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.
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(unaudited)
<CAPTION>
June 30, September 30,
ASSETS 1995 1994
<S> <C> <C>
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
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
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
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<CAPTION>
Nine Months Ended
June 30,
1995 1994
<S> <C> <C>
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)
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
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):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
June 30, September 30,
1995 1994
----------------------------------------------------------------------------
<S> <C> <C>
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
====== ======
</TABLE>
<PAGE>
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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
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%)
</TABLE>
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Sep-30-1995
<PERIOD-START> Oct-01-1994
<PERIOD-END> Jun-30-1995
<PERIOD-TYPE> 9-MOS
<CASH> 46,992
<SECURITIES> 0
<RECEIVABLES> 24,404
<ALLOWANCES> 2,064
<INVENTORY> 34,553
<CURRENT-ASSETS> 107,685
<PP&E> 11,750
<DEPRECIATION> 8,885
<TOTAL-ASSETS> 111,336
<CURRENT-LIABILITIES> 30,400
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> 80,821
<TOTAL-LIABILITY-AND-EQUITY> 111,336
<SALES> 139,028
<TOTAL-REVENUES> 139,028
<CGS> 113,387
<TOTAL-COSTS> 113,387
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 221
<INTEREST-EXPENSE> (1,921)
<INCOME-PRETAX> 3,845
<INCOME-TAX> 961
<INCOME-CONTINUING> 2,884
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,884
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
