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, 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 September 30, 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 September 30, 1998 (unaudited)
and December 31, 1997.................................................3
Statements of operations for the three months and nine months
ended September 30, 1998 and September 30, 1997 (unaudited)...........4
Statements of cash flows for the nine months ended September 30, 1998
and September 30, 1997 (unaudited)....................................5
Notes to Condensed Consolidated Financial Statements (unaudited)......6
2
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------ ---------------
<S> <C> <C>
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,887,940 $ 2,092,405
Accounts receivable, net of allowance for doubtful
accounts of $1,851,000 and $1,781,000 14,648,215 20,284,367
Inventories, net of allowance for inventory obsolescence of
$1,510,000 and $1,308,000 15,234,533 29,868,561
Prepaid expenses and other current assets 1,504,643 2,067,150
---------------- -------------
Total current assets 33,275,331 54,312,483
Furniture, Autos and Equipment, at cost
Less accumulated depreciation and amortization
of $3,654,899 and $2,911,844 1,674,076 2,367,120
Other assets 267,545 263,220
--------------- -------------
$ 35,216,952 $ 56,942,823
=============== =============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable - trade 9,655,572 20,053,398
Revolving credit loan 12,214,457 18,424,730
Accrued expenses and other 810,281 1,126,757
--------------- -------------
Total current liabilities 22,680,310 39,604,885
Capital lease obligations 29,602 124,113
--------------- --------------
Total liabilities 22,709,912 39,728,998
--------------- --------------
Commitments and Contingencies
Stockholders' equity:
Preferred stock; convertible, non-voting, non-dividend-bearing,
$.01 par value - 1,000,000 shares authorized, - 6,996,507
0 and 100 shares issued and outstanding
Common stock; $.01 par value - 8,000,000 shares and 2,800,000
shares authorized; 4,610,300 and 2,478,114 issued and 115,260 61,953
outstanding
Additional paid-in capital 27,742,093 20,798,893
Retained earnings (15,350,313) (10,643,528
--------------- ------------
Total stockholders' equity 12,507,040 17,213,825
--------------- ------------
$ 35,216,952 $ 56,942,823
=============== ============
</TABLE>
See notes to condensed consolidated financial statements
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,
------------------------------------- ------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 40,042,549 $ 62,217,673 $ 140,058,430 $ 235,227,352
Cost of sales 38,229,285 57,800,427 130,746,393 222,469,833
-------------- -------------- -------------- --------------
Gross profit 1,813,264 4,417,246 9,312,037 12,757,519
Selling, general and administrative 4,084,337 5,303,775 13,046,699 19,153,705
-------------- -------------- -------------- --------------
Loss from operations (2,271,073) (886,529) (3,734,662) (6,396,186)
Other charges, net 215,103 534,047 972,123 2,410,555
-------------- ------------- ------------ ------------
Loss before income taxes (2,486,176) (1,420,576) (4,706,785) (8,806,741)
Income taxes - - - (400,000)
------------- ------------- ------------- --------------
Net loss $ (2,486,176) $ (1,420,576) $ (4,706,785) $ (8,406,741)
=============== =============== =============== ===============
Basic and diluted loss per common share $ (0.54) $ (0.81) $ (1.04) $ (4.80)
=============== =============== =============== ===============
Weighted average number of basic and
diluted common shares outstanding 4,610,300 1,752,210 4,524,468 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>
Nine months ended
September 30,
-----------------------
1998 1997
--------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (4,706,785) $ (8,406,741)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 743,055 765,073
Provision for losses on accounts receivable 70,000 1,347,504
Provision for inventory obsolescence 202,000 -
Changes in operating assets and liabilities:
Accounts receivable 5,566,152 7,376,366
Inventories 14,432,028 26,711,758
Prepaid expenses and other 562,507 390,296
Other assets (4,325) (28,358)
Accounts payable and accrued expenses (10,714,302) (13,456,805)
----------------- ----------------
Total adjustments 10,857,115 23,105,834
----------------- ----------------
Net cash provided by operating activities 6,150,330 14,699,093
----------------- ----------------
Cash Flows from Investing Activities:
Capital expenditures (50,011) (457,420)
-------- ----------------
Cash Flows from Financing Activities:
Net repayment of revolving credit loan (6,210,273) (18,474,479)
Proceeds from officer loans - 8,219,928
Repayment of capital lease obligations (94,511) 60,051
-------- ------
Net cash used by financing activities (6,304,784) (10,194,500)
----------- ----------------
Net increase (decrease) in cash and cash
equivalents (204,465) 4,047,173
Cash and cash equivalents, beginning of period 2,092,405 18,065
----------- ---------
Cash and cash equivalents, end of period $ 1,887,940 $4,065,238
============ =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 1,163,646 $1,501,674
========== =========
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, 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 par value of the issued and outstanding shares of common stock and to
decrease thetotal number of shares of common stock which the Company has
authority to issuefrom 20,000,000 to 8,000,000. The amendment was approved by
written consent of the Company's majority stockholder. The par value of the
common stockwas maintained at the pre-reverse split par value of $0.01 per
share. The effective dateof 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.
During December 1997, the borrowing rate was reduced to 150 basis points over
the prime rate (8.25% as of September 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 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. As of September 30, 1998, the Company owed $12,214,457
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 preserved all of the rights available to it as a result of the Company's
default of these financial covenants. Management has been discussing, and
continues to discuss these defaults with its lender with the goal of
renegotiating the covenants and securing the credit facility. 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.
6
<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, 1998 and 1997
- ---------------------------------------------
Net Sales: Net sales for the nine months ended September 30, 1998 were
$140,058,430 representing a decrease of $95,168,922 (40.5%) from $235,227,352
for the nine months ended September 30,1997. For such periods, sales from the
distribution centers responsible for the following regions changed as follows:
Southeast region, -43.63%; Northeast region (including Canadian distribution
center), -43.15%; Mid- and Southwest region, -33.36%; and Western region,
- -23.22%. Sales other than Magitronic personal computers and notebooks for the
nine months ended September 30, 1998 were $100,229,456, representing a decrease
of $86,098,490 (46.2%) from $186,327,946 for the nine months ended September 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, and more
recently withthe addition of Frank Cheng as the Company's President the
Company's sales approach has increased the emphasis on higher profit margin
items to creditworthy customers. The change and sales philosophy along with
overall depressed sales experienced in the computer industry have contributed to
the net decrease in sales.
Sales of the Company's Magitronic brand of personal computers and
notebook computers for the nine months ended September 30, 1998 decreased to
$39,828,974 (28.4% of net sales) from $48,899,406 (20.8% of net sales) for the
nine months ended September 30, 1997. This dollar decrease is substantially
attributable to lower sales of notebook computers 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.
Gross Profit: Gross profit decreased by $3,445,482 to $9,312,037 (6.6%
of net sales) for the nine months ended September 30, 1998 from $12,757,519
(5.4% of net sales) for the nine months ended September 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. The margin percentage during the first nine 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. Such
improvement in the margin percentage for the nine months ended September 30,
1998 was partially offset 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 nine months
ended September 30, 1998, selling, general and administrative expenses decreased
by $6,107,006 to $13,046,699 (9.3% of net sales) from $19,153,705 (8.1% of net
sales) for the nine months ended September 30, 1997. The percentage increase
from 8.1% to 9.3% 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 nine months ended September 30, 1998 decreased to
$6,463,704 from $9,863,540 for the nine months ended September 30, 1997.
Other Charges: Net interest expense decreased to $1,163,646 for the
nine months ended September 30, 1998 from $1,501,674 for the first nine months
of 1997 as a result of decreased borrowings. Additionally, during the first nine
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 nine months of 1997.
7
<PAGE>
Net Loss: Net loss decreased by $3,699,956 to $4,706,785 (3.4% of net
sales) for the nine months ended September 30, 1998 from a net loss of
$8,406,741 (3.6% of net sales) for the nine months ended September 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.
Three months ended September 30, 1998 and 1997
- ----------------------------------------------
Net Sales: Net sales for the three months ended September 30, 1998
were $40,042,549, representing a decrease of $22,175,124 (35.6%) from
$62,217,673 for the three months ended September 30, 1997. For such periods,
sales from the distribution centers responsible for the following regions
changed as follows: Southeast region, -40.66%; Northeast region (including
Canadian distribution center), -46.85%; Mid- and Southwest region, -19.14%; and
Western region, 6.46%. Sales other than Magitronic persional computers and
notebooks for the three months ended September 30, 1998 were $29,907,434,
representing a decrease of $19,132,027 (39.0%) from $49,039,461 for the three
months ended September 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, and more recently with the addition of Frank Cheng as the
Company's President, the Company's sales approach has increased the emphasis on
higher profit margin items to creditworthy customers. The change and sales
philosophy along with overall depressed sales experienced in the computer
industry have contributed to the net decrease in sales.
Sales of the Company's Magitronic brand of personal computers and
notebook computers for the three months ended September 30, 1998 decreased to
$10,135,115 (25.3% of net sales) from $13,178,212 (21.2% of net sales) for the
three months ended September 30, 1997. The percentage increase from 21.2% to
25.3% 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 $2,603,982 to $1,813,264 (4.5%
of net sales) for the three months ended September 30, 1998 from $4,417,246
(7.1% of net sales) for the three months ended September 30, 1997. The lower
gross margin was primarily due to the decrease in net sales. Additionally,
margins during the third 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. 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, 1998, selling, general and administrative expenses decreased
by $1,219,438 to $4,084,337 (10.2% of net sales) from $5,303,775 (8.5% of net
sales) for the three months ended September 30, 1997. The percentage increase
from 8.5% to 10.2% 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 September 30, 1998 decrease to $2,083,696 from $2,765,525 for the three
months ended September 30, 1997.
Other Charges: Net interest expense decreased to $351,371 for the three
months ended September 30, 1998 from $474,229 for the third quarter of 1997 as a
result of decreased borrowings at reduced interest rates.
Net Loss: Net loss increased by $1,065,600 to $2,486,176 (6.2% of net
sales) for the three months ended September 30, 1998 from a net loss of
$1,420,576 (2.3% of net sales) for the three months ended September 30, 1997.
8
<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, equity capital and credit terms from its major suppliers.
In the nine months ended September 30, 1998, net cash provided by operating
activities was $6,150,330 compared to net cash provided by operating activities
of $14,699,093 for the nine months ended September 30, 1997. The decrease in net
cash flow from operating activities between the nine months ended September 30,
1998 and September 30, 1997, in the amount of $8,548,763 was primarily due to a
reduction in accounts payable. 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 nine month periods ended
September 30, 1998 and September 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.
Working capital was $10,595,021 as of September 30, 1998 and
$14,707,598 as of December 31, 1997. One 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.
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 September 30, 1998,
and December 31, 1997, the Company owed $12,214,457 and $18,424,730,
respectively, under its revolving credit loans. As of September 30, 1998 and
December 31, 1997, the Company had $14,757,020 and $7,359,025 combined available
for cash borrowings under its revolving credit loan and for the floor planning
or 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. 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.
9
<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 47 days during the first nine months of 1998 and every 46 days for
the first nine 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 34 days for the nine month period ended September
30, 1998 and approximately 35 days for the nine month period ended September 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.
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
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
10
<PAGE>
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
None.
11
<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 July1, 1998.
Item 5. Other Information
In September 1998, Mr. Frank Cheng, 43, was appointed President of the
Company, replacing Mr. Duke Liao, who remains Chairman and Chief Executive
Officer of the Company. Mr. Cheng has more than two decades of diverse
experience in the computer industry. Most recently, he managed and had total
operational and financial responsibility for Arsys Innotech Corporation's
computer distribution business in Texas. Prior to that, he served for more than
six years, until March 1996, as the Managing Director of the Southwest Region
for DTK Computer Inc., a distributor and assembler of computer systems, where he
was responsible for all of DTK's operations and its financial results in the
region. For eight years prior to working for DTK, Mr. Cheng served as a Senior
System Analyst for the Federal Reserve Board. Mr. Cheng's diverse management
experience includes computer system design, supervision of procedures, finance,
sales and marketing. Mr. Cheng is an MBA with a computer science degree from the
University of Central Oklahoma.
In August 1998, Mr. Martin Tsai resigned as the Company's Vice
President and Chief Financial Officer and as a member of its Board of Directors.
Mr. Tsai's resignation was by mutual agreement between him and the Company. Mr.
Cheng has been serving as acting Chief Financial Officer while the Company
searches for a permanent replacement for Mr. Tsai.
On October 22, 1998, the Company attended an oral hearing to appeal
the decision by the Nasdaq Listing Qualifications Panel to de-list the Common
Stock from the Nasdaq National Market and to disallow the transfer of the Common
Stock's listing to The Nasdaq SmallCap Market ("SmallCap Market") based
principally on the fact that 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). The Company is awaiting the Nasdaq Panel's decision regarding
this appeal. In the event the Common Stock is not permitted to be listed on the
SmallCap Market, the Company expects that 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 nine months ended September
30, 1998)
(b) No reports on Form 8-K were filed by the Registrant during the quarter
ended September 30, 1998.
12
<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 13, 1998
LIUSKI INTERNATIONAL, INC.
By:/s/
--------------------------------------
Frank Cheng
President and Chief Financial Officer
(Principal Accounting and Financial Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,888
<SECURITIES> 0
<RECEIVABLES> 14,648
<ALLOWANCES> 1,851
<INVENTORY> 15,235
<CURRENT-ASSETS> 33,275
<PP&E> 1,674
<DEPRECIATION> 3,655
<TOTAL-ASSETS> 35,217
<CURRENT-LIABILITIES> 22,680
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> 12,392
<TOTAL-LIABILITY-AND-EQUITY> 35,217
<SALES> 140,058
<TOTAL-REVENUES> 140,058
<CGS> 130,746
<TOTAL-COSTS> 130,746
<OTHER-EXPENSES> 13,047
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,164
<INCOME-TAX> 0
<INCOME-PRETAX> (4,707)
<INCOME-CONTINUING> (4,707)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,707)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
</TABLE>
