UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
Commission File Number 0-19378
LIUSKI INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3065217
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6585 Crescent Drive, Norcross, Georgia 30071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 447-9454
Indicate by check mark whether the registrant (1) 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 ___
As of June 30, 1996, the Registrant had 4,380,525 shares of Common Stock, $.01
par value per share outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Financial Statements:
Balance sheets as of June 30, 1996 (as restated)
(unaudited) and December 31, 1995...................... 3
Statements of income for the three months and
six months ended June 30, 1996 (as restated) and
June 30, 1995 (unaudited).............................. 4
Statements of cash flows for the six months ended
June 30, 1996 (as restated) and June 30, 1995
(unaudited)............................................ 5
Notes to Condensed Consolidated Financial Statements... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 9
2
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LUISKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, December 31,
1996 1995
----------- ------------
(Restated)
(unaudited)
ASSETS
CURRENT
Cash $ 974,193 $ 200,989
Accounts Receivable, net of allowance
for doubtful accounts of $2,275,000
and $1,050,000 as of 1996 and 1995,
respectively 39,002,682 33,013,943
Inventories 45,181,338 43,295,440
Prepaid Expenses and Other Current Assets 4,270,325 3,840,889
------------ -------------
TOTAL CURRENT ASSETS 89,428,538 80,351,261
FURNITURE, AUTOS, AND EQUIPMENT, at cost,
less Accumulated Depreciation and
Amortization of $3,369,374 and $2,645,806
as of 1996 and 1995, respectively 2,959,033 3,101,973
OTHER ASSETS 253,785 254,828
------------ -------------
TOTAL ASSETS $ 92,641,356 $ 83,708,062
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable: Affiliate $ 14,269,316 $ 9,245,742
Accounts Payable: Trade 21,568,025 24,491,010
Accrued Expenses and Other Current
Liabilities 2,107,075 1,964,893
------------ -------------
TOTAL CURRENT LIABILITIES 37,944,416 35,701,645
REVOLVING CREDIT LOAN 28,729,606 20,965,263
CAPITAL LEASE OBLIGATIONS 519,904 702,114
------------ -------------
TOTAL LIABILITIES 67,193,926 57,369,022
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value; 1,000,000
shares authorized; none issued - -
Common Stock, $.01 par value; 7,000,000
shares authorized; 4,380,525 issued
and outstanding 43,806 43,806
Additional Paid-in Capital 18,435,164 18,435,164
Retained Earnings 6,968,460 7,860,070
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 25,447,430 26,339,040
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 92,641,356 $ 83,708,062
============ =============
See notes to condensed consolidated financial statements
3
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LUISKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Six months ended
June 30, June 30,
(Restated) (Restated)
-------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------- -------------
Net Sales $ 101,556,939 $ 93,560,395 $ 200,184,274 $ 197,380,950
Cost of Sales 95,417,967 87,356,484 186,168,305 831,091,427
------------- ------------ ------------- -------------
Gross Profit 6,138,972 6,203,911 14,015,969 14,289,523
Selling, General,
and Administra-
tive Expenses 7,509,739 7,663,011 14,072,308 14,967,918
------------- ------------ ------------ -------------
Income from Opera-
tions (1,370,767) (1,459,100) (56,339) (678,395)
Other Charges (Net) 484,326 434,279 977,271 932,474
------------- ------------ ------------ -------------
Income before
Income Taxes (1,855,093) (1,893,379) (1,033,610) (1,610,869)
Income Taxes (454,000) (722,880) (142,000) (612,130)
------------- ------------ ------------ -------------
Net Income/(Loss) $ (1,401,093) $ (1,170,499) $ (891,610) $ (998,739)
============= ============ ============= ============
Earnings per Common
and Common Equiva-
lent Shares Out-
standing: Primary
and Fully Diluted $ (0.32) $ (0.27) $ (0.20) $ (0.23)
============= ============ ============= ============
Weighted Average
number of Common and
Common Equivalent
shares Outstanding:
Primary and Fully
Diluted 4,380,525 4,380,525 4,380,525 4,380,525
============= ============ ============= ============
See notes to condensed consolidated financial statements
4
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LUISKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Six months ended
June 30,
(Restated)
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITES
Net Loss $ (891,610) $ (998,739)
----------- -----------
Adjustments to reconcile Net Income to Net
Cash provided (used) by operating activities
Depreciation and Amortization 463,195 439,668
Changes in Operating Assets
Accounts Receivable (5,988,739) (783,568)
Inventories (1,885,898) (446,702)
Prepaid Expenses and Other (429,436) (2,175,145)
Other Assets 1,043 21,278
Changes in Operating Liabilities
Accounts Payable: Affiliate 5,023,574 (2,875,730)
Accounts Payable and Accrued Expenses (2,780,803) 9,445,784
---------- ---------
Total Adjustments (5,597,064) 3,625,585
---------- ----------
Net Cash provided (used) by Operating Activities (6,488,674) 2,626,846
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (320,255) (562,709)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Revolving Credit Loan 7,764,343 (2,225,977)
Repayment of Capital Lease Obligations (182,210) (167,098)
---------- -----------
Net Cash provided (used) by Financing
Activities 7,582,133 (2,393,075)
INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 773,204 (328,938)
CASH AND CASH EQUIVALENTS: BEGINNING 200,989 834,355
---------- -----------
CASH AND CASH EQUIVALENTS: ENDING $ 974,193 $ 505,417
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during period for Interest $ 997,581 $1,018,219
========== ===========
Cash paid during period for Interest $ - $ -
========== ===========
See notes to condensed consolidated financial statements
5
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LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Management, all adjustments (consisting
of only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six month period ended June 30,
1996 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996. For further information refer to the consolidated
financial statements and footnotes thereto in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, which are incorporated by
reference herein.
Note 2. Restatement of Interim Financial Information
June 30, 1996
As Previously
Reported Adjusted Restated
------------- -------- --------
ASSETS
Current assets $89,462,087 $ (33,549) $89,428,538
Fixed Assets 2,959,033 - 2,959,033
Other Assets 253,785 - 253,785
Total Assets 92,674,905 (33,549) 92,641,356
LIABILITES
Current Liabilities 36,175,980 1,768,436 37,944,416
Long-Term Liabilities 26,249,510 - 29,249,510
Total Liabilities 65,425,490 1,768,436 67,193,926
SHOCKHOLDER'S EQUITY 27,249,415 (1,801,985) 25,447,430
TOTAL LIABILITIES AND EQUITY $92,674,905 $ (33,549) $92,641,356
6
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Six Months Ended June 30, 1996
As Previously
Reported Adjusted Restated
------------- -------- --------
Net Sales $200,184,274 $ - $200,184,274
COGS $184,592,519 $ 1,575,786 186,168,305
------------ ----------- -----------
Gross Profit $ 15,591,755 $(1,575,786) $14,015,969
Operating Expenses & Other Charges 14,124,380 925,199 15,049,579
------------ ----------- -----------
Net Income Before Income Taxes 1,467,375 (2,500,985) (1,033,610)
Income Taxes 557,000 (699,000) (142,000)
------------ ----------- -----------
NET INCOME/(LOSS) $ 910,375 $(1,801,985) $ (891,610)
============ =========== ===========
Six Months Ended June 30, 1996
As Previously
Reported Adjusted Restated
------------- -------- --------
Net Income / (Loss) $ 910,375 $(1,801,985) $ (891,610)
Adjustments to Net Income for
Operating Activities (7,399,049) 1,801,985) (5,597,064)
Activities
Net Cash from Investments and
Fin Act 7,261,878 - 7,261,878
--------- -----------
Inc / (Dec) in Cash & Equivalents 773,204 - 773,204
Beginning Cash Balance 200,989 0 200,989
----------- ---------- ------------
Ending Cash Balance $ 974,193 $ 0 $ 974,193
=========== ========== ============
The above restatement adjustments relate primarily to increases to
allowances for doubtful customer and vendor receivables. Due to its expansion of
extending credit and growth in receivables in total and in age, the Company
re-examined its methods of assessing and estimating the adequacy of allowances
and determined that such allowances were inadequate as of June 30, 1996 and
needed to be increased. During the three months ended June 30, 1996, the Company
experienced some difficulties with its receivables systems and tracking and
monitoring the collection of accounts. The Company's conversion of its
computerized management information system software during March 1996
contributed to these difficulties as well as turnover issues in the Company's
credit department.
7
<PAGE>
Note 3. Revolving Credit Loan
In June 1995, the Company signed a $50,000,000 credit facility
replacing the Company's existing $25,000,000 revolving credit loan and
$14,000,000 line for the floorplanning of inventory. The new facility provides
for revolving borrowings of up to $35,000,000 and $15,000,000 for inventory
floorplanning. Amounts available on the revolving credit loan are based on a
formula of the sum of up to 85% of eligible receivables and the lesser of 50% of
the eligible inventory or $15,000,000. Outstanding borrowings bear interest at
1/4% per annum above the lending banks prime rate or 125 basis points above
LIBOR rates and mature in June, 1998. The debt is collateralized by a lien on
all of the Company's assets. As of June 30, 1996, the Company owed $28,729,606
under its revolving credit loans.
Note 4. Contingencies
In March 1994, several shareholders of the Company filed class action
lawsuits in the United States District Court for the Eastern District of New
York against the Company and certain of its officers asserting violation of
Section 10(b) of the Securities Exchange act of 1934 and Rule 10(b)5 promulgated
thereunder. These actions, since consolidated into a single action, purport to
be based on statements contained in a press release and SEC Form 10-Q issued by
the Company in the latter part of 1993 and is entitled "In re Liuski
International, Inc. Securities Litigation," Civil Action No. 94-CV-1045. The
plaintiffs' consolidated amended complaint asserts that the Company's purported
omissions or misrepresentations falsely inflated the value of the Company's
stock. The plaintiffs seek to represent purchasers who acquired the Company's
common stock during various periods, the earliest of which commenced on November
8, 1993 and ended on March 4, 1994. No class has been certified to this date.
The complaint demands damages in an unspecified amount. In September, 1995, the
plaintiffs filed and served a second amended and consolidated complaint.
On December 4, 1995, the Company and its named officers filed a motion to
dismiss the action for failure to state a cause of action and failure to plead
fraud with particularity. That motion has been fully briefed by both sides and
submitted to the court. To date, no decision has been made on the motion. The
Company also moved for a stay of discovery pending determination of the motion
to dismiss. That motion was granted by Magistrate Judge Boyle by order dated
December 13, 1995. The Company and its named officers intend to defend this suit
vigorously.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the Condensed Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
Six months ended June 30, 1996 and 1995
Net Sales: Net sales for the six months ended June 30, 1996 were
$200,184,274 representing an increase of $2,803,324 (1.4%) from $197,380,950 for
the six months ended June 30, 1995. Sales from the distribution centers in the
following regions changed as follows: Southeast region, 48.2%; Northeast region
(including Canadian distribution center), -23.4%; Mid- and Southwest region,
- -39.1%; Western region, 5.7%; Pacific region, -73.3% and Mail Order, 28.0%. Part
of the decrease in the Northeast and Southwest regions and increase in the
Southeast region was caused by crediting corporate sales previously allocated to
New York to Georgia in conjunction with the relocation of corporate sales
personnel to the Georgia office.
At the beginning of March, 1996, the Company changed its computerized
management information systems software. As a result of this transition, the
Company experienced problems that had an adverse impact upon its ability to
process orders and ship products, which negatively impacted sales in the second
quarter. Another factor which contributed to a reduction in the level of sales
was an increase in pricing in order to allow for the recovery of shipping costs
related to certain heavy low margin products. To a lesser extent, sales during
the six months ended June 30, 1996 were negatively affected by the shortages the
Company experienced with respect to certain multimedia kits.
Sales of the Company's Magitronic brand of personal computers and notebook
computers for the six months ended June 30, 1996 increased to $43,256,614 (21.6%
of net sales) from $31,801,248 (16.1% of net sales) for the six months ended
June 30, 1995. The Company believes that the increase in sales of these products
was due to the success of the Company's high end notebook computers, competitive
pricing, fast delivery of custom-made systems as well as the growing acceptance
of the Company's Magitronic brand in the market. In addition, sales of
Magitronic computers for the six months ended June 30, 1995 were negatively
affected by production problems associated with relocating the Company's
assembly operations from Melville, New York to Norcross, Georgia. Included in
Magitronic personal computers are private-label and brand-name components that
the Company also sells separately in its distribution business. In addition, the
company also sells components separately under the Magitronic name. To enhance
the visibility of Magitronic products, in January, 1996, the Company created a
separate Magitronic division that will focus on distributing Magitronic products
through new distribution channels including third party mail order businesses
and other distributors. Sales of this division through these new distribution
channels was $1,358,823 for the six months ended June 30, 1996. Because the
Company is attempting to distribute products through third party mail order
businesses, the Company discontinued its own mail order efforts in June, 1996.
9
<PAGE>
While the Company distributes products from more than 70 U.S. suppliers,
the loss of major suppliers or a shortage in a particular product could have a
material adverse impact on the Company during the relatively brief period the
Company believes it would need to establish alternate sources of supply at
required volume levels. Although the Company's business is not highly seasonal,
the second calendar quarter is generally a period of weaker net sales in
comparison to the rest of the year.
Gross Profit: Gross profit decreased by $273,554 to $14,015,969 (7.0% of
net sales) for the six months ended June 30, 1996 from $14,289,523 (7.2% of net
sales) for the six months ended June 30, 1995. The lower gross margin as a
percentage of net sales was primarily a result of adjustments made to reserves.
The Company re-examined its methods of assessing and estimating the adequacy of
allowances for doubtful vendor receivables and determined that such allowances
were inadequate and needed to be increased. The lower gross margin as a
percentage of net sales was primarily a result of increases in reserves and
writeoffs with respect to vendor related receivables such as rebates, returns,
price protection and co-operative advertising in the amount of $1,575,786 (.8%
of net sales). These increases in reserves and writeoffs were somewhat offset by
increased levels of sales of Magitronic personal computers and notebook
computers, which generally have higher margins. Over the last few years, the
computer industry has experienced intense price competition and Management
believes that the price competitive conditions in the industry will continue.
Selling, General and Administrative Expenses: In 1995, the Company
initiated and completed a strategic streamlining program that included the
relocation of the Company's corporate headquarters and assembly operations as
well as the restructuring and consolidation of the Company's distribution
system. Prior to the streamlining program, the Company's headquarters and
primary assembly facility were located in Melville (NY) and the Company's
products were supplied from ten distribution centers. During 1995, the Company
moved its headquarters and primary assembly operations to Norcross (GA) and
consolidated its distribution centers from ten to four. The strategic
streamlining program was implemented to provide the Company with the opportunity
to improve operating efficiencies and economies of scale.
For the six months ended June 30, 1996, selling, general and administrative
expenses decreased by $895,610 to $14,072,308 (7.0% of net sales) from
$14,967,918 (7.6% of net sales) for the six months ended June 30, 1995. The
decrease is primarily due to efficiencies from the strategic streamlining
program and the nonrecurrance of $761,000 in costs incurred during 1995 to
implement the Company's strategic streamlining program. Additional savings of
approximately $200,000 were achieved through reductions of rent, telephone and
other office expenses. This decrease was offset by an increase to the allowance
for doubtful accounts receivables. Due to it's expansion of extending credit and
growth in accounts receivables in total and in age the Company re-examined its
method of assessing the adequacy of it's allowance for doubtful accounts
receivables and determined that such allowance needed to be increased. The
allowance increased by $1,225,000 (0.6% of net sales). During the three months
ended June 30, 1996, the Company experienced some difficulties with its
receivables systems and tracking and monitoring the collection of accounts. The
Company's conversion of it's computerized management information system software
during March 1996 contributed to these difficulties as well as turnover issues
in the Company's credit department. Salaries, employment taxes and employee
benefits for the six months ended June 30, 1996 decreased to $8,477,960 from
$9,303,656 for the six months ended June 30, 1995
10
<PAGE>
Other Charges: Net interest expense increased to $986,838 for the six
months ended June 30, 1996 from $819,170 for the first half of 1995 as a result
of increased borrowings, which was partially offset by decreases in interest
costs due to the Company's new revolving credit loan. The interest rate paid by
the Company under its revolving credit loan was 1/4% over the prime rate or 125
basis points over LIBOR.
Net Loss: Net loss decreased by $107,129 to $891,610 (0.4% of net sales)
for the six months ended June 30, 1996 from a net loss of $998,739 (.5% of net
sales) for the six months ended June 30, 1995.
Three months ended June 30, 1996 and 1995
Net Sales: Net sales for the three months ended June 30, 1996 were
$101,556,939 representing an increase of $7,996,544 (8.5%) from $93,560,395 for
the three months ended June 30, 1995. Sales from the distribution centers in the
following regions changed as follows: Southeast region, 51.4%; Northeast region
(including Canadian distribution center), -3.4%; Mid- and Southwest region,
- -35.6%; Western region, 5.7%; Pacific region, -72.9% and Mail Order, -66.8%. The
mail order business was discontinued in June, 1996. Part of the decrease in the
Northeast and Southwest regions and increase in the Southeast region was caused
by crediting corporate sales previously allocated to New York to Georgia in
conjunction with the relocation of corporate sales personnel to the Georgia
office. Although the Company's business is not highly seasonal, the second
quarter is generally a period of weaker net sales in comparison to the rest of
the year.
At the beginning of March, 1996, the Company changed its computerized
management information systems software. As a result of this transition, the
Company experienced problems that had an adverse impact upon its ability to
process orders and ship products, which negatively impacted sales in the second
quarter. Another factor which contributed to a reduction in the level of sales
was an increase in pricing in order to allow for the recovery of shipping costs
related to certain heavy low margin products. To a lesser extent, sales during
the six months ended June 30, 1996 were negatively affected by the shortages the
Company experienced with respect to certain multimedia kits.
11
<PAGE>
Sales of the Company's Magitronic brand of personal computers and notebook
computers for the three months ended June 30, 1996 increased to $20,588,640
(20.3% of net sales) from $13,276,158 (14.2% of net sales) for the three months
ended June 30, 1995. Sales of Magitronic personal computers during the second
quarter of 1995 were affected by production problems resulting from the
relocation of the assembly facilities from New York to Georgia. These production
problems included longer delivery times and quality control issues.
Gross Profit: Gross profit decreased by $64,939 to $6,138,972 (6.0% of net
sales) for the three months ended June 30, 1996 from $6,203,911 (6.6% of net
sales) for the three months ended June 30, 1995. The Company re-examined its
methods of assessing and estimating the adequacy of allowances for doubtful
vendor receivables and determined that such allowances were inadequate and
needed to be increased. The lower gross margin as a percentage of net sales was
primarily a result of increases in reserves and writeoffs with respect of vendor
related receivables such as rebates, returns, price protection and co-operative
advertising in the amount of $1,575,786 (1.6% of net sales). The increase in
reserves and writeoffs was somewhat offset by increased levels of sales of
Magitronic personal computers and notebook computers, which generally have
higher margins. Over the last few years, the computer industry has experienced
intense price competition and Management believes that the price competitive
conditions in the industry will continue.
Selling, General and Administrative Expenses: As previously mentioned, in
1995, the Company initiated and completed a strategic streamlining program that
included the relocation of the Company's corporate headquarters and assembly
operations as well as the restructuring and consolidation of the Company's
distribution system. During the three months ended June 30, 1995, the Company
incurred $356,000 of expenses related to this program.
For the three months ended June 30, 1996, selling, general and
administrative expenses decreased by $153,272 to $7,509,739 (7.7% of net sales)
from $7,663,011 (8.2% of net sales) for the three months ended June 30, 1995.
This small decrease is due primarily to offsetting changes. Due to its expansion
of extending credit and growth in accounts receivables in total and in age the
Company re-examined its method of assessing the adequacy of its allowance for
doubtful accounts receivables and determined that such allowance needed to be
increased. The allowance increased by $1,225,000 (1.2% of net sales). During the
three months ended June 30, 1996, the Company experienced some difficulties with
its receivables system and tracking and monitoring the collection of accounts.
The Company's conversion of its computerized management information system
software during March 1996 contributed to these difficulties as well as turnover
issues in the Company's credit department. This increase was, however, offset by
the efficiencies generated by the strategic streamlining program, as well as the
nonrecurrance of $995,000 in costs incurred through June 30, 1995, to implement
this program. Salaries, employment taxes and employee benefits for the three
months ended June 30, 1996 decreased to $4,260,960 from $4,928,701 for the three
months ended June 30, 1995
12
<PAGE>
Other Charges: Net interest expense increased to $523,951 for the three
months ended June 30, 1996 from $373,850 for the second quarter of 1995 as a
result of the increased borrowings, which was partially offset by decreases in
interest costs due to the Company's new revolving credit loan. The interest rate
paid by the Company under its revolving credit loan was 1/4% over the prime rate
or 125 basis points over LIBOR.
Net Loss: Net loss increased by $230,594 to $1,401,093 (1.4% of net sales)
for the three months ended June 30, 1996 from a net loss of $1,170,499 (1.3% of
net sales) for the three months ended June 30, 1995.
IMPACT OF INFLATION
The Company has not been adversely affected by inflation because
technological advances and competition within the microcomputer industry have
generally caused prices of products sold by the Company to decline. The Company
has flexibility in its pricing because it has no long-term contracts with any of
its customers and, accordingly, could, if necessary, and depending on
competitive factors, pass along price changes to its customers.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its growth through borrowings under its revolving
credit loan, equity capital and credit terms from its major suppliers. In the
six months ended June 30, 1996, net cash used by operating activities was
$6,488,674 compared to net cash provided by operating activities of $2,626,846
for the six months ended June 30, 1995. The change in net cash flow from
operating activities between the six months ended June 30, 1996 and June 30,
1995, in the amount of $9,115,520, was primarily due to higher growth in
accounts receivable and inventories. In addition, one of the Company's vendors
provided a special discount to pay early for a large purchase of inventory. The
Company may experience shifts in cash flow in the future, particularly if its
suppliers provide more restrictive credit terms than the Company currently is
afforded. For the six month periods ended June 30, 1996 and June 30, 1995, the
Company generally paid its suppliers approximately 35-40 days from the date of
invoice. Terms vary from 1 day to 60 days. The Company takes most early pay
discounts when offered.
Working capital was $51,484,122 as of June 30, 1996 and $44,649,616 as of
December 31, 1995. On June 23, 1995, the Company signed a new three year
$50,000,000 credit facility replacing its existing $25,000,000 revolving credit
loan and a $14,000,000 line for floorplanning of inventory. The new facility
provides for revolving cash borrowings of up to $35,000,000 and $15,000,000 for
inventory floorplanning. Borrowings under the revolving credit loan bear
interest at 125 basis points over LIBOR or the prime rate plus 1/4%. Amounts
available under the revolving credit loan are based on a formula of the sum of
up to 85% of eligible receivables and 50% of eligible inventory not to exceed
$15,000,000. At June 30, 1996 and December 31, 1995, the Company owed
$28,729,606 and $20,965,263, respectively, under its revolving credit loans. The
Company was obligated under letters of credit in the amount of $742,800 on June
30, 1996 and had no such obligations outstanding as of December 31, 1995,
leaving an availability under its revolving credit loan of $5,527,594 on June
30, 1996 and $14,034,737 on December 31, 1995.
13
<PAGE>
ASSET MANAGEMENT
Inventory: Management attempts to maximize product availability and
delivery while minimizing inventory levels so as to lessen the risk of product
obsolescence and price fluctuations. Most products are stocked to provide a 30
to 45-day supply. The Company often reduces prices of products in its inventory
in order to improve its turnover rate. The Company turned its inventory on an
average every 44 days during the first six months of 1996 and 1995. The Company
takes a physical inventory every month which is compared to its perpetual
inventory and monitors inventory levels daily according to sales made by product
and distribution center.
Most of the Company's U.S. suppliers provide price protection, by way of
credits, against price reductions by the supplier between the time of the
initial sale to the Company and the subsequent sale by the Company to its
customer. Such suppliers accept defective merchandise returned within 12 to 15
months after shipment to the Company and some permit the Company to rotate its
inventory by returning slow moving inventory for other inventory.
Accounts Receivable: The Company primarily sells its products on a cash,
C.O.D. or terms of up to 30 days basis, however, the Company has expanded it's
extension of credit terms. The Company's average days' receivable was
approximately 33 days for the six month period ended June 30, 1996 and
approximately 20 days for the six month period ended June 30, 1995. This
increase in the average days sales receivable results from the Company extending
credit to more of its customers.
MANAGEMENT ESTIMATES
Financial statements prepared in conformity with generally accepted
accounting principles necessitates the use of management estimates. Management
has estimated reserves for inventory obsolescence and uncollectible accounts
receivable based upon historical and developing trends, aging of items, and
other information it deems pertinent to estimate collectibility and
realizability. It is possible that these reserves will change within a year, and
the effect of the change could be material to the Company's consolidated
financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
Stock Based Compensation: The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", which establishes financial and reporting standards
for stock-based employee compensation plans. The Company intends to adopt this
statement during its year ending December 31, 1996. Other than additional
disclosures in the financial statements regarding stock options granted pursuant
to the Company's 1991 and 1994 Stock Option Plans, this statement will not have
an effect on the Company's consolidated financial statements.
14
<PAGE>
Long-Lived Assets: The Financial Accounting Standards Board has issued Statement
of Financial Accounting Standards No. 121, "Accounting for the impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", which requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company intends to adopt this statement during the year ending
December 31, 1996. Management does not believe this statement will have a
material impact on the Company's consolidated financial statements.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This report contains forward-looking statements and information that are
based on management's beliefs, as well as assumptions made by, and information
currently available to, management. When used in this document, the words
"anticipate," "believe," "estimate" and "expect," and similar expressions are
intended to identify forward-looking statements. Such statements involve a
number of risks and uncertainties. Among the factors that could cause results to
differ materially are the following: business conditions and growth in the
industry, general economic conditions, rapid or unexpected technological
changes, product development, inventory risks due to shifts in product demand,
competition, domestic and foreign government regulations, fluctuations in
foreign exchange rates, rising costs for components or unavailability of
components, the timing of orders booked, and the risk factors listed from time
to time in the Company's SEC reports.
15
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Stockholders on June 28, 1996. The
Company's stockholders elected Manuel C. Tan and Kenny Liu as Class 2 directors
and ratified the appointment of BDO Seidman, LLP as the Company's Independent
Auditors for the calendar year ending December 31, 1996, by the following
stockholders' vote:
(a) Election of Directors
Votes received Votes
Name (Net of all votes withheld) withheld
---- --------------------------- --------
Manuel C. Tan 4,056,733 24,113
Kenny Liu 4,057,783 23,063
(b) Ratification of the appointment of
Independent Public Accountants:
For 4,062,084
Against 11,211
Withheld 7,551
Item 6. Exhibits and Reports on Form 8-K
(a) (i) Exhibit 11 (statement concerning computation of per share earnings)
and exhibit 15 (letter concerning unaudited interim financial information) are
each hereby incorporated by reference from "Notes to Condensed Consolidated
Financial Statements" of Part I - Financial Information, Item 1 - Financial
Statements, contained in this Form 10-Q.
(ii) Exhibit 27 (financial data schedule for the first six months of 1996)
(b) No reports on Form 8-K were filed by the Registrant during the period
ended June 30, 1996.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 20, 1996
LIUSKI INTERNATIONAL, INC.
By: /s/Hsing-Yen Liu
------------------------
Hsing-Yen Liu
Chairman and Acting Principal
Accounting Officer
17
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
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