SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 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
__________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01
____________________________
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, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was $42,332,551 on December 15, 1995, based on the closing sale
price of such stock on The Nasdaq Stock Market.
The number of shares outstanding of Registrant's Common Stock, $.01 par
value, was 11,722,368 at December 15, 1995.
____________________________
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report incorporates information by reference from the
definitive Proxy Statement for the Annual Meeting of Stockholders, to be held
February 21, 1996.
<PAGE>
ADVANCED LOGIC RESEARCH, INC.
Index to Annual Report on Form 10-K
For the Fiscal Year Ended September 30, 1995
Page
PART I
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Stock
and Related Stockholder Matters 11
Item 6. Selected Consolidated Financial Data 12
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition 13
Item 8. Financial Statements, Financial Statement Schedule
and Supplementary Data 18
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 18
PART III
Item 10. Directors and Executive Officers of the Registrant 33
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial
Owners and Management 33
Item 13. Certain Relationships and Related Transactions 33
PART IV
Item 14. Exhibits, Financial Statement Schedule
and Reports on Form 8-K 34
This report contains the following trademarks of the Company, many of which
are registered: Advanced Logic Research, Inc., ALR, Evolution, etc. The
following trademarks of other companies also appear in this report: Compaq,
IBM, Intel, Pentium, Pentium Pro, Unisys. Any other products or brand names
are trademarks or registered trademarks of their respective companies.
<PAGE>
PART I
Item 1. Business.
General
Advanced Logic Research, Inc. ("ALR" or the "Company"), founded in 1984,
designs, manufactures, markets and supports a broad line of microcomputer
systems ("PCs") that offer leading-edge performance and value. The Company's
comprehensive portfolio of environmentally friendly, upgradeable products
includes sophisticated network servers, high-performance workstations and
entry-level PCs. All ALR systems feature advanced designs to enhance
performance while supporting the major industry standards. ALR markets its
products through a worldwide network of resellers, system integrators, dealers
and distributors. It also sells to selected Original Equipment Manufacturer
("OEM") customers and direct to end-users through its PrimeLine Direct
program.
Products
The Company's product strategy is focused on becoming a leading provider
of computers targeted at the client/server and high-end/mid-range desk-top
markets. The Company currently offers a number of high-performance server,
workstation and personal computer product families based on Intel's Pentium,
Pentium Pro and 486 microprocessors ("CPUs"). To achieve broad market
acceptance for its products, the Company's PCs incorporate either Industry
Standard Architecture ("ISA") or Extended Industry Standard Architecture
("EISA") bus architecture and either Video Electronics Standard Association
("VESA") or Peripheral Component Interconnect ("PCI") local bus architecture.
For compatibility with a broad range of application software, ALR supports the
major industry single user and multi-user/network operating systems: MS DOS,
MS Windows, MS Windows 95, MS Windows NT, SCO UNIX, OS/2, Novell NetWare,
Banyan VINES, as well as Intel's MP Spec v1.1 multiprocessing specification.
ALR's SERVER SYSTEMS. The Company's server systems are designed in-
house and feature enhanced performance and expandability. This family of
computers currently consists of the ALR Revolution Q-SMP and the ALR
Revolution MP. ALR also offers a rack-mount version of its ALR Revolution Q-
SMP server.
ALR REVOLUTION Q-SMP. The innovative award-winning ALR Revolution Q-SMP
is a fully symmetrical multiprocessing server featuring up to four Intel 90-,
100-, or 133-megahertz ("MHz") Pentium CPUs. The unique Q-SMP architecture
utilizes an advanced 64-bit multiprocessor bus and a symmetrical design to
distribute the workload evenly between the different processors. System
performance is enhanced by ALR's proprietary Q-SMP architecture supporting 256
kilobytes ("KB") (optional 1- or 2-megabytes ("MB")) of two-way associative
high-speed "write-back" memory cache per processor module. This memory cache
design nearly doubles cache efficiency compared to earlier architectures. The
system comes standard with 16-MB of random access memory ("RAM") which is
expandable to one gigabyte ("GB") and features Memory Error Detection and
Correction ("EDC") technology to secure data integrity within the system.
<PAGE>
All ALR Revolution Q-SMP servers come standard with ALR NetTune; the
NetWare server management package designed to optimize server performance.
The ALR Revolution Q-SMP features a total of 10 expansion slots (six EISA bus
slots and four PCI local bus extensions) and thirteen drive bays. The easily
accessible chassis makes the drive bays ideal for hot swappable drives, tape
backups, multiple CD-ROMs and other removable storage devices. The ALR
Revolution Q-SMP has received numerous awards including PC/Computing
Magazine's 'Most Valuable Product' award at COMDEX '94 in Las Vegas and the
'Overall Best Hardware Product for 1995' by UNIX Review in its December 1995
issue.
The rack-mountable version of the ALR Revolution Q-SMP is designed to
provide maximum flexibility and performance while economizing on space. ALR
offers two rack-mount options designed to accommodate either two or four
Revolution Q-SMP server units in a single, organized location. The system is
designed to offer safeguards against downtime and lost data. An optional DAT
drawer provides up to 32-GB of back-up data storage with a redundant hot-
swappable power supply for mission critical environments. Additionally, the
racks can be configured to house disk array subsystems or uninterruptible
power supplies depending on the needs of the user.
ALR REVOLUTION MP. The ALR Revolution MP was the first server to offer
both a PCI bus architecture and an upgrade path from 90- or 100-MHz Pentium
processing to dual 133-MHz Pentium multiprocessing. In its base configuration
the system features 512-KB of high speed "write-back" memory cache and 8-MB of
RAM which is expandable to 512-MB. Complementing the scaleable processing
power of the ALR Revolution MP is its tower chassis which features four PCI
slots, six EISA slots and nine drive bays for hard drives, CD-ROM drives or
tape back-ups. Designed for mission critical network applications, the
REVOLUTION MP is fully compatible with multiprocessing versions of popular
multi-user/network operating systems.
ALR's MINI-TOWER/HIGH-END DESK-TOP SYSTEMS. The Company's mini-
tower/high-end desk-top systems feature 32-bit local bus technology and
superior memory cache/local bus combinations to optimize CPU performance.
This family of computers consists of the ALR EVOLUTION DUAL6, the ALR
EVOLUTION V STe and the ALR EVOLUTION X and V ST.
ALR EVOLUTION DUAL6. The ALR EVOLUTION DUAL6 is designed to use up to
two 150-MHz Pentium Pro CPUs and is targeted at high-end workstation
applications including CAD, graphics design and animation. The systems come
standard with 256-KB of memory cache and 8-MB of error checking and correcting
RAM expandable to 512-MB. To enhance overall system performance the ALR
EVOLUTION DUAL6 incorporates 32-bit PCI local bus technology. This bus
provides compatibility with the latest video cards and access to other 32-bit
enhancement products.
ALR EVOLUTION V STe. The ALR EVOLUTION V STe is designed to use up to
two 90- or 100-MHz Pentium CPUs and is targeted at high-end business users.
The systems come standard with 256-KB of synchronous 'burst' cache ensuring
the highest performance levels from the Pentium processor. To enhance overall
system performance, the ALR EVOLUTION V STe incorporates 32-bit PCI local bus
technology providing compatibility with the latest video cards and access to
other 32-bit enhancement products including SCSI controllers and network
adapters. The systems come standard with 8-MB of RAM expandable to 264-MB.
<PAGE>
ALR EVOLUTION X & V ST. These two systems share the same motherboard
and offer a selection of processor options including Intel's 75-, 90-, 100-,
120- or 133-MHz Pentium CPUs. To enhance overall performance, the systems
incorporate 32-bit PCI local bus technology and fully support the Pentium's
"write-back" mode ensuring the highest performance levels by utilizing a
unique 256-KB "burst" memory cache architecture for the 100-, 120- or 133-MHz
Pentium CPU models and asynchronous "write-back" cache for the 75- and 90-MHz
Pentium CPU models. The ALR EVOLUTION V ST is packaged in a sport-tower
chassis whereas the EVOLUTION X comes in a desk-top chassis.
ALR's MID-RANGE AND ENTRY-LEVEL DESK-TOP SYSTEMS. The Company's mid-
range desk-top PCs optimize performance through advanced technology. The
systems incorporate local bus technology and consist of the ALR OPTIMA, the
ALR OPTIMA SL and the EXPRESS XP/2.
ALR OPTIMA. The ALR Optima system is designed for high-end desk-top
requirements and features PCI local bus technology. The Optima offers a
selection of processor options including Intel's 75-, 90-, 120- or 133-MHz
Pentium CPUs. The system comes standard with 256-KB of memory cache which can
be doubled to 512-KB for more demanding applications. The system features 8-
MB of RAM which is expandable to 128-MB on the system board. The system
features PCI and ISA "Plug 'n' Play" technology allowing for easy set-up and
installation of peripheral cards.
ALR OPTIMA SL. The ALR Optima SL combines performance with ease of use
by featuring "Plug 'n' Play" technology. The system offers a selection of
processor options including Intel's 75-, 90- or 100-MHz Pentium CPUs. For
enhanced performance the system incorporates PCI local bus technology with
accelerated Super VGA graphics integrated onto the motherboard. The system
comes standard with 8-MB of RAM expandable to 128-MB on the system board. The
Optima SL is packaged in a slimline chassis providing room for two storage
bays and three enhancement cards.
ALR EXPRESS XP/2. The Company's entry-level desk-top system is based on
Intel's 66-MHz 486DX2 CPU and is designed to meet the personal requirements of
individuals and to serve as a node on networks. This PC features advanced 32-
bit PCI local bus technology with an integrated local bus video controller and
a built-in PCI IDE interface. It comes standard with 4-MB of RAM which is
expandable to 128-MB on the motherboard.
Other Hardware Options. ALR offers a number of hardware options,
including the ALR DataStation for data storage in networking and multi-user
environments, VESA and PCI local bus video adapters and hard drive
controllers. For certain systems, ALR offers a Multimedia Upgrade kit which
includes an IDE CD-ROM drive and various titles, a 16-bit sound card, external
speakers and a microphone. The Company also offers systems and memory boards,
hard disk drives, CD-ROM drives, tape backup systems, fax modems, keyboards,
monitors and other related peripherals. In September 1995, the Company
announced its Pentium CPU based ALR Sequel 586, a system board upgrade
designed specifically for the Compaq Prolinea desktop, minitower and Deskpro
386 and 486 PCs.
<PAGE>
Research and Product Development
The Company believes that being early-to-market with high-performance
systems is critical to its success. ALR follows the early introduction of its
high-end products with the introduction of mid-range products based on the
same core technologies. As a result, the Company's research and product
development activities have been focused on developing methods for designing
products efficiently. To achieve these efficiencies, the Company uses
technology modules which can be transported effectively and used in its other
computer systems with minimal modification, as "building blocks" for
concurrent and future product development efforts. Examples of these building
blocks include the Company's memory management technology and custom chip
sets. The Company believes this approach better enables it to control its
engineering, research and development expenditures while increasing the speed
with which it can bring new products to market.
The Company's research and product development staff consists of 36
hardware and systems engineers located in the U.S. The Company's engineers
are divided into two groups involved in the design of new products as well as
the continued development of existing products. The Company's hardware
engineers focus on the design of the Company's CPU platforms, while its
systems engineers are responsible for enclosure design, software/system
compatibility and integration of input/output peripherals to the system.
During the fiscal years ended September 30, 1995, 1994 and 1993, the
Company's engineering, research and development expenses were $4.8 million,
$4.4 million, and $3.9 million, respectively.
Sales, Marketing and Support
ALR and its subsidiaries sell the Company's products worldwide through
an extensive network of value added resellers ("VARs"), system integrators,
dealers, distributors, and selected OEM customers. In the U.S., the Company
also sells directly to end-users through its PrimeLine Direct program.
Since 1992, the PC industry has experienced a significant increase in
price competition. See "Competition". The Company has responded to this new
environment by focusing its product strategy towards providing computers aimed
at the high-performance, multi-processing server and desk-top markets. The
Company has also attempted to optimize the pricing structure offered to its
different distribution channels and the marketing programs provided to its
reseller channels.
The Company has focused on providing its reseller channel (VARs, system
integrators and dealers) with some of the most competitive programs in the PC
industry. The Company's reseller programs include free shipping, cooperative
advertising, lead referral, toll-free technical support, warranty
reimbursement and the facilitation of product purchases through flooring
companies offering up to 60 days free financing. The Company has implemented
a "Channel Build" strategy for its resellers and distributors allowing them to
purchase base models and determine their own margins by customizing these
products for resale. The Company further enhanced this strategy by adopting a
"Cost Plus" pricing strategy for its reseller channel where the "Cost" is the
price paid by its distributors. Sales to the Company's reseller channel
accounted for 65%, 69% and 68% of net sales for fiscal 1995, 1994 and 1993,
respectively.
The Company currently markets its products through four major
distributors, Gates/Arrow, GBC/Vitek, Merisel, and Tech Data. This channel
provides broad market penetration for the Company's products. Distributors
represented approximately 5%, 8% and 8% of the Company's net sales in fiscal
1995, 1994 and 1993, respectively. During fiscal 1993, ALR experienced
significant changes in its distributor and national retail organization
("NRO") channel due to a reorientation of its sales channel focus in North
America. As a result, product purchase agreements with Ingram Micro, Inc.,
Intelligent Electronics and ComputerLand were terminated. However, ALR
continues to sell its products directly to the franchisees of Intelligent
Electronics and ComputerLand through its reseller program.
<PAGE>
The Company's PrimeLine Direct channel, established in fiscal 1993,
serves the requirements of customers who choose to purchase directly from the
Company. Since 1993, ALR's PrimeLine Direct sales force has evolved into
three cohesive groups focused on serving the disparate needs of the small
business customer and the large corporate and government end-users. The
government sales group negotiated a contract with the federal government (GSA
contract) allowing federal agencies to procure product directly from ALR at
pre-negotiated prices. Additionally, qualified resellers can sell products to
government end-users based on the pre-negotiated prices in ALR's GSA contract
and receive a pass-through commission from ALR. PrimeLine Direct sales
represented 20%, 16% and 9% of the Company's net sales for fiscal 1995, 1994
and 1993, respectively.
In October 1994, ALR expanded its OEM relationships by entering into an
OEM agreement with Unisys Corporation for ALR's high-end servers. This new
agreement added to the Company's existing OEM relationships with Siemens
Nixdorf in the U.S. and Germany. OEM sales represented 9%, 4% and 5% of the
Company's net sales for fiscal 1995, 1994 and 1993, respectively.
The Company's resellers, distributors and OEM customers are not
contractually committed to future purchases of the Company's products and,
therefore, could discontinue carrying the Company's products at any time.
Additionally, consistent with industry practice, the Company provides certain
of its large distributors with stock balancing and price protection rights,
which permit these customers to return products to the Company for credit and
to receive price adjustments for inventories of the Company's products if ALR
lowers the prices of these products.
ALR serves its markets worldwide through export sales from the U.S. and
a network of subsidiaries and branches. ALR's sales subsidiaries include ALR
International (Pte) Ltd. ("ALR International"), Advanced Logic Research Inc.
(U.K.) Limited and Advanced Logic Research (Deutschland) GmbH which are
located in Singapore, London and Frankfurt, respectively. ALR International
maintains branch sales and support offices in Hong Kong and Malaysia.
International sales represented 43%, 46% and 50% of the Company's net sales
for fiscal years 1995, 1994 and 1993, respectively. For further geographic
information, see Note 12 of Notes to Consolidated Financial Statements.
A portion of the sales made by the Company in international markets are
priced in local currency and are subject to currency exchange fluctuations.
At September 30, 1995, the Company had no forward contracts outstanding.
International sales are subject to the risk of compliance with laws of various
countries and the risk of import/export restrictions and tariff regulations.
ALR has not experienced any difficulty in obtaining export licenses from the
United States Department of Commerce for international sales.
ALR maintains a sales and service staff at each of its locations
worldwide to support the Company's end-users, authorized resellers and
distributors. Reseller and distributor sales and service training classes are
conducted at most of the Company's major worldwide locations. See "Customer
Service and Product Warranty."
The Company's corporate marketing communications group has primary
responsibility for launching and maintaining product exposure including
advertising, promotion and public relations. This group also develops sales
materials such as brochures, merchandising kits and point-of-purchase
displays.
<PAGE>
Backlog
The Company's customers generally order products on an as-needed basis.
Therefore, a significant portion of product shipments in a given fiscal
quarter result from orders received in that quarter. Consequently, order
backlog represents a small percentage of the product sales anticipated by the
Company in a given fiscal quarter and is not indicative of the Company's
actual sales for any future fiscal period. Manufacturing plans and
expenditure levels are based primarily on sales forecasts. The absence of
scheduled backlog could lead to unanticipated fluctuations in operating
results in any quarter in which anticipated sales and shipments do not occur
as expected.
Manufacturing and Quality Control
The Company's manufacturing operations are located at its Irvine
facilities in the United States. They include procurement and testing of
parts, components and subassemblies and final assembly of its systems. In
order to reduce capital investment requirements, the Company subcontracts a
substantial portion of its printed circuit board assembly to several vendors
in the United States and Taiwan, including affiliates of Wearnes Technology
(Private) Limited ("Wearnes", Wearnes holds approximately 41% of the
outstanding common stock of ALR). All subcontracted components are tested
either by the Company or the subcontractor before undergoing final assembly.
Once assembled, all systems undergo a fully operational test cycle including
stress testing. Quality control also includes ongoing production reliability
audits for early identification of production problems.
The Company has focused on improving its inventory controls and
enhancing its management information systems. The inability of the Company to
continue to improve its inventory controls and other management information
systems, or to successfully produce, test and deliver sufficient products in
time to meet demand, would adversely affect the Company's operating results.
The Company generally utilizes industry standard parts and components
available from multiple vendors. However, the Company and the microcomputer
industry, from time to time, have experienced shortages of key components
including memory chips and standard integrated circuits. Prices for these and
other key components have periodically increased and the Company could be put
on allocation by its suppliers. On occasion, this has resulted in production
delays for some of the Company's products.
Certain parts and components used in the Company's systems are available
only from a single source. Components for which the Company does not have
multiple manufacturers include Intel's Pentium and Pentium Pro CPUs. These
CPUs are either generally available through distribution or available from
Intel in quantities that the Company believes are adequate to meet its current
requirements. If, contrary to its expectations, the Company is unable to
obtain sufficient quantities of any of these parts and components, the Company
will experience delays in product shipments.
<PAGE>
The Company is currently sourcing motherboards for its EXPRESS XP/2 and
Optima SL systems from Acer and is purchasing the Optima system from Intel on
an OEM basis. In the future, the Company may choose to source additional
products from these and other vendors. If, contrary to its expectations, the
Company is unable to obtain sufficient quantities of these motherboards or
systems, the Company could experience delays in product shipments.
The various proprietary chip sets based on ALR designs are currently
supplied by single sources: VLSI Technology, LSI Logic or Matra Semiconductor.
A disruption in the manufacture of these chip sets could result in additional
expense, as well as delays in product shipment.
Supply shortages of any of the foregoing or other components may cause
an increase in material cost that could result in a decline in the Company's
operating results. In certain circumstances, supply shortages could result in
production delays that could also adversely affect the Company's operating
results.
Customer Service and Product Warranty
ALR maintains a customer support hotline at its Irvine headquarters to
answer questions from its customers relating to ALR systems and other
products. The Company also offers a variety of customer support and repair
services which are made available on a fixed-fee or time and materials basis
after the product warranty period has expired. Internationally, the Company
provides service to end-users through selected resellers trained by ALR, as
well as through the Company's own technical support personnel.
The Company has strengthened its service and technical support to end-
users through a relationship with Unisys Corporation and Decision One to
provide on-site field service and warranty support in the U.S. The Company's
in-house technical support department in the U.S. has benefited from advanced
telephone tracking technology that streamlines the routing, processing and
tracking of calls. The Company also offers on-line support service 24 hours a
day through its facsimile question and response system. This service
supplements the Company's 24-hour bulletin board service which allows
customers to confer with ALR technicians, download software and receive
support updates and technical bulletins. These services are now also
available through the ALR CompuServe forum.
In November 1994, ALR enhanced its product warranty policy to offer a 5-
year/36-month warranty (five years system warranty and 36 months warranty on
factory installed peripherals) compared to a 5-year/15-month warranty policy.
For fiscal 1995, technical support expenses, which include warranty and non-
warranty repairs, were approximately $4.3 million. Except for stock-balancing
agreements with its distributors, the Company does not customarily allow
returns of its products for reasons other than malfunction or failure.
<PAGE>
FCC Approvals
The Federal Communications Commission (the "FCC") has adopted
regulations setting radio frequency emission standards for computing
equipment. All of the Company's current products meet the FCC's Class A
requirements and certain of the Company's products qualify for the more
stringent Class B approval. From time to time, however, the Company has
experienced delays in securing FCC Class B approvals. To the extent the
Company's present and future products may be required to meet the more
stringent Class B requirements, there can be no assurance that similar delays
will not occur in the future.
Competition
The principal elements of competition among PC manufacturers are
pricing, performance, product quality and reliability, compatibility,
marketing and distribution capability, service and support, reputation and the
capability to deliver products in large volumes. ALR competes with a large
number of manufacturers, including Apple Computer, AST Research, Compaq
Computer, Dell Computer, Digital Equipment Corporation, Gateway 2000, Hewlett
Packard, IBM Corporation ("IBM"), NCR and NEC Information Systems, as well as
private label products manufactured by companies such as Intel. Most of these
companies have significantly greater financial, marketing and technological
resources than ALR and may be able to command better terms with their
suppliers due to higher purchasing volumes.
The Company has entered into OEM agreements with two large computer
manufacturers who are competitors of ALR. While selecting its OEM customers,
the Company tries to ensure that there is a minimum amount of overlap between
the markets and end-users targeted by ALR and its OEM customers. However,
changes in the marketing strategy of its OEM customers may adversely affect
ALR's future revenue mix and gross margin rate. See "Sales, Marketing and
Support."
Since 1992, the PC industry has experienced a significant increase in
price competition from the top tier PC manufacturers like Compaq and IBM.
This has resulted in a rapid decline in PC prices and an increase in
marketshare for the top tier manufacturers. ALR has responded to this new
environment by focusing its product strategy towards providing computers aimed
at the high-performance multi-processing server and desk-top markets. ALR's
long-term success will depend primarily on the continued market acceptance of
its existing products, its ability to develop and introduce similarly
acceptable new products, its ability to continue to reduce costs through
product design and operating efficiencies and its ability to expand its
channels of distribution and the number of customers within these channels.
Patents, Trademarks and Licenses
The Company believes that its continued success will depend primarily
upon the technical expertise, creative skills and management abilities of its
directors, officers and key employees rather than on patent ownership. The
Company has been issued patents covering certain aspects of its upgrade
technology in the United States and Taiwan, which expire in 2111 and 2005,
respectively. The Company has also applied for patents covering its upgrade
module technology in Europe, Canada and Australia, although there can be no
assurance that these patents will be granted or that these patents will
provide adequate protection, if granted. The Company currently relies on
trade secrets and confidentiality agreements to protect its proprietary
information, although there can be no assurance that the confidentiality
agreements on which ALR relies to protect its trade secrets will be adequate
or that the Company's competitors will not independently develop or patent
substantially equivalent or superior technologies.
The Company has obtained federal trademark registration on the following
trademarks: Advanced Logic Research, Inc., ALR, the ALR logo, PowerFlex,
Business Veisa, PowerVeisa, BusinessServer, PowerFlex Flyer, Business Station
and Evolution and has applied for federal trademark registration on certain
other product names and logos. The Company has also trademarked the ALR logo
in various countries including Singapore, Germany and the United Kingdom and
has applied for registration of its logo in certain other foreign countries in
which it anticipates expanding its international business.
<PAGE>
ALR currently licenses from IBM the right to use certain technology
covered under patents issued to IBM. The licensing agreement permits the
Company to develop, manufacture and sell personal computers without liability
for infringement on IBM's existing patents. The Company pays, and expects to
pay in the future, royalties to IBM on sales of a substantial number of the
Company's existing and future personal computer products. IBM's policy is to
offer lower royalty rates to licensees that possess patent rights of interest
to IBM if these licensees provide IBM with a cross-license. To the extent
that ALR's competitors avoid the payment of royalties or obtain more favorable
royalty payment terms from IBM, ALR could be at a disadvantage.
In the past, the Company has licensed certain of its designs to a large
computer manufacturer. In the future, the Company may choose to license its
designs to other computer manufacturers which may permit these manufacturers
to compete directly with the Company. See "Sales, Marketing and Support."
From time to time, companies have asserted exclusive patent, copyright
and other intellectual property rights to technologies that are important to
the microcomputer industry. The Company evaluates each claim and, if
appropriate, seeks a license to use the protected technology. There can be no
assurance that the Company would be able to obtain licenses to use such
technology or obtain such licenses on terms that would not have a material
adverse effect on the Company. If the Company or its suppliers are unable to
license protected technology used in ALR's products, ALR could be prohibited
from marketing such products. The Company could also incur substantial costs
to redesign its products or to defend any legal action taken against it. If
the Company's products should be found to infringe protected technology, ALR
could be required to pay damages to the infringed party and to stop using such
protected technology.
Employees
As of September 30, 1995, ALR had 475 full-time employees, of whom 39
were engaged in engineering, research and development, 88 in sales and
marketing, 53 in customer support and service, 248 in manufacturing and 47 in
administrative activities. No employee of the Company is represented by a
labor union or is subject to a collective bargaining agreement.
The Company believes its ability to attract and retain skilled technical
and management personnel has been and will continue to be critical to its
success. Accordingly, the Company has adopted stock option plans and other
benefit plans to assist in attracting and retaining qualified employees at all
levels.
Foreign and Domestic Operations
A substantial portion of the Company's sales are made outside the United
States. See Note 12 of Notes to Consolidated Financial Statements, which is
incorporated by reference.
Item 2. Properties.
The Company leases approximately 75,000 square feet of space for
its corporate headquarters in Irvine under a lease which expires in June 1999.
The Company leases an additional 40,000 square feet of space at a nearby
facility for manufacturing and warehousing operations under a lease which
expires in June 1997. ALR International leases approximately 22,000 square
feet of space in Singapore for sales, support and warehousing needs under a
lease that expires in 1997. In addition, the Company leases space for sales
and support offices in London, Frankfurt, Hong Kong and Malaysia. The
information in Note 13 of Notes to Consolidated Financial Statements is
incorporated by reference.
<PAGE>
ALR believes that its manufacturing facilities will be sufficient to
meet its reasonably foreseeable needs. The Company believes that space will
be available at commercially reasonable rates when and as needed to
accommodate either a move or an expansion of the Company's operations.
Item 3. Legal Proceedings.
The Company is a party to litigation matters and claims which are
normal in the course of its operations, and while the results of litigation
and claims cannot be predicted with certainty, the Company believes that the
final outcome of such matters will not have a materially adverse effect on the
Company's consolidated financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters.
Market Information (Unaudited)
Advanced Logic Research, Inc.'s common stock is traded on The Nasdaq
Stock Market under the symbol AALR. The following table sets forth the
range of high and low closing sale prices for the Company's common stock
for the fiscal quarters indicated.
Year ended September 30, High Low
1995:
First fiscal quarter $ 4.88 $ 3.75
Second fiscal quarter 5.38 4.00
Third fiscal quarter 6.75 4.50
Fourth fiscal quarter $ 9.38 $ 5.75
1994:
First fiscal quarter $ 3.63 $ 2.88
Second fiscal quarter 7.25 3.38
Third fiscal quarter 6.50 4.50
Fourth fiscal quarter $ 4.50 $ 3.63
At December 15, 1995, the closing sale price of the Company's common
stock as reported on The Nasdaq Stock Market was $6.75.
Holders of Record
At September 30, 1995, ALR had approximately 277 stockholders of record
of the Company's common stock.
Dividends
The Company has never paid dividends on its capital stock. The Company
presently intends to retain earnings for use in its business and,
therefore, does not anticipate paying any cash dividends in the
foreseeable future. In addition, the terms of the Company's current
loan agreement restrict the ability of the Company to pay cash
dividends.
<PAGE>
<TABLE>
Item 6. Selected Consolidated Financial Data.
<CAPTION>
Fiscal year ended September 30, 1995 1994 1993 1992 1991
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales $192,425 $183,387 $169,254 $206,817 $227,954
Cost of sales 156,465 155,652 149,974 165,483 160,864
Gross profit 35,960 27,735 19,280 41,334 67,090
Selling, general &
administrative 21,915 19,308 22,898 30,797 32,922
Engineering, research &
development 4,762 4,409 3,935 5,121 4,321
Royalty expense, net 5,289 5,867 5,183 4,704 5,043
Total operating expenses 31,966 29,584 32,016 40,622 42,286
Operating income (loss) 3,994 (1,849) (12,736) 712 24,804
Net interest income 2,502 1,355 388 488 390
Income (loss) before minority
interest, taxes & cumulative
effect of change in
accounting principle 6,496 (494) (12,348) 1,200 25,194
Minority interest --- --- --- --- 447
Income (loss) before taxes
and cumulative effect of
change in
accounting principle 6,496 (494) (12,348) 1,200 24,747
Income tax expense (benefit) 1,624 (148) (2,640) 651 10,022
Income (loss) before
cumulative effect of change
in accounting principle 4,872 (346) (9,708) 549 14,725
Cumulative effect of change
in accounting for income taxes --- --- (919) --- ---
Net income (loss) $ 4,872 $ (346) $(10,627) $ 549 $14,725
Income (loss) before cumulative
effect of change in
accounting principle per common
& common equivalent share $ 0.41 $ (0.03) $ (0.86) $ 0.05 $ 1.40
Net income (loss) per common
& common equivalent share $ 0.41 $ (0.03) $ (0.94) $ 0.05 $ 1.40
Common and common equivalent shares
used in per
share calculation 11,750 11,434 11,336 11,414 10,483
As of September 30, 1995 1994 1993 1992 1991
(In thousands)
CONSOLIDATED BALANCE SHEET DATA:
Cash & cash equivalents $46,580 $40,836 $34,447 $29,638 $23,377
Accounts receivable, net 26,524 24,507 21,947 35,189 48,102
Inventories, net 27,088 22,555 36,525 44,264 48,831
Total assets 107,220 97,929 108,095 125,846 136,195
Long-term debt --- --- --- 6,000 9,000
Stockholders' equity $83,249 $76,861 $75,917 $87,425 $85,911
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
NET SALES Change Change
FY95 From FY94 FY94 From FY93 FY93
(In thousands)
Net Sales $192,425 5% $183,387 8% $169,254
Net sales increased to $192.4 million for fiscal 1995 from $183.4 million for
fiscal 1994 and $169.3 million for fiscal 1993. The consecutive years of
sales growth was principally due to the reorientation of the Company's product
and marketing focus to network servers and high-end desk-top systems. During
the three years, sales of servers and high-end desk-top systems grew from
$22.3 million for fiscal 1993 to $56.3 million and $98.9 million for fiscal
1994 and 1995, respectively. A major contributor to this growth in sales was
the ALR Revolution Q-SMP. From its introduction in the latter half of fiscal
1994, sales of this product have grown to represent 13% of net sales for
fiscal 1995. Consequently, as a result of the shift in product mix to servers
and high-end desk-top systems, the average system selling price for fiscal
1995 increased to $1,960 from $1,676 and $1,357 for fiscal 1994 and 1993,
respectively, despite the existence of industry-wide competitive pricing
pressures.
In fiscal 1995, the Company's principal channel of distribution continued to
be resellers which comprised 65% of net sales. However, due to the growth in
sales made directly to small businesses, government, corporate and individual
end-users, and OEM customers, this represented a decline from fiscal 1994 and
1993 in which sales to resellers represented 69% and 68% of net sales,
respectively.
From fiscal 1993 through fiscal 1995, direct sales to small businesses,
government, corporate and individual end-users grew to become the Company's
second major channel of distribution. Direct sales increased from $15.7
million for fiscal 1993 to $28.5 million and $38.8 million for fiscal 1994 and
1995, respectively. The growth in sales through this channel during fiscal
1995 was predominately due to the negotiation of a GSA contract with the
federal government allowing federal agencies to procure product directly from
ALR.
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 accounted for the 169% increase in OEM sales during fiscal
1995 from fiscal 1994. For fiscal 1995, OEM sales totaled $17.5 million and
represented approximately 9% of net sales compared to 4% and 5% for fiscal
1994 and 1993, respectively.
Sales to distributors and NROs for fiscal 1995 declined to 5% of net sales
compared to 9% and 14% for fiscal 1994 and 1993, respectively. This decline
in sales over the three years was due to the reorientation of the Company's
sales channel. Product purchase agreements with Ingram Micro, Inc.,
Intelligent Electronics and ComputerLand were terminated during fiscal 1993.
During fiscal 1995, principally due to the growth in sales through the direct
and OEM channels, U.S. sales grew by 11% to represent 57% of net sales
compared to 54% and 50% for fiscal 1994 and 1993, respectively. Consequently,
international sales declined to represent 43% of net sales for fiscal 1995
compared to 46% and 50% for fiscal 1994 and 1993, respectively. The decline
in international sales during fiscal 1995 was principally due to lower sales
to Asia-Pacific region and Canadian customers. Partially offsetting this
decline was an 18% increase in sales to customers in Europe and Latin America
during fiscal 1995.
<PAGE>
GROSS PROFIT Change Change
FY95 From FY94 FY94 From FY93 FY93
(In thousands)
Gross Profit 35,960 30% 27,735 44% 19,280
Percentage of Net Sales 18.7% 15.1% 11.4%
Gross profit margins for fiscal 1995 increased to 18.7% from 15.1% for fiscal
1994 and from 11.4% for fiscal 1993. The shift in sales to servers and high-
end desk-top systems favorably impacted gross profit margins since these
systems typically generate greater gross profit margins than the Company's
entry-level and mid-range systems. Design changes, chiefly to product chassis
and motherboards, coupled with lower vendor component costs, particularly on
CPUs and disk drives, lowered material costs and contributed to improving
gross profit margins. Also contributing was the growth in sales volume which
allowed manufacturing and technical support costs to be absorbed over a
greater revenue base.
The Company anticipates that competitive pricing pressures will continue
throughout the personal computer industry. Although vendor component costs
generally decreased during the three year period, a change in market
conditions brought about by increased demand for these components could result
in price increases which would adversely affect the Company's gross profit
margins and profitability.
OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE
Change Change
FY95 From FY94 FY94 From FY93 FY93
(In thousands)
Selling, General and
Administrative Expenses $21,915 14% $19,308 (16%) $22,898
Percentage of Net Sales 11.4% 10.5% 13.5%
Selling, general and administrative expenses increased by 14% to $21.9 million
for fiscal 1995 compared to $19.3 million for fiscal 1994. Expanded product
advertising and increased dealer cooperative promotional activities
principally accounted for the increase in expenses during fiscal 1995. As a
percentage of net sales, advertising and promotional expenses increased to
4.3% of net sales for fiscal 1995 compared to 3.5% of net sales for fiscal
1994. Also contributing to the increase was a reduction in bad debt reserves
during fiscal 1994. In fiscal 1994, $.8 million in bad debt expense was
reversed against the allowance for doubtful accounts.
For fiscal 1994, selling, general and administrative expenses declined by 16%
to $19.3 million compared to $22.9 million for fiscal 1993. This decline was
principally the result of lower bad debt expense, lower expenditures on
cooperative advertising, trade shows and media advertising and lower personnel
related expenses. As previously discussed the decline in bad debt expense was
due to the reversal of $.6 million in bad debt expense against the allowance
for doubtful accounts. The decrease in advertising expense related to fewer
cooperative advertising and promotional programs while the decline in
personnel related expenses was associated with a streamlining of worldwide
operations in the first quarter of fiscal 1994. This resulted in part from
the closure of the Company's Canadian sales branch and a significant reduction
in the Company's operations in Singapore.
<PAGE>
ENGINEERING, RESEARCH AND DEVELOPMENT
Change Change
FY95 From FY94 FY94 From FY93 FY93
(In thousands)
Engineering, Research
and Development Expenses $4,762 8% $4,409 12% $3,935
Percentage of Net Sales 2.5% 2.4% 2.3%
Engineering, research and development expenses increased during the three year
period to $4.8 million for fiscal 1995 compared to $4.4 million and $3.9
million for fiscal 1994 and 1993, respectively. 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 in fiscal 1995 compared to fiscal 1994. The
increase in fiscal 1994 compared to fiscal 1993 was principally due to higher
outside professional service fees associated with product design and testing
and higher engineering material expenses related to product development.
ROYALTY EXPENSE, NET
Change Change
FY95 From FY94 FY94 From FY93 FY93
(In thousands)
Royalty Expense, Net $5,289 (10%) $5,867 13% $5,183
Percentage of Net Sales 2.7% 3.2% 3.1%
The decline in net royalty expense for fiscal 1995 to 2.7% of sales from 3.2%
for fiscal 1994 resulted because certain of the Company's products are exempt
from royalties. For fiscal 1994, net royalty expense increased to 3.2% of net
sales from 3.1% of net sales for fiscal 1993 due to the provisions of the
Company's agreement with IBM.
Effective January 1, 1996, the royalty rate related to the sale of certain of
the Company's products will increase an additional 1% to its maximum
applicable rate according to the terms of the Company's agreement with IBM.
INTEREST INCOME, NET
Change Change
FY95 From FY94 FY94 From FY93 FY93
(In thousands)
Interest Income, Net $2,502 85% $1,355 249% $388
The increase in net interest income since fiscal 1993 was due to the steady
growth in cash and cash equivalents balances, increased rates of return on
short-term investments and the repayment of outstanding bank debt in January
1994.
<PAGE>
INCOME TAXES
FY95 FY94 FY93
(In thousands)
Income Tax Expense (Benefit) $1,624 $(148) $(2,640)
Effective Tax Rate 25.0% 30.0% 21.4%
For fiscal 1995, 1994 and 1993, the Company recorded effective income tax
rates of 25.0%, 30.0% and 21.4%, respectively. The changes in the effective
tax rates were principally attributable to changes in the earnings mix among
the Company's subsidiaries located in various taxing jurisdictions and
utilization of certain net operating loss carryforwards.
During fiscal 1993, the Company adopted Financial Accounting Standards Board
Statement No. 109 ("SFAS No. 109"), "Accounting for Income Taxes". The
cumulative effect of adopting SFAS No. 109 increased the net loss by $919,000,
or $0.08 per share. See Notes 1 and 9 of the Notes to Consolidated Financial
Statements for additional information regarding SFAS No. 109 and income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Sept. 30, 1995 Sept. 30, 1994
(In thousands)
Cash and cash equivalents $46,580 $40,836
Working capital 79,771 72,967
Current ratio 4.3 4.5
Debt --- ---
Stockholders' equity 83,249 76,861
The Company's cash and cash equivalents increased to $46.6 million at
September 30, 1995 compared to $40.8 million at September 30, 1994. The $5.8
million increase in cash and cash equivalents during the fiscal year was due
to positive cash flow from operating activities partially offset by capital
expenditures.
Accounts receivable increased to $26.5 million at September 30, 1995, from
$24.5 million at September 30, 1994. For the quarter ended September 30,
1995, accounts receivable days outstanding were 45 days compared to 46 days
for the quarter ended September 30, 1994. Inventories increased to $27.1
million at September 30, 1995, from $22.6 million at September 30, 1994.
Inventory turns declined to 6.4 for the quarter ended September 30, 1995
compared to 7.1 for the quarter ended September 30, 1994. The Company's
higher level of inventory at September 30, 1995 was principally due to
increased purchases of key components during fiscal 1995 which are in limited
supply or have a long delivery lead time.
ALR International continues to have available an uncommitted revolving credit
line with an availability of approximately $4.2 million which is used to
supplement its working capital requirements. At September 30, 1995, the
Company had not borrowed against this line of credit.
<PAGE>
The Company's primary credit facility continues to be a $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.
In October 1995, the Company signed an amendment to this credit agreement
extending the expiration to August 1998 and reducing the borrowing rate to
Prime, based on the Prime rate charged by Bank of America, from Prime rate
plus 1%. A commitment fee of .75% per annum is paid on the unused portion of
the revolving line of credit. The facility contains certain net worth,
profitability, financial ratio and other covenants with which the Company was
in compliance during fiscal 1995 and 1994. During fiscal 1995 and 1994, the
Company had no outstanding borrowings 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 expected to be available under the Company's various
credit agreements, will provide it with sufficient resources to meet present
and reasonably foreseeable working capital requirements and other cash needs.
<PAGE>
Item 8. Financial Statements, Financial Statement Schedule and Supplementary
Data.
Index to Financial Statements and Financial Statement Schedule
Consolidated Financial Statements:
Report of Independent Auditors................................19
Consolidated Balance Sheets as of September 30, 1995 and 1994.20
Consolidated Statements of Operations for the years ended
September 30, 1995, 1994 and 1993............................21
Consolidated Statements of Stockholders' Equity for the
years ended September 30, 1995, 1994, and 1993...............22
Consolidated Statements of Cash Flows for the years
ended September 30, 1995, 1994, and 1993.....................23
Notes to Consolidated Financial Statements....................24
Financial Statement Schedule:
(For the three years ended September 30, 1995)
Schedule II - Valuation and Qualifying Accounts.........................32
All other schedules and financial statements are omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Advanced Logic Research, Inc.:
We have audited the accompanying consolidated financial statements of Advanced
Logic Research, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Advanced
Logic Research, Inc. and subsidiaries at September 30, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1995 in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Orange County, California
November 2, 1995
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30,
1995 1994
Assets (note 8)
Current assets:
Cash and cash equivalents $46,580 $40,836
Trade accounts receivable, less allowance of $1,999 and
$1,870 at September 30, 1995 and 1994, respectively 26,524 24,507
Inventories (note 2) 27,088 22,555
Prepaid expenses and other assets 1,692 4,540
Deferred income taxes (note 9) 1,858 1,597
Total current assets 103,742 94,035
Equipment, furniture and fixtures, net (note 3) 2,764 3,316
Other assets 714 578
$107,220 $97,929
Liabilities and Stockholders' Equity (notes 7 and 8)
Current liabilities:
Accounts payable $11,607 $ 9,024
Payable to affiliates (note 4) 330 2,619
Accrued expenses (note 5) 10,528 9,425
Income taxes (note 9) 1,506 ---
Total current liabilities 23,971 21,068
Commitments and contingencies (notes 10 and 13)
Stockholders' Equity (note 6)
Preferred stock, $.01 par value; 2,500,000 shares authorized;
none issued --- ---
Common stock, $.01 par value; 25,000,000 shares authorized;
11,668,871 and 11,478,347 shares issued and outstanding at
September 30, 1995 and 1994, respectively 117 115
Additional paid-in capital 54,675 53,842
Retained earnings 26,803 21,931
Adjustments for foreign currency translation 1,654 973
Total stockholders' equity 83,249 76,861
$107,220 $ 97,929
See accompanying notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year ended September 30,
1995 1994 1993
Net sales (note 12) $192,425 $183,387 $169,254
Cost of sales (notes 4 and 10) 156,465 155,652 149,974
Gross profit 35,960 27,735 19,280
Operating expenses:
Selling, general and administrative (note 10) 21,915 19,308 22,898
Engineering, research and development 4,762 4,409 3,935
Royalty expense, net (note 10) 5,289 5,867 5,183
Total operating expenses 31,966 29,584 32,016
Operating income (loss) 3,994 (1,849) (12,736)
Interest income 2,513 1,435 944
Interest expense (11) (80) (556)
Income (loss) before income taxes and
cumulative effect of change in
accounting principle 6,496 (494) (12,348)
Income tax expense (benefit) (note 9) 1,624 (148) (2,640)
Income (loss) before cumulative effect of change in
accounting principle 4,872 (346) (9,708)
Cumulative effect of change in
accounting for income taxes (note 9) --- --- (919)
Net income (loss) $4,872 $ (346) $(10,627)
Net income (loss) before cumulative effect of change in accounting
principle per common and
common equivalent share $ 0.41 $(0.03) $(0.86)
Cumulative effect of change in
accounting principle --- --- (0.08)
Net income (loss) per common and
common equivalent share $ 0.41 $(0.03) $(0.94)
Common and common equivalent shares used
in per share calculation 11,750 11,434 11,336
See accompanying notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
Adjustment
Additional for Foreign Total
Common Stock Paid-in Retained Currency Stockholders'
Shares Amount Capital Earnings Translation Equity
Balance, September 30, 1992
11,244,295 $ 112 $53,300 $32,904 $ 1,109 $ 87,425
Exercise of stock options
136,348 2 183 --- --- 185
Foreign currency translation
--- --- --- --- (1,066) (1,066)
Net loss --- --- (10,627) -- (10,627)
Balance, September 30, 1993
11,380,643 114 53,483 22,277 43 75,917
Exercise of stock options
97,704 1 359 --- --- 360
Foreign currency translation
--- --- --- --- 930 930
Net loss --- --- (346) --- (346)
Balance, September 30, 1994
11,478,347 115 53,842 21,931 973 76,861
Exercise of stock options
190,524 2 833 --- --- 835
Foreign currency translation
--- --- --- --- 681 681
Net income --- --- --- 4,872 --- 4,872
Balance, September 30, 1995
11,668,871 $ 117 $54,675 $26,803 $1,654 $83,249
See accompanying notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended September 30,
1995 1994 1993
Cash flows from operating activities:
Net income (loss) $4,872 $ (346) $(10,627)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,840 2,358 2,472
(Gain) loss on disposal of equipment (79) 203 137
Provisions for losses on
accounts receivable 310 (752) 897
Deferred income tax
provision (benefit) (261) 4,208 (494)
Changes in assets and liabilities:
Trade accounts receivable (1,761) (1,215) 11,535
Inventories (4,135) 14,554 6,557
Prepaid expenses and
other assets 2,615 (889) (863)
Accounts payable 2,389 (5,878) 5,155
Payable to affiliates (2,289) 891 (1,367)
Accrued expenses 991 278 (237)
Income taxes 1,506 (735) 738
Net cash provided by
operating activities 5,998 12,677 13,903
Cash flows from investing activities -
Purchase of equipment,
furniture and fixtures (1,164) (967) (1,417)
Cash flows from financing activities:
Net repayments to banks --- (316) (1,824)
Repayments under notes payable --- (6,000) (6,827)
Issuance of stock under stock option plan 835 360 185
Net cash provided by (used in)
financing activities 835 (5,956) (8,466)
Effect of exchange rate changes on cash 75 635 789
Net increase in cash and cash equivalents 5,744 6,389 4,809
Cash and cash equivalents at
beginning of year 40,836 34,447 29,638
Cash and cash equivalents at end of year $46,580 $40,836 $34,447
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the year for:
Interest $ 2 $ 119 $ 470
Income taxes $(2,070) $(4,294) $ (936)
See accompanying notes to consolidated financial statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1995, 1994, 1993
(1) Summary of Significant Accounting Policies
ORGANIZATION
Advanced Logic Research, Inc., together with its wholly-owned subsidiaries,
Advanced Logic Research International, Inc., ALR International (Pte) Ltd.
("ALR International"), Advanced Logic Research Inc. (U.K.) Limited and
Advanced Logic Research (Deutschland) GmbH, herein referred to collectively as
the "Company", designs, manufactures, markets and supports a broad line of
microcomputer systems based on Intel's Pentium, Pentium Pro and 486
microprocessors. These operations comprise the Company's only business
segment.
Wearnes Technology (Private) Limited ("Wearnes") holds approximately forty-one
percent of the Company's outstanding common stock.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Advanced Logic Research, Inc. and its subsidiaries. All intercompany balances
and transactions have been eliminated in consolidation.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market
(net realizable value).
DEPRECIATION
Depreciation of equipment, furniture and fixtures and the amortization of
leasehold improvements is provided over the estimated useful lives of the
assets using the straight-line method. The useful lives range from three to
five years for equipment, furniture and fixtures, and the shorter of the
useful lives or the terms of the leases for leasehold improvements.
REVENUE RECOGNITION AND WARRANTY POLICY
Revenue is recognized upon product shipment, except for sales to the U.S.
government, which are recognized when product is delivered. The Company
grants certain distributors limited rights to exchange product and price
protection on unsold merchandise. The Company also has financing agreements
with credit corporations that provide alternative financing to pre-approved
dealers. These financing agreements generally require the Company to
repurchase inventory that has been repossessed by the credit corporations from
these dealers. The Company establishes estimated allowances based on
experience for future product returns and price adjustments by charges to
current operations. The Company provides, by a current charge to income, an
amount it estimates will be needed to cover future warranty obligations for
products sold during the year.
FOREIGN CURRENCY TRANSLATION
The Company uses the local currency as the functional currency for its
international operations. Accordingly, assets and liabilities outside the
United States are translated into dollars at the rate of exchange in effect at
the balance sheet date. Income and expense items are translated at the
weighted average exchange rates prevailing during the year. The cumulative
translation gain or loss is shown as an adjustment to stockholders' equity.
During fiscal 1995, 1994 and 1993, the Company recorded foreign currency
transaction gains of $30,000 and foreign exchange losses of $154,000 and
$559,000, respectively.
Forward contracts are used by the Company to hedge certain portions of its
foreign currency exposure resulting from exchange rate fluctuations and are
not used to engage in speculation. At September 30, 1995, the Company had no
forward contracts outstanding.
<PAGE>
INCOME TAXES
During fiscal 1993, the Company elected early adoption of Statement of
Financial Accounting Standards No. 109, ("SFAS No. 109"), "Accounting for
Income Taxes" and has reported the cumulative effect of that change in the
fiscal 1993 Consolidated Statement of Operations. SFAS No. 109 requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
NET INCOME (LOSS) PER SHARE
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.
(2) Inventories
A summary of the components of inventories follows
(in thousands): September 30,
1995 1994
Raw materials and component parts $10,944 $ 7,782
Work in process 3,647 3,244
Finished goods 12,497 11,529
$27,088 $22,555
(3) Equipment, Furniture and Fixtures
Equipment, furniture and fixtures, at cost, consist of the following
(in thousands): September 30,
1995 1994
Machinery and equipment $ 8,211 $ 9,376
Vehicles 248 632
Furniture and fixtures 958 967
Leasehold improvements 1,101 1,087
10,518 12,062
Less accumulated depreciation
and amortization (7,754) (8,746)
$ 2,764 $ 3,316
(4) Transactions with Related Parties
A summary of the payable to Wearnes' subsidiaries follows
(in thousands): September 30,
1995 1994
Wearnes Thakral $ --- $ 1,528
Wearnes Automation --- 875
Other Wearnes' subsidiaries 330 216
$ 330 $ 2,619
<PAGE>
The balance payable to Wearnes' subsidiaries is due and payable 30 days from
the shipment date. Total inventory purchases from Wearnes' subsidiaries
during fiscal 1995, 1994 and 1993 were $7,426,000, $14,350,000 and $6,487,000,
respectively.
(5) Accrued Expenses
A summary of accrued expenses follows
(in thousands): September 30,
1995 1994
Accrued royalty $ 2,903 $ 2,769
Accrued warranty 2,148 2,311
Other 5,477 4,345
$10,528 $ 9,425
(6) Stockholders' Equity
During 1986, the Board of Directors authorized the granting of up to 714,000
shares of common stock for issuance to key individuals or the directors under
an informal stock option program ("1986 Plan"). The options become
exercisable at varying periods relative to the date of employment or the grant
of the option. The options generally expire at the earlier of termination of
employment or January 31, 1996.
The following is a summary of transactions under the 1986 Plan:
Number Price
of shares per share
Options outstanding at September 30, 1992 245,083 $ .07 - 1.68
Exercised (136,348) .07 - .42
Options outstanding at September 30, 1993 108,735 .07 - 1.68
Exercised (60,053) .07 - 1.68
Options outstanding at September 30, 1994 48,682 .10 - .42
Exercised (45,542) .10 - .42
Options outstanding at September 30, 1995 3,140 $ .42
As of September 30, 1995, all outstanding options are exercisable.
During 1990, the Board of Directors of the Company adopted the Flexible Stock
Incentive Plan (the "Plan") authorizing the granting of common stock to key
individuals of which 2,500,000 shares have been registered with the Securities
and Exchange Commission. The Plan contains three components: a stock option
component, a stock bonus/stock purchase component and a stock appreciation
rights component. The purpose of the plan is to provide incentives to
selected individuals whose services contribute to the financial success and
growth of the Company and its affiliates.
The Plan provides for the granting of stock options, stock bonuses, stock
appreciation rights or rights to purchase stock for up to an aggregate of not
more than the greater of (i) 10% of the authorized shares of the Company's
common stock or (ii) 15% of the shares of common stock outstanding as of the
close of business on the last day of the Company's prior fiscal year. Awards
under the Plan can be granted to officers, employees and other individuals as
determined by the committee of the Board of Directors which administers the
Plan (the "Committee").
Options granted under the Plan may be either "incentive" stock options or
options that do not qualify as Incentive Options ("Nonqualified Options").
The exercise price of shares of common stock covered by each Incentive Option
cannot be less than the per share fair market value of the Company's common
stock on the date the option is granted. The exercise price in the case of
Nonqualified Options granted under the Plan is set by the Committee with a
minimum exercise price of at least 85% of the fair market value of the
Company's common stock on the date the option is granted.
<PAGE>
The following is a summary of transactions under the Plan:
Number Price
of shares per share
Options outstanding at September 30, 1992 427,844 $ 6.25 - 12.50
Granted 428,000 4.25 - 4.50
Canceled (48,791) 4.25 - 11.00
Options outstanding at September 30, 1993 807,053 4.25 - 12.50
Granted 351,000 3.38 - 3.625
Exercised (37,651) 4.25 - 6.25
Canceled (57,598) 3.38 - 12.50
Options outstanding at September 30, 1994 1,062,804 3.38 - 11.00
Granted 600,000 4.50
Exercised (137,482) 3.38 - 6.25
Canceled (34,483) 3.38 - 6.25
Options outstanding at September 30, 1995 1,490,839 $ 3.38 - 11.00
All options granted under the Plan are Nonqualified Options which were granted
at an exercise price that approximated fair market value. As of September 30,
1995, 727,591 of the outstanding options are exercisable.
On August 13, 1990, the Board of Directors of the Company adopted the
Director's Nonqualified Stock Option Plan ("Director's Plan") authorizing the
registration of 60,000 shares of common stock for issuance to directors at an
exercise price equal to the fair market value on the date the option is
granted. The purpose of the Director's Plan is to provide incentives to
participants for increased efforts and successful achievements on behalf of or
in the interest of the Company while serving on the Company's Board of
Directors. In each of fiscal 1995, 1994 and 1993, 10,000 shares were granted
to the non-employee directors of ALR under the Director's Plan. During fiscal
1995, 7,500 options were exercised while during 1994 and 1993 no options were
exercised. As of September 30, 1995, the number of options outstanding and
exercisable under this Director's Plan were 52,500 at a price per share of
$3.44 to $8.75. During fiscal 1995, 1994 or 1993 no options were canceled.
(7) Notes Payable to Banks
ALR International currently has a line of credit totaling approximately
$4,212,000. The line of credit bears interest at the lending bank's prime
rate. At September 30, 1995 and 1994, ALR International had no outstanding
borrowings against this line of credit. The maximum and average amounts
outstanding during fiscal 1995 were $718,900 and $59,900, respectively, with a
weighted average interest rate of 6.13%. The maximum and average amounts
outstanding during fiscal 1994 were $635,200 and $66,000, respectively, with a
weighted average interest rate of 5.33%.
(8) Long-Term Debt
During June 1993, the Company entered into a three-year agreement with Heller
Financial, Inc. providing the Company with a $15,000,000 revolving line of
credit. The line is secured by the Company's assets and availability is
subject to a borrowing base requirement. In October 1995, the Company signed
an amendment to this existing credit agreement extending the expiration to
August 1998 and reducing the borrowing rate to Prime, based on the Prime rate
charged by Bank of America, from Prime rate plus 1%. A commitment fee of .75%
per annum is paid on the unused portion of the revolving line of credit. The
facility contains certain net worth, profitability, financial ratio and other
covenants with which the Company was in compliance at September 30, 1995 and
1994. During fiscal 1995 and 1994, the Company had no outstanding borrowings
against this line of credit.
<PAGE>
(9) Income Taxes
The components of income (loss) before income taxes and cumulative effect of
change in accounting principle are as follows (in thousands):
Year ended September 30, 1995 1994 1993
U.S. $4,005 $(1,908) $ (9,821)
Foreign 2,491 1,414 (2,527)
$6,496 $ (494) $(12,348)
Income tax expense (benefit) consists of the following (in thousands):
Year ended September 30, 1995 1994 1993
Current:
Federal $1,856 $(4,357) $(2,766)
State 29 1 26
Foreign --- --- 594
$1,885 $(4,356) $(2,146)
Deferred:
Federal $ (261) $ 4,208 $ (494)
State --- --- ---
(261) 4,208 (494)
$ 1,624 $ (148) $(2,640)
Income tax expense for the year ended September 30, 1995 includes a benefit of
$1,118,000 resulting from the utilization of certain state and foreign net
operating loss carryforwards.
As discussed in Note 1, the Company adopted SFAS No. 109 in fiscal 1993. The
cumulative effect of this change in accounting for income taxes resulted in an
increase to the net loss of $919,000, or $0.08 per share, and is reported
separately in the Consolidated Statement of Operations for the year ended
September 30, 1993.
Total income tax expense (benefit) differs from the amount computed by
applying the federal corporate income tax rate of 34% to income (loss) before
taxes and cumulative effect of change in accounting principle as follows (in
thousands):
Year ended September 30, 1995 1994 1993
Computed expected income taxes (benefit) $ 2,209 $ (168) $(4,198)
State income taxes, net of
federal income tax benefit 27 1 14
Effect of foreign operations (486) (278) 1,727
Tax exempt foreign sales
corporation income (132) (99) (70)
Tax exempt interest income (91) (64) (103)
Changes in valuation allowance 102 469 ---
Other (5) (9) (10)
$ 1,624 $ (148) $(2,640)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets as of September 30, 1995 are as follows
(in thousands):
<PAGE>
Year ended September 30, 1995 1994
Deferred tax liabilities:
Prepaid expenses $ 333 $ 296
Deferred tax assets:
Net operating loss carryforwards 1,703 2,821
Inventories 1,379 1,629
Warranty provisions 773 687
Allowance for doubtful accounts 601 618
Promotional and sales allowances 510 376
Other 633 424
5,599 6,555
Valuation allowance (3,408) (4,662)
Net deferred tax assets 2,191 1,893
$1,858 $1,597
The Company has recorded a valuation allowance in the amount set forth in the
above table for certain deductible temporary differences for which it is not
certain whether the Company will receive future tax benefit. The net decrease
in the total valuation allowance for the year ended September 30, 1995 was
$1,254,000. The change in the valuation allowance for the year ended
September 30, 1995, resulted primarily from the recognition of available state
and foreign net operating loss carryforwards. The Company believes that the
remaining deferred tax assets will more likely than not be realizable due to
availability of the net operating loss carryback potential.
The Company has approximately $6,769,000 of net operating loss carryforwards
in various state and foreign tax jurisdictions which can be utilized to offset
the Company's future taxable earnings. Approximately $1,198,000 of the
carryforwards expire in fiscal 1999. The remaining $5,571,000 have no
expiration date.
(10) Operating Expenses
Selling expenses include advertising costs of $8,304,000, $6,394,000 and
$6,682,000 for fiscal 1995, 1994 and 1993, respectively. These costs include
expenses related to print media advertising, cooperative advertising with
customers, promotional activities, trade shows, merchandising kits, point-of-
purchase displays and brochures.
In 1988, the Company entered into a nonexclusive licensing agreement with IBM
Corporation ("IBM") which enables the Company to make, use, lease, sell,
manufacture or have manufactured certain products under patent with IBM.
Under this agreement, the Company will pay a royalty to IBM for products sold
that utilize IBM technology. Royalty expense under this agreement for fiscal
1995, 1994 and 1993 was $5,289,000, $5,867,000 and $5,189,000, respectively.
In April 1991, the Company entered into a non-exclusive distribution agreement
with Microsoft Corporation ("Microsoft") whereby the Company was granted the
right to distribute specific Microsoft products. Royalty expense under this
agreement for fiscal 1995, 1994 and 1993 was $2,174,000, $1,971,000 and
$1,694,000, respectively, which is included in cost of sales in the
accompanying Consolidated Statements of Operations.
(11) Profit Sharing Plan
In September 1988, the Company established a pretax savings and profit sharing
plan under Section 401(k) of the Internal Revenue Code. Under the plan,
eligible employees are able to contribute from 3% to 15% of their
compensation. The Company makes a matching contribution of 50% of the first
5% contributed by the employee and may, at its discretion, make additional
contributions to the plan, up to a maximum of 15% of the employee's
compensation. The Company's contribution to the Plan was approximately
$234,000, $195,000 and $177,000 for fiscal 1995, 1994 and 1993, respectively.
<PAGE>
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 112 ("SFAS No. 112"), "Employers Accounting for
Postemployment Benefits" requiring accrual basis accounting for post
employment benefits. The Company does not offer post employment benefits
subject to guidelines established by SFAS No. 112. Accordingly, no provisions
have been reflected in the Company's consolidated financial statements at
September 30, 1995.
(12) International Operations
The following table reflects information with respect to the Company's
domestic and foreign operations (in thousands):
North
America Asia Europe Elimination Total
Year ended September 30, 1995
Sales to
unaffiliated customers $128,858 $32,945 $30,576 $ --- $192,379
Intercompany sales 22,408 --- --- (22,408) ---
Sales to affiliated
customers 28 18 --- --- 46
Net sales $151,294 $32,963 $30,576 $(22,408) $192,425
Net income (loss) $ 2,781 $ 1,041 $ 1,450 $ (400) $ 4,872
Identifiable assets $ 90,022 $14,569 $14,317 $(11,688) $107,220
Year ended September 30, 1994
Sales to
unaffiliated customers $116,403 $40,348 $25,997 $ --- $182,748
Intercompany sales 21,244 --- --- (21,244) ---
Sales to affiliated
customers 163 476 --- --- 639
Net sales $137,810 $40,824 $25,997 $(21,244) $183,387
Net income (loss) $ (1,840) $ (79) $ 1,493 $ 80 $ (346)
Identifiable assets $ 83,701 $14,087 $11,430 $(11,289) $ 97,929
Year ended September 30, 1993
Sales to
unaffiliated customers $105,535 $36,028 $26,287 $ --- $167,850
Intercompany sales 31,389 --- --- (31,389) ---
Sales to affiliated
customers 1,345 59 --- --- 1,404
Net sales $138,269 $36,087 $26,287 $(31,389) $169,254
Net income (loss) $ (8,358) $(2,297) $ (824) $ 852 $(10,627)
Identifiable assets $ 85,615 $19,295 $14,545 $(11,360) $108,095
The U.S. Company had export sales to unaffiliated customers of $20,002,000,
$18,075,000 and $15,893,000 for fiscal 1995, 1994 and 1993, respectively.
During fiscal 1995, 1994 and 1993, no customer accounted for more than 10% of
net sales.
(13) Commitments and Contingencies
The Company leases its U.S. manufacturing and office facilities under
noncancelable operating leases which expire in 1997 and 1999. Additionally,
office facility leases for the U.K. subsidiary expire in 2010, for the German
subsidiary in 2002 and for the Singapore subsidiary in 1997. Rental expense
for fiscal 1995, 1994 and 1993 amounted to $1,685,000, $1,931,000 and
$2,487,000, respectively.
<PAGE>
At September 30, 1995, future minimum rental payments under all noncancelable
operating leases with terms in excess of one year are as follows (in
thousands):
Year ending September 30,
1996 $1,405
1997 1,259
1998 701
1999 579
2000 256
Thereafter 700
$4,900
The Company has been notified that certain of its products may require
licenses under patents held by others. The Company evaluates these licensing
proposals on a case-by-case basis to determine whether licenses are necessary.
In the opinion of Company management, the liability, if any, resulting from
such claims would not have a material adverse affect on the Company's
consolidated financial statements.
The Company is involved with certain legal proceedings and other claims
arising in the normal course of business. In the opinion of Company
management, the liability, if any, resulting from such litigation would not
have a material adverse affect on the Company's consolidated financial
position or results of operations.
(14) Selected Quarterly Financial Data (unaudited)
The tables below set forth selected quarterly financial information for the
years ended September 30, 1995 and 1994 (in thousands, except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
1995
Net sales $45,718 $47,359 $45,951 $53,397 $192,425
Gross profit 8,053 8,429 9,159 10,319 35,960
Net income 649 1,058 1,177 1,988 4,872
Net income per share $ 0.06 $ 0.09 $ 0.10 $ 0.17 $ 0.41
1994
Net sales $49,617 $48,257 $37,774 $47,739 $183,387
Gross profit 8,184 7,038 4,878 7,635 27,735
Net income (loss) (1) 521 293 (1,525) 365 (346)
Net income
(loss) per share $ 0.05 $ 0.03 $ (0.13) $ 0.03 $ (0.03)
The sum of quarterly income per share will not necessarily equal the annual
amount since the calculations are based on the weighted average number of
shares outstanding during each period.
(1) Included in the fiscal 1994 fourth quarter net income is a $.6 million
reversal of bad debt expense against the allowance for doubtful accounts.
<PAGE>
ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
Year ended September 30,
1995 1994 1993
Allowance for doubtful accounts
Balance, beginning of year $ 1,870 $ 3,158 $ 3,293
Additions (reductions)
charged (credited) to expense 310 (752) 897
Reductions (181) (536) (1,032)
Balance, end of year $ 1,999 $ 1,870 $ 3,158
Allowance for sales returns
Balance, beginning of year $ 2,050 $ 2,150 $ 3,566
Net additions (reductions)
charged (credited) to sales 750 (100) (1,416)
Balance, end of year $ 2,800 $ 2,050 $ 2,150
Allowance for price protection
Balance, beginning of year $ 225 $ --- $ 317
Net additions (reductions)
charged (credited) to sales 99 225 (317)
Balance, end of year $ 324 $ 225 $ ---
<PAGE>
PART III
Certain information required by Part III is omitted from this report in
that the Registrant will file a definitive proxy statement within 120
days after the end of its fiscal year pursuant to Regulation 14A (the
"Proxy Statement") for its Annual Meeting of Stockholders to be held
February 21, 1996 and the information included therein is incorporated
herein by reference.
Item 10. Directors and Executive Officers of the Registrant.
Information with respect to directors of ALR is incorporated by
reference from the information under the caption "Election of Directors-
- -Nominees" in the Company's Proxy Statement. Information with respect to
executive officers of ALR is incorporated by reference from the
information under the caption "Executive Officers" in the Company's
Proxy Statement.
Item 11. Executive Compensation.
The information under the caption "Executive Compensation and
Other Information" in the Company's Proxy Statement is
incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information under the caption "Stock Ownership of Management
and Principal Stockholder" in the Company's Proxy Statement is
incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
The information under the caption "Certain Transactions" in the
Company's Proxy Statement is incorporated by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
Financial Statements and Financial Statement Schedule -- See Index to
Consolidated Financial Statements on page 18.
(3) Exhibits included herein (numbered in accordance with Item 601 of the
Regulation S-K):
Exhibit
Number Description of Exhibits
3.1 Articles of Incorporation (California) (1)
3.2 Restated Certificate of Incorporation (following the
reincorporation of registrant in Delaware) (l)
3.3 Bylaws of Registrant (California) (1)
3.4 Bylaws of Registrant (following the reincorporation of Registrant
in Delaware) (1)
3.5 Amended and Restated Bylaws of Registrant (2)
10.1 Agreement (relating to term loan facility of U.S. $15,000,000
dated January 26, 1989) among Registrant, The Mitsui Trust & Banking Co.,
Ltd., The Tokai Bank, Limited and Singapore International Merchant Bankers
Limited and Amendments (1)
10.4 Right of Participation Agreement dated March 1, 1990 between
Registrant and Wearnes Technology (Private) Limited (1)
10.7 Stock Option Letter dated January 5, 1987 between Registrant and
David Kirkey and Amendments (1)
10.9 Stock Option Letter dated November 28, 1989 between Registrant
and Vic Sangveraphunsiri (1)
10.11 Registrant's Flexible Stock Incentive Plan and related forms of
Agreement (1)
10.12 Form of Indemnification Agreement (1)
10.13 Manufacturing Agreement dated as of October 22, 1985 between
Registrant and Wearnes Technology (Private) Limited (1)
10.14 Agreement dated September 14, 1989 between Registrant and
Wearnes Technology (Private) Limited (1)
<PAGE>
10.16 Brand Name Distributor Reseller Purchase Agreement dated April
24, 1989 between Registrant and Gates/FA Distributing (1) (3)
10.17 Agreement dated October 1, 1988 between Registrant and
International Business Machines Corporation (1) (3)
10.18 Computer Technology License Agreement dated December 12, 1988
between Registrant and Phoenix Technologies Ltd. (1) (3)
10.19 Amendment to Computer License Agreement dated as of May 5, 1989
between Registrant and Phoenix Technologies Ltd. (1) (3)
10.20 Amendment to Computer Technology License Agreement dated as of
November 9, 1989 between Registrant and Phoenix Technologies Ltd. (1) (3)
10.21 OEM Distribution Agreement dated October 27, 1987 between
Registrant and The Santa Cruz Operation, Inc. (1)
10.22 Amendment to OEM Distribution Agreement dated October 27, 1987
between Registrant and The Santa Cruz Operation, Inc. (1)
10.23 Amendment to OEM Distribution Agreement dated October 27, 1987
between Registrant and The Santa Cruz Operation, Inc. (1)
10.24 Standard Form Lease dated April 27, 1988 between Registrant and
Alton Technical Center, Ltd. (1)
10.25 First Amendment to Standard Form Lease dated August 15, 1988
between Registrant and Alton Technical Center, Ltd. (1)
10.26 Second Amendment to Standard Form Lease dated June 23, 1989
between Registrant and Alton Technical Center Holding Company, Ltd. (1)
10.27 Standard Form Lease (Single Tenant) dated August 21, 1989
between Registrant and The Irvine Company (1)
10.28 Registrant's Directors' Non-Qualified Stock Option Plan (2)
10.33 ALR Reseller Terms and Agreement dated February 4, 1991 between
Registrant and JWP Information Systems and Addendum thereto (4) (5)
10.35 Loan and Security Agreement dated June 16, 1993, between
Registrant and Heller Financial, Inc. (6)
10.36 Third Amendment to Standard Form Lease dated March 31, 1994
between Registrant and Alton Technical Center Holding Company, Ltd. (8)
10.37 First and Second Amendments to Standard Form Lease (Single
Tenant) dated August 17, 1993 and April 15, 1994, respectively, between
Registrant and The Irvine Company (8)
<PAGE>
10.38 First Amendment to Loan and Security Agreement dated August 7,
1995, between Registrant and Heller Financial, Inc. (9)
11. Statement Regarding the Computation of Per Share Earnings.
22.1 Subsidiaries of Registrant (7)
23.1 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney (Included on page 37.)
(b) Reports on Form 8-K: None
(1) Incorporated by reference to identically numbered exhibits filed in
response to Item-16(a), "Exhibits", of Registrant's Registration Statement on
Form S-1 (file No. 33-33907), which became effective on April 11, 1990.
(2) Incorporated by reference to identically numbered exhibits filed in
response to Item 14 of the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1990 filed with the Securities and Exchange
Commission on December 31, 1990.
(3) Confidential treatment of certain portions of this agreement granted
August 9, 1990.
(4) Incorporated by reference to identically numbered exhibits filed in
response to Item 14 of the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1991 filed with the Securities and Exchange
Commission on December 27, 1991.
(5) Confidential treatment of certain portions of this agreement granted
April 22, 1992.
(6) Incorporated by reference to identically numbered exhibit filed in
response to Item 6 of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993 filed with the Securities and Exchange Commission
on August 13, 1993.
(7) Incorporated by reference to identically numbered exhibit filed in
response to Item 14 of the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1993 filed with the Securities and Exchange
Commission on December 29, 1993.
(8) Incorporated by reference to identically numbered exhibits filed in
response to Item 14 of the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994 filed with the Securities and Exchange
Commission on December 22, 1994.
(9) Filed herewith in response to Item 14 of the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995.
<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, in the City of
Irvine, State of California, on the 21st day of December, 1995.
ADVANCED LOGIC RESEARCH, INC.
By: /s/ Gene Lu
Gene Lu,
Chairman of the Board of Directors,
President, and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gene Lu and Ronald J. Sipkovich,
jointly and severally, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-
in-fact, or his substitute or substitutes, may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on December 21, 1995.
Signature Title
/s/ Gene Lu Chairman of the Board
Gene Lu of Directors, President,
and Chief Executive Officer
(Principal Executive Officer)
/s/ Ronald J. Sipkovich Vice President, Finance and
Ronald J. Sipkovich Administration, Chief Financial
Officer and Secretary
(Principal Accounting Officer)
/s/ Chun Win Wong Director
Chun Win Wong
/s/ Philip A. Harding Director
Philip A. Harding
/s/ Therese E. Myers Director
Therese E. Myers
/s/ Kenneth W. Simonds Director
Kenneth W. Simonds
<PAGE>
[ARTICLE]
[MULTIPLIER] 1,000
EXHIBIT 11
ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Amounts in thousands, except per share amounts)
Year ended September 30,
1995 1994 1993
Primary earnings per share:-
Shares used in computing earnings per share:
Weighted average number of shares outstanding 11,512 11,434 11,336
Incremental shares attributed to
outstanding options 238 - -
11,750 11,434 11,336
Earnings:
Net income $4,872 $ (346) $(10,627)
Earnings per common and
common equivalent share $ 0.41 $(0.03) $ (0.94)
Earnings per share - assuming full dilution:-
Shares used in computing earnings per share:
Weighted average number of
shares outstanding 11,512 11,434 11,336
Incremental shares attributed to
outstanding options 419 - -
11,931 11,434 11,336
Earnings:
Net income $4,872 $ (346) $(10,627)
Earnings per common and common
equivalent share $ 0.41 $(0.03) $ (0.94)
FIRST AMENDMENT OF LOAN AND SECURITY AGREEMENT
This Amendment of Loan and Security Agreement (this "Amendment") is made
as of August 7, 1995, by and between ADVANCED LOGIC RESEARCH, INC., a Delaware
corporation ("Borrower") and HELLER FINANCIAL, INC., a Delaware corporation
("Lender"). This Amendment is made with reference to that certain Loan and
Security Agreement dated as of June 16, 1993, by and between Borrower and
Lender (as amended from time to time, the "Loan and Security Agreement"). All
capitalized terms used herein and not otherwise defined shall have the
meanings assigned to such terms in the Loan and Security Agreement.
Whereas, Borrower and Lender entered into the Loan and Security
Agreement; and
Whereas, Borrower and Lender desire to amend certain terms of the Loan
and Security Agreement as set forth below;
Now, Therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. AMENDMENT
1.1 Section 1 of the Loan and Security Agreement is amended by adding
the following new definitions of "Expiry Date", "First Amendment Date",
"Funding Date", "Interest Payment Date", "Interest Period", "Interest Rate
Determination Date", "LIBOR Rate", "LIBOR Rate Loans", "Notice of Borrowing",
"Notice of Conversion/Continuation" and "Prime Rate Loans", and inserting each
new definition into its appropriate alphabetical order.
"Expiry Date" means the earlier of (a) the termination of the Revolving
Loan Commitment pursuant to subsection 8.3 or (b) the Termination Date.
"First Amendment Date" means the effective date of that certain First
Amendment of Loan and Security Agreement by and between Borrower and
Lender.
"Funding Date" means the date of each funding of a Loan.
"Interest Payment Date" means, with respect to any LIBOR Rate Loan, the
last day of the applicable Interest Period for such Loan, and at
maturity, whether by acceleration or otherwise.
"Interest Period" means any interest period applicable to a Loan as
determined pursuant to subsection 2.2(B).
"Interest Rate Determination Date" means the date on which Lender
determines the interest rate applicable to any LIBOR Rate Loan pursuant
to subsection 2.2(A) which shall be the second Business Day prior to the
first day of the Interest Period applicable to such LIBOR Rate Loan.
"LIBOR Rate" means, for each Interest Period, a rate of interest equal
to:
<PAGE>
(a) the rate of interest determined by Lender at which deposits
in U.S. Dollars for the relevant period are offered based on information
presented on the Reuters Screen LIBOR Page as of 11:00 A.M. (London time) on
the day which is two (2) Business Days prior to the first day of such Interest
Period; provided that if at least two such offered rates appear on the Reuters
Screen LIBOR Page in respect of such Interest Period, the arithmetic mean of
all such rates (as determined by Lender) will be the rate used; provided
further that if Reuters ceases to provide LIBOR quotations, such rate shall be
the average rate of interest determined by Lender at which deposits in Dollars
are offered for the relevant Interest Period by Bankers Trust Company, The
Chase Manhattan Bank, National Association and Chemical Bank (or their
respective successors) to banks with combined capital and surplus in excess of
$500,000,000 in the London interbank market as of 11:00 A.M. (London time) on
the applicable Interest Rate Determination Date, divided by
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) or reserve
requirements in effect on the day which is two (2) Business Days prior
to the beginning of such Interest Period (including, without limitation,
basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System or
other governmental authority having jurisdiction with respect thereto,
as now and from time to time in effect) for Eurocurrency funding
(currently referred to as "Eurocurrency liabilities" in Regulation D of
such Board) which are required to be maintained by a member bank of the
Federal Reserve System; (such rate to be adjusted to the nearest one
sixteenth of one percent (1/16 of 1%) or, if there is no nearest one
sixteenth of one percent (1/16 of 1%), to the next higher one sixteenth
of one percent (1/16 of 1%).
"LIBOR Rate Loans" means Loans bearing interest at rates determined by
reference to the LIBOR Rate as provided in subsection 2.2(A)(2).
"Notice of Borrowing" means a notice substantially in the form of
Exhibit G.
"Notice of Conversion/Continuation" means a notice substantially in the
form of Exhibit H.
"Prime Rate Loans" means Loans bearing interest at rates determined by
reference to the Prime Rate as provided in subsection 2.2(A)(1).
1.2 Subsection 2.1 of the Loan and Security Agreement is amended by
deleting subpart 2.1(A)(2) and subpart 2.1(C) and by substituting the
following new subparts 2.1(A)(2) and 2.1(C).
(2)"Borrowing Base" means, as of any date of
determination, an amount equal to the sum of (a) one hundred percent
(100%) of the amount of the Cash Collateral Fund at the time of any
borrowing; plus (b) the lesser of (i) eighty percent (80%) of Eligible
Accounts and (ii) the Dilution Advance Rate of Eligible Accounts, less
such reserves as Lender in its sole and reasonable discretion elects to
establish; plus (c) (i) up to fifty percent (50%) of Eligible Inventory
consisting of CPU components; DRAM components; SIMM components; hard
drives and finished goods, and (ii) up to twenty-five percent (25%) of
Eligible Inventory consisting of all other raw material stock, less such
reserves as Lender in its sole and reasonable discretion elects to
establish, provided that the amount determined pursuant to this clause
(c) shall at no time exceed $4,000,000. Prior to the initial borrowing
against the Eligible Inventory described in part (c), Borrower's
inventory shall be independently appraised by a third party appraisal
firm chosen by Lender, and Borrower agrees to cooperate fully with such
appraisal firm and to pay all reasonable costs of obtaining said
appraisal. Based upon the results of such independent appraisal, Lender
may unilaterally reduce the advance rates as set forth in subsection
2.1(A)(2)(C) above by notifying Borrower in writing.
<PAGE>
(C)Borrowing Mechanics. Prime Rate Loans made on any Funding Date shall
be in an aggregate minimum amount of $500,000 and integral multiples of
$50,000 in excess of that amount. LIBOR Rate Loans made on any Funding
Date shall be in an aggregate minimum amount of $1,000,000 and integral
multiples of $100,000 in excess of that amount. When Borrower desires
to borrow under this subsection 2.1, it shall deliver to Lender a fully
and properly completed Notice of Borrowing no later than 11:00 A.M. (Los
Angeles time) at least (i) one Business Day in advance of the proposed
Funding Date in the case of a requested Prime Rate Loan and (ii) three
Business Days in advance of the proposed Funding Date in the case of a
requested LIBOR Rate Loan. Loans may be continued as or converted into
Prime Rate Loans and LIBOR Rate Loans in the manner provided in
subsection 2.2(E) on and after the date ten (10) days after the First
Amendment Date. In lieu of delivering the above described Notice of
Borrowing, Borrower may give Lender telephonic notice by the required
time of the proposed borrowing; provided that such notice shall be
promptly, and in any event within one Business Day, confirmed in writing
by delivery of a Notice of Borrowing to Lender. Lender shall not incur
any liability to Borrower for acting upon any telephonic notice that
Lender believes in good faith to have been given by a duly authorized
officer or other person authorized to borrow on behalf of Borrower or
for otherwise acting in good faith under this subsection 2.1(C). The
making of an advance pursuant to telephonic notice shall constitute a
Loan under this Agreement. Except as provided in subsection 2.8(D), a
Notice of Borrowing for a LIBOR Rate Loan (or telephonic notice in lieu
thereof) shall be irrevocable once given, and Borrower shall be bound to
make a borrowing in accordance therewith. Each such advance to Borrower
under the Revolving Loan shall, on the Funding Date, be deposited, in
immediately available funds, in such account as Borrower may from time
to time designate to Lender in writing.
1.3 The Loan and Security Agreement is amended by deleting Subsection
2.2 in its entirety and by substituting the following new Subsection 2.2.
2.2 Interest
(A) Rate of Interest. The Loans and all other Obligations shall bear
interest from the date such Loans are made or such other Obligations
become due to the date paid at a rate per annum determined by reference
to the Prime Rate or the LIBOR Rate. The applicable basis for
determining the rate of interest shall be selected by Borrower initially
at the time a Notice of Borrowing is given pursuant to subsection
2.1(C). The basis for determining the interest rate with respect to any
Loan may be changed from time to time pursuant to subsection 2.2(E). If
on any day a Loan is outstanding with respect to which notice,
specifying the basis for determining the rate of interest, has not been
delivered to Lender in accordance with the terms of this Agreement, then
for that day that Loan shall bear interest determined by reference to
the Prime Rate.
The Loans shall bear interest through maturity as follows:
(1) if a Prime Rate Loan, then at the sum of the Prime Rate
per annum; and
(2 if a LIBOR Rate Loan, then at the sum of the LIBOR
Rate plus two and three quarters percent (2.75%) per annum.
<PAGE>
Notwithstanding the foregoing, at the election of Lender in its
sole discretion, after the occurrence of an Event of Default and for so
long as such Event of Default continues, the Loans and all other
Obligations shall bear interest until paid in full at a rate per annum
that is three percent (3.0%) in excess of the rate of interest otherwise
payable under this Agreement; provided that, in the case of LIBOR Rate
Loans, until the expiration of any then applicable Interest Period, all
such LIBOR Rate Loans shall bear interest payable upon demand at a rate
which is five and three quarters percent (5.75%) in excess of the LIBOR
Rate. Thereafter, upon the expiration of the Interest Period in effect
at the time any such increase in interest rate is effective, unless
otherwise permitted by the terms of subsection 2.8(I), such LIBOR Rate
Loans shall thereupon become Prime Rate Loans and thereafter bear
interest payable upon demand at a rate which is three percent (3.0%) per
annum in excess of the interest rate otherwise payable under this
Agreement for Prime Rate Loans.
(B) Interest Periods. In connection with each LIBOR Rate Loan,
Borrower shall elect an interest period (each an "Interest Period") to
be applicable to such Loan, which Interest Period shall be either a one,
two or three month period provided that:
(1) the initial Interest Period for any Loan shall
commence on the Funding Date of such Loan;
(2) in the case of immediately successive Interest
Periods, each successive Interest Period shall commence on the day on
which the next preceding Interest Period expires;
(3) if an Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day; provided that if any Interest Period would
otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(4) any Interest Period that begins on the last Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to part (5) below, end on the last Business Day
of a calendar month;
(5) no Interest Period shall extend beyond the Expiry
Date;
(6) no Interest Period may extend beyond a date on which
Borrower is required to make a scheduled payment of principal of the
Loans unless the sum of (a) the aggregate principal amount of Loans that
are Prime Rate Loans or that have Interest Periods expiring on or before
such date and (b) the available, unused Revolving Loan Commitment equals
or exceeds the principal amount required to be paid on the Loans on such
date;
(7) the Interest Period for a Loan that is converted
pursuant to subsection 2.2(E) shall commence on the date of such
conversion and shall expire on the date on which the Interest Period for
the Loans so converted expires; and
<PAGE>
(8) there shall be no more than two (2) Interest
Periods relating to LIBOR Rate Loans outstanding at any time.
(C) Computation and Payment of Interest. Interest on the Loans
and all other Obligations shall be computed on the daily principal
balance on the basis of a 360-day year for the actual number of days
elapsed in the period during which it accrues. In computing interest on
any Loan, the date of funding of the Loan or the first day of an
Interest Period applicable to such Loan or, with respect to a Prime Rate
Loan being converted from a LIBOR Rate Loan, the date of conversion of
such LIBOR Rate Loan to such Prime Rate Loan shall be included and the
date of payment of such Loan or the expiration date of an Interest
Period applicable to such Loan, or with respect to a Prime Rate Loan
being converted to a LIBOR Rate Loan, the date of conversion of such
Prime Rate Loan to such LIBOR Rate Loan, shall be excluded; provided
that if a Loan is repaid on the same day on which it is made, one day's
interest shall be paid on that Loan. Interest on the Prime Rate Loans
and all other Obligations other than LIBOR Rate Loans shall be payable
to Lender monthly in arrears on the first day of the month following the
First Amendment Date and the first day of each month thereafter, on the
date of any prepayment of Loans and at maturity, whether by acceleration
or otherwise. Interest on LIBOR Rate Loans shall be payable to Lender
on the last day of the applicable Interest Period for such Loan, and at
maturity, whether by acceleration or otherwise.
(D) Interest Laws. Notwithstanding any provision to the contrary
contained in this Agreement or the other Loan Documents, Borrower shall
not be required to pay, and Lender shall not be permitted to collect,
any amount of interest in excess of the maximum amount of interest
permitted by law ("Excess Interest"). If any Excess Interest is
provided for or determined by a court of competent jurisdiction to have
been provided for in this Agreement or in any of the other Loan
Documents, then in such event: (1) the provisions of this subsection
shall govern and control; (2) neither Borrower nor any other Loan Party
shall be obligated to pay any Excess Interest; (3) any Excess Interest
that Lender may have received hereunder shall be, at Lender's option,
(a) applied as a credit against the outstanding principal balance of the
Obligations or accrued and unpaid interest (not to exceed the maximum
amount permitted by law), (b) refunded to the payor thereof, or (c) any
combination of the foregoing; (4) the interest rate(s) provided for
herein shall be automatically reduced to the maximum lawful rate allowed
from time to time under applicable law (the "Maximum Rate"), and this
Agreement and the other Loan Documents shall be deemed to have been and
shall be, reformed and modified to reflect such reduction; and (5)
neither Borrower nor any other Loan Party shall have any action against
Lender for any damages arising out of the payment or collection of any
Excess Interest. Notwithstanding the foregoing, if for any period of
time interest on any Obligations is calculated at the Maximum Rate
rather than the applicable rate under this Agreement, and thereafter
such applicable rate becomes less than the Maximum Rate, the rate of
interest payable on such Obligations shall remain at the Maximum Rate
until Lender shall have received the amount of interest that Lender
would have received during such period on such Obligations had the rate
of interest not been limited to the Maximum Rate during such period.
<PAGE>
(E) Conversion or Continuation. Subject to the provisions of
subsection 2.8 and the limitation on the number of Interest Periods
contained in subsection 2.2(B)(8), Borrower shall have the option to (1)
convert at any time all or any part of outstanding Loans equal to
$1,000,000 and integral multiples of $100,000 in excess of that amount
from Loans bearing interest at a rate determined by reference to one
basis to Loans bearing interest at a rate determined by reference to an
alternative basis, or (2) upon the expiration of any Interest Period
applicable to a LIBOR Rate Loan, to continue all or any portion of such
Loan equal to $1,000,000 and integral multiples of $100,000 in excess of
that amount as a LIBOR Rate Loan and the succeeding Interest Period(s)
of such continued Loan shall commence on the last day of the Interest
Period of the Loan to be continued; provided that LIBOR Rate Loans may
only be converted into Loans bearing interest determined by reference to
an alternative basis on the expiration date of an Interest Period
applicable thereto; and provided, further, that no outstanding Loan may
be continued as, or be converted into, a LIBOR Rate Loan when any Event
of Default or Default has occurred and is continuing; and provided,
further, that no Loan may be converted into a LIBOR Rate Loan until ten
(10) days after the First Amendment Date.
Borrower shall deliver a fully and properly completed Notice of
Conversion/Continuation to Lender no later than 11:00 A.M. (Los Angeles
time) at least three (3) Business Days in advance of the proposed
conversion/continuation date. In lieu of delivering the above-described
Notice of Conversion/Continuation, Borrower may give Lender telephonic
notice by the required time of any proposed conversion/continuation
under this subsection 2.2(E); provided that such notice shall be
promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to Lender on or before the proposed
conversion/continuation date.
Lender shall not incur any liability to Borrower in acting upon
any telephonic notice referred to above that Lender believes in good
faith to have been given by a duly authorized officer or other person
authorized to act on behalf of Borrower or for otherwise acting in good
faith under this subsection 2.2(E).
Except as provided in subsection 2.8(D), a Notice of
Conversion/Continuation for conversion to, or continuation of, a LIBOR
Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable
once given, Borrower shall be bound to convert or continue in accordance
therewith and Lender shall have no liability for acting in accordance
with Borrower's instructions contained therein.
1.4 The Loan and Security Agreement is amended by deleting Subsection
2.3 in its entirety and by substituting the following new Subsection 2.3.
2.3 Fees
(A) Unused Line Fee. From and after the Closing Date, Borrower
shall pay to Lender a fee in an amount equal to the Revolving Loan
Commitment less the average daily balance of the Revolving Loan during
the preceding month multiplied by (i) three-quarters of one percent
(.75%) per annum for all periods through April 30, 1996 and (ii) one
half of one percent (.50%) for all periods on and after May 1, 1996,
such fee to be calculated on the basis of a 360-day year for the actual
number of days elapsed and to be payable monthly in arrears on the first
day of the month following the Closing Date and on the first day of each
month thereafter.
<PAGE>
(B) Prepayment Fees. If Borrower voluntarily prepays the
Obligations in full prior to June 21, 1996 and the Credit Facility and
Lender's Commitments thereunder are terminated, Borrower shall pay to
Lender, as compensation for the costs of being prepared to make funds
available to Borrower under this Agreement an amount determined by
multiplying one-half of one percent (.50%) by the amount of the
Revolving Loan Commitment.
(C) Monthly Administration Fee. During each month (or any part
thereof) that Borrower has an outstanding Loan under the Revolving Loan
Commitment (a "Borrowing Month"), Borrower shall pay to Lender, as
compensation for Lender's costs of administering the Loan, a fee of
$2,000 to be payable monthly in arrears on the first day of the month
following any Borrowing Month.
1.5 The Loan and Security Agreement is amended by adding the following
new subparts (D) and (E) to subsection 2.4.
(D) Voluntary Prepayments and Repayments. Borrower may, upon at
least two (2) Business Days prior notice to Lender, repay LIBOR Rate
Loans in whole at any time or from time to time in part; provided that
(1) concurrently with such payment Borrower pays any fees due under
subsection 2.3(B), (2) LIBOR Rate Loans may be prepaid or repaid only on
the last day of the applicable Interest Periods therefor unless Borrower
concurrently with such payment pays all amounts due under subsection
2.8(E) and (3) each partial prepayment under a Libor Rate Loan shall be
in the minimum principal of $1,000,000 and integral multiples of
$100,000 in excess of that amount. After notice of prepayment is given,
the amount specified to be prepaid in such notice shall become due and
payable on the prepayment date.
(E) Application of Prepayments and Repayments. All prepayments
and repayments shall include payment of accrued interest on the
principal amount so prepaid and repaid and shall be applied to the
payment of interest before application to principal. Any prepayment
under this Section 2.4 shall be applied first to Prime Rate Loans to the
full extent thereof before application to LIBOR Rate Loans, in the order
determined by Lender.
1.6 The Loan and Security Agreement is amended by deleting Subsection
2.5 in its entirety and by substituting the following new Subsection 2.5.
2.5 Term of this Agreement. This Agreement shall be effective until
the date that is three (3) years from the First Amendment Date. The
Commitments shall (unless earlier terminated) terminate on the
Termination Date. In addition, this Agreement may be terminated as set
forth in Section 8.3 hereof. Upon termination in accordance with
Section 8.3 or on the Termination Date, all Obligations shall become
immediately due and payable without notice or demand. Notwithstanding
any termination, until all Obligations have been fully paid and
satisfied, Lender shall be entitled to retain security interests in and
liens upon all Collateral, and even after payment of all Obligations
hereunder, Borrower's obligation to indemnify Lender in accordance with
the terms hereof shall continue and Lender shall retain such security as
is necessary in its reasonable discretion to cover any claims or
indemnified Liabilities that are identifiable at the time of termination
of this Agreement.
<PAGE>
1.7 The Loan and Security Agreement is amended by adding to Section 2
the following new subsection 2.8.
2.8 Special Provisions Governing LIBOR Rate Loans
Notwithstanding any other provision of this Agreement, the
following provisions shall govern with respect to LIBOR Rate Loans as to
the matters covered:
(A) Determination of Interest Rate. As soon as practicable
after 11:00 A.M. (Los Angeles time) on each Interest Rate Determination
Date, Lender shall determine (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties) the interest
rate that shall apply to the LIBOR Rate Loans for which an interest rate
is then being determined for the applicable Interest Period and shall
promptly give notice thereof (in writing or by telephone confirmed in
writing) to Borrower. In the event that Lender shall have determined
(which determination shall be final and conclusive and binding upon all
parties hereto), on any Interest Rate Determination Date with respect to
any LIBOR Rate Loans, that by reason of circumstances affecting the
interbank Eurodollar market, adequate and fair means do not exist for
determining the interest rate applicable to such Loans on the basis
provided for in the definition of LIBOR Rate, Lender shall on such date
give notice (by telecopy or by telephone confirmed in writing) to
Borrower of such determination, whereupon (1) no Loans may be made as,
or converted into, LIBOR Rate Loans until such time as Lender notifies
Borrower that the circumstances giving rise to such notice no longer
exist and (2) any Notice of Borrowing or Notice of
Conversion/Continuation given by Borrower with respect to the Loans in
respect of which such determination was made shall be deemed to be
modified by Borrower and the LIBOR Rate Loans then being requested shall
be made or continued by Lender as Prime Rate Loans.
(B) Substituted Rate of Borrowing. If Lender shall have
determined (which determination shall be final and conclusive and
binding upon all parties), with respect to any LIBOR Rate Loan and any
pending Interest Period that by reason of (a) any change after the date
hereof in any applicable law or governmental rule, regulation or order
(or any interpretation thereof and including the introduction of any new
law or governmental rule, regulation or order) or (b) other
circumstances affecting Lender or the LIBOR market or the position of
Lender in such market (such as for example, but not limited to, official
reserve requirements required by Regulation D to the extent not given
effect in the LIBOR rate), the LIBOR Rate shall not represent the
effective pricing to Lender for Dollar deposits of comparable amounts
for the relevant period, then, and in any such event, Lender shall
promptly (and in any event as soon as possible after being notified of a
borrowing, conversion or continuation) give notice (by telephone
confirmed in writing) to Borrower of such determination. Thereafter,
Borrower shall pay to Lender, upon written demand therefor, such
additional amounts in the form of an increased rate of, or a different
method of calculating, interest or otherwise as Lender in its sole
discretion shall determine. A certificate as to additional amounts owed
Lender, showing in reasonable detail the basis for the calculation
thereof, submitted in good faith to Borrower by Lender shall, absent
manifest error, be final and conclusive and binding upon all of the
parties hereto.
<PAGE>
(C) Required Termination and Prepayment. If on any date
Lender shall have reasonably determined (which determination shall be
final and conclusive and binding upon all parties) that the making or
continuation of its LIBOR Rate Loans has become unlawful or impossible
by compliance by Lender in good faith with any law, governmental rule,
regulation or order (whether or not having the force of law and whether
or not failure to comply therewith would be unlawful), then, and in any
such event, Lender shall promptly give notice (by telephone confirmed in
writing) to Borrower of that determination. Subject to the prior
withdrawal of a Notice of Borrowing or a Notice of
Conversion/Continuation or prepayment of the LIBOR Rate Loans of Lender
as contemplated by the following subsection 2.8(D), the obligation of
Lender to make or maintain its LIBOR Rate Loans during any such period
shall be terminated at the earlier of the termination of the Interest
Period then in effect or when required by law and Borrower shall no
later than the termination of the Interest Period in effect at the time
any such determination pursuant to this subsection 2.8(C) is made or,
earlier, when required by law, repay or prepay the LIBOR Rate Loans of
Lender, together with all interest accrued thereon.
(D Options of Borrower. In lieu of paying Lender such
additional moneys as are required by subsection 2.8(B) or the prepayment
of Lender required by subsection 2.8(C), Borrower may exercise any one
of the following options:
(1) If the determination by Lender relates only to LIBOR
Rate Loans then being requested by Borrower pursuant to a Notice of
Borrowing or a Notice of Conversion/Continuation, Borrower may by giving
notice (by telephone confirmed in writing) to Lender no later than the
date immediately prior to the date on which such LIBOR Rate Loans are to
be made, withdraw that Notice of Borrowing or Notice of
Conversion/Continuation and the LIBOR Rate Loans then being requested
shall be made by Lender as Prime Rate Loans; or
(2) Upon written notice to Lender, Borrower may terminate
the obligations of Lender to make or maintain Loans as, and to convert
Loans into, LIBOR Rate Loans and in such event, Borrower shall, prior to
the time any payment pursuant to subsection 2.8(C) is required to be
made or, if the provisions of subsection 2.8(B) are applicable, at the
end of the then current Interest Period, convert all of the LIBOR Rate
Loans into Prime Rate Loans in the manner contemplated by subsection
2.2(E) but without satisfying the advance notice requirements therein.
(E) Compensation. Borrower shall compensate Lender, upon
written request by Lender (which request shall set forth in reasonable
detail the basis for requesting such amounts and which shall, absent
manifest error, be conclusive and binding upon all parties hereto), for
all reasonable losses, expenses and liabilities (including, without
limitation, any loss (including interest paid) sustained by Lender in
connection with the re-employment of such funds), that Lender may
sustain: (1) if for any reason (other than a default by Lender) a
borrowing of any LIBOR Rate Loan does not occur on a date specified
therefor in a Notice of Borrowing, a Notice of Conversion/Continuation
or a telephonic request for borrowing or conversion/ continuation
therefor is given pursuant to subsection 2.2(E); (2) if any prepayment
of any LIBOR Rate Loans occurs on a date that is not the last day of an
Interest Period applicable to that Loan; (3) if any prepayment of any
LIBOR Rate Loans is not made on any date specified in a notice of
prepayment given by Borrower; or (4) as a consequence of any other
default by Borrower to repay its LIBOR Rate Loans when required by the
terms of this Agreement; provided that during the period while any such
amounts have not been paid, Lender shall reserve an equal amount from
amounts otherwise available to be borrowed under the Revolving Loans.
<PAGE>
(F) Booking of LIBOR Rate Loans. Lender may make, carry or
transfer LIBOR Rate Loans at, to, or for the account of, any of its
branch offices or the office of an affiliate of Lender.
(G) Increased Costs. Except as provided in subsection 2.8(B) with
respect to certain determinations on Interest Rate Determination Dates,
if, after the date hereof by reason of, (1) the introduction of or any
change (including, without limitation, any change by way of imposition
or increase of reserve requirements) in or in the interpretation of any
treaty, law, rule, or regulation, or (2) the compliance with any
guideline or request from any central bank or other governmental
authority or quasi-governmental authority exercising control over banks
or financial institutions generally (whether or not having the force of
law):
(a) Lender (or its applicable lending office) shall be
subject to any tax, duty, levy, cost or other charge (except for taxes
on the overall net income or alternative minimum taxable income of
Lender or its applicable lending office imposed by the jurisdiction in
which Lender's principal executive office or applicable lending office
is organized, located or is doing business) with respect to its LIBOR
Rate Loans or its obligation to make LIBOR Rate Loans, or the recording,
registration notarization or other formalization of the LIBOR Rate Loans
or the basis of taxation of payments to Lender of the principal of or
interest or commitment fees or any amount payable on its LIBOR Rate
Loans or its obligation to make LIBOR Rate Loans shall change; or
(b) any reserve (including, without limitation, any
imposed by the Board of Governors of the Federal Reserve System),
special deposit or similar requirement against assets of, deposits with
or for the account of, or credit extended by, Lender's applicable
lending office shall be imposed on Lender or its applicable lending
office or the interbank LIBOR market, and as a result thereof there shall
be any increase in the cost to Lender of agreeing to make or making,
funding or maintaining LIBOR Rate Loans, or there shall be a reduction
in the amount received or receivable by Lender or its applicable lending
office, then Borrower shall from time to time, upon written notice from
and demand by Lender, pay to Lender, within five (5) Business Days after
receipt of such notice, demand and appropriate proof of such cost,
additional amounts sufficient to indemnify Lender against such increased
cost or reduced amount. A certificate as to the amount of such
increased cost or reduced amount, submitted to Borrower by Lender,
shall, except for manifest error, be final, conclusive and binding for
all purposes. Any payments to be made by Borrower under subsections
2.8(B), 2.8(E) or 2.8(G) are to be without duplication.
(H) Assumptions Concerning Funding of LIBOR Rate Loans.
Calculation of all amounts payable to Lender under this subsection 2.8
shall be made as though Lender had actually funded its relevant LIBOR
Rate Loan through the purchase of a LIBOR deposit bearing interest at
the LIBOR Rate in an amount equal to the amount of that LIBOR Rate Loan
and having a maturity comparable to the relevant Interest Period and
through the transfer of such LIBOR deposit from an offshore office to a
domestic office in the United States of America; provided, however, that
Lender may fund each of its LIBOR Rate Loans in any manner it sees fit
and the foregoing assumption shall be utilized only for the calculation
of amounts payable under this subsection 2.8.
(I) LIBOR Rate Loans After Default. Unless Lender shall
otherwise agree, after the occurrence of and during the continuance of a
Default or Event of Default, Borrower may not elect to have a Loan be
made or continued as, or converted to, a LIBOR Rate Loan after the
expiration of any Interest Period then in effect for that Loan.
1.8 Subsection 5.1 of the Loan and Security Agreement is amended by
deleting subparts 5.1(A) and (G) and by substituting the following new
subparts 5.1(A) and (G).
(A) Monthly Financials. As soon as available and in any event
within thirty (30) days after the end of each month, Borrower will
deliver the consolidated and consolidating balance sheet of Borrower as
at the end of such month and the related consolidated and consolidating
statements of income for such month and for the period from the
beginning of the then current Fiscal Year to the end of such month;
provided, however, that when the ending date of any Monthly Financials
coincides with the ending date of any Quarterly Financials due under
subpart 5.1(B), then any such coincidental Monthly Financials shall be
due at the same time of such Quarterly Financials.
(G) Reconciliation Reports, Inventory Reports and Listings and
Agings. On the Closing Date and within fifteen (15) calendar days after
the last day of each month and from time to time upon the request of
Lender, Borrower will deliver to Lender: (1) an aged trial balance of
all then existing Accounts; and (2) an Inventory Report as of the last
day of such period. As soon as available and in any event within
fifteen (15) calendar days after the last day of each month, and from
time to time upon the request of Lender, Borrower will deliver to
Lender: (1) a Reconciliation Report as at the last day of such period;
(2) an aged trial balance of all then existing accounts payable; and (3)
a detailed inventory listing and cover summary report. All of the above
reports shall be in form and substance satisfactory to Lender.
Notwithstanding the foregoing, Borrower's obligation to provide all of
the above reports within (15) calendar days after the last day of each
month shall be suspended until the earlier to occur of the following:
(i) sixty (60) days prior to the initial borrowing under this Agreement;
or (ii) the date upon which Borrower's Cash Collateral Fund is less
than $4,000,000.
1.9 The Loan and Security Agreement is amended by deleting Subsection
5.3 in its entirety and by substituting the following new Subsection 5.3.
<PAGE>
5.3 Inspection. Borrower shall permit Lender and any authorized
representatives designated by Lender to visit and inspect any of the
properties of Borrower or any of its Subsidiaries, including its and
their financial and accounting records, and to make copies and take
extracts therefrom, and to discuss its and their affairs, finances and
business with its and their officers and independent public accountants,
at such reasonable times during normal business hours and as often as
may be reasonably requested. Borrower acknowledges that Lender intends
to make such inspections on at least a quarterly basis, and Borrower
agrees to pay to Lender an audit fee for each inspection equal to
$650.00 per auditor per day or any portion thereof, excluding all full
days spent by Lender traveling to or from Borrower's locations plus all
out-of-pocket expenses incurred in connection with any such examination.
Notwithstanding the foregoing, Lender's intention to make inspections on
at least a quarterly basis shall be suspended until the earlier to occur
of the following: (i) sixty (60) days prior to the initial borrowing
under this Agreement; or (ii) the date upon which Borrower's Cash
Collateral Fund is less than $4,000,000.
1.10 The Loan and Security Agreement is amended by deleting Subsection
7.4 in its entirety and by substituting the following new Subsection 7.4.
7.4 Investments and Loans. Borrower shall not and shall not permit any
of its Subsidiaries to make or permit to exist investments in or loans
to any other Person, except: (a) investments in short-term direct
obligations of the United States Government; (b) investments in
negotiable certificates of deposit issued by banks satisfactory to
Lender, in its reasonable discretion; (c) investments in commercial
paper rated at least A-1 by Standard and Poors or at least P-1 by
Moody's Investor Service; (d) loans and advances to employees for
moving, entertainment, travel and other similar expenses in the ordinary
course of business; and (e) during the three year period beginning
October 1, 1995 and ending September 30, 1998, equity investments in any
Persons which in the aggregate shall not exceed $5,000,000 in any single
Person and $10,000,000 in the aggregate. Any investments by Borrower or
any of its Subsidiaries under subpart (e) of this subsection shall (i)
be exclusively equity investments in a Person that constitute a minority
interest (less than fifty percent (50%) of the common equity of such
Person) and (ii) shall not expose Borrower or any of its Subsidiaries to
a loss greater than the amount of such cash investment,
including, without limitation, the assumption or guaranty of any
Liabilities of such Person in exchange for such investment.
SECTION 2. RATIFICATION OF AGREEMENT
2.1 To induce Lender to enter into this Amendment, Borrower represents
and warrants that after giving effect to this Amendment no violation of the
terms of the Loan and Security Agreement exist and all representations and
warranties contained in the Loan and Security Agreement are true, correct and
complete in all material respects on and as of the date hereof except to the
extent such representations and warranties specifically relate to an earlier
date in which case they were true, correct and complete in all material
respects on and as of such earlier date.
2.2 Except as expressly set forth in this Amendment, the terms,
provisions and conditions of the Loan and Security Agreement and the other
Loan Documents are unchanged, and said agreements, as amended, shall remain in
full force and effect and are hereby confirmed and ratified.
SECTION 3. COUNTERPARTS; EFFECTIVENESS
This Amendment may be executed in any number of counterparts, and all
such counterparts taken together shall be deemed to constitute one and the
same instrument. Signature pages may be detached from counterpart documents
and reassembled to form duplicate executed originals. This Amendment shall
become effective as of the date hereof upon the execution of the counterparts
hereof by Borrower and Lender and upon payment to Lender of a documentation
fee in the amount of $2,500.
SECTION 4. GOVERNING LAW
THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.
Witness the execution hereof by the respective duly authorized officers
of the undersigned as of the date first above written.
HELLER FINANCIAL, INC. ADVANCED LOGIC RESEARCH, INC.
By: _________________________ By: _________________________
Title: ______________________ Title: ______________________
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Advanced Logic Research, Inc.
We consent to the incorporation by reference in the Registration Statement
(No. 33-59763) on Form S-8 of Advanced Logic Research, Inc. of our report
dated November 2, 1995, relating to the consolidated balance sheets of
Advanced Logic Research, Inc. as of September 30, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows and related schedules for each of the years in the three-year period
ended September 30, 1995, which report appears in the September 30, 1995
Annual Report on Form 10-K of Advanced Logic Research, Inc.
KPMG Peat Marwick LLP
Orange County, California
December 21, 1995
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<FISCAL-YEAR-END> Sep-30-1995
<PERIOD-START> Oct-01-1994
<PERIOD-END> Sep-30-1995
<PERIOD-TYPE> 12-MOS
<CASH> 46,580
<SECURITIES> 0
<RECEIVABLES> 28,523
<ALLOWANCES> 1,999
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<CURRENT-ASSETS> 103,742
<PP&E> 10,518
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<TOTAL-ASSETS> 107,220
<CURRENT-LIABILITIES> 23,971
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0
0
<COMMON> 117
<OTHER-SE> 83,132
<TOTAL-LIABILITY-AND-EQUITY> 107,220
<SALES> 192,425
<TOTAL-REVENUES> 192,425
<CGS> 156,465
<TOTAL-COSTS> 156,465
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 2,502
<INCOME-PRETAX> 6,496
<INCOME-TAX> 1,624
<INCOME-CONTINUING> 4,872
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<EXTRAORDINARY> 0
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