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.
<PAGE>
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
<PAGE>
<TABLE>
RANDOM ACCESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
MAY 31, 1995 AND AUGUST 31, 1994
<CAPTION>
May 31, August 31,
1995 1994
----------- -----------
<S> <C> <C>
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
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
RANDOM ACCESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
MAY 31, 1995 AND AUGUST 31, 1994
<CAPTION>
May 31, August 31,
1995 1994
----------- -----------
<S> <C> <C>
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
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
RANDOM ACCESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS AND NINE MONTHS ENDED MAY 31, 1995 AND AUGUST 31, 1994
<CAPTION>
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
RANDOM ACCESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED MAY 31, 1995 AND 1994
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
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)
------------ ------------
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
RANDOM ACCESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED MAY 31, 1995,1994
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
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
==============
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
RANDOM ACCESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASHFLOWS (Unaudited)
NINE MONTHS ENDED AMY 31, 1995 AND 1994
<CAPTION>
<S> <C>
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
==============
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
1995 1994 1995 1994
<S> <C> <C> <C> <C>
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%
===== ===== ===== =====
</TABLE>
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%.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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)
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<FISCAL-YEAR-END> Aug-31-1994
<PERIOD-START> Sep-01-1994
<PERIOD-END> May-31-1995
<PERIOD-TYPE> 9-MOS
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0
0
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