $15.0 million revolving line with Heller Financial, Inc. which is due June 16, 1996. 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 1995. ALR International, the Company's subsidiary in Singapore, continues to have available a $4.0 million uncommitted revolving credit line which is used to supplement its working capital requirements. As of June 30, 1995, the Company had not borrowed against this line of credit. 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (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 11, 1995 /s/ Gene Lu ------------------------------ Gene Lu Chairman, President and Chief Executive Officer Date: August 11, 1995 /s/ Ron Sipkovich ------------------------------- Ronald J. Sipkovich Vice President, Finance and Administration, Chief Financial Officer and Secretary EX-27 2 ARTICLE 5 FDS FOR 3RD QTR 10-Q
5 1,000 Sep-30-1995 Oct-01-1994 Jun-30-1995 9-MOS 46,992 0 24,404 2,064 34,553 107,685 11,750 8,885 111,336 30,400 0 0 0 115 80,821 111,336 139,028 139,028 113,387 113,387 0 221 (1,921) 3,845 961 2,884 0 0 0 2,884 0.25 0.25