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 June 30, 1998
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 July 31, 1998, the Registrant had approximately 4,610,300 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, 1998 (unaudited)
and December 31, 1997................................................3
Statements of operations for the three months and six months
ended June 30, 1998 and June 30, 1997 (unaudited)....................4
Statements of cash flows for the six months ended June 30, 1998
and June 30, 1997 (unaudited)........................................5
Notes to Condensed Consolidated Financial Statements.................6
Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................7
2
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------------------- -----------------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,367,965 $ 2,092,405
Accounts receivable, net of allowance for
doubtful accounts of $2,201,000 and $1,781,000 16,443,768 20,284,367
Inventories, net of allowance for inventory
obsolescence of $1,374,000 and $1,308,000 20,816,971 29,868,561
Prepaid expenses and other current assets 2,140,106 2,067,150
------------------- --------------
Total current assets 41,768,810 54,312,483
Furniture, Autos and Equipment, at cost
Less accumulated depreciation and amortization
of $3,412,341 and $2,911,844 1,865,190 2,367,120
Other assets 277,120 263,220
-------------------- --------------
$ 43,911,120 $ 56,942,823
==================== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 15,621,958 $ 20,053,398
Revolving credit loan 12,294,108 18,424,730
Accrued expenses and other 943,344 1,126,757
-------------------- ---------------
Total current liabilities 28,859,410 39,604,885
Capital lease obligations 58,494 124,113
-------------------- --------------
Total liabilities 28,917,904 39,728,998
-------------------- --------------
Commitments and Contingencies
Stockholders' equity:
Preferred stock; convertible, non-voting,
non-dividend-bearing, $.01 par value -
1,000,000 shares authorized, 0 and 100 shares
issued and outstanding - 6,996,507
Common stock; $.01 par value - 8,000,000 shares
and 2,800,000 shares authorized; 4,610,300 and
2,478,114 issued and outstanding 115,260 61,953
Additional paid-in capital 27,742,093 20,798,893
Retained earnings (12,864,137) (10,643,528)
-------------------- ---------------
Total stockholders' equity 14,993,216 17,213,825
-------------------- --------------
$ 43,911,120 $ 56,942,823
==================== ==============
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 Six months ended
June 30, June 30,
------------------------------------------ ------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 42,430,863 $ 79,573,901 $ 100,015,881 $ 173,009,679
Cost of sales 39,765,872 75,541,912 92,517,018 164,669,403
------------- -------------- ---------------- --------------
Gross profit 2,664,991 4,031,989 7,498,773 8,340,276
Selling, general and administrative 4,201,945 6,718,656 8,954,126 13,849,930
-------------- -------------- ----------------- --------------
Loss from operations (1,536,954) (2,686,667) (1,455,354) (5,509,654)
Other charges, net 438,668 1,213,148 765,256 1,876,508
--------------- ------------- ------------------- --------------
Loss before income taxes (1,975,622) (3,899,815) (2,220,609) (7,386,162)
Income taxes - - - (400,000)
---------------- --------------- ------------------ ---------------
Net loss $ (1,975,622) $ (3,899,815) $ (2,220,609) $ (6,986,162)
================ =============== =================== ===============
Basic and diluted loss per common
share $ (0.43) $ (2.23) $ (0.50) $ (3.99)
================ =============== ================== ===============
Weighted average number of basic and
diluted common shares outstanding 4,610,300 1,752,210 4,480,798 1,752,210
================ =============== ================== ===============
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1998 1997
------------------ ------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (2,220,609) $ (6,986,162)
------------------ ------------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 500,497 528,012
Provision for losses on accounts
receivable 420,000 892,000
Provision for inventory obsolescence 66,000 (500,000)
Changes in operating assets and liabilities:
Accounts receivable 3,420,599 (7,754,596)
Inventories 8,985,590 24,374,865
Prepaid expenses and other (72,956) 740,533
Other assets (13,900) (40,614)
Accounts payable and accrued expenses (4,614,853) (10,511,923)
------------- -------------
Total adjustments 8,690,977 7,728,277
-------------- ---------------
Net cash provided by operating activities 6,470,368 742,115
-------------- ---------------
Cash Flows from Investing Activities
Capital disposals (expenditures) 1,433 (544,782)
-------------- ---------------
Cash Flows from Financing Activities
Net repayment of revolving credit loan (6,130,622) (349,649)
Repayment of capital lease obligations (65,619) 134,251
----------------- ---------------
Net cash used by financing activities (6,196,241) (215,398)
Net increase (decrease) in cash and cash
equivalents 275,560 (18,065)
Cash and cash equivalents,beginning of period 2,092,405 18,065
----------- -----------
Cash and cash equivalents, end of period $ 2,367,965 $ -
============== ================
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 818,693 $ 766,262
============== ===============
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 six month period
ended June 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. 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, 1997, which are
incorporated by reference herein.
Note 2. Capital Stock
The Company's Board of Directors approved an amendment to the
Company's Certificate of Incorporation to effect a two-for-five reverse stock
split of the issued and outstanding shares of common stock and to decrease the
total number of shares of common stock which the Company has authority to issue
from 20,000,000 to 8,000,000. The amendment was approved by written stockholder
consent of Mr. Duke Liao, the Chairman, President and Chief Executive Officer of
the Company. Mr. Liao owned approximately 77.5% of the Company's outstanding
common stock at the time of his consent. Accordingly, the amendment was not
submitted to the other Company stockholders for a vote. The par value of the
common stock was maintained at the pre-reverse split amount of $0.01 per share.
The effective date of the amendment was July 1, 1998. All references to common
shares outstanding and per share amounts in these consolidated condensed
financial statements, notes to consolidated condensed financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations have been adjusted to reflect the two-for-five reverse split.
Note 3. Revolving Credit Loan
On June 23, 1995, the Company obtained a three-year $50,000,000 credit
facility. The original terms of the facility provided for revolving cash
borrowings of up to $35,000,000, limited by available collateral, and
$15,000,000 for inventory floor planning, with interest at 125 basis points over
LIBOR or 25 basis points over the prime rate. Amendments to the facility due to
the Company's default of certain financial covenants consisted of an increase in
the interest rate to 225 basis points over the prime rate with no LIBOR option.
6
<PAGE>
During December 1997, in recognition of the Company's improved capital position
and positive steps to address recurring losses, the borrowing rate was reduced
to 150 basis points over the prime rate (8.5% as of June 30, 1998). The lender
has reserved the right to reverse this rate reduction upon notice to the
Company. An additional amendment to the facility has been made decreasing the
credit faccility to $35,000,000. This amendment provides $17,000,000 for
revolving cash borrowings, limited by available collateral, and $18,000,000 for
inventory floor planning, with flexibility between the revolving and floor
planning, not to exceed the total facility of $35,000,000. The debt is
collateralized by a lien on all of the Company's assets. As of June 30, 1998,
the Company owed $12,294,108 under its revolving credit loan. During December
1997, the Company's principal shareholder became a guarantor of this credit
facility.
Since December 31, 1996, the Company has been in violation of certain
financial covenants under its credit facility agreement. The Company's lender
has reserved all of the rights available to it as a result of the Company's
default of these financial covenants. Management is discussing these defaults
with its lender with the goal of renegotiating the covenants and securing the
credit facility. Management believes it will be successful in these negotiations
based upon the Company's progress achieved under the direction of its new
Chairman and Chief Executive Officer; however, there can be no assurance that
these negotiations will be successfully completed or without conditions. If
these negotiations are unsuccessful, management believes sufficient alternative
sources of financing exist, some of which may be at higher interest rates.
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, 1998 and 1997
Net Sales: Net sales for the six months ended June 30, 1998 were
$100,015,881 representing a decrease of $72,993,798 (42.2%) from $173,009,679
for the six months ended June 30, 1997. For such periods, sales from the
distribution centers responsible for the following regions changed as follows:
Southern region, -44.64%; Northeast region (including Canadian distribution
center), -42.86%; Mid- and Southwest region, -38.67%; and Western region,
- -33.43%. Sales other than Magitronic personal computers and notebooks for the
six months ended June 30, 1998 were $72,162,494, representing a decrease of
$65,125,991 (47.4%) from $137,288,485 for the six months ended June 30, 1997.
Under the leadership of the Company's new Chairman of the Board and Chief
Executive Officer, who assumed these roles midway through 1997, the Company's
sales approach has increased the emphasis on higher profit margin items to
creditworthy customers. The change in sales philosophy, along with overall
depressed sales experienced in the computer industry, have contributed to the
net decrease in sales.
7
<PAGE>
Sales of the Company's Magitronic brand of personal computers and
notebook computers for the six months ended June 30, 1998 decreased to
$27,853,387 (27.8% of net sales) from $35,721,194 (20.6% of net sales) for the
six months ended June 30, 1997. This dollar decrease is substantially
attributable to lower sales of notebook computers in the second quarter, and
price decreases in components which have resulted in a corresponding price
decrease in Magitronic personal computers and notebook computers. These price
decreases have continued to intensify price competition in the industry.
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 $841,503 to $7,498,773 (7.5% of
net sales) for the six months ended June 30, 1998 from $8,340,276 (4.8% of net
sales) for the six months ended June 30, 1997. The higher gross margin
percentage was primarily due to lower costs associated with direct purchases
from foreign vendors and the Company's focus on selling higher profit items as
well as improved utilization of information systems to better manage operations.
Margins during the first six months of 1998 also improved due to better
utilization of vendor programs such as rebates, returns, and price protection
due to the stability in vendors used by the Company. Margins for the six months
ended June 30, 1998 were negatively affected by turnover in key product
management positions which caused the Company not to take full advantage of
various vendor pricing and incentive programs.
Selling, General and Administrative Expenses: For the six months ended
June 30, 1998, selling, general and administrative expenses decreased by
$4,895,804 to $8,954,126 (9.0% of net sales) from $13,849,930 (8.0% of net
sales) for the six months ended June 30, 1997. The percentage increase from 8.0%
to 9.0% is primarily due to lower sales. The dollar decrease is primarily due to
the Company's reduction in employee headcount and, to a lesser extent, increased
vendor support for the Company's advertising and promotional expenses. As a
result of this reduction in force, salaries, employment taxes and employee
benefits for the six months ended June 30, 1998 decreased to $4,361,064 from
$6,940,533 for the six months ended June 30, 1997.
Other Charges: Net interest expense decreased to $818,693 for the six
months ended June 30, 1998 from $1,276,182 for the first half of 1997 as a
result of decreased borrowings. Additionally, during the first six months of
1998, the interest rate was at the reduced rate of 150 basis points over the
prime rate rather than the rate of 225 basis points over the prime rate which
applied during the first half of 1997.
8
<PAGE>
Net Loss: Net loss decreased by $4,765,553 to $2,220,609 (2.2% of net
sales) for the six months ended June 30, 1998 from a net loss of $6,986,162
(4.0% of net sales) for the six months ended June 30, 1997. The percentage
decrease in net loss was primarily affected by the increase in gross margin and
the Company's continued monitoring and management of operating expenses.
The loss related to the Toronto branch was $456,401 (20.6% of net loss) on
sales of $5,297,821 (5.3% of net sales) for the six months ended June 30, 1998
compared to a loss of $2,669,850 (38.2% of net loss) on sales of $13,099,063
(7.6% of net sales) for the six months ended June 30, 1997.
Three months ended June 30, 1998 and 1997
Net Sales: Net sales for the three months ended June 30, 1998 were
$42,430,863, representing a decrease of $37,143,038 (46.7%) from $79,573,901 for
the three months ended June 30, 1997. For such periods, sales from the
distribution centers responsible for the following regions changed as follows:
Southeast region, -52.83%; Northeast region (including Canadian distribution
center), -48.50%; Mid- and Southwest region, -31.10%; and Western region,
- -25.45%. Sales other than Magitronic personal computers and notebooks for the
three months ended June 30, 1998 were $30,313,944, representing a decrease of
$29,690,401 (49.5%) from $60,004,345 for the three months ended June 30, 1997.
Under the leadership of the Company's new Chairman of the Board and Chief
Executive Officer, who assumed these roles midway through 1997, the Company's
sales approach has increased the emphasis on higher profit margin items to
creditworthy customers. The change in sales philosophy, along with overall
depressed sales experienced in the computer industry, have contributed to the
net decrease in sales. 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.
Sales of the Company's Magitronic brand of personal computers and
notebook computers for the three months ended June 30, 1998 decreased to
$12,116,919 (28.6% of net sales) from $19,569,556 (24.6% of net sales) for the
three months ended June 30, 1997. The percentage increase from 24.6% to 28.6% of
net sales is primarily due to lower distribution sales. The dollar decrease is
substantially attributable to price decreases in components which have resulted
in corresponding price and volume decreases in Magitronic personal computers and
notebook computers. These price decreases have continued to intensify price
competition in the industry.
Gross Profit: Gross profit decreased by $1,366,998 to $2,664,991 (6.3%
of net sales) for the three months ended June 30, 1998 from $4,031,989 (5.1% of
net sales) for the three months ended June 30, 1997. The higher gross margin
percentage was primarily due to reduced purchasing costs as a result of dealing
directly with foreign vendors, the Company's focus on selling higher profit
items as well as improved utilization of information systems to better manage
operations. Margins during the second quarter of 1998 were negatively impacted
by turnover in key product management positions which caused the Company not to
take full advantage of various vendor pricing and incentive programs.
9
<PAGE>
Selling, General and Administrative Expenses: For the three months
ended June 30, 1998, selling, general and administrative expenses decreased by
$2,516,711 to $4,201,945 (9.9% of net sales) from $6,718,656 (8.4% of net sales)
for the three months ended June 30, 1997. The percentage increase from 8.4% to
9.9% is primarily due to lower sales. The dollar decrease is primarily due to
the Company's reduction in employee headcount and, to a lesser extent, increased
vendor support for the Company's advertising and promotional expenses. Salaries,
employment taxes and employee benefits for the three months ended June 30, 1998
decreased to $2,265,414 from $3,015,068 for the three months ended June 30,
1997.
Other Charges: Net interest expense decreased to $409,977 for the three
months ended June 30, 1998 from $593,589 for the second quarter of 1997 as a
result of decreased borrowings at reduced interest rates.
Net Loss: Net loss decreased by $1,924,193 to $1,975,622 (4.7% of net
sales) for the three months ended June 30, 1998 from a net loss of $3,899,815
(4.9% of net sales) for the three months ended June 30, 1997. The decrease in
net loss was primarily affected by the increase in gross profit percentage and
lower interest expense.
The loss related to the Toronto branch was $111,801 (5.7% of net loss) on
sales of $1,431,247 (3.4% of net sales) for the three months ended June 30, 1998
compared to a loss of $2,660,694 (68.2% of net loss) on sales of $2,475,240
(3.1% of net sales) for the three months ended June 30, 1997.
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, equity capital and credit terms from its major suppliers.
In the six months ended June 30, 1998, net cash provided by operating activities
was $6,470,368 compared to net cash provided by operating activities of $742,115
for the six months ended June 30, 1997. The increase in net cash flow from
operating activities between the six months ended June 30, 1998 and June 30,
1997, in the amount of $5,728,253 was primarily due to a reduction in accounts
receivable, which resulted from lower sales and decreased inventory levels
maintained by the Company due to the change in sales philosophy and the
reduction in the number of vendors utilized by the Company. The Company may
experience shifts in cash flow in the future, particularly if its suppliers
provide more restrictive credit terms than the Company is currently afforded.
For the six month periods ended June 30, 1998 and June 30, 1997, the Company
generally paid its suppliers approximately 35-45 days from the date of invoice.
Terms vary from one day to 60 days.
10
<PAGE>
Working capital was $12,909,400 as of June 30, 1998 and $14,707,598 as
of December 31, 1997. On June 23, 1995, the Company obtained a three-year
$50,000,000 credit facility. The original terms of the facility provided for
revolving cash borrowings of up to $35,000,000, limited by available collateral,
and $15,000,000 for inventory floor planning, with interest at 125 basis points
over LIBOR or 25 basis points over the prime rate. Amendments to the facility
due to the Company's default of certain financial covenants consisted of an
increase in the interest rate to 225 basis points over the prime rate with no
LIBOR option. During December 1997, in recognition of the Company's improved
capital position and positive steps to address recurring losses, the borrowing
rate was reduced to 150 basis points over the prime rate (8.5% as of March 31,
1998). The lender has reserved the right to reverse this rate reduction upon
notice to the Company. An additional amendment to the facility has been made
decreasing the credit facility to $35,000,000. This amendment provides
$17,000,000 for revolving cash borrowings, limited by available collateral, and
$18,000,000 for inventory floor planning, with flexibility between the revolving
and floor planning, not to exceed the total facility of $35,000,000. The debt is
collateralized by a lien on all of the Company's assets. At June 30, 1998, and
December 31, 1997, the Company owed $12,294,108 and $18,424,730, respectively,
under its revolving credit loans. As of June 30, 1998 and December 31, 1997, the
Company had $10,021,977 and $7,359,025 combined available for cash borrowings
under its revolving credit loan and for the floor planning of inventory
purchases, respectively. During December 1997, the Company's principal
shareholder became a guarantor of this credit facility.
Since 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. Management is discussing these defaults
with its lender with the goal of renegotiating the covenants and securing the
credit facility. Management believes it will be successful in these negotiations
based upon the Company's progress achieved under the direction of its new
Chairman and Chief Executive Officer; however, there can be no assurance that
these negotiations will be successfully completed. If these negotiations are
unsuccessful, management believes sufficient alternative sources of financing
exist, some of which may be at higher interest rates.
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 49 days during the first six months of 1998 and every 41 days for
the first six months of 1997. The Company takes a physical inventory monthly,
which is then 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. Not all of the Company's products are covered by these programs. 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. These programs, in part,
reduce the Company's risk with respect to slow moving inventories.
Accounts Receivable: The Company primarily sells its products on a
cash, C.O.D. or terms of up to 30 days basis. The Company's average days'
receivable was approximately 33 days for the six month period ended June 30,
1998 and approximately 37 days for the six month period ended June 30, 1997.
This decrease in the average days sales receivable resulted primarily from
improved collection staff stability and better credit control to avoid the
occurrence of additional delinquencies.
11
<PAGE>
MANAGEMENT ESTIMATES
Financial statements prepared in conformity with generally accepted
accounting principles necessitate 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
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which supersedes SFAS No. 14, "Financial Reporting of Segments of Business
Enterprise." SFAS No. 131 establishes financial and reporting standards for the
reporting of public companies of information about operating segments in annual
financial statements and for the first time, requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS 131 defines operating
segments as components of a company about which separate financial information
is available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources in assessing performance.
SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997 and requires the restatement of comparative
information for earlier periods. Disclosure for interim financial statements is
not required until the first quarter of fiscal 1999. Management has been
evaluating the impact the new statement will have on future financial statement
disclosures and has determined that the impact will not be significant.
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, 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, lender relationships,
and the risk factors listed from time to time in the Company's reports filed
with the Commission.
12
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
As of June 3, 1998, a stockholder of the Company owning 8,929,053
(approximately 77.5%) of the 11,525,958 shares of the Company's common stock
("Common Stock") outstanding on such date consented in writing to amending the
Company's certificate of incorporation (a) to effect a two-for-five reverse
split (the "Reverse Split") of the issued and outstanding shares of Common
Stock, and (b) to decrease the total number of shares of Common Stock which the
Company has authority to issue from 20,000,000 to 8,000,000. An information
statement, pursuant to Regulation 14C under the Securities Exchange Act of 1934,
relating to the foregoing stockholder action was distributed on or about June 9,
1998 to stockholders of record as of the close of business on June 3, 1998 and
the Reverse Split and decrease in the number of authorized shares became
effective on July 1, 1998.
Item 5. Other Information
By letter dated July 29, 1998, the Nasdaq Listing Qualifications Panel
notified the Company that the Common Stock will be de-listed from the Nasdaq
National Market ("National Market") and also disallowed Nasdaq's consideration
of the Company's application to transfer the listing of the Common Stock from
the National Market to The Nasdaq SmallCap Market ("SmallCap Market"), noting
that on July 29, 1998 the per share bid price of the Common Stock had fallen
below $1.00 (the minimum required for listing the Common Stock on the SmallCap
Market). Recognizing that the Company cannot meet the maintenance requirements
of the National Market, the Company has requested an oral hearing to appeal the
decision with respect to the SmallCap Market and, as a result, the de-listing
from the National Market will be stayed until the oral hearing is completed.
There can be no assurance that the Company will be successful in such appeal,
the outcome of which will be substantially influenced by the per share bid price
of the Common Stock in the future. In the event the Common Stock is not
permitted to be listed on the SmallCap Market, the Common Stock will trade on
the OTC Bulletin Board.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 (financial data schedule for the first six months of
1998).
(b) No reports on Form 8-K were filed by the Registrant during the
quarter ended June 30, 1998.
13
<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: August 14, 1998
LIUSKI INTERNATIONAL, INC.
By: /s/
------------------------------
Ting Y. (Martin) Tsai
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. "EPS-PRIMARY" and
"EPS-DILUTED" give effect to a two-for-five reverse split of the Registrant's
common stock which became effective on July 1, 1998. Financial Data Schedules
previously filed by the Registrant have not been restated to give effect to such
reverse split.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Jun-30-1998
<CASH> 2,368
<SECURITIES> 0
<RECEIVABLES> 16,444
<ALLOWANCES> 2,201
<INVENTORY> 20,817
<CURRENT-ASSETS> 41,769
<PP&E> 1,865
<DEPRECIATION> 3,412
<TOTAL-ASSETS> 43,911
<CURRENT-LIABILITIES> 28,859
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> 14,878
<TOTAL-LIABILITY-AND-EQUITY> 43,911
<SALES> 100,016
<TOTAL-REVENUES> 100,016
<CGS> 92,517
<TOTAL-COSTS> 92,517
<OTHER-EXPENSES> 8,954
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 819
<INCOME-PRETAX> (2,221)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,221)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,221)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
