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 March 31, 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 11,479,847 shares of the Registrant's Common Stock, par
value $.01 per share, outstanding on April 30, 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>
March 31, September 30,
ASSETS 1995 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $48,813 $40,836
Trade accounts receivable, less allowance of
$1,982 and $1,870 at March 31, 1995 and
September 30, 1994, respectively 24,400 24,507
Inventories 26,239 22,555
Prepaid expenses and other assets 919 4,540
Deferred income taxes 1,799 1,597
Total current assets 102,170 94,035
Equipment, furniture and fixtures, net 3,155 3,316
Other assets 1,028 578
$106,353 $97,929
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to affiliates $1,323 $2,619
Accounts payable 14,123 9,024
Accrued expenses 9,744 9,425
Income taxes 1,465 0
Total current liabilities 26,655 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; 11,479,847 and 11,478,347 issued
and outstanding at March 31, 1995 and
September 30, 1994, respectively 115 115
Additional paid-in capital 53,849 53,842
Retained earnings 23,638 21,931
Adjustments for foreign currency translation 2,096 973
Total stockholders' equity 79,698 76,861
$106,353 $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 Six Months Ended
March 31, March 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $47,359 $48,257 $93,077 $97,874
Cost of sales 38,930 41,219 76,595 82,652
Gross profit 8,429 7,038 16,482 15,222
Operating expenses:
Selling, general and administrative 5,174 4,257 10,492 9,143
Engineering, research and development 1,128 1,148 2,244 2,184
Royalty expense, net 1,354 1,537 2,664 3,260
Total operating expenses 7,656 6,942 15,400 14,587
Operating income 773 96 1,082 635
Interest income 641 342 1,198 608
Interest expense (3) (20) (3) (80)
Income before taxes 1,411 418 2,277 1,163
Provision for income taxes 353 125 570 349
Net income $1,058 $293 $1,707 $814
Net income per common and common
equivalent share $0.09 $0.03 $0.15 $0.07
Common and common equivalent shares
used in per share calculation 11,609 11,548 11,581 11,469
<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>
Six Months Ended
March 31,
1995 1994
<S> <C> <C>
Cash flows from operating activitites:
Net income $1,707 $814
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 953 1,455
Loss on disposal of equipment 4 206
Provision for losses on accounts receivables 158 (179)
Deferred income tax expense (benefit) (202) 1,345
Change in assets and liabilities:
Trade accounts receivable 727 (1,858)
Inventories (3,050) 9,543
Prepaid expenses and other assets 3,273 2,453
Payable to affiliates (1,649) 418
Accounts payable 4,849 (7,891)
Accrued expenses 183 169
Income taxes 1,463 1,104
Net cash provided by operating activities 8,416 7,579
Cash flows from investing activities -
Purchase of equipment, furniture and fixtures (747) (641)
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 7 360
Net cash used in financing activities 7 (5,956)
Effect of foreign exchange rate change on cash 301 (9)
Net increase in cash and cash equivalents 7,977 973
Cash and cash equivalents at beginning of period 40,836 34,447
Cash and cash equivalents at end of period $48,813 $35,420
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest $1 $118
Income taxes ($2,900) ($4,322)
<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 Per Share Information
Net income per share is computed using the weighted average number of
common shares outstanding at the average market price for the period.
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):
<TABLE>
<CAPTION>
- - - - - - ----------------------------------------------------------------------------
March 31, September 30,
1995 1994
- - - - - - ----------------------------------------------------------------------------
<S> <C> <C>
Raw materials and component parts $ 6,938 $ 7,782
Work in process 6,067 3,244
Finished goods 13,234 11,529
------ -------
$26,239 $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 Six Months Ended
March 31, March 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 82.2 85.4 82.3 84.4
Gross profit 17.8 14.6 17.7 15.6
Operating expenses:
Selling, general and administrative 10.9 8.8 11.2 9.4
Engineering, research and development 2.4 2.4 2.4 2.2
Royalty expense, net 2.9 3.2 2.9 3.3
Total operating expenses 16.2 14.4 16.5 14.9
Operating income 1.6 0.2 1.2 0.7
Interest income, net 1.3 0.7 1.2 0.5
Income before taxes 2.9 0.9 2.4 1.2
Provision for income taxes 0.7 0.3 0.6 0.4
Net income 2.2% 0.6% 1.8% 0.8%
</TABLE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Net Sales
Net sales for the three months ended March 31, 1995 decreased by 2% or
$.9 million to $47.4 million from $48.3 million for the three months ended
March 31, 1994 but increased by 4% or $1.6 million from the preceding quarter
ended December 31, 1994. The 2% decline in sales compared to the similar
prior year period was principally attributable to a decline in sales to
international customers. Sales to international customers declined by 17% to
$19.7 million for the three months ended March 31, 1995 compared to the
similar prior year period. This decline was principally due to lower sales in
the Asia-Pacific region which is supported by the Company's subsidiary in
Singapore. However, during the same period sales to U.S. customers increased
by 12% compared to the similar prior year period. This growth was principally
fueled by continued growth in sales made directly to government, corporate and
individual end-users. Sales to this channel increased by 27% during the
current fiscal quarter to represent 20% of net sales compared to 15% of net
sales for the quarter ended March 31, 1994. Complementing this growth was an
increase in sales to original equipment manufacturers ("OEM") customers.
Sales to this channel during the quarter accounted for 9% of net sales
compared to 6% for the similar prior year period.
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 three months ended March 31, 1995 increased by 19% to $1,927 per
system from $1,615 per system for the similar quarter of fiscal 1994.
Net sales for the six months ended March 31, 1995 were $93.1 million compared
to $97.9 million for the six months ended March 31, 1994. The 5% decline in
sales was principally due to lower sales in the Asia-Pacific region which
represented 18% of revenue for the first six months of fiscal 1995 compared to
24% of sales for the first six months of fiscal 1994. Partially offsetting
this decline was an increase in sales to European and Latin American customers
substantially related to the addition of a large European systems integrator
as a customer in the latter half of fiscal 1994. Primarily due to the
addition of UNISYS Corporation as an OEM customer in October 1994 for certain
high-end products, sales to this channel for the first six months of fiscal
1995 increased by 62% compared to the first six months of fiscal 1994. Also
during the first six months of fiscal 1995 sales to government, corporate and
individual end-users increased by 27% compared to the similar prior year
period. Offsetting the sales growth in these channels were lower sales to
value-added resellers ("VARs"), dealers and national retail organizations
("NRO"). Sales to VARs and dealers declined by 8% to $61.7 million for the
first six months of fiscal 1995 compared to $66.9 million for the year-ago
period. The decline in sales to NROs occurred due to the termination of
reseller agreements with Intelligent Electronics and ComputerLand during
fiscal 1993, though the Company continues to sell its products directly to
their franchisees and affiliates.
<PAGE>
Gross Profit
Gross profit margins for the three months ended March 31, 1995 improved to
17.8% from 17.6% for the first quarter of fiscal 1995 and 14.6% for the
comparable prior year period. The continued 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, coupled with
lower vendor component costs, particularly on CPUs and disk drives, favorably
impacted gross profit margins compared to the similar prior year period.
Revenues from high-end desktop systems and servers represented approximately
53% of net sales for the second quarter of fiscal 1995 compared to
approximately 24% of net sales for the second quarter of fiscal 1994.
For the six months ended March 31, 1995, gross profit margins improved to
17.7% from 15.6% for the six months ended March 31, 1994. As stated
previously the improvement stems 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 $.9 million to $5.2 million for the three months ended
March 31, 1995 compared to the three months ended March 31, 1994. The
increase in expenses was principally attributable to increased expenditures
for product advertising, co-operative promotional activities and a reduction
in bad debt reserves during fiscal 1994. For the six months ended March 31,
1995, selling, general and administrative expenses increased by $1.3 million
to $10.5 million compared to the six months ended March 31, 1994 with the
increase due to the same factors stated previously.
Engineering, Research and Development. Engineering, research and development
expenses for the three and six months ended March 31, 1995 were $1.1 million
and $2.2 million, respectively which were unchanged from the comparable prior
year periods. Increases in payroll expense and engineering material expense
were offset by lower outside professional service fees.
Net Royalty Expense
Net royalty expense for the three and six months ended March 31, 1995 was $1.4
million and $2.7 million respectively, and represented 2.9% of sales for both
periods. For the three and six months ended March 31, 1994, net royalty
expense was $1.5 million and $3.3 million and represented 3.2% and 3.3% of
sales, respectively. The decline in net royalty expense as a percentage of
sales was principally attributable to certain of the Company's products being
exempt from royalties.
<PAGE>
Interest Income, Net
Net interest income increased by $.3 million and $.7 million for the three and
six months ended March 31, 1995 compared to the similar prior year periods.
The increases were attributable to a greater average cash and cash equivalents
balance 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 six months ended March 31, 1995
was based on estimated effective annual rates. The effective tax rate for the
three and six months ended March 31, 1994 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 liquidity and capital resources position continued to improve
during the quarter ended March 31, 1995. At March 31, 1995, the Company's
cash and cash equivalents totaled $48.8 million compared to $40.8 million at
September 30, 1994. Working capital increased to $75.5 million at March 31,
1995 compared to $73.0 million at September 30, 1994.
The Company generated $8.4 million from operating activities during the six
months ended March 31, 1995. The receipt of income tax refunds and the
Company's income from operations principally accounted for the increase in
cash and cash equivalents.
The Company had no bank debt outstanding at March 31, 1995 and September 30,
1994. The Company's primary credit facility continues to be a three-year,
$15.0 million revolving line with Heller Financial, Inc. 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 six 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 March 31, 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 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on February 21, 1995 in
Newport Beach, California. All matters submitted to a vote of the Company's
stockholders were described in the Company's Proxy Statement dated January 13,
1995. Matters submitted to a vote of stockholders included:
(1) The election of the following five directors to hold office until the next
annual meeting or until their successors are elected and duly qualified.
<TABLE>
<CAPTION>
Total Vote Each Total Vote Withheld Broker
Director From Each Director Non-Votes
<S> <C> <C> <C>
Gene Lu 10,703,591 30,442 744,314
Philip A. Harding 10,703,641 30,392 744,314
Therese E. Myers 10,701,441 32,592 744,314
Kenneth W. Simonds 10,701,441 32,592 744,314
Chun Win Wong 10,704,431 29,602 744,314
</TABLE>
(2) The approval of the proposal to amend the Company's Flexible Stock
Incentive Plan.
For 7,611,384
Against 391,322
Abstain 52,318
No Vote 2,679,009
Broker Non-Votes 744,314
(3) The approval of the appointment of KPMG Peat Marwick LLP as independent
auditors for the fiscal year ended September 30, 1995.
For 10,701,108
Against 11,065
Abstain 21,860
Broker Non-Votes 744,314
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: May 12, 1995 /s/ Gene Lu
------------------------------
Gene Lu
Chairman, President and Chief
Executive Officer
Date: May 12, 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> Mar-31-1995
<PERIOD-TYPE> 6-MOS
<CASH> 48,813
<SECURITIES> 0
<RECEIVABLES> 26,382
<ALLOWANCES> 1,982
<INVENTORY> 26,239
<CURRENT-ASSETS> 102,170
<PP&E> 12,654
<DEPRECIATION> 9,499
<TOTAL-ASSETS> 106,353
<CURRENT-LIABILITIES> 26,655
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> 78,583
<TOTAL-LIABILITY-AND-EQUITY> 106,353
<SALES> 93,077
<TOTAL-REVENUES> 93,077
<CGS> 76,595
<TOTAL-COSTS> 15,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 139
<INTEREST-EXPENSE> (1,195)
<INCOME-PRETAX> 2,277
<INCOME-TAX> 570
<INCOME-CONTINUING> 1,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,707
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
