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Golden Systems reports fiscal third- quarter results.

SIMI VALLEY, Calif.--(BUSINESS WIRE)--Feb. 10, 1995--Golden Systems Inc. (NASDAQ:GLDN) reported sales for the third quarter ended Dec. 31, 1994, were $1,854,000 vs. $7,609,000 for the same period last year.

The decrease from the same quarter of the prior year is primarily due to product returns of approximately $4.1 million and a halt in production of the same model power supply due to quality and reliability concerns by the company's major customer. The halt in production reduced the company's expected sales by approximately $2 million.

In January, the company restarted production and shipments of this model to its largest customer. The company now believes that none of the returned product will be reshipped to the customer and, as a result, has increased the reserve from the previously announced $2.5 million to $5.2 million, which values the returned units at zero.

The company reported a loss for the quarter of $8,877,000, or $1.99 per share, compared with earnings of $124,000, or 4 cents per share, for the year-ago period.

For the first fiscal nine months, sales were $18,652,000 vs. $20,340,000 last year. The company reported a net loss of $11,212,000, or $2.52 per share, compared with earnings of $568,000, or 24 cents per share, for the first fiscal nine months a year ago.

As was previously announced, Golden Systems received notification in late November 1994 from its largest customer that it had rejected approximately 170,000 units of a specific product model due to quality and reliability concerns, halted factory production of this model, and indicated that it would not accept reshipment of the rejected product.

During the following four to six weeks, the company and its rework subcontractor worked with the customer's personnel to attempt to establish an acceptable rework process and to restart the factory production. By mid-January, the company had reached an agreement with the customer which restarted the factory production of this model.

In addition, the customer agreed to accept product from a rework process, if the product satisfied its quality standards. While the customer made no commitment to take any specific number of the reworked units, it agreed to issue periodic purchase orders on an ``as needed'' basis. The company had completed a series of test lots to define and verify the rework process which concluded with the production of a small lot of acceptable product.

The customer then issued a purchase order for a 2,000 unit test run. The 2,000 unit volume test run of the rework process was rejected by the customer as not meeting its quality standards.

``We were surprised and disappointed by the rejection of the volume test run,'' stated Raymond V. Thomas, Golden Systems chief operating officer. Golden Systems' agreement with its largest customer on reworked product was subject to termination upon the rejection of any lot of reworked units. In light of this rejection, the company now believes that none of the returned product will be reshipped to the customer.

``We are looking forward to seeing the engineering reports on these units so that we may discuss them with our rework subcontractor in order to evaluate our alternatives to maximize the salvage value of these units.''

``We are currently reevaluating our strategic plans for the next six to 18 months in order to refocus on higher margin products,'' stated Jay Tandon, Golden Systems chief executive officer. ``We anticipate aggressively transitioning out of lower margin projects where we have not already made significant investments in component inventory.

``It's clear we will have to give up revenues in order to strengthen our margins. We will come out of this a smaller, but stronger company.''

Golden Systems designs, manufactures and markets switching power supplies for OEMs of personal computers, peripheral equipment and other electronic equipment for incorporation into their products.

The company has located all of its manufacturing operations and most of its engineering staff in export processing zones in India and Sri Lanka. Golden Systems has headquarters in Simi Valley, 40 miles north of Los Angeles. -0-
 GOLDEN SYSTEMS INC.
 CONSOLIDATED BALANCE SHEETS
 (in thousands)


 Dec. 31, March 31,
 1994 1994
 (unaudited)
ASSETS
CURRENT ASSETS:
 Cash and cash equivalents $ 2,007 $ 8,500
 Restricted cash balances 1,577 1,635
 Short-term investments -- 2,500
 Accounts receivable, net
 of allowances 3,413 6,351
 Net due from related parties 385 --
 Note receivable from related party 108 1,115
 Inventories 12,022 7,100
 Prepaid expenses and other
 current assets 1,724 781
 Income taxes receivable 75 85
 Deferred tax asset 25 25
 Total current assets 21,336 28,092


PROPERTY, PLANT AND EQUIPMENT,
 at cost, net of accumulated
 depreciation 4,043 1,583


OTHER ASSETS -- --
 $25,379 $29,675


LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
 Short-term borrowings $ 8,720 $ 5,645
 Accounts payable 5,353 3,385
 Net due to related parties -- 673
 Accrued liabilities 2,513 604
 Accrued income tax payable -- --
 16,586 10,307


LONG-TERM DEBT 689 --


MINORITY INTEREST 2,599 2,599


SHAREHOLDERS' EQUITY
 Common stock 16,278 16,278
 Retained earnings (10,757) 455
 Cumulative translation adjustment (16) 36
 Total shareholders' equity 5,505 16,769
 $25,379 $29,675




 GOLDEN SYSTEMS INC.
 Combined/Consolidated Statement of Operations for Nine Months
 Ended Dec. 31, 1993/Consolidated Statement of Operations
 for Nine Months Ended Dec. 31, 1994
 (in thousands, except per-share data)
 (unaudited)


 Three Months Ended Nine Months Ended
 Dec. 31, Dec. 31,
 1994 1993 1994 1993


NET SALES $ 1,854 $ 7,609 $18,652 $20,340


COST OF GOODS SOLD 9,103 6,555 25,534 17,178
 Gross profit/(loss) (7,249) 1,054 (6,882) 3,162


OPERATING EXPENSES
 Selling, general and
 administration 1,245 720 3,552 1,790
 Engineering 288 119 669 451
 1,533 839 4,221 2,241
 Operating income/(loss) (8,782) 215 (11,103) 921


OTHER INCOME (EXPENSE):
 Interest expense (176) (170) (396) (408)
 Interest and other income 82 49 288 83
 Equity in income of
 partnership -- -- -- 47
 (94) (121) (108) (278)
 Income/(loss) before
 provision for income
 taxes (8,876) 94 (11,211) 643


PROVISION FOR INCOME TAXES 1 (30) 1 75
NET INCOME/(LOSS) $(8,877) $124 $(11,212) $568


EARNINGS/(LOSS) PER SHARE $(1.99) 4 cents $(2.52) --


PROFORMA EARNINGS/(LOSS)
 PER SHARE 24 cents


WEIGHTED AVERAGE AND COMMON
 EQUIVALENT NUMBER OF
 OUTSTANDING SHARES 4,450 3,200 4,450 --


PROFORMA WEIGHTED AVERAGE
 NUMBER OF SHARES
 OUTSTANDING -- -- -- 2,219


CONTACT: Golden Systems Inc., Simi Valley

Raymond V. Thomas, 805/582-3213
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Date:Feb 10, 1995
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