SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
Commission File Number 0-18753
----------------------------------------
ADVANCED LOGIC RESEARCH, INC.
A Delaware Corporation IRS Employer ID No. 33-0084573
9401 Jeronimo Road
Irvine, California 92718
(714) 581-6770
__________________________
Indicate by check mark whether the Registrant (l) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES
[X] NO [ ].
There were 11,756,171 shares of the Registrant's Common Stock, par
value $.01 per share, outstanding on January 31, 1995.
<PAGE>
Advanced Logic Research, Inc.
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1995
and September 30, 1995 3
Consolidated Statements of Operations for the three
months ended December 31, 1995 and 1994 4
Consolidated Statements of Cash Flows for the
three months ended December 31, 1995 and 1994 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 13
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
(unaudited)
December 31, September 30,
ASSETS 1995 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $46,856 $46,580
Trade accounts receivable, less
allowance for doubtful accounts of $2,040
and $1,999 at December 31, 1995 and
September 30, 1995, respectively 27,978 26,524
Inventories 33,786 27,088
Prepaid expenses and other assets 1,433 1,692
Deferred income taxes 1,970 1,858
Total current assets 112,023 103,742
Equipment, furniture and fixtures, net 2,901 2,764
Other assets 510 714
$115,434 $107,220
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $1,415 $ 0
Accounts payable 14,773 11,607
Accrued expenses 11,245 10,528
Payable to affiliates 315 330
Income taxes 1,816 1,506
Total current liabilities 29,564 23,971
Stockholders' equity:
Preferred stock, $.01 par value; 2,500,000
shares authorized; none issued
Common stock, $.01 par value; 25,000,000 shares
authorized; 11,722,368 and 11,668,871 issued
and outstanding at December 31, 1995
and September 30, 1995, respectively 117 117
Additional paid-in capital 54,947 54,675
Retained earnings 29,163 26,803
Adjustments for foreign currency
translation 1,643 1,654
Total stockholders' equity 85,870 83,249
$115,434 $107,220
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
<CAPTION>
Three Months Ended
December 31,
1995 1994
<S> <C> <C>
Net sales $57,139 $45,718
Cost of sales 45,218 37,665
Gross profit 11,921 8,053
Operating expenses:
Selling, general and administrative 6,712 5,318
Engineering, research and development 1,270 1,116
Royalty expense, net 1,429 1,310
Total operating expenses 9,411 7,744
Operating income 2,510 309
Interest income 650 557
Interest expense (13) 0
Income before taxes 3,147 866
Provision for income taxes 787 217
Net income $2,360 $649
Net income per common and
common equivalent share $0.20 $0.06
Common and common equivalent shares
used in per share calculation 12,027 11,555
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<CAPTION>
Three Months Ended
December 31,
1995 1994
<S> <C> <C>
Cash flows from operating activitites:
Net income $2,360 $649
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 413 493
Loss on disposal of equipment 0 1
Provision for losses on accounts receivables 61 69
Deferred income tax benefit (112) (226)
Change in assets and liabilities:
Trade accounts receivable (1,506) (839)
Inventories (6,694) (503)
Prepaid expenses and other assets 459 1,298
Accounts payable 3,155 1,811
Accrued expenses 704 1,061
Payable to affiliates (15) (200)
Income taxes 310 44
Net cash (used in) provided by
operating activities (865) 3,658
Cash flows from investing activities -
Purchase of equipment, furniture and fixtures (547) (136)
Cash flows from financing activities -
Net borrowings from banks 1,405 0
Issuance of stock under stock option plan 272 0
Net cash provided by financing
activities 1,677 0
Effect of foreign exchange rate change on cash 11 (53)
Net increase in cash and cash
equivalents 276 3,469
Cash and cash equivalents at beginning of period 46,580 40,836
Cash and cash equivalents at end of period $46,856 $44,305
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest $0 $0
Income taxes $348 ($219)
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Advanced Logic Research, Inc.
Notes to Unaudited Consolidated Financial Statements
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by Advanced Logic Research, Inc., (the "Company") pursuant to
Securities and Exchange Commission regulations. In the opinion of
management, the unaudited financial statements include all adjustments,
consisting of only normal recurring accruals, necessary for a fair
presentation.
The results of operations for the interim period are not necessarily
indicative of results to be expected for the full year.
These consolidated financial statements should be read in conjunction
with the financial statements included in the Company's 1995 Form 10-K
as filed with the Securities and Exchange Commission on December 27, 1995.
Net Income Per Share Information
Net income per share is computed using the weighted average number of
common shares outstanding at the average market price for the period.
Fully diluted income per share amounts are not presented because they
approximate primary net income per share.
Cash Equivalents
Cash equivalents are highly liquid investments with an original maturity
of three months or less, consisting primarily of commercial paper,
variable-rate demand notes, short-term government obligations and other
money market instruments.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market (net realizable value) and consist of the following (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
December 31, September 30,
1995 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Raw materials and component parts $ 13,351 $ 10,944
Work in process 4,488 3,647
Finished goods 15,947 12,497
------ -------
$33,786 $27,088
====== ======
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations.
Results of Operations:
The following table presents the results of operations for the Company
for the period indicated as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1995 1994
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 79.1% 82.4%
Gross prt 20.9% 17.6%
Operating expenses:
Selling, general and administrative 11.8% 11.6%
Engineering, research and development 2.2% 2.4%
Royalty expense, net 2.5% 2.9%
Total operating expenses 16.5% 16.9%
Operating income 4.4% 0.7%
Interest income, net 1.1% 1.2%
Income before taxes 5.5% 1.9%
Provision for income taxes 1.4% 0.5%
Net income 4.1% 1.4%
</TABLE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Net Sales
FY96 1Q FY95 1Q
% of Change % of
Amount Total From FY95 Amount Total
(In thousands)
Net Sales by Distribution Channel
VARs and Dealers $33,202 58% 5% $31,604 69%
Direct 13,460 24% 89% 7,123 16%
OEM 5,655 10% 52% 3,725 8%
Distributors and
Other 4,822 8% 48% 3,266 7%
Total $57,139 100% 25% $45,718 100%
Net Sales by Geographical Location
U.S. $35,308 62% 49% $23,749 52%
International 21,831 38% (1%) 21,969 48%
Total $57,139 100% 25% $45,718 100%
Net sales for the three months ended December 31, 1995
increased by 25% to $57.1 million from $45.7 million for the
three months ended December 31, 1994. For this period sales
to U.S. customers increased by 49% to $35.3 million while
sales to international customers declined by 1% to $21.8
million compared to the first quarter of fiscal 1995.
The growth in sales to U.S. customers was led by increased
sales made directly to government, corporate, small
businesses and individual end-users. Sales to these
customers increased by 89% for the three months ended
December 31, 1995 compared to the corresponding prior year
period. Complementing the growth in sales through the
direct channel during the first quarter of fiscal 1996 was a
31% growth in sales to U.S. VARs and dealers. For the first
quarter of fiscal 1996, VARs and dealers continued to
represent the Company's principal channel of distribution at
58% of sales, however due to the growth in direct channel
sales this percentage declined from 69% for the first
quarter of fiscal 1995.
The 1% decline in sales to international customers for the
three months ended December 31, 1995 compared to the
corresponding prior year period stemmed from an 8% decline
in sales to foreign VARs and dealers which was partially
offset by an increase in sales to the Company's European OEM
customer. Sales to Asia-Pacific customers increased by 9%
for the first quarter of fiscal 1996 compared to first
quarter of fiscal 1995 while sales to European customers
declined by 1% and sales to Canadian and Latin American
customers declined by 26%.
<PAGE>
For the first quarter of fiscal 1996, system unit sales
increased by 3% compared to the prior fiscal year period to
approximately 22,000 systems. But because of an increase in
system configurations and due to the Company's focus on
servers and high-end desktop systems, the average system
selling price increased by 17% to $2,183 for the first
quarter of fiscal 1996 from $1,858 per system for the first
quarter of fiscal 1995.
Gross Profit
Gross profit margins for the three months ended December 31,
1995 improved to 20.9% from 17.6% for the corresponding period in fiscal
1995. Contributing to the improvement was the ongoing implementation of
the Company's client/server and high-end product strategy which
continued a shift in sales to servers and high-end desktop systems,
which typically generate greater gross profit margins than the Company's
entry-level and mid-range systems. Also contributing to the improvement
in the gross profit margins compared to the similar prior year period
were lower vendor component costs and the continuing effects of
engineering design improvements implemented by the Company.
Operating Expenses
Selling, General and Administrative. Selling, general and
administrative expenses increased by 26% to $6.7 million for the three
months ended December 31, 1995 compared to $5.3 million for the
corresponding prior fiscal period. Expanded product advertising
partially related to new product introductions, increased dealer co-
operative promotional activities and special product promotional
incentives principally accounted for the increase in expenses. Also
contributing to the increase were higher payroll and payroll-related
costs associated with the hiring of additional sales personnel. As a
percentage of sales, selling, general and administrative expenses
increased to 11.8% compared to 11.6% for the three months ended December
31, 1994.
Engineering, Research and Development. Engineering, research and
development expenses increased by 14% to $1.3 million for the three
months ended December 31, 1995 from $1.1 million for the comparable
prior fiscal period. Increases in payroll and payroll-related costs
associated with increased headcount and higher engineering material and
product certification expenses from ongoing product development
principally accounted for the increase. However, because of the 25%
growth in sales, engineering and development costs as a percentage of
sales decreased to 2.2% for the three months ended December 31, 1995
from 2.4% for the comparable prior year period.[RT1]
Royalty Expense, Net
Net royalty expense for the three months ended December 31, 1995 was
$1.4 million and represented 2.5% of sales. For the three months ended
December 31, 1994, net royalty expense was $1.3 million and represented
2.9% of sales. The decline in net royalty expense as a percentage of
sales for the first quarter of fiscal 1996 compared to the first quarter
of fiscal 1995 was principally because certain of the Company's products
are exempt from royalties. Under the terms of the Company's license
agreement with IBM Corporation, effective January 1, 1996, the royalty
rate on applicable products increases by 1%.
<PAGE>
Interest Income, Net
For the three months ended December 31, 1995, the Company had net
interest income of $637,000 compared to $557,000 for the corresponding
fiscal 1995 period. An increase in the average cash and cash equivalent
balance along with higher rates of return on short-term investments
during the first quarter of fiscal 1996 compared to the first
quarter of fiscal 1995 accounted for the increase in net interest
income.
Income Taxes
The Company's tax expense for the three months ended December 31, 1995
was based on estimated effective annual rates. The effective tax rate
for the three months ended December 31, 1995 was 25% which was unchanged
from the tax rate for the comparable prior year period.
Liquidity and Capital Resources
Dec. 31, 1995 Sept. 30, 1995
(In thousands)
Cash and cash equivalents $46,856 $46,580
Working capital 82,459 79,771
Current ratio 3.8 4.3
Debt 1,415 ---
Stockholders' equity 85,870 83,249
The Company's cash and cash equivalents totalled $46.9
million at December 31, 1995 compared to $46.6 million at
September 30, 1995. During the three months ended December
31, 1995, net cash used in operating activities was $0.9
million despite the Company generating $2.4 million from net
income. Increases in inventories and accounts receivables
used $6.7 million and $1.5 million, respectively. The
increase in inventories was caused by purchases of key
components to support increased customer demand and the stocking of
inventory related to the planned introduction of new products in the
second quarter of fiscal 1996. The increase in accounts receivable was
due to the growth in sales. Collection efficiency at December
31, 1995 was 45 days which was unchanged from September 30,
1995. Also during the three months ended December 31, 1995,
$0.5 million was used to purchase property, plant and
equipment.
To meet short-term working capital needs ALR International,
the Company's subsidiary in Singapore, borrowed against its
$4.0 million uncommitted revolving credit line during the
first quarter of fiscal 1996. At December 31, 1995, ALR
International borrowed $1.4 million. At September 30, 1995,
the Company had no bank debt outstanding against this credit
line.
The Company's primary credit facility continues to be a
$15.0 million revolving line with Heller Financial, Inc.
which expires in August 1998. The line is secured by the
Company's assets and availability is subject to a borrowing
base requirement. The facility contains certain net worth,
profitability, financial ratio and other covenants with
which the Company was in compliance during the first three
months of fiscal 1996. The Company has not borrowed against
this credit line.
The Company believes that its existing cash resources,
combined with anticipated cash flows from future operating
activities, supplemented as necessary with funds available
under existing credit agreements, will provide it with
sufficient resources to meet present and reasonably
foreseeable working capital requirements and other cash
needs.
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11. Computation of Per Share Earnings.
(b) Reports on Form 8-K: None
<PAGE>
ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(Amounts in thousands, except per share amounts)
Three Months Ended
December 31,
1995 1994
Primary earnings per share:-
Shares used in computing earnings per share:
Weighted average number of shares outstanding 11,693 11,478
Incremental shares attributed to
outstanding options 334 77
12,027 11,555
Earnings:
Net income $2,360 $649
Earnings per common and common equivalent share $0.20 $0.06
Earnings per share - assuming full dilution:-
Shares used in computing earnings per share:
Weighted average number of shares outstanding 11,693 11,478
Incremental shares attributed to
outstanding options 334 77
12,027 11,555
Earnings:
Net income $2,360 $649
Earnings per common and common equivalent share $0.20 $0.06
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
ADVANCED LOGIC RESEARCH, INC.
(Registrant)
Date: February 14, 1996 /s/ Gene Lu
------------------------------
Gene Lu
Chairman, President and Chief
Executive Officer
Date: February 14, 1995 /s/ Ron Sipkovich
-------------------------------
Ronald J. Sipkovich
Vice President, Finance and
Administration, Chief Financial
Officer and Secretary
(principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-START> Oct-01-1995
<PERIOD-END> Dec-31-1995
<PERIOD-TYPE> 3-MOS
<CASH> 46,856
<SECURITIES> 0
<RECEIVABLES> 30,018
<ALLOWANCES> 2,040
<INVENTORY> 33,786
<CURRENT-ASSETS> 112,023
<PP&E> 10,694
<DEPRECIATION> 7,793
<TOTAL-ASSETS> 115,434
<CURRENT-LIABILITIES> 29,564
<BONDS> 0
0
0
<COMMON> 117
<OTHER-SE> 85,753
<TOTAL-LIABILITY-AND-EQUITY> 115,434
<SALES> 57,139
<TOTAL-REVENUES> 57,139
<CGS> 45,218
<TOTAL-COSTS> 45,218
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 82
<INTEREST-EXPENSE> (637)
<INCOME-PRETAX> 3,147
<INCOME-TAX> 787
<INCOME-CONTINUING> 2,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,360
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
