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UNITED STATES
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 September 30, 1997
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 September 30, 1997, the Registrant had 4,380,525 shares of Common Stock,
$.01 par value per share outstanding.
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Financial Statements:
Balance sheets as of September 30, 1997
(unaudited) and December 31, 1996...................................3
Statements of operations for the
three months and nine months ended
September 30, 1997 and September 30, 1996 (unaudited)...............4
Statements of cash flows for the nine
months ended September 30, 1997
and September 30, 1996 (unaudited)..................................5
Notes to Condensed Consolidated Financial Statements................6
Management's Discussion and Analysis
of Financial Condition and Results of Operations....................8
2
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------------- -----------------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,065,238 $ 18,065
Accounts receivable, net of allowance for
doubtful accounts of $1,964,000 and $3,208,000,
respectively 23,270,274 31,994,144
Inventories, net of allowance for inventory obsolescence
of $740,000 and $1,600,000, respectively 23,160,860 49,872,618
Prepaid expenses and other current assets 5,201,896 5,592,192
------------------ ----------------
Total current assets 55,698,268 87,477,019
Furniture, Autos and Equipment, at cost
less accumulated depreciation and amortization
of $3,953,882 and $3,425,870, respectively 2,434,161 2,741,814
Other assets 263,503 235,145
------------------ ----------------
$ 58,395,932 $ 90,453,978
================== ================
Liabilities and Shareholders' Equity
Current liabilities:
Revolving credit loan $ 10,140,450 $ 28,614,929
Notes payable - officer 8,219,928 -
Accounts payable - affiliate 3,106,794 13,889,474
Accounts payable - trade 25,209,663 26,209,403
Accrued expenses and other 1,135,759 2,810,144
------------------ ----------------
Total current liabilities 47,812,594 71,523,950
Capital lease obligations 466,479 406,428
------------------ ----------------
Total liabilities 48,279,073 71,930,378
------------------ ----------------
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
(Accumulated deficit) retained earnings (8,362,111) 44,630
------------------ ----------------
Total stockholders' equity 10,116,859 18,523,600
------------------ ----------------
$ 58,395,932 $ 90,453,978
================== ================
See notes to condensed consolidated financial statements
</TABLE>
3
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ---------------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $ 62,217,673 $ 110,480,302 $ 235,227,352 $ 310,664,576
Cost of sales 57,800,427 102,903,391 222,469,833 289,071,696
---------------- ---------------- ---------------- ----------------
Gross profit 4,417,246 7,576,911 12,757,519 21,592,880
Selling, general and administrative 5,303,775 9,432,853 19,153,705 23,505,161
---------------- ---------------- ---------------- ----------------
Loss from operations (886,529) (1,855,942) (6,396,186) (1,912,281)
Other charges, net 534,047 671,561 2,410,555 1,648,832
---------------- ---------------- ---------------- ----------------
Loss before income taxes (1,420,576) (2,527,503) (8,806,741) (3,561,113)
Income taxes - (608,000) (400,000) (750,000)
---------------- ---------------- ---------------- ----------------
Net loss $ (1,420,576) $ (1,919,503) $ (8,406,741) $ (2,811,113)
================ ================ ================ ================
Loss per share of common and common
equivalent shares outstanding:
Primary and fully diluted
$ (0.32) $ (0.44) $ (1.92) $ (0.64)
================ ================ ================ ================
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
================ ================ ================ ================
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (8,406,741) $ (2,811,113)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 765,073 723,570
Provision for losses on accounts
receivable 1,347,504 2,850,000
Changes in operating assets and liabilities:
Accounts receivable 7,376,366 (8,093,381)
Inventories 26,711,758 (1,226,085)
Prepaid expenses and other 390,296 (871,710)
Other assets (28,358) 1,416
Accounts payable - affiliate (10,782,680) 4,895,379
Accounts payable and accrued expenses (2,674,125) (261,788)
----------- -----------
Total adjustments 23,105,834 (1,982,599)
Net cash provided (used) by operating ----------- -----------
activities 14,699,093 (4,793,712)
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures (457,420) (563,370)
----------- -----------
Cash Flows from Financing Activities:
(Payments on) proceeds from revolving credit
loan (18,474,479) 5,426,887
Proceeds from officer loans 8,219,928 -
Capital lease obligations 60,051 118,514
----------- -----------
Net cash provided (used) by financing activities (10,194,500) 5,545,401
----------- -----------
Net increase in cash and cash equivalents 4,047,173 188,319
Cash and cash equivalents,
beginning of period 18,065 200,989
----------- ----------
Cash and cash equivalents, end of period $ 4,065,238 $ 389,308
================ ==================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,501,674 $ 1,630,259
================ ==================
Income taxes $ - $ -
================ ==================
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
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 nine month period
ended September 30, 1997 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1997. 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, 1996, which are
incorporated by reference herein.
Note 2. Buyout of Principal Shareholder; Loans to the Company and Conversion
into Equity
On June 27, 1997, the Company's then Chief Executive Officer ("CEO") and
principal shareholder, Mr. Morries Liu, sold substantially all of his shares in
the Company (1,783,620 shares or approximately 41% of the outstanding common
stock ("Common Stock")) to Mr. Duke Liao. Concurrently, Mr. Liao became the new
CEO and Chairman of the Board of the Company.
Through October 1997, Mr. Liao has loaned the Company $9,219,928.01 for
working capital purposes ($8,219,928.01 plus accrued interest of $129,742 as of
September 30, 1997). The loans accrue interest at the bank prime loan rate,
which was 8.5% at September 30, 1997. Pursuant to an agreement between the
Company and Mr. Liao, dated as of October 15, 1997, $2,223,421.16 of the loans
and the interest of $158,454.97 which accrued to such date on all of the loans
(together aggregating $2,381,876.13) were converted into 1,814,762 restricted
shares of Common Stock at the conversion price of $1.3125 per share, which was
the last sale price of the Common Stock on such date on the Nasdaq National
Market. Such 1,814,762 shares were issued to Mr. Liao out of the Company's
remaining authorized shares and, as a result, Mr. Liao became the owner of
approximately 58% of the outstanding Common Stock. The remaining $6,996,506.85
of the loans will be converted into shares of non-voting preferred stock of the
Company which will convert automatically into shares of Common Stock at $1.3125
per share upon amendment of the Company's Certificate of Incorporation to
increase the authorized number of shares of Common Stock to allow for this
conversion. Mr. Liao has made an irrevocable election to vote his controlling
shares for such amendment. However, if such preferred stock is not converted
into Common Stock by March 31, 1998, Mr. Liao will have the option to cause the
Company to redeem all of the preferred stock for $6,996,506.85 plus annual
interest thereon of 8.5% accruing from October 16, 1997. The Company estimates
that, after Mr. Liao's loans to the Company and the interest thereon are fully
converted into shares of Common Stock, he will own approximately 77.5% of the
outstanding shares of Common Stock. The Company believes that the improvement in
its balance sheet which will result from this conversion of debt into equity may
result in improving the Company's relationship with its bank and its vendors.
6
<PAGE>
The following represents the pro forma effect of the conversions of debt
into equity, described above, as of September 30, 1997:
<TABLE>
<CAPTION>
September 30, 1997 As Reported Adjustment Pro forma
----------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
Current Assets $ 55,698,268 $ - $ 55,698,268
Fixed Assets 2,434,161 - 2,434,161
Other Assets 263,503 - 263,503
----------------------------------------------------------------------
Total Assets $ 58,395,932 $ - $ 58,395,932
----------------------------------------------------------------------
LIABILITIES
Current Liabilities $ 47,812,594 $ (8,219,928) $ 39,592,666
Long-term Liabilities 466,479 - 466,479
----------------------------------------------------------------------
Total Liabilities 48,279,073 (8,219,928) 40,059,145
STOCKHOLDERS' EQUITY 10,116,859 8,219,928 18,336,787
----------------------------------------------------------------------
Total Liabilities & Stockholders' Equity $ 58,395,932 $ - $ 58,395,932
----------------------------------------------------------------------
</TABLE>
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. This facility provides for
revolving borrowings of up to $35,000,000, limited by available collateral, 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% (30% for Magitronic goods) of the eligible
inventory or $15,000,000. Under the loan agreement, in the absence of default,
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 September
30, 1997, the Company owed $10,140,450 under its revolving credit loans.
As of December 31, 1996, the Company has been in violation of certain
financial covenants under its credit facility agreement. The Company's lender
has preserved all of the rights available to it as a result of the Company's
default of these financial covenants. Consequently, the balance of the revolving
credit loan is classified as a current liability at September 30, 1997. As a
consequence of this default, the interest rate paid by the Company under its
revolving credit loan was increased as of April 14, 1997 to 2 1/4% over the
prime rate and the LIBOR rates are no longer available. The Company has received
notice of the lender's intention to terminate the credit facility. The Company
is currently pursuing other lending options, as well as continuing negotiations
with its current lender.
7
<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
Nine months ended September 30, 1997 and 1996
- ---------------------------------------------
Net Sales: Net sales for the nine months ended September 30, 1997 were
$235,227,352 representing a decrease of $75,437,224 (24.3%) from $310,664,576
for the nine months ended September 30, 1996. The Company's net sales were
negatively affected by shortages of working capital resulting in the inability
of the Company to maintain sufficient inventory of certain of the Company's
products. Additionally, Management began tightening the Company's credit policy
in July 1997 in response to increased bad debt write-offs experienced in the
prior year. Also, the mail order business was discontinued in June 1996. Since
Mr. Liao assumed the role of Chairman of the Board and Chief Executive Officer
of the Company in June 1997, the Company has stressed sales of its higher margin
Magitronic line of computers over its lower margin wholesale distribution line,
which contributed to the net decrease in sales. The wholesale distribution line
has historically made up the majority of the Company's sales.
Sales of the Company's Magitronic brand of personal computers and
notebook computers for the nine months ended September 30, 1997 decreased to
$48,899,406 (20.8% of net sales) from $66,417,372 (21.4% of net sales) for the
nine months ended September 30, 1996. This decrease is substantially
attributable to lower sales of notebook computers in the first quarter, volume
decreases resulting from tightening credit policies and price decreases in
components which have resulted in a corresponding price decrease in Magitronic
personal computers and notebook computers. Specifically, Intel central
processing units ("CPU's") have dropped in price by fifty percent (50%), and
monitor and CD ROM prices also have decreased dramatically. These price
decreases have intensified price competition in the industry. In addition, there
has been substantial turnover in Magitronic product management which has
negatively affected sales. 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.
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.
Gross Profit: Gross profit decreased by $8,835,361 to $12,757,519 (5.4%
of net sales) for the nine months ended September 30, 1997 from $21,592,880
(6.9% of net sales) for the nine months ended September 30, 1996. The lower
gross margin was primarily due to price decreases in components which have
resulted in a corresponding price decrease in Magitronic personal computers and
notebook computers. Additionally, margins were negatively impacted by turnover
in key product management positions which caused the Company to not take full
advantage of various vendor pricing and incentive programs. 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.
8
<PAGE>
Selling, General and Administrative Expenses: For the nine months
ended September 30, 1997, selling, general and administrative expenses decreased
by $4,351,456 to $19,153,705 (8.1% of net sales) from $23,505,161 (7.6% of net
sales) for the nine months ended September 30, 1996. The decrease is primarily
due to a substantial reduction in the Company's workforce as the Company
continues to reduce staff in order to reduce expenses. The number of employees
has been reduced by forty-two percent (42%) since the beginning of March 1997.
As a result of this reduction in force, salaries, employment taxes and employee
benefits for the nine months ended September 30, 1997 decreased to $9,616,778
from $13,096,125 for the nine months ended September 30, 1996.
Other Charges: Net interest expense increased to $1,750,411 for the
nine months ended September 30, 1997 from $1,653,577 for the first nine months
of 1996 as a result of an increase, as of April 14, 1997, in the interest rate
the Company is paying on its revolving credit loan. Due to the default under its
credit facility agreement, the Company is paying interest at 2 1/4% over the
prime rate on its revolving credit facility and no LIBOR rates are currently
available. Additionally, the Company incurred costs of $575,000 in settlement of
various discrimination issues brought on by fourteen former employees.
Net Loss: Net loss increased by $5,595,628 to $8,406,741 (-3.6% of net
sales) for the nine months ended September 30, 1997 from a net loss of
$2,811,113 (-0.9% of net sales) for the nine months ended September 30, 1996.
Three months ended September 30, 1997 and 1996
- ----------------------------------------------
Net Sales: Net sales for the three months ended September 30, 1997 were
$62,217,673 representing a decrease of $48,262,629 (43.7%) from $110,480,302 for
the three months ended September 30, 1996. Management began tightening the
Company's credit policy in July 1997 in response to increased bad debt
write-offs experienced in the prior year. Additionally, net sales were
negatively affected by the Company's new Managements' decision to stress sales
of its higher margin Magitronic line of computers over its lower margin
wholesale distribution line. The wholesale distribution line has historically
made up the majority of the Company's sales.
9
<PAGE>
Sales of the Company's Magitronic brand of personal computers and
notebook computers for the three months ended September 30, 1997 decreased to
$13,178,212 (21.2% of net sales) from $23,160,758 (21.0% of net sales) for the
three months ended September 30, 1996. This decrease is substantially
attributable to decreases in volume resulting from tightening credit policies
and price decreases in components which have resulted in a corresponding price
decrease in Magitronic personal computers and notebook computers. Specifically,
Intel central processing units ("CPU's") have dropped in price by fifty percent
(50%), and monitor and CD ROM prices also have decreased dramatically. These
price decreases have intensified price competition in the industry.
Gross Profit: Gross profit decreased by $3,159,665 to $4,417,246 (7.1%
of net sales) for the three months ended September 30, 1997 from $7,576,911
(6.9% of net sales) for the three months ended September 30, 1996. The lower
gross margin was primarily due to the decrease in net sales. 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: For the three months
ended September 30, 1997, selling, general and administrative expenses decreased
by $4,129,078 to $5,303,775 (8.5% of net sales) from $9,432,853 (8.5% of net
sales) for the three months ended September 30, 1996. The decrease is primarily
due to a substantial reduction in the Company's workforce as the Company
continues to reduce staff in order to reduce expenses. The number of employees
has been reduced by forty-two percent (42%) since the beginning of March 1997.
As a result of this reduction in force, salaries, employment taxes and employee
benefits for the three months ended September 30, 1997 decreased to $2,779,124
from $4,618,165 for the three months ended September 30, 1996.
Other Charges: Net interest expense decreased to $474,229 for the three
months ended September 30, 1997 from $666,739 for the third quarter of 1996 as a
result of decreased borrowings on its revolving credit loan, which offset the
increase in the Company's borrowing rate. Due to the default under its credit
facility agreement, the Company is paying interest at 2 1/4% over the prime rate
on its revolving credit facility and no LIBOR rates are currently available.
Net Loss: Net loss decreased by $498,927 to $1,420,576 (-2.3% of net
sales) for the three months ended September 30, 1997 from a net loss of
$1,919,503 (-1.7% of net sales) for the three months ended September 30, 1996.
10
<PAGE>
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 operations through borrowings under its
revolving credit loan, officer loans, equity capital and credit terms from its
major suppliers. In the nine months ended September 30, 1997, net cash provided
by operating activities was $14,699,093 compared to net cash used by operating
activities of $4,793,712 for the nine months ended September 30, 1996. The
change in net cash flow from operating activities between the nine months ended
September 30, 1997 and September 30, 1996, in the amount of $19,492,805, was
primarily due to a significant reduction in inventories and accounts receivable,
which was partially offset by a decrease in accounts payable. The decrease in
inventories was primarily due to: 1) Management's initiative in the beginning of
the year to sell older, non-returnable inventory at reduced prices and 2) the
new Management's philosophy to concentrate on sales of the Company's lower
volume, higher margin Magitronic line of products as opposed to higher volume,
lower margin wholesale distribution products. 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 nine
month periods ended September 30, 1997 and September 30, 1996, the Company
generally paid its suppliers approximately 35-45 days from the date of invoice.
Terms vary from 1 day to 60 days.
Working capital was $7,885,674 as of September 30, 1997 and
$15,953,060 as of December 31, 1996. On June 23, 1995, the Company signed a
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.
This 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 (30% of
Magitronic goods) not to exceed $15,000,000. At September 30, 1997 and December
31, 1996, the Company owed $10,140,450 and $28,614,929, respectively, under its
revolving credit loans. The Company was obligated under letters of credit in the
amount of $742,800 on September 30, 1996 and had no such obligations outstanding
as of September 30, 1997. As of September 30, 1997 and December 31, 1996, the
Company had $0 and $1,641,424 available for cash borrowings under its revolving
credit loan and $1,738,580 and $11,128,407 available for the floorplanning of
inventory purchases, respectively. As of September 30, 1997, the new CEO of the
Company has made loans to the Company in the amount of $8,219,928 for working
capital purposes. The entire balance of the loans plus accrued interest of
$129,742 through September 30, 1997 will be converted into shares of the
Company's common stock. See Note 2 to the Consolidated Financial Statements
herein for further discussion and pro forma effects of this stock conversion as
of September 30, 1997.
11
<PAGE>
As of December 31, 1996, the Company is in violation of certain
financial covenants under its credit facility agreement. The Company's lender
has preserved all of the rights available to it as a result of the Company's
default of these financial covenants. Consequently, the balance of the revolving
credit loan is classified as a current liability at September 30, 1997. As a
consequence of this default, the interest rate paid by the Company under its
revolving credit loan was increased as of April 14, 1997 to 2 1/4% over the
prime rate and the LIBOR rates are no longer available. The Company has received
notice of the lender's intention to terminate the credit facility. The Company
is currently pursuing other lending options, as well as continuing negotiations
with its current lender.
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 46 days during the first nine months of 1997 and every 44 days for
the first nine months of 1996. This decrease in the average days in inventory
resulted from the Company's initiative of reducing aged inventory through either
returning the goods to vendors for credit or selling to customers at reduced
prices. Additionally, inventory was negatively affected in the first nine months
of 1997 by shortages of working capital resulting in the inability of the
Company to maintain sufficient inventory of certain of the Company's products.
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. The Company's average days' receivable
was approximately 35 days for the nine month period ended September 30, 1997 and
approximately 31 days for the nine month period ended September 30, 1996.
12
<PAGE>
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 reasonably 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.
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.
13
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
See Note 2 to the Consolidated Financial Statements, page 6 herein,
for a discussion of the conversion into equity of Mr. Duke Liao's loans to the
Company, and interest thereon to October 15, 1997, totaling approximately $9.4
million, resulting in Mr. Liao becoming the majority shareholder of the Company.
In August 1997, Eric Bashford, Paul Konigsberg and Manuel Tan resigned
from the Board of Directors of the Company. In addition, Mr. Tan was replaced as
President of the Company by Mr. Liao. Each of these former Directors was
appointed and/or elected to the Board while the Company's founder, Morries Liu,
was Chairman and CEO of the Company. As discussed in Note 2, Mr. Liao purchased
substantially all of Mr. Liu's Common Stock (approximately 41% of the
outstanding) in June 1997 and assumed the positions of Chairman and CEO. Mr.
Liao, Mr. Liu, Edwin Feinberg and Kenny Liu currently constitute the Board.
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 nine months of
1997)
(b) A report on Form 8-K was filed by the Registrant on July 3, 1997,
relating to the sale of the shares of the principal shareholder, under Item 1:
Changes in Control of Registrant.
14
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Dated: November 5, 1997
LIUSKI INTERNATIONAL, INC.
By: /s/
--------------------------------
Ting Y. Tsai
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-TYPE> 9-MOS
<PERIOD-END> SEP-30-1997
<CASH> 4,065
<SECURITIES> 0
<RECEIVABLES> 23,270
<ALLOWANCES> 1,964
<INVENTORY> 23,161
<CURRENT-ASSETS> 55,698
<PP&E> 2,434
<DEPRECIATION> 3,954
<TOTAL-ASSETS> 58,396
<CURRENT-LIABILITIES> 47,813
<BONDS> 0
0
0
<COMMON> 44
<OTHER-SE> 10,073
<TOTAL-LIABILITY-AND-EQUITY> 58,396
<SALES> 235,227
<TOTAL-REVENUES> 235,227
<CGS> 222,470
<TOTAL-COSTS> 222,470
<OTHER-EXPENSES> 19,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,750
<INCOME-PRETAX> (8,807)
<INCOME-TAX> (400)
<INCOME-CONTINUING> (8,407)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,407)
<EPS-PRIMARY> (1.92)
<EPS-DILUTED> (1.92)
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