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 December 31, 1994
Commission File Number 0-18753
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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 11,478,347 shares of the Registrant's Common Stock, par
value $.01 per share, outstanding on January 31, 1994.
<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>
December 31, September 30,
ASSETS 1994 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $44,305 $40,836
Trade accounts receivable, less allowance of
$1,918 and $1,870 at December 31, 1994 and
September 30, 1994, respectively 25,403 24,507
Inventories 23,140 22,555
Prepaid expenses and other assets 3,249 4,540
Deferred income taxes 1,822 1,597
Total current assets 97,919 94,035
Equipment, furniture and fixtures, net 2,966 3,316
Other assets 579 578
$101,464 $97,929
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to affiliates $2,419 $2,619
Accounts payable 10,871 9,024
Accrued expenses 10,513 9,425
Income taxes 44 0
Total current liabilities 23,847 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; 11,478,347 issued and outstanding
at December 31, 1994 and September 30, 1994 115 115
Additional paid-in capital 53,842 53,842
Retained earnings 22,580 21,931
Adjustments for foreign currency translation 1,080 973
Total stockholders' equity 77,617 76,861
$101,464 $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
December 31,
1994 1993
<S> <C> <C>
Net sales $45,718 $49,617
Cost of sales 37,665 41,433
Gross profit 8,053 8,184
Operating expenses:
Selling, general and administrative 5,318 4,886
Engineering, research and development 1,116 1,036
Royalty expense, net 1,310 1,723
Total operating expenses 7,744 7,645
Operating income 309 539
Interest income 557 266
Interest expense 0 (60)
Income before taxes 866 745
Provision for income taxes 217 224
Net income $649 $521
Net income per common and common equivalent share $0.06 $0.05
Common and common equivalent shares
used in per share calculation 11,555 11,445
<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>
Three Months Ended
December 31,
1994 1993
<S> <C> <C>
Cash flows from operating activitites:
Net income $649 $521
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 493 620
Loss on disposal of equipment 1 206
Provision for losses on accounts receivables 69 (100)
Deferred income tax expense (benefit) (226) 654
Change in assets and liabilities:
Trade accounts receivable (839) (65)
Inventories (503) (2,274)
Prepaid expenses and other assets 1,298 (489)
Payable to affiliates (200) 721
Accounts payable 1,811 (1,206)
Accrued expenses 1,061 1,455
Income taxes 44 0
Net cash provided by operating activities 3,658 43
Cash flows from investing activities -
Purchase of equipment, furniture and fixtures (136) (187)
Cash flows from financing activities -
Net repayments to banks 0 (249)
Effect of foreign exchange rate change on cash (53) 1
Net increase (decrease) in cash and cash
equivalents 3,469 (392)
Cash and cash equivalents at beginning of period 40,836 34,447
Cash and cash equivalents at end of period $44,305 $34,055
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest $0 $1
Income taxes ($219) $28
<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>
- - - - ----------------------------------------------------------------------------
December 31, September 30,
1994 1994
- - - - ----------------------------------------------------------------------------
<S> <C> <C>
Raw materials and component parts $ 6,209 $ 7,782
Work in process 6,092 3,244
Finished goods 10,839 11,529
------ -------
$23,140 $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
December 31,
1994 1993
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 82.4% 83.5%
Gross profit 17.6% 16.5%
Operating expenses:
Selling, general and administrative 11.6% 9.8%
Engineering, research and development 2.4% 2.1%
Royalty expense, net 2.9% 3.5%
Total operating expenses 16.9% 15.4%
Operating income 0.7% 1.1%
Interest income, net 1.2% 0.4%
Income before taxes 1.9% 1.5%
Provision for income taxes 0.5% 0.4%
Net income 1.4% 1.1%
</TABLE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Net Sales
Net sales for the first quarter of fiscal 1995 decreased by 8% to
$45.7 million from $49.6 million for the first quarter of fiscal 1994.
The decline in sales was principally attributable to longer book to ship
lead time associated with sales to an OEM customer and shortages of the
Company's Express system caused by delivery delays from a major vendor.
These factors delayed shipments and postponed revenue recognition,
consequently, the Company's open order backlog increased during the first
quarter of fiscal 1995 from September 30, 1994.
Despite the longer book to ship lead time associated with an OEM customer,
sales to this channel rose by $1.6 million to $3.7 million for the first
quarter of fiscal 1995 compared to the first quarter of fiscal 1994 due
primarily to the addition of UNISYS Corporation as an OEM customer in
October 1994 for certain high-end products. Also during the first quarter
of fiscal 1995, sales made directly to corporate and individual end-users
increased by $1.5 million to $7.1 million compared to same prior year
quarter reflecting the success of the Company's programs to sell directly to
large corporate end-users. Negating the increase in sales to these channels
were lower sales to VARs, dealers and national retail organizations ("NROs").
Sales to VARs and dealers declined by 10% to $31.6 million for the first
quarter of fiscal 1995 compared to the first quarter of fiscal 1994. This
decline was principally attributable to the shortage of Express systems
which delayed customer shipments and postponed revenue recognition. The
decline in sales to NROs occurred due to the termination of reseller
agreements with Intelligent Electronics and ComputerLand during fiscal 1994
though the Company continues to sell its products directly to the
franchisees and affiliates of these NROs. Net sales of $3.6 million to the
Company's major distributors for the first quarter of fiscal 1995 was
unchanged from the first quarter of fiscal 1994.
For the first quarter of fiscal 1995, system unit sales declined by 17% to
approximately 21,000 systems from approximately 25,000 units for the first
quarter of fiscal 1994. However, due to the Company's focus on high-end
desktop systems and servers the average system selling price increased by
21% to $1,855 per system for the first quarter of fiscal 1995 from $1,531
per system for the first quarter of fiscal 1994.
Sales to international customers for the first quarter of fiscal 1995
declined by 9% to $22.0 million compared to the first quarter of fiscal 1994.
The decline was principally attributable to lower sales to Asia-Pacific
customers primarily caused by the shortage of the Company's Express systems.
Also contributing to the decline in sales to international customers were
lower sales to the Company's Canadian customers. Partially offsetting these
declines was a $1.9 million or 21% 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.
<PAGE>
Gross Profit
Gross profit margins for the quarter ended December 31, 1994 increased to
17.6% from 16.5% for the quarter ended December 31, 1993. The shift in
sales to high-end desktop systems and client/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
client/servers represented approximately 48% of total sales for the first
quarter of fiscal 1995 compared to approximately 23% of total sales for the
first quarter of fiscal 1994.
Operating Expenses
Selling, General and Administrative. Selling, general and administrative
expenses increased by 9% or $.4 million to $5.3 million for the first
quarter of fiscal 1995 compared to the first quarter of fiscal 1994.
The increase in expenses was principally attributable to increased
expenditures for advertising and promotion during the first quarter of
fiscal 1995 and a reduction in bad debt reserves during the first quarter
of fiscal 1994. The increase in advertising expense was chiefly associated
with the Company's Revolution line of Pentium-based systems which were
introduced during the latter half of fiscal 1994.
Engineering, Research and Development. Engineering, research and development
expenses increased by 8% or $80,000 to $1.1 million for the quarter ended
December 31, 1994 compared to the similar prior year period. The increase
was attributable to greater outside professional service fees associated
with product design and testing and higher engineering material expenses
related to the continued development of new products.
Net Royalty Expense
Net royalty expense for the quarter ended December 31, 1994 was $1.3 million
and represented 2.9% of sales compared to $1.7 million or 3.5% of sales for
the quarter ended December 31, 1993. The decline in net royalty expense as
a percentage of sales was principally attributable to certain products being
exempt from royalties.
Interest Income, Net
Net interest income increased by $.4 million for the quarter ended December
31, 1994 compared to the similar period ended December 31, 1993. The
increase was due to a greater average cash and 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 first quarter of fiscal 1995 was based on
estimated effective annual rates. The effective tax rate for the quarters
ended December 31, 1994 and December 31, 1993 was 25% and 30%, respectively.
The decrease in the effective tax rate for the first quarter of fiscal
1995 was primarily attributable to a change in the earnings mix among the
Company's subsidiaries located in various taxing jurisdictions.
<PAGE>
Liquidity and Capital Resources
The Company's liquidity and capital resources position continued to improve
during the quarter ended December 31, 1994. At December 31, 1994, the
Company's cash and equivalents totaled $44.3 million compared to $40.8
million at September 30, 1994 and working capital increased to $74.1 million
at December 31, 1994 compared to $73.0 million at September 30, 1994.
The Company had no bank debt outstanding at December 31, 1994 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 quarter of fiscal 1995.
ALR International, the Company's subsidiary in Singapore, continues to have
available a revolving credit line with an availability of approximately $4.0
million which is used to supplement its working capital requirements.
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: February 13, 1995 /s/ Gene Lu
------------------------------
Gene Lu
Chairman, President and Chief
Executive Officer
Date: February 13, 1995 /s/ Ron Sipkovich
-------------------------------
Ronald J. Sipkovich
Vice President, Finance and
Administration, Chief Financial
Officer and Secretary
<TABLE> <S> <C>
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<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Sep-30-1995
<PERIOD-START> Oct-01-1994
<PERIOD-END> Dec-31-1994
<PERIOD-TYPE> 3-MOS
<CASH> 44305
<SECURITIES> 0
<RECEIVABLES> 27321
<ALLOWANCES> 1918
<INVENTORY> 23140
<CURRENT-ASSETS> 97919
<PP&E> 12060
<DEPRECIATION> 9094
<TOTAL-ASSETS> 101464
<CURRENT-LIABILITIES> 23847
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> 77502
<TOTAL-LIABILITY-AND-EQUITY> 101464
<SALES> 45718
<TOTAL-REVENUES> 45718
<CGS> 37665
<TOTAL-COSTS> 7744
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 69
<INTEREST-EXPENSE> (557)
<INCOME-PRETAX> 866
<INCOME-TAX> 217
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<CHANGES> 0
<NET-INCOME> 649
<EPS-PRIMARY> 0.06
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</TABLE>
