SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                -----------------

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the Fiscal Year Ended September 30, 1996

                         Commission File Number 0-18753
           
                          ADVANCED LOGIC RESEARCH, INC.

              A Delaware Corporation IRS Employer ID No. 33-0084573

                               9401 Jeronimo Road
                            Irvine, California 92618
                                 (714) 581-6770
                           --------------------------

        Securities registered pursuant to Section 12(b) of the Act: None

               Securities registered pursuant to Section 12(g) of
                                    the Act:

                          Common Stock, Par Value $.01
                          ----------------------------

     Indicate  by check mark  whether the  Registrant  (l) 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,  and (2) has been  subject to such filing
requirements for the past 90 days. YES X NO ___

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     The aggregate  market value of the voting stock held by  non-affiliates  of
the Registrant was  $98,098,052 on December 13, 1996,  based on the closing sale
price of such stock on The Nasdaq Stock Market.

     The number of shares  outstanding of  Registrant's  Common Stock,  $.01 par
value, was 12,452,536 at December 13, 1996. 

                       DOCUMENTS INCORPORATED BY REFERENCE

         Part III of this Report incorporates  information by reference from the
definitive  Proxy Statement for the Annual Meeting of  Stockholders,  to be held
February 18, 1997.

           
<PAGE>
                          ADVANCED LOGIC RESEARCH, INC.

                       Index to Annual Report on Form 10-K

                  For the Fiscal Year Ended September 30, 1996

                                                                           Page
                                     PART I

     Item 1.      Business....................................................1
     Item 2.      Properties.................................................10
     Item 3.      Legal Proceedings..........................................10
     Item 4.      Submission of Matters to a Vote of Security Holders........10
                                     PART II

     Item 5.      Market for Registrant's Common Stock and 
                     Related Stockholder Matters.............................11
     Item 6.      Selected Consolidated Financial Data.......................12
     Item 7.      Management's Discussion and Analysis of
                     Results of Operations and Financial Condition...........13
     Item 8.      Financial Statements, Financial Statement Schedule
                     and Supplementary Data..................................20
     Item 9.      Changes In and Disagreements with Accountants on Accounting
                     and Financial Disclosure................................20

                                    PART III

     Item 10.     Directors and Executive Officers of the Registrant ........37
     Item 11.     Executive Compensation.....................................37
     Item 12.     Security Ownership of Certain Beneficial Owners
                     and Management..........................................37
     Item 13.     Certain Relationships and Related Transactions.............37

                                     PART IV

     Item 14.     Exhibits, Financial Statement Schedule and 
                     Reports on Form 8-K.....................................38








This report contains the following trademarks of the Company,  many of which are
registered:  Advanced Logic Research,  Inc., ALR, Evolution,  etc. The following
trademarks of other companies also appear in this report:  Compaq, Data General,
IBM, Intel, Pentium,  Pentium Pro, Unisys. Any other products or brand names are
trademarks or registered trademarks of their respective companies.


<PAGE>
                                     PART I


Item 1.           Business.


General

         Advanced Logic  Research,  Inc.  ("ALR" or the  "Company"),  founded in
1984,  designs,  manufactures,  markets  and  supports a broad line of  computer
systems ("PCs") that offer  leading-edge  performance  and value.  The Company's
comprehensive  portfolio  of  environmentally  friendly,   upgradeable  products
includes  sophisticated  network  servers,   high-performance  workstations  and
entry-level PCs. All ALR systems feature advanced designs to enhance performance
while supporting the major industry standards.  ALR markets its products through
a worldwide network of resellers, system integrators,  dealers and distributors.
It also sells to selected Original Equipment  Manufacturer ("OEM") customers and
direct to end-users through its PrimeLine Direct program.


Products

         The  Company's  product  strategy  is  focused  on  becoming  a leading
provider of  computers  targeted  at the  client/server  and  high-end/mid-range
desk-top  markets.  The Company  currently  offers a number of  high-performance
server,  workstation  and personal  computer  product  families based on Intel's
Pentium  Pro and  Pentium  microprocessors  ("CPUs").  To achieve  broad  market
acceptance  for its  products,  the Company's PCs  incorporate  either  Industry
Standard   Architecture  ("ISA")  or  Extended  Industry  Standard  Architecture
("EISA") bus  architecture  and either Video  Electronics  Standard  Association
("VESA") or Peripheral  Component  Interconnect  ("PCI") local bus architecture.
For compatibility with a broad range of application  software,  ALR supports the
major industry single user and multi-user/network  operating systems: MS DOS, MS
Windows,  MS Windows 95, MS Windows NT, SCO UNIX, OS/2,  Novell NetWare,  Banyan
VINES, as well as Intel's MP Spec v1.1 and v1.4 multiprocessing specifications.

         ALR's  SERVER  SYSTEMS.  The  Company's  server  systems  are  designed
in-house and feature  enhanced  performance  and  expandability.  This family of
computers is based on Intel's  Pentium Pro and Pentium CPUs.  The ALR Revolution
Quad6,  Dual6  and MP Pro  feature  Intel's  Pentium  Pro CPUs  whereas  the ALR
Revolution  Q-SMP  and MP II  feature  Intel's  Pentium  CPUs.  ALR also  offers
rack-mount version of its ALR Revolution Quad6, Dual6 and Q-SMP servers.

         ALR REVOLUTION QUAD6. The innovative award-winning ALR Revolution Quad6
is a fully symmetrical  multiprocessing  server featuring up to four Intel 166-,
or  200-megahertz  ("MHz")  Pentium Pro CPUs. The unique ALR system board design
utilizes an  advanced  64-bit  multiprocessor  bus and a  symmetrical  design to
distribute  the workload  evenly  between the different  processors.  The system
comes  standard with 64- megabytes  ("MB") of random access memory ("RAM") which
is expandable to two gigabytes ("GB") and features Error Checking and Correction
("ECC") technology to secure data integrity within the system.

         All ALR Revolution Quad6 servers come standard with ALR's InforManager,
a server management  package designed to monitor system information and minimize
downtime. The ALR Revolution Quad6 features 13 drive bays and 15 expansion slots
(seven 32-bit PCI local bus,  seven 32-bit EISA and one shared  PCI/EISA  slot).
The easily  accessible  chassis  makes the drive  bays  ideal for hot  swappable
drives, tape backups,  multiple CD-ROMs and other removable storage devices. The
ALR  Revolution  Quad6 was the recipient of UNIX Review  magazine's  Outstanding
Product  Award in the  hardware  category  in the  December  1996  issue and was
selected as a finalist by PC/Computing  Magazine for its `Most Valuable Product'
award at COMDEX '96 in Las Vegas.

         ALR REVOLUTION  DUAL6. The ALR Revolution Dual6 is a fully  symmetrical
multiprocessing  server  featuring up to two Intel 200-MHz Pentium Pro CPUs. The
system is  designed  for  customers  with large data  storage  requirements  and
features 14 drive bays and eight expansion slots (four 32-bit PCI local bus, one
32-bit EISA and three shared  PCI/EISA  slots).  The system comes  standard with
64-MB of ECC RAM which is expandable to 1-GB. The ALR Revolution  Dual6 features
ALR's InforManager server management system.

         ALR REVOLUTION MP PRO. The ALR Revolution MP Pro is designed for use as
a departmental server and features up to two Intel 200-MHz Pentium Pro CPUs. The
system has 11 drive bays and 8 expansion  slots (four  32-bit PCI local bus, one
32-bit EISA and three shared  PCI/EISA  slots).  The system comes  standard with
32-MB of ECC RAM which is expandable to 1-GB. The ALR Revolution MP Pro features
ALR's InforManager server management system.

         ALR REVOLUTION Q-SMP. The award-winning ALR Revolution Q-SMP is a fully
symmetrical  multiprocessing  server  featuring  up to four Intel 100-,  133- or
166-MHz Pentium CPUs. System performance is enhanced by ALR's proprietary memory
architecture  supporting 256 kilobytes  ("KB")  (optional 1- or 2-MB) of two-way
associative  high-speed  "write-back"  memory cache per  processor  module.  The
system  comes  standard  with  16-MB of RAM  which is  expandable  to 1-GB  with
built-in  Error  Detection and  Correction  technology to secure data  integrity
within the system.  The ALR  Revolution  Q-SMP  features  ALR's  NetTune  server
management  system.  The ALR Revolution Q-SMP has 13 drive bays and 10 expansion
slots (six EISA bus slots and four PCI local bus extensions). The ALR Revolution
Q-SMP has received  numerous  awards  including  PC/Computing  Magazine's  `Most
Valuable  Product'  award at  COMDEX  '94 in Las  Vegas  and the  `Overall  Best
Hardware Product for 1995' by UNIX Review in its December 1995 issue.

         ALR  REVOLUTION  MP II.  The ALR  Revolution  MP II  offers  affordable
Pentium  processing  while  providing  an  upgrade  path  from  100-MHz  Pentium
processing  to dual 100-,  133-,  166- or 200-MHz  Pentium  multiprocessing.  To
enhance  performance the system features 512-KB pipeline burst level 2 cache and
its memory can be expanded  to 512-MB of ECC RAM.  Complementing  the  scaleable
processing power of the ALR Revolution MP II is its tower chassis which features
nine drive bays and 10 expansion slots (three PCI slots, six EISA slots, and one
shared PCI/EISA slot).  Designed for mission critical  network  applications the
ALR REVOLUTION MP II features ALR's InforManager server management system and is
fully  compatible with  multiprocessing  versions of popular  multi-user/network
operating systems.

         RACK-MOUNTABLE  SERVERS.  The ALR  Revolution  Quad6,  Dual6  and Q-SMP
technology  has also been  incorporated  in a  rack-mount  chassis  designed  to
provide maximum  availability,  flexibility and performance while economizing on
space. ALR offers two rack-mount  options designed to accommodate  either two or
four server  units in a single,  organized  location.  The system is designed to
offer safeguards against downtime and lost data. An optional DAT drawer provides
up to 32-GB of back-up data storage with a redundant  hot-swappable power supply
for mission critical environments.  Additionally, the racks can be configured to
house disk array subsystems or  uninterruptible  power supplies depending on the
needs of the user.

         ALR's    MINI-TOWER/HIGH-END    DESK-TOP    SYSTEMS.    The   Company's
mini-tower/high-end  desk-top  systems  feature  32-bit local bus technology and
superior memory  cache/local bus combinations to optimize CPU performance.  This
family of computers  consists of the ALR EVOLUTION DUAL6 and the ALR EVOLUTION 5
Series.

         ALR EVOLUTION  DUAL6.  The ALR EVOLUTION DUAL6 is designed to use up to
two  200-MHz   Pentium  Pro  CPUs  and  is  targeted  at  high-end   workstation
applications  including CAD,  graphics design and animation.  To enhance overall
system  performance  the ALR EVOLUTION DUAL6  incorporates  32-bit PCI local bus
technology.  This bus  provides  compatibility  with the latest  video cards and
access to other 32-bit  enhancement  products.  The systems come  standard  with
16-MB of ECC RAM expandable to 1-GB.

         ALR EVOLUTION 5 SERIES. The ALR Evolution 5DT and 5ST are engineered to
take  advantage  of the  latest  advances  in  Pentium  technology  and  offer a
selection of processor  options  including  Intel's 100-,  133-, 150- or 166-MHz
Pentium CPUs. To enhance overall performance, the systems incorporate 32-bit PCI
local bus  technology  and an advanced  memory cache  architecture.  The systems
utilize  the same  motherboard  and are  packaged  in  either a  sport-tower  or
desk-top chassis. The systems come standard with 8-MB of RAM which is expandable
to 128-MB on the system board.

         ALR's  MID-RANGE  AND  ENTRY-LEVEL   DESK-TOP  SYSTEMS.  The  Company's
mid-range desk-top PCs optimize  performance  through advanced  technology.  The
systems  incorporate  PCI local bus technology and consist of the ALR OPTIMA SL,
OPTIMA DT and Optima MT.

         ALR OPTIMA SL, DT & MT. The ALR Optima series combines performance with
ease of use by  featuring  "Plug  `n'  Play"  technology.  The  system  offers a
selection of processor  options  including  Intel's 100-,  133-, 166- or 200-MHz
Pentium CPUs. For enhanced video  performance a 64-bit video  subsystem has been
integrated onto the PCI local bus. The systems utilize the same  motherboard and
are packaged in either a slimline (SL), desktop (DT) or mini-tower (MT) chassis.
The system comes  standard  with 8-MB of RAM  expandable to 128-MB on the system
board.

         Other  Hardware  Options.  ALR  offers a number  of  hardware  options,
including  the ALR  DataStation  for data storage in networking  and  multi-user
environments,  VESA and PCI local bus video adapters and hard drive controllers.
For certain systems,  ALR offers a Multimedia  Upgrade kit which includes an IDE
CD-ROM drive and various titles,  a 16-bit sound card,  external  speakers and a
microphone. The Company also offers systems and memory boards, hard disk drives,
CD-ROM drives, tape backup systems,  fax modems,  keyboards,  monitors and other
related peripherals.


Research and Product Development

         The Company believes that being  early-to-market with  high-performance
systems is critical  to its  success.  To achieve  this goal,  the Company  uses
technology  modules which can be transported  effectively  and used in its other
computer systems with minimal modification,  as "building blocks" for concurrent
and future  product  development  efforts.  Examples  of these  building  blocks
include the Company's  memory  management  technology  and custom chip sets. The
Company  believes this approach  better  enables it to control its  engineering,
research and development  expenditures  while increasing the speed with which it
can bring new products to market.

         The Company's  research and product  development  staff  consists of 39
hardware and systems engineers  located in the U.S. The Company's  engineers are
divided  into two groups  involved in the design of new  products as well as the
continued  development and support of existing products.  The Company's hardware
engineers focus on the design of the Company's CPU platforms,  while its systems
engineers are responsible for enclosure  design,  software/system  compatibility
and integration of input/output peripherals to the system.

         During the fiscal years ended  September 30, 1996,  1995 and 1994,  the
Company's engineering, research and development expenses were $5.4 million, $4.8
million and $4.4 million, respectively.


Sales, Marketing and Support

         ALR and its subsidiaries sell the Company's  products worldwide through
an extensive  network of value added  resellers  ("VARs"),  system  integrators,
dealers, distributors, and selected OEM customers. In the U.S., the Company also
sells directly to end-users through its PrimeLine Direct program.

         Since 1992, the PC industry has  experienced a significant  increase in
price  competition.  See  "Competition".  The Company has  responded to this new
environment by focusing its product strategy towards  providing  computers aimed
at the  high-performance,  multi-processing  server and  desk-top  markets.  The
Company has also  attempted  to optimize  the pricing  structure  offered to its
different  distribution  channels  and the  marketing  programs  provided to its
reseller channels.

         The Company has focused on providing its reseller channel (VARs, system
integrators  and dealers) with some of the most  competitive  programs in the PC
industry.  The Company's  reseller  programs include free shipping,  cooperative
advertising,  lead referral, toll-free technical support, warranty reimbursement
and the facilitation of product purchases through flooring companies offering up
to 60 days free  financing.  The  Company  has  implemented  a  "Channel  Build"
strategy for its  resellers  and  distributors  allowing  them to purchase  base
models and determine their own margins by customizing these products for resale.
Additionally,  the Company has adopted a "Cost Plus"  pricing  strategy  for its
reseller channel where the "Cost" is the price paid by its  distributors.  Sales
to the Company's  reseller  channel  accounted for 61%, 68% and 69% of net sales
for fiscal 1996, 1995 and 1994, respectively.

         The  Company   currently   markets  its  products   through  two  major
distributors,  Gates/Arrow  and Tech Data and one  regional  distributor,  Jones
Business  Systems.  This  channel  provides  broad  market  penetration  for the
Company's products.  Distributors represented approximately 7%, 5% and 8% of the
Company's net sales in fiscal 1996,  1995 and 1994,  respectively.  Since fiscal
1993, ALR has  experienced  significant  changes in its distributor and national
retail organization  ("NRO") channel due to a reorientation of its sales channel
focus in North America.  As a result,  product purchase  agreements with certain
distributors  (GBC/Vitek,  Ingram Micro, and Merisel) and NROs (ComputerLand and
Intelligent  Electronics) have been terminated.  However,  ALR continues to sell
its  products  directly  to  the  franchisees  of  Intelligent  Electronics  and
ComputerLand through its reseller program.

         The Company's  PrimeLine  Direct  channel,  established in fiscal 1993,
serves the  requirements  of customers who choose to purchase  directly from the
Company.  Since 1993,  ALR's PrimeLine Direct sales force has evolved into three
groups focused on serving the disparate needs of the small business customer and
the large  corporate  and  government  end-users.  The  government  sales  group
negotiated a contract with the federal  government (GSA contract) in fiscal 1994
allowing federal agencies to procure product directly from ALR at pre-negotiated
prices.  Additionally,  qualified  resellers  can sell  products  to  government
end-users based on the pre-negotiated prices in ALR's GSA contract and receive a
pass-through  commission from ALR.  PrimeLine Direct sales  represented 21%, 17%
and 16% of the Company's net sales for fiscal 1996, 1995 and 1994, respectively.

         In September 1996, ALR expanded its OEM  relationships by entering into
an agreement  with Data General  Corporation  for ALR's high-end  servers.  This
agreement added to the Company's existing OEM relationship with Unisys. However,
an OEM relationship  with Siemens Nixdorf,  Germany,  for certain  Pentium-based
systems  terminated in fiscal 1996. OEM sales  represented 10%, 9% and 4% of the
Company's net sales for fiscal 1996, 1995 and 1994, respectively.

         The  Company's  resellers,  distributors  and  OEM  customers  are  not
contractually  committed to future  purchases  of the  Company's  products  and,
therefore,  could  discontinue  carrying  the  Company's  products  at any time.
Additionally,  consistent  with  industry  practice,  the Company  provides  its
distributors  with stock  balancing and price  protection  rights,  which permit
these  customers  to return  products  to the  Company for credit and to receive
price  adjustments for  inventories of the Company's  products if ALR lowers the
prices of these products.

         ALR serves its markets worldwide through export sales from the U.S. and
a network of subsidiaries  and branches.  ALR's sales  subsidiaries  include ALR
International  (Pte) Ltd.  ("ALR  International"),  Advanced Logic Research Inc.
(U.K.) Limited and Advanced Logic Research  (Deutschland) GmbH which are located
in Singapore,  London and Frankfurt,  respectively.  ALR International maintains
branch sales and support offices in Hong Kong and Malaysia.  International sales
represented  36%, 43% and 46% of the  Company's net sales for fiscal years 1996,
1995 and 1994, respectively.  For further geographic information, see Note 12 of
Notes to Consolidated Financial Statements.

         A portion of the sales made by the Company in international markets are
priced in local currency and are subject to currency exchange  fluctuations.  At
September  30,  1996,  the  Company  had  no  forward   contracts   outstanding.
International  sales are subject to the risk of compliance  with laws of various
countries and the risk of import/export restrictions and tariff regulations. ALR
has not experienced any difficulty in obtaining  export licenses from the United
States Department of Commerce for international sales.

         ALR  maintains  a sales  and  service  staff  at each of its  locations
worldwide  to  support  the  Company's   end-users,   authorized  resellers  and
distributors.  Reseller and distributor  sales and service  training classes are
conducted at most of the  Company's  major  worldwide  locations.  See "Customer
Service and Product Warranty."

         The  Company's  corporate  marketing  communications  group has primary
responsibility   for  launching  and  maintaining   product  exposure  including
advertising,  promotion and public  relations.  This group also  develops  sales
materials such as brochures, merchandising kits and point-of-purchase displays.





Backlog

         The Company's customers generally order products on an as-needed basis.
Therefore,  a significant portion of product shipments in a given fiscal quarter
result  from  orders  received  in that  quarter.  Consequently,  order  backlog
represents a small percentage of the product sales anticipated by the Company in
a given fiscal quarter and is not  indicative of the Company's  actual sales for
any future fiscal period.  Manufacturing  plans and expenditure levels are based
primarily on sales  forecasts.  The absence of scheduled  backlog  could lead to
unanticipated  fluctuations  in  operating  results  in  any  quarter  in  which
anticipated sales and shipments do not occur as expected.


Manufacturing and Quality Control

         The  Company's  manufacturing  operations  are  located  at its  Irvine
facilities in the United States.  They include procurement and testing of parts,
components  and  subassemblies  and final  assembly of its systems.  In order to
reduce capital investment  requirements,  the Company subcontracts a substantial
portion of its printed  circuit board assembly to several  vendors in the United
States and Taiwan,  including affiliates of Wearnes Technology (Private) Limited
("Wearnes",  Wearnes holds  approximately 39% of the outstanding common stock of
ALR).  All  subcontracted  components  are tested  either by the  Company or the
subcontractor  before  undergoing  final assembly.  Once assembled,  all systems
undergo a fully operational test cycle including stress testing. Quality control
also includes ongoing production  reliability audits for early identification of
production problems.

         The  Company  has  focused on  improving  its  inventory  controls  and
enhancing its management  information  systems.  The inability of the Company to
continue to improve its  inventory  controls  and other  management  information
systems,  or to successfully  produce,  test and deliver sufficient  products in
time to meet demand, would adversely affect the Company's operating results.

         The Company  generally  utilizes industry standard parts and components
available  from multiple  vendors.  However,  the Company and the  microcomputer
industry,  from  time to time,  have  experienced  shortages  of key  components
including memory chips and standard  integrated  circuits.  Prices for these and
other key components have periodically increased and the Company could be put on
allocation by its suppliers. On occasion, this has resulted in production delays
for some of the Company's products.

         Certain  parts  and  components  used  in  the  Company's  systems  are
available only from a single  source.  Components for which the Company does not
have multiple manufacturers include Intel's Pentium and Pentium Pro CPUs as well
as certain chip sets used on ALR motherboards. The CPUs and chip sets are either
generally  available through  distribution or available from Intel in quantities
that are usually adequate to meet the Company requirements.  If, contrary to its
expectations,  the Company is unable to obtain  sufficient  quantities of any of
these  parts and  components,  the  Company  will  experience  delays in product
shipments. As is generally known, the industry is currently facing a shortage of
Pentium Pro 200-MHz CPU and the Company is  experiencing  some delays in product
shipments.

         The Company is currently  sourcing  motherboards  for its Optima SL, DT
and MT systems from Acer and is considering  sourcing certain Pentium  Pro-based
systems  from Intel on an OEM basis.  In the  future,  the Company may choose to
source  additional  products from these and other vendors.  If,  contrary to its
expectations,  the Company is unable to obtain  sufficient  quantities  of these
motherboards  or  systems,  the  Company  could  experience  delays  in  product
shipments.

         Certain  proprietary  chip  sets  based on ALR  designs  are  currently
supplied by single sources  including Matra  Semiconductor.  A disruption in the
manufacture  of these chip sets could result in additional  expense,  as well as
delays in product shipment.

         Supply  shortages of any of the foregoing or other components may cause
an  increase in material  cost that could  result in a decline in the  Company's
operating results.  In certain  circumstances,  supply shortages could result in
production  delays  that could also  adversely  affect the  Company's  operating
results.


Customer Service and Product Warranty

         ALR maintains a customer support hotline at its Irvine  headquarters to
answer questions from its customers  relating to ALR systems and other products.
The Company also offers a variety of customer  support and repair services which
are made available on a fixed-fee or time and materials  basis after the product
warranty period has expired.  Internationally,  the Company  provides service to
end-users  through  selected  resellers  trained by ALR,  as well as through the
Company's own technical support personnel.

         The Company has  strengthened  its  service  and  technical  support to
end-users  through a relationship  with Unisys  Corporation  and  DecisionOne to
provide  on-site  field  service and warranty  support in the U.S. The Company's
in-house  technical  support  department in the U.S. has benefited from advanced
telephone  tracking  technology  that  streamlines  the routing,  processing and
tracking of calls.  The Company also offers on-line  support  service 24 hours a
day through its facsimile question and response system. This service supplements
the Company's  24-hour  bulletin board service which allows  customers to confer
with  ALR  technicians,  download  software  and  receive  support  updates  and
technical  bulletins.  These  services  are now also  available  through the ALR
CompuServe forum.

         In November 1994, ALR enhanced its product  warranty  policy to offer a
5-year/36-month  warranty (five years system  warranty and 36 months warranty on
factory installed  peripherals) and a one year warranty on monitors.  For fiscal
1996,  technical  support  expenses,  which  include  warranty and  non-warranty
repairs, were approximately $4.4 million. Except for stock-balancing  agreements
with its  distributors,  the Company does not  customarily  allow returns of its
products for reasons other than malfunction or failure.


FCC Approvals

         The  Federal   Communications   Commission   (the  "FCC")  has  adopted
regulations setting radio frequency emission standards for computing  equipment.
All of the Company's  current  products meet the FCC's Class A requirements  and
certain  of the  Company's  products  qualify  for the  more  stringent  Class B
approval.  From time to time,  however,  the Company has  experienced  delays in
securing FCC Class B approvals.  To the extent the Company's  present and future
products may be required to meet the more stringent Class B requirements,  there
can be no assurance that similar delays will not occur in the future.




Competition

         The  principal  elements  of  competition  among PC  manufacturers  are
pricing, performance, product quality and reliability,  compatibility, marketing
and distribution capability,  service and support, reputation and the capability
to deliver  products  in large  volumes.  ALR  competes  with a large  number of
manufacturers,  including Apple Computer,  AST Research,  Compaq Computer,  Dell
Computer,  Digital Equipment  Corporation,  Gateway 2000,  Hewlett Packard,  IBM
Corporation  ("IBM"),  NCR and NEC Information Systems, as well as private label
products  manufactured by companies such as Intel.  Most of these companies have
significantly greater financial,  marketing and technological resources than ALR
and may be able to  command  better  terms with  their  suppliers  due to higher
purchasing volumes.

         The Company has entered into OEM agreements with certain large computer
manufacturers who are competitors of ALR. While selecting its OEM customers, the
Company  tries to ensure that there is a minimum  amount of overlap  between the
markets and end-users targeted by ALR and its OEM customers. However, changes in
the marketing  strategy of its OEM  customers may adversely  affect ALR's future
revenue mix and gross margin rate.
See "Sales, Marketing and Support."

         Since 1992, the PC industry has  experienced a significant  increase in
price  competition from the top tier PC manufacturers  like Compaq and IBM. This
has resulted in a rapid decline in PC prices and an increase in marketshare  for
the top  tier  manufacturers.  ALR has  responded  to this  new  environment  by
focusing  its  product  strategy  towards  providing   computers  aimed  at  the
high-performance  multi-processing  server and desk-top markets. ALR's long-term
success will depend primarily on the continued market acceptance of its existing
products,  its  ability  to  develop  and  introduce  similarly  acceptable  new
products,  its ability to continue to reduce costs  through  product  design and
operating  efficiencies  and its ability to expand its channels of  distribution
and the number of customers within these channels.


Patents, Trademarks and Licenses

         The Company  believes that its continued  success will depend primarily
upon the technical  expertise,  creative skills and management  abilities of its
directors,  officers  and key  employees  rather than on patent  ownership.  The
Company  has  been  issued  patents  covering  certain  aspects  of its  upgrade
technology  in the United  States  and  Taiwan,  which  expire in 2111 and 2005,
respectively.  The Company has also  applied  for patents  covering  its upgrade
module  technology in Europe,  Canada and  Australia,  although  there can be no
assurance  that these patents will be granted or that these patents will provide
adequate  protection,  if granted. The Company currently relies on trade secrets
and confidentiality agreements to protect its proprietary information,  although
there  can be no  assurance  that the  confidentiality  agreements  on which ALR
relies to protect  its trade  secrets  will be  adequate  or that the  Company's
competitors will not independently develop or patent substantially equivalent or
superior technologies.

         The  Company  has  obtained  federal  trademark   registration  on  the
following  trademarks:  Advanced  Logic  Research,  Inc.,  ALR,  the  ALR  logo,
PowerFlex, Business Veisa, PowerVeisa, BusinessServer, PowerFlex Flyer, Business
Station,   Evolution   and  Express  and  has  applied  for  federal   trademark
registration  on certain  other  product  names and logos.  The Company has also
trademarked  the ALR logo in  various  countries  including  Singapore,  Mexico,
Canada,   Brazil  and   throughout  the  European  Union  and  has  applied  for
registration  of its  logo in  certain  other  foreign  countries  in  which  it
anticipates expanding its international business.

         ALR  currently  licenses  from IBM,  through a  nonexclusive  fixed fee
agreement,  the right to use certain  technology covered under patents issued to
IBM. The licensing  agreement  permits the Company to develop,  manufacture  and
sell personal  computers  without  liability for  infringement on IBM's existing
patents. The Company pays, and expects to pay in the future, royalties to IBM on
sales of the Company's existing and future personal computer products.  See Note
10 of Notes to Consolidated Financial Statements. IBM's policy is to offer lower
royalty  rates to  licensees  that possess  patent  rights of interest to IBM if
these  licensees  provide  IBM with a  cross-license.  To the extent  that ALR's
competitors  avoid the payment of  royalties  or obtain more  favorable  royalty
payment terms from IBM, ALR could be at a disadvantage.

         In the past, the Company has licensed certain of its designs to a large
computer  manufacturer.  In the  future,  the  Company may choose to license its
designs to other computer  manufacturers which may permit these manufacturers to
compete directly with the Company. See "Sales, Marketing and Support."

         From time to time, companies have asserted exclusive patent,  copyright
and other intellectual property rights to technologies that are important to the
microcomputer  industry.  The Company  evaluates each claim and, if appropriate,
seeks a license to use the protected technology.  There can be no assurance that
the Company  would be able to obtain  licenses to use such  technology or obtain
such  licenses  on terms that would not have a  material  adverse  effect on the
Company.  If the  Company  or its  suppliers  are  unable to  license  protected
technology used in ALR's  products,  ALR could be prohibited from marketing such
products.  The  Company  could  also incur  substantial  costs to  redesign  its
products  or to defend  any legal  action  taken  against  it. If the  Company's
products should be found to infringe protected technology, ALR could be required
to  pay  damages  to the  infringed  party  and to  stop  using  such  protected
technology.


Environmental Laws and Regulations

         The Company  recognizes that operating in a manner  compatible with the
environment is good for its community,  employees,  customers, and business. The
Company's  products  are  designed  and  manufactured  to meet a variety  of the
world's environmental  standards and expectations.  Compliance with laws enacted
for protection of the environment to date has not had a material effect upon the
Company's  financial  or  competitive  position.  Although  the Company does not
anticipate any material adverse effects in the future based on the nature of its
operations and the purpose of environmental  laws and regulations,  there can be
no  assurance  that such laws or future  laws will not have a  material  adverse
effect on the Company.


Employees

         As of September 30, 1996, ALR had 512 full-time employees worldwide, of
whom 42 were engaged in engineering,  research and development,  98 in sales and
marketing,  57 in customer support and service,  267 in manufacturing  and 48 in
administrative  activities. No employee of the Company is represented by a labor
union or is subject to a collective bargaining agreement.

          The  Company  believes  its  ability  to attract  and  retain  skilled
technical and management  personnel has been and will continue to be critical to
its success.  Accordingly,  the Company has adopted stock option plans and other
benefit plans to assist in attracting and retaining  qualified  employees at all
levels. Foreign and Domestic Operations

         A  substantial  portion of the  Company's  sales are made  outside  the
United States. See Note 12 of Notes to Consolidated Financial Statements.


Item 2.           Properties.

         The Company  leases  approximately  75,000 square feet of space for its
corporate  headquarters  in Irvine under a lease which expires in June 1999. The
Company  leases an additional  40,000 square feet of space at a nearby  facility
for manufacturing and warehousing operations under a lease which also expires in
June 1999. ALR International leases approximately 22,000 square feet of space in
Singapore for sales, support and warehousing needs under a lease that expires in
1997.  In addition,  the Company  leases space for sales and support  offices in
London,  Frankfurt, Hong Kong and Malaysia. See Note 13 of Notes to Consolidated
Financial Statements.

         ALR is currently considering expanding its warehousing operations.  The
Company  believes that space will be available at commercially  reasonable rates
to accommodate either a move or an expansion of the Company's operations.


Item 3.           Legal Proceedings.

         The  Company is a party to  litigation  matters  and  claims  which are
normal in the course of its operations,  and while the results of litigation and
claims cannot be predicted with certainty,  the Company  believes that the final
outcome  of such  matters  will  not have a  materially  adverse  effect  on the
Company's consolidated financial position or results of operations.


Item 4.           Submission of Matters to a Vote of Security Holders.

         None.




<PAGE>


                                     PART II


Item 5.           Market for Registrant's Common Stock and Related Stockholder
                  Matters.


Market Information (Unaudited)

         Advanced  Logic  Research,  Inc.'s common stock is traded on The Nasdaq
Stock Market under the symbol AALR. The following  table sets forth the range of
high and low closing sale prices for the  Company's  common stock for the fiscal
quarters indicated.

         Year ended September 30,                      High             Low

          1996:
          First fiscal quarter                        $ 8.50          $ 6.00
          Second fiscal quarter                         7.75            6.13
          Third fiscal quarter                          9.88            6.69
          Fourth fiscal quarter                       $ 8.63          $ 6.50

          1995:
          First fiscal quarter                        $ 4.88          $ 3.75
          Second fiscal quarter                         5.38            4.00
          Third fiscal quarter                          6.75            4.50
          Fourth fiscal quarter                       $ 9.38          $ 5.75

         At December 13, 1996,  the closing sale price of the  Company's  common
stock as reported on The Nasdaq Stock Market was $13.625.


Holders of Record

         At September 30, 1996, ALR had approximately 256 stockholders of record
of the Company's common stock.


Dividends

         The Company has never paid dividends on its capital stock.  The Company
presently  intends to retain  earnings for use in its business  and,  therefore,
does not anticipate  paying any cash  dividends in the  foreseeable  future.  In
addition, the terms of the Company's current loan agreement restrict the ability
of the Company to pay cash dividends.



<PAGE>

<TABLE>

Item 6.           Selected Consolidated Financial Data.
<CAPTION>

Fiscal year ended September 30,                     1996           1995         1994         1993         1992
(In thousands, except per share data)


CONSOLIDATED STATEMENTS OF OPERATIONS:
<S>     <C>    <C>    <C>    <C>    <C>    <C>

 Net sales                                      $  217,855   $  192,425   $  183,387   $  169,254   $  206,817
 Cost of sales                                     170,035      156,465      155,652      149,974      165,483
    Gross profit                                    47,820       35,960       27,735       19,280       41,334

 Selling, general & administrative                  25,701       21,915       19,308       22,898       30,797
 Engineering, research & development                 5,447        4,762        4,409        3,935        5,121
 Royalty expense, net                                5,125        5,289        5,867        5,183        4,704
    Total operating expenses                        36,273       31,966       29,584       32,016       40,622

    Operating income (loss)                         11,547        3,994       (1,849)     (12,736)         712

 Net interest income                                 2,590        2,502        1,355          388          488


    Income (loss) before taxes and cumulative
     effect of change in accounting principle       14,137        6,496         (494)     (12,348)       1,200

 Income tax expense (benefit)                        3,534        1,624         (148)      (2,640)         651

    Income (loss) before cumulative effect
     of change in accounting principle              10,603        4,872         (346)      (9,708)         549

 Cumulative effect of change in accounting
  for income taxes                                        ---      ---          ---          (919)        ---

    Net income (loss)                           $   10,603   $    4,872   $     (346)  $  (10,627)  $      549


 Income (loss) before cumulative effect
  of change in accounting principle per
  common & common equivalent share              $    0.87    $    0.41    $    (0.03)  $    (0.86)  $     0.05

 Net income (loss) per common & common
  equivalent share                              $    0.87    $    0.41    $    (0.03)  $    (0.94)  $     0.05


 Common and common equivalent shares
  used in per share calculation                   12,249         11,750       11,434       11,336       11,414



As of September 30,                                  1996          1995         1994         1993         1992
(In thousands)

CONSOLIDATED BALANCE SHEET DATA:

 Cash & cash equivalents                        $   60,272   $   46,580   $   40,836   $   34,447   $   29,638
Accounts receivable, net                            25,849       26,524       24,507       21,947       35,189
Inventories                                         23,437       27,088       22,555       36,525       44,264
Total assets                                       118,640      107,220       97,929      108,095      125,846
Long-term debt                                        ---          ---          ---          ---         6,000
 Stockholders' equity                           $   96,778   $   83,249   $   76,861   $   75,917   $   87,425

</TABLE>

<PAGE>


Item 7.    Management's Discussion and Analysis of Results of Operations
           and Financial Condition.

This  report  contains  forward-looking   statements  which  involve  risks  and
uncertainties.  The Company's actual results may differ  significantly  from the
results  in the  forward-looking  statements.  Factors  that  might  cause  such
differences include, but are not limited to, those discussed under "Factors That
May Affect Future Results".

NET SALES                                   Change              Change
In thousands)                       FY96  From FY95    FY95   From FY94  FY94
Net Sales by Distribution Channel
VARs and Dealers                  $132,937    2%     $130,033      3%  $126,210
Direct                              45,401   36%       33,365     17%    28,523
OEM                                 22,869   30%       17,544    169%     6,524
Distributors and Other              16,648   45%       11,483    (48%)   22,130
Total                             $217,855   13%     $192,425      5%   183,387

Net Sales by Geographic Location
U.S.                              $139,101   28%     $108,870     11%  $ 98,331
International                       78,754   (6%)      83,555     (2%)   85,056
Total                             $217,855   13%     $192,425      5%  $183,387


Net sales  increased to $217.9  million for fiscal 1996 from $192.4  million and
$183.4 million for fiscal 1995 and 1994, respectively.  The consecutive years of
sales growth was principally due to the  reorientation of the Company's  product
and  marketing  focus to network  servers and high-end  desk-top  systems.  As a
result of the shift in product mix to servers and high-end desk-top systems, and
a general  demand for system  configurations  which include more memory,  larger
disk drives and  additional  peripherals,  the average  system selling price for
fiscal 1996 increased to $2,199 from $1,963 and $1,673 for fiscal 1995 and 1994,
respectively.

In fiscal 1996, the Company's principal channel of distribution  continued to be
value added resellers ("VARs") and dealers.  However, due to the growth in sales
made directly to small businesses, government entities, corporate and individual
end-users  and to OEM  customers,  sales to resellers  as a percentage  of total
sales  declined to 61% of net sales in fiscal 1996 from 68% and 69% of net sales
for  fiscal  1995 and 1994,  respectively.  The 2% growth in sales  through  the
reseller  channel in fiscal 1996  compared to fiscal 1995 breaks down into a 13%
growth  in  sales  to U.S.  resellers  and a 6%  decline  in  sales  to  foreign
resellers.  The 3% growth in sales  through the reseller  channel in fiscal 1995
compared  to  fiscal  1994  breaks  down  into a 16%  increase  in sales to U.S.
resellers and a 4% decline in sales to foreign resellers.

From  fiscal  1994  through  fiscal  1996,  direct  sales to  small  businesses,
government  entities,  corporate  and  individual  end-users  grew to become the
Company's  second major channel of  distribution.  Direct sales  increased  from
$28.5 million for fiscal 1994 to $33.4 million and $45.4 million for fiscal 1995
and 1996,  respectively.  The growth in sales  through this  channel  during the
three year period was  predominately due to the negotiation of a GSA contract in
fiscal 1994 with the federal  government  allowing  federal  agencies to procure
product directly from ALR. Sales to federal, state and local government entities
for fiscal 1996 more than doubled from fiscal 1995.

For fiscal 1994  through  fiscal  1996,  sales to OEM  customers  grew from $6.5
million for fiscal 1994 to $22.9  million for fiscal 1996.  This growth  stemmed
from the signing of OEM agreements  with Unisys  Corporation in October 1994 and
Data General  Corporation in September  1996. Both agreements are for certain of
the Company's  high-end  products.  Partially  mitigating the growth in sales to
these  customers was the  termination  of the Company's  OEM  relationship  with
Siemens Nixdorf,  Germany,  for certain  Pentium-based  systems during the first
half of fiscal 1996.

Sales to  distributors  and other  customers  in fiscal 1996  rebounded to $16.6
million after a 48% decline in sales for fiscal 1995 from fiscal 1994. Increased
sales to the Company's  principal  distributors,  Gates/Arrow and Tech Data, and
the addition of a regional  distributor,  Jones Business Systems, in fiscal 1996
principally  accounted  for the 45% growth in sales from fiscal  1995.  However,
another factor  contributing  to the growth in sales to  distributors  and other
customers was a $1.1 million reduction in the Company's  estimated allowance for
sales  returns.  (See Financial  Statement  Schedule - Schedule II Valuation and
Qualifying  Accounts.)  Lower  returns  experience  led to the  reduction in the
Company's estimated allowance for sales returns.

For fiscal  1996,  international  sales  declined  to $78.8  million  from $83.6
million and $85.1 million for fiscal 1995 and 1994, respectively. The decline in
international sales for fiscal 1996 reflected a softness in European sales which
decreased by 25% from fiscal 1995.  Partially  offsetting this decline was a 19%
increase in sales to Asia-Pacific  region customers.  In fiscal 1995 the decline
in international sales was principally due to lower sales to Asia-Pacific region
and Canadian customers. Partially offsetting this decline was an 18% increase in
sales to customers in Europe and Latin America during fiscal 1995.

GROSS PROFIT
                                    Change                Change
                           FY96    From FY95     FY95    From FY94      FY94
(In thousands)
Gross Profit             $47,820      33%      $35,960      30%        $27,735
Percentage of Net Sales    22.0%                 18.7%                   15.1%

Gross  profit  margins for fiscal 1996  increased to 22.0% from 18.7% for fiscal
1995 and 15.1% for  fiscal  1994.  The shift in sales to  servers  and  high-end
desk-top  systems  favorably  impacted  gross profit margins since these systems
typically  generate greater gross profit margins than the Company's  entry-level
and  mid-range  systems.   Design  changes,   chiefly  to  product  chassis  and
motherboards, coupled with lower vendor component costs, particularly on memory,
CPUs and disk drives,  lowered material costs and contributed to improving gross
profit margins.  Also  contributing was the growth in sales volume which allowed
manufacturing  and technical support costs to be absorbed over a greater revenue
base.

The  Company  anticipates  that  competitive  pricing  pressures  will  continue
throughout the personal  computer  industry.  Although  vendor  component  costs
generally  decreased during the three year period, a change in market conditions
brought  about by increased  demand for these  components  could result in price
increases  which would  adversely  affect the Company's gross profit margins and
profitability.






OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE
                                      Change                Change
                           FY96     From FY95     FY95     From FY94    FY94
(In thousands)
Selling, General and
 Administrative Expenses  $25,701      17%      $21,915       14%      $19,308
Percentage of Net Sales     11.8%                 11.4%                  10.5%

Selling,  general and administrative  expenses increased by 17% to $25.7 million
or 11.8% of net sales for fiscal 1996  compared to $21.9 million or 11.4% of net
sales for  fiscal  1995.  The  growth in  selling,  general  and  administrative
expenses  as a  percentage  of sales was  principally  due to  expanded  product
advertising  related to new  product  introductions  and  specific  channels  of
distribution, and special product promotional incentives. As a percentage of net
sales,  advertising and promotional  expenses increased to 4.8% compared to 4.3%
for  fiscal  1995.  The  growth  in  advertising  and  promotional  expenditures
accounted for $2.1 million of the increase  between  fiscal 1996 and fiscal 1995
while an increase in payroll and  personnel-related  expenses driven principally
by an increase in sales  personnel  accounted  for $1.4 million of the increase.
The  remaining  growth in  selling,  general  and  administrative  expenses  was
principally related to an increase in pass-through commissions paid to qualified
resellers.

Selling,  general and administrative  expenses increased by 14% to $21.9 million
for fiscal 1995  compared to $19.3  million for fiscal  1994.  Expanded  product
advertising and increased dealer cooperative  promotional activities principally
accounted  for the increase in expenses  during  fiscal 1995. As a percentage of
net sales,  advertising  and promotional  expenses  increased to 4.3% for fiscal
1995 compared to 3.5% for fiscal 1994.  Also  contributing to the increase was a
reduction in bad debt reserves  during fiscal 1994. In fiscal 1994, $0.8 million
in bad debt expense was reversed against the allowance for doubtful accounts.

ENGINEERING, RESEARCH AND DEVELOPMENT
                                     Change               Change
                            FY96     From FY95    FY95    From FY94     FY94
(In thousands)
Engineering, Research
 and Development Expenses  $5,447       14%      $4,762      8%        $4,409
Percentage of Net Sales      2.5%                  2.5%                  2.4%

Engineering,  research and development  expenses increased during the three year
period to $5.4 million for fiscal 1996 compared to $4.8 million and $4.4 million
for fiscal 1995 and 1994, respectively. Increases in payroll and payroll-related
costs  associated  with  increased  employee  headcount  and higher  engineering
material  expense  from  ongoing and expanded  product  development  principally
accounted for the increase for each fiscal year.

ROYALTY EXPENSE, NET
                                 Change                 Change
                         FY96   From FY95      FY95    From FY94       FY94
(In thousands)
Royalty Expense, Net     $5,125    (3%)        $5,289     (10%)        $5,867
Percentage of Net Sales    2.4%                  2.7%                    3.2%

The reduction in royalty expense for fiscal 1996 compared to fiscal 1995 despite
a 13%  increase  in sales was  primarily  the  result of a  modified  three year
agreement with IBM  Corporation  completed in the fourth quarter of fiscal 1996.
This agreement impacted the royalty expense accrual amount for calendar 1996 and
resulted in a $1.2 million  pretax  reduction  in royalty  expense in the fourth
quarter of fiscal 1996.

The  decline in net  royalty  expense  for fiscal 1995 to 2.7% of net sales from
3.2% for fiscal 1994 resulted  because  certain of the  Company's  products were
exempt from royalties.

INTEREST INCOME, NET
                                  Change                 Change
                         FY96    From FY95      FY95     From FY94      FY94
(In thousands)
Interest Income, Net   $2,590        4%        $2,502       85%        $1,355

Despite an increase in fiscal 1996  average  cash and cash  equivalents  balance
compared to fiscal  1995,  net interest  income only  increased by 4% because of
lower rates of return on short-term investments compared to fiscal 1995. The 85%
increase  in net  interest  income from fiscal 1994 to fiscal 1995 was due to an
increase in cash and cash  equivalents  balances,  increased  rates of return on
short-term  investments  and the repayment of  outstanding  bank debt in January
1994.

INCOME TAXES
                              FY96                  FY95                  FY94
(In thousands)
Income Tax Expense (Benefit) $3,534                $1,624               $(148)
Effective Tax Rate            25.0%                 25.0%                30.0%

For fiscal 1996, 1995 and 1994, the Company recorded  effective income tax rates
of 25.0%,  25.0% and  30.0%,  respectively.  The  effective  tax rate of 25% for
fiscal  1996  remained  unchanged  from fiscal  1995  principally  due to a $1.7
million  reduction in the deferred tax asset valuation  allowance  during fiscal
1996.  The changes in the effective tax rates between  fiscal 1995 and 1994 were
principally  attributable  to changes in the  earnings  mix among the  Company's
subsidiaries  located in various taxing jurisdictions and utilization of certain
net operating loss carryforwards.

LIQUIDITY AND CAPITAL RESOURCES
                                        Sept. 30, 1996        Sept. 30, 1995
(In thousands)
Cash and cash equivalents                   $60,272               $46,580
Working capital                             $93,553               $79,771
Current ratio                                   5.3                   4.3
Stockholders' equity                        $96,778               $83,249

The Company's cash and cash equivalents  increased to $60.3 million at September
30, 1996  compared to $46.6  million at September  30, 1995.  The $13.7  million
increase in cash and cash equivalents during the fiscal year was due to positive
cash flow from  operating  activities  and  proceeds  of $3.3  million  from the
issuance of stock under the Company's stock option plans partially offset by the
purchase of property, plant and equipment.

The  significant  sources of cash  provided  by  operations  during  fiscal 1996
included  $10.6  million  from net income and $3.5  million  from a decrease  in
inventories  which were partially  offset by a $4.4 million  decline in accounts
payable.

As a  consequence  of the 13%  increase  in sales and a decline in  inventories,
inventory turns improved to 7.3 for fiscal 1996 compared to 5.8 turns for fiscal
1995. The improvement in inventory  turns stemmed from the Company's  ability to
reduce  inventories  despite the increase in sales.  In fiscal 1997, the Company
expects to  increase  its  safety  stock of key parts,  components  and  certain
finished systems to improve product availability.

Operating  cash flows were also  enhanced  through an  improvement  in  accounts
receivable turns. In fiscal 1996,  average days outstanding  improved to 43 from
50 days for fiscal 1995. This improvement  reduced  accounts  receivable by $0.7
million at September 30, 1996  compared to September  30, 1995,  despite the 13%
growth in sales during the year.

The $4.4 million  decline in accounts  payable  between  September  30, 1996 and
September 30, 1995,  arose from the timing of inventory  purchases in August and
September  1996  compared to the previous  year and the timing of the  resulting
payments.

ALR International continues to have available uncommitted revolving credit lines
with a combined  availability  of  approximately  $4.3 million which are used to
supplement its working capital requirements.  At September 30, 1996, the Company
had not borrowed against these lines of credit.

The Company's primary credit facility  continues to be a $15.0 million revolving
line with Heller Financial, Inc. The line is secured by the Company's assets and
availability  is subject to a borrowing base  requirement.  In October 1995, the
Company  signed an amendment to this  existing  credit  agreement  extending the
expiration to August 1998 and reducing the borrowing rate to Prime, based on the
Prime rate charged by Bank of America,  from Prime plus 1%. A commitment  fee of
0.50% per annum is paid on the unused  portion of the revolving  line of credit.
The facility  contains  certain net worth,  profitability,  financial  ratio and
other  covenants  with which the Company was in compliance at September 30, 1996
and 1995. During fiscal 1996 and 1995, the Company had no outstanding borrowings
against this line of credit.

The Company believes that its existing cash resources, combined with anticipated
cash flows from future  operating  activities,  supplemented  as necessary  with
funds expected to be available  under the Company's  various credit  agreements,
will  provide  it with  sufficient  resources  to meet  present  and  reasonably
foreseeable working capital requirements and other cash needs.

FACTORS THAT MAY AFFECT FUTURE RESULTS
The personal computer industry is intensely competitive.  The principal elements
of  competition  among  personal  computer  manufacturers  are pricing,  product
quality  and  reliability,  compatibility,   price/performance  characteristics,
marketing and distribution capability,  service and support,  reputation and the
capability  to deliver  products in large  volumes.  ALR  competes  with a large
number of manufacturers,  most of which have  significantly  greater  financial,
marketing and  technological  resources than ALR. There can be no assurance that
ALR will be able to continue to compete effectively.

The Company does business worldwide. Global and/or regional economic factors and
potential  changes in laws and  regulations  affecting the  Company's  business,
including without limitation, currency fluctuations,  changes in monetary policy
and  tariffs,   and  federal,   state  and  international  laws  regulating  the
environment, could impact the Company's future results of operations.

The  microcomputer  market is  characterized by rapid  technological  change and
product  obsolescence,  often  resulting in short  product life cycles and rapid
price declines.  The Company's  success will continue to depend primarily on its
ability to continue to reduce  costs  through  manufacturing  efficiencies,  the
continued market  acceptance of its existing products and its ability to develop
and introduce similarly acceptable new products.  There can be no assurance that
ALR will successfully  develop new products or that the new products it develops
will be introduced in a timely manner and receive substantial market acceptance.
There can also be no assurance that product  transitions will be managed in such
a way to minimize  inventory  levels and product  obsolescence  of  discontinued
products.  The Company's operating results could be adversely affected if ALR is
unable to manage all aspects of product transitions successfully.

The Company  generally  utilizes  standard parts and  components  available from
multiple  vendors.  However,  certain parts and components used in the Company's
systems are available from a single source.  If,  contrary to its  expectations,
the  Company is unable to obtain  sufficient  quantities  of any  single-sourced
components, the Company will experience delays in product shipments.

The  Company  offers its  products  directly  and through  indirect  channels of
distribution.  Changes  in the  financial  condition  of,  or in  the  Company's
relationship  with,  OEM  customers,  distributors  and other  indirect  channel
partners could cause actual operating results to vary from those expected. Also,
the  Company's  customers  generally  order  products  on  an  as-needed  basis.
Therefore, virtually all product shipments in a given fiscal quarter result from
orders received in that quarter.  The Company  anticipates  that the rate of new
orders will vary significantly from month to month.  Because ALR operates with a
limited backlog,  the Company's  manufacturing  plans and expenditure levels are
based  primarily on sales  forecasts.  Consequently,  if  anticipated  sales and
shipments in any quarter do not occur when expected,  expenditure  and inventory
levels could be disproportionately  high and the Company's operating results for
that quarter, and potentially future quarters, would be adversely affected.

From time to time, certain companies have asserted  exclusive patent,  copyright
and other intellectual property rights to technologies that are important to the
microcomputer  industry.  ALR evaluates each claim relating to its products and,
if appropriate, seeks a license to use the protected technology. There can be no
assurance  that  the  Company  would  be able to  obtain  licenses  to use  such
technology or that such licenses  could be obtained on terms that would not have
a material  adverse  effect on the Company.  If the Company or its suppliers are
unable to license  protected  technology  used in ALR's  products,  ALR could be
prohibited   from  marketing  such  products.   The  Company  could  also  incur
substantial  costs to redesign  its products or to defend any legal action taken
against it. If the  Company's  products  should be found to  infringe  protected
technology, ALR could be required to pay damages to the infringed party.

The market price of the Company's  common stock could be subject to fluctuations
in response to quarter to quarter  variations in operating  results,  changes in
analysts' earnings  estimates,  market conditions in the information  technology
industry,  as well as general economic  conditions and other factors external to
the Company.

NEW ACCOUNTING  STANDARDS Statement of Financial  Accounting  Standards No. 123,
"Accounting  for  Stock-Based   Compensation"  (Statement  No.  123),  which  is
effective for the Company's  fiscal 1997,  encourages,  but does not require,  a
fair-value  based method of  accounting  for employee  stock  options or similar
equity  instruments.  Statement No. 123 allows an entity to elect to continue to
measure  compensation  cost under  Accounting  Principles  Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APBO No. 25), but requires pro forma
disclosures to net income and income per share as if the fair-value based method
of accounting had been applied.  While the Company is still evaluating Statement
No.  123,  the  Company  currently  expects  to elect  to  continue  to  measure
compensation  cost under APBO No. 25 and  comply  with the pro forma  disclosure
requirements. If the Company makes this election, Statement No. 123 will have no
impact on the Company's financial position or results of operations.

Statement  of  Financial  Accounting  Standards  No.  121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of",
(Statement  No.  121),  which  is  effective  for  the  Company's  fiscal  1997,
establishes   accounting  standards  for  the  recognition  and  measurement  of
impairment of long-lived assets,  certain identifiable  intangibles and goodwill
either to be held or disposed of. Management believes that adoption of Statement
No. 121 will not have a material impact on the Company's  financial  position or
results of operations.

SUBSEQUENT EVENT
On November  26,  1996,  the Company  consummated  an agreement to acquire a 20%
interest  (on a  fully-diluted  basis) in  RouterWare,  Inc.  ("RouterWare"),  a
Newport Beach,  California-based data communications products company, for $2.25
million in cash.  RouterWare develops and markets software  technologies for use
in data communications  products such as bridges,  routers,  gateways and remote
access  devices.  The agreement  also calls for the Company to fund  agreed-upon
joint  development  projects with  RouterWare  over the next three years with an
aggregated spending limit of $1.0 million.




<PAGE>


Item 8.     Financial Statements, Financial Statement Schedule
             and Supplementary Data.

            Index to Financial Statements and Financial Statement Schedule

         Consolidated Financial Statements:

         Report of Independent Auditors.....................................21

         Consolidated Balance Sheets as of September 30, 1996 and 1995......22

         Consolidated Statements of Operations for the years ended
           September 30, 1996, 1995 and 1994................................23

         Consolidated Statements of Stockholders' Equity for the
           years ended September 30, 1996, 1995, and 1994...................24

         Consolidated Statements of Cash Flows for the years
           ended September 30, 1996, 1995 and 1994..........................25

         Notes to Consolidated Financial Statements.........................26


         Financial Statement Schedule:
         (For the three years ended September 30, 1996)

         Schedule II - Valuation and Qualifying Accounts....................36

         All other  schedules and financial  statements are omitted because they
         are  not  applicable  or  the  required  information  is  shown  in the
         consolidated financial statements or notes thereto.



Item 9.    Changes In and Disagreements with Accountants on Accounting and
            Financial Disclosure.

                  None.





<PAGE>


                         REPORT OF INDEPENDENT AUDITORS



To the  Board of Directors
Advanced Logic Research, Inc.:

We have audited the accompanying  consolidated  financial statements of Advanced
Logic Research,  Inc. and subsidiaries as listed in the  accompanying  index. In
connection with our audits of the  consolidated  financial  statements,  we also
have  audited the  financial  statement  schedule as listed in the  accompanying
index. These consolidated  financial statements and financial statement schedule
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these  consolidated  financial  statements  and  financial
statement schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Advanced  Logic
Research,  Inc. and subsidiaries at September 30, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 1996 in conformity with generally accepted accounting
principles.  Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly,  in all material  respects,  the information set forth
therein.


                                                         KPMG Peat Marwick LLP


Orange County, California
October 24, 1996 except
  as to note 14 which is as of
  November 26, 1996




<PAGE>

<TABLE>


Consolidated Balance Sheets
(In thousands, except share data)

<CAPTION>
                                                                                              September 30,
                                                                                           1996           1995
Assets (note 8)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Current assets:
   Cash and cash equivalents                                                         $   60,272    $    46,580
   Trade accounts receivable, less allowance of $2,027 and
      $1,999 at September 30, 1996 and 1995, respectively                                25,849         26,524
   Inventories (note 2)                                                                  23,437         27,088
   Prepaid expenses and other assets                                                      1,868          1,692
   Deferred income taxes (note 9)                                                         3,989          1,858
         Total current assets                                                           115,415        103,742
Equipment, furniture and fixtures, net (note 3)                                           2,760          2,764
Other assets                                                                                465            714
                                                                                     $  118,640    $   107,220



Liabilities and Stockholders' Equity (notes 7 and 8)

Current liabilities:
   Accounts payable                                                                  $    7,198    $    11,607
   Payable to affiliates (note 4)                                                           237            330
   Accrued expenses (note 5)                                                             11,558         10,528
   Income taxes (note 9)                                                                  2,869          1,506
      Total current liabilities                                                          21,862         23,971

Commitments and contingencies (notes 10 and 13)

Stockholders' Equity (note 6)
   Preferred stock, $.01 par value; 2,500,000 shares authorized;
      none issued                                                                          ---            ---
   Common stock, $.01 par value; 25,000,000 shares authorized;
      12,250,480 and 11,668,871 shares issued and outstanding at
      September 30, 1996 and 1995, respectively                                             123            117
   Additional paid-in capital                                                            57,924         54,675
   Retained earnings                                                                     37,406         26,803
   Adjustments for foreign currency translation                                           1,325          1,654
      Total stockholders' equity                                                         96,778         83,249

Subsequent event (note 14)
                                                                                     $  118,640    $   107,220
<FN>

See accompanying notes to consolidated financial statements

</FN>
</TABLE>


<PAGE>


<TABLE>

Consolidated Statements of Operations
(In thousands, except per share data)
<CAPTION>

                                                                              Year ended September 30,
                                                                            1996           1995           1994
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Net sales (note 12)                                                   $  217,855     $  192,425     $  183,387
Cost of sales (notes 4 and 10)                                           170,035        156,465        155,652
      Gross profit                                                        47,820         35,960         27,735

Operating expenses:
   Selling, general and administrative                                    25,701         21,915         19,308
   Engineering, research and development                                   5,447          4,762          4,409
   Royalty expense, net (note 10)                                          5,125          5,289          5,867
      Total operating expenses                                            36,273         31,966         29,584

      Operating income (loss)                                             11,547          3,994         (1,849)

Interest income                                                            2,662          2,513          1,435
Interest expense                                                             (72)           (11)           (80)

      Income (loss) before income taxes                                   14,137          6,496           (494)

Income tax expense (benefit) (note 9)                                      3,534          1,624           (148)

      Net income (loss)                                               $   10,603     $    4,872     $     (346)



Net income (loss) per common and common equivalent share              $    0.87      $     0.41     $    (0.03)

Common and common equivalent shares used
   in per share calculation                                               12,249         11,750         11,434
<FN>

See accompanying notes to consolidated financial statements

</FN>
</TABLE>



<PAGE>

<TABLE>


Consolidated Statements of Stockholders' Equity
(In thousands, except share data)

<CAPTION>

                                                                                          Adjustment
                                                                    Additional            for Foreign      Total
                                              Common Stock           Paid-in  Retained     Currency   Stockholders'
                                           Shares       Amount       Capital   Earnings  Translation     Equity

<S>     <C>    <C>    <C>    <C>    <C>    <C>

Balance, September 30, 1993            11,380,643     $    114       $53,483    $22,277      $  43      $75,917


Exercise of stock options                  97,704            1           359        ---        ---          360


Foreign currency translation                  ---          ---           ---        ---        930          930


Net loss                                      ---          ---           ---       (346)       ---         (346)



Balance, September 30, 1994            11,478,347          115        53,842     21,931        973       76,861


Exercise of stock options                 190,524            2           833        ---        ---          835


Foreign currency translation                  ---          ---           ---        ---        681          681


Net income                                    ---          ---           ---      4,872        ---        4,872



Balance, September 30, 1995            11,668,871          117        54,675     26,803      1,654       83,249



Exercise of stock options                 581,609            6         3,249        ---        ---        3,255


Foreign currency translation                  ---          ---           ---        ---       (329)        (329)


Net income                                    ---          ---           ---     10,603        ---       10,603



Balance, September 30, 1996            12,250,480     $    123       $57,924    $37,406     $1,325      $96,778
<FN>



See accompanying notes to consolidated financial statements

</FN>
</TABLE>




<PAGE>
<TABLE>


Consolidated Statements of Cash Flows
(In thousands)
<CAPTION>

                                                                                Year ended September 30,
                                                                         1996           1995              1994
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Cash flows from operating activities:
   Net income (loss)                                              $   10,603        $    4,872      $     (346)
   Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:
         Depreciation and amortization                                 1,369             1,840           2,358
         (Gain) loss on disposal of equipment                             61               (79)            203
         Provisions for losses on accounts receivable                    223               310            (752)
         Deferred income tax provision (benefit)                      (2,131)             (261)          4,208

   Changes in assets and liabilities:
         Trade accounts receivable                                       310            (1,761)         (1,215)
         Inventories                                                   3,467            (4,135)         14,554
         Prepaid expenses and other assets                                42             2,615            (889)
         Accounts payable                                             (4,410)            2,389          (5,878)
         Payable to affiliates                                           (93)           (2,289)            891
         Accrued expenses                                              1,027               991             278
         Income taxes                                                  1,363             1,506            (735)
            Net cash provided by operating activities                 11,831             5,998          12,677

Cash flows from investing activities -
   Purchase of equipment, furniture and fixtures                      (1,433)           (1,164)           (967)

Cash flows from financing activities:
   Net repayments to banks                                              ---               ---             (316)
   Repayments under notes payable                                       ---               ---           (6,000)
   Issuance of stock under stock option plans                          3,255               835             360
            Net cash provided by (used in) financing activities        3,255               835          (5,956)

Effect of exchange rate changes on cash                                   39                75             635

Net increase in cash and cash equivalents                             13,692             5,744           6,389

Cash and cash equivalents at beginning of year                        46,580            40,836          34,447
Cash and cash equivalents at end of year                          $   60,272        $   46,580      $   40,836


Supplemental  disclosure of cash flow  information:
  Cash paid (refunded) during the year for:
      Interest                                                    $       16        $        2      $      119
      Income taxes                                                $    3,343        $   (2,070)     $   (4,294)

<FN>

See accompanying notes to consolidated financial statements

</FN>
</TABLE>




<PAGE>


                   Notes to Consolidated Financial Statements

Years ended September 30, 1996, 1995, 1994

(1) Summary of Significant Accounting Policies

ORGANIZATION
Advanced Logic  Research,  Inc.,  together with its  wholly-owned  subsidiaries,
Advanced Logic Research International,  Inc., ALR International (Pte) Ltd. ("ALR
International"),  Advanced Logic Research Inc. (U.K.) Limited and Advanced Logic
Research  (Deutschland)  GmbH, herein referred to collectively as the "Company",
designs,  manufactures,  markets  and  supports  a broad  line of  microcomputer
systems  based  on  Intel's  Pentium  and  Pentium  Pro  microprocessors.  These
operations comprise the Company's only business segment.

Wearnes Technology  (Private) Limited ("Wearnes") holds approximately 39% of the
Company's outstanding common stock.

PRINCIPLES OF CONSOLIDATION
The  accompanying  consolidated  financial  statements  include the  accounts of
Advanced Logic Research,  Inc. and its subsidiaries.  All intercompany  balances
and transactions have been eliminated in consolidation.

USE OF ESTIMATES
The  financial  statements  have been  prepared  in  conformity  with  generally
accepted  accounting   principles.   In  preparing  the  financial   statements,
management  is  required  to make  estimates  and  assumptions  that  affect the
reported amounts of assets and liabilities as of the dates of the balance sheets
and revenues and expenses  for the  periods.  Actual  results  could differ from
those estimates.

INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market (net
realizable value).

DEPRECIATION
Depreciation  of  equipment,  furniture  and  fixtures and the  amortization  of
leasehold improvements is provided over the estimated useful lives of the assets
using the straight-line  method. The useful lives range from three to five years
for  equipment,  furniture and fixtures,  and the shorter of the useful lives or
the terms of the leases for leasehold improvements.

FAIR VALUE OF FINANCIAL INSTRUMENTS
During 1996, the Company adopted Statement of Financial Accounting Standards No.
107,  "Disclosure about Fair Value of Financial  Instruments,"  (SFAS 107). SFAS
107 requires  all entities to disclose the fair value of financial  instruments,
both assets and liabilities  recognized and not recognized on the balance sheet,
for which it is practicable to estimate fair value.  SFAS 107 defines fair value
of a  financial  instrument  as the  amount  at which  the  instrument  could be
exchanged in a current  transaction between willing parties. As of September 30,
1996, the carrying value of all financial instruments approximates fair value.

REVENUE RECOGNITION AND WARRANTY POLICY
Revenue  is  recognized  upon  product  shipment,  except  for sales to the U.S.
government,  which are recognized when product is delivered.  The Company grants
certain  distributors limited rights to exchange product and price protection on
unsold  merchandise.  The  Company  also has  financing  agreements  with credit
corporations that provide alternative financing to pre-approved  dealers.  These
financing  agreements generally require the Company to repurchase inventory that
has been repossessed by the credit corporations from these dealers.  The Company
establishes  estimated allowances based on experience for future product returns
and price adjustments by charges to current operations. The Company provides, by
a current  charge to  income,  an  amount it  estimates  will be needed to cover
future warranty obligations for products sold during the year.

FOREIGN CURRENCY TRANSLATION
The  Company  uses  the  local  currency  as the  functional  currency  for  its
international operations. Accordingly, assets and liabilities outside the United
States are translated into U.S. dollars at the rate of exchange in effect at the
balance  sheet date.  Income and expense  items are  translated  at the weighted
average  exchange rates prevailing  during the year. The cumulative  translation
gain or loss is shown as an adjustment to  stockholders'  equity.  During fiscal
1996, 1995 and 1994, the Company  recorded foreign  currency  transaction  gains
(losses) of ($57,000), $30,000 and ($154,000), respectively.

Forward  contracts  are used by the  Company to hedge  certain  portions  of its
foreign currency exposure  resulting from exchange rate fluctuations and are not
used to engage in speculation. At September 30, 1996, the Company had no forward
contracts outstanding.

INCOME TAXES
The Company accounts for income taxes using the asset and liability method. This
method  requires  recognition  of deferred  tax assets and  liabilities  for the
expected  future  tax  consequences  of events  that have been  included  in the
consolidated  financial statements or tax returns.  Under this method,  deferred
tax assets and  liabilities are determined  based on the difference  between the
financial  statement and tax bases of assets and  liabilities  using enacted tax
rates in effect for the year in which the differences are expected to reverse.

NET INCOME (LOSS) PER SHARE
Net income  (loss) per share is computed  using the weighted  average  number of
common  shares and dilutive  common stock  options  outstanding,  at the average
market price for the period,  which are  considered  common  stock  equivalents.
Fully diluted net income (loss) per share amounts are not presented because they
approximate primary net income (loss) per share or are anti-dilutive.

CASH EQUIVALENTS
Cash  equivalents  are highly liquid  investments  with an original  maturity of
three months or less,  consisting  primarily of commercial paper,  variable-rate
demand  notes,   short-term  government   obligations  and  other  money  market
instruments.

NEW ACCOUNTING  STANDARDS Statement of Financial  Accounting  Standards No. 123,
"Accounting  for  Stock-Based   Compensation"  (Statement  No.  123),  which  is
effective for the Company's  fiscal 1997,  encourages,  but does not require,  a
fair-value  based method of  accounting  for employee  stock  options or similar
equity  instruments.  Statement No. 123 allows an entity to elect to continue to
measure  compensation  cost under  Accounting  Principles  Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APBO No. 25), but requires pro forma
disclosures to net income and income per share as if the fair-value based method
of accounting had been applied.  While the Company is still evaluating Statement
No.  123,  the  Company  currently  expects  to elect  to  continue  to  measure
compensation  cost under APBO No. 25 and  comply  with the pro forma  disclosure
requirements. If the Company makes this election, Statement No. 123 will have no
impact on the Company's financial position or results of operations.

Statement  of  Financial  Accounting  Standards  No.  121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of",
(Statement  No.  121),  which  is  effective  for  the  Company's  fiscal  1997,
establishes   accounting  standards  for  the  recognition  and  measurement  of
impairment of long-lived assets,  certain identifiable  intangibles and goodwill
either to be held or disposed of. Management believes that adoption of Statement
No. 121 will not have a material impact on the Company's  financial  position or
results of operations.

RECLASSIFICATIONS
Certain   reclassifications   have  been  made  to  the  fiscal  1995  and  1994
consolidated financial statements to conform to the fiscal 1996 presentation.




(2) Inventories
         A summary of the components of inventories follows
         (in thousands):                                    September 30,
                                                        1996           1995
                  Raw materials and component parts   $ 6,281        $10,944
                  Work in process                       5,745          3,647
                  Finished goods                       11,411         12,497
                                                      $23,437        $27,088

(3) Equipment, Furniture and Fixtures
         Equipment, furniture and fixtures, at cost, consist of the following
         (in thousands):                            
                                                           September 30,
                                                        1996           1995
                  Machinery and equipment             $ 8,432        $ 8,211
                  Vehicles                                252            248
                  Furniture and fixtures                  997            958
                  Leasehold improvements                1,257          1,101
                                                       10,938         10,518
         Less accumulated depreciation 
          and amortization                             (8,178)        (7,754)
                                                      $ 2,760        $ 2,764

(4) Transactions with Related Parties
         A summary of the payable to Wearnes' subsidiaries follows
         (in thousands):                            
                                                             September 30,
                                                         1996             1995
                  Wearnes Automation                  $   205        $    ---
                  Other Wearnes' subsidiaries              32             330
                                                      $   237        $    330

The balance payable to Wearnes' subsidiaries is due and payable 30 days from the
shipment  date.  Total  inventory  purchases from Wearnes'  subsidiaries  during
fiscal  1996,   1995  and  1994  were  $3,000,   $7,426,000   and   $14,350,000,
respectively.

(5) Accrued Expenses
         A summary of accrued expenses follows
         (in thousands):                                   September 30,
                                                        1996            1995
                  Accrued royalty                    $  3,332        $  2,903
                  Accrued warranty                      2,592           2,148
                  Accrued payroll                       2,098           1,755
                  Accrued co-operative advertising      1,693             700
                  Other                                 1,843           3,022
                                                     $ 11,558        $ 10,528

(6) Stockholders' Equity
During  1986,  the Board of Directors  authorized  the granting of up to 714,000
shares of common stock for issuance to key individuals or the directors under an
informal stock option program ("1986 Plan").  The options became  exercisable at
varying  periods  relative to the date of employment or the grant of the option.
The options  expired at the earlier of  termination of employment or January 31,
1996.




The following is a summary of transactions under the 1986 Plan:
                                                      Number           Price
                                                     of shares       per share
         Options outstanding at September 30, 1993    108,735      $ .07 - 1.68
         Exercised                                    (60,053)       .07 - 1.68
         Options outstanding at September 30, 1994     48,682        .10 -  .42
         Exercised                                    (45,542)       .10 -  .42
         Options outstanding at September 30, 1995      3,140               .42
         Exercised                                     (3,140)              .42
         Options outstanding at September 30, 1996      ---        $        ---

During 1990,  the Board of Directors of the Company  adopted the Flexible  Stock
Incentive  Plan (the  "Plan")  authorizing  the  granting of common stock to key
individuals of which  2,500,000  shares have been registered with the Securities
and Exchange  Commission.  The Plan contains  three  components:  a stock option
component,  a stock  bonus/stock  purchase  component  and a stock  appreciation
rights component.  The purpose of the plan is to provide  incentives to selected
individuals whose services contribute to the financial success and growth of the
Company and its affiliates.

The Plan  provides  for the  granting of stock  options,  stock  bonuses,  stock
appreciation  rights or rights to purchase  stock for up to an  aggregate of not
more than the  greater  of (i) 10% of the  authorized  shares  of the  Company's
common  stock or (ii) 15% of the shares of common  stock  outstanding  as of the
close of business on the last day of the  Company's  prior fiscal  year.  Awards
under the Plan can be granted to officers,  employees and other  individuals  as
determined by the committee of the Board of Directors which administers the Plan
(the "Committee").

Options  granted  under  the Plan may be either  "incentive"  stock  options  or
options that do not qualify as Incentive Options ("Nonqualified  Options").  The
exercise price of shares of common stock covered by each Incentive Option cannot
be less than the per share fair market  value of the  Company's  common stock on
the date the option is granted.  The exercise price in the case of  Nonqualified
Options  granted under the Plan is set by the Committee with a minimum  exercise
price of at least 85% of the fair market value of the Company's  common stock on
the date the option is granted.

The following is a summary of transactions under the Plan:
                                                      Number           Price
                                                     of shares       per share
         Options outstanding at September 30, 1993     807,053    $ 4.25 - 12.50
         Granted                                       351,000      3.38 - 3.625
         Exercised                                     (37,651)     4.25 -  6.25
         Canceled                                      (57,598)     3.38 - 12.50
         Options outstanding at September 30,  1994  1,062,804      3.38 - 11.00
         Granted                                       600,000              4.50
         Exercised                                    (137,482)     3.38 -  6.25
         Canceled                                      (34,483)     3.38 -  6.25
         Options outstanding at September 30, 1995   1,490,839      3.38 - 11.00
         Granted                                       600,000              7.00
         Exercised                                    (578,469)    3.38  -  6.25
         Canceled                                      (19,459)    3.38  -  4.50
         Options outstanding at September 30, 1996   1,492,911   $ 3.38  - 11.00

All options granted under the Plan are  Nonqualified  Options which were granted
at an exercise price that  approximated  fair market value.  As of September 30,
1996, 645,736 of the outstanding options are exercisable.

On August 13, 1990, the Board of Directors of the Company adopted the Director's
Nonqualified Stock Option Plan ("Director's  Plan") authorizing the registration
of 60,000 shares of common stock for issuance to directors at an exercise  price
equal to the fair market  value on the date the option is  granted.  In February
1996, the Director's Plan was amended to increase the number of shares of common
stock for issuance to 120,000.  The purpose of the Director's Plan is to provide
incentives to participants for increased efforts and successful  achievements on
behalf of or in the interest of the Company while serving on the Company's Board
of Directors.  In each of fiscal 1996, 1995 and 1994, 10,000 shares were granted
to the non-employee  directors of ALR under the Director's  Plan.  During fiscal
1996 and 1994 no options were exercised.  During fiscal 1995, 7,500 options were
exercised.  As of September  30,  1996,  the number of options  outstanding  and
exercisable  under the Director's  Plan was 62,500 at a price per share of $3.44
to $8.75. During fiscal 1996, 1995 or 1994 no options were canceled.

(7) Notes Payable to Banks
ALR  International   currently  has  lines  of  credit  totaling   approximately
$4,300,000.  The lines of credit bear interest at the lending bank's prime rate.
At September 30, 1996 and 1995, ALR International had no outstanding  borrowings
against  these lines of credit.  The maximum  and  average  amounts  outstanding
during fiscal 1996 were $1,416,000 and $413,000,  respectively,  with a weighted
average  interest  rate of 4.34%.  The maximum and average  amounts  outstanding
during  fiscal 1995 were  $718,900  and $59,900,  respectively,  with a weighted
average interest rate of 6.13%.

(8) Long-Term Debt
During June 1993,  the Company  entered into a three-year  agreement with Heller
Financial,  Inc.  providing  the Company with a  $15,000,000  revolving  line of
credit.  The line is secured by the Company's assets and availability is subject
to a  borrowing  base  requirement.  In  October  1995,  the  Company  signed an
amendment to this existing credit  agreement  extending the expiration to August
1998 and reducing the borrowing  rate to Prime,  based on the Prime rate charged
by Bank of America,  from Prime plus 1%. A commitment  fee of 0.50% per annum is
paid on the  unused  portion  of the  revolving  line of  credit.  The  facility
contains certain net worth,  profitability,  financial ratio and other covenants
with which the Company was in compliance at September 30, 1996 and 1995.  During
fiscal 1996 and 1995,  the Company had no  outstanding  borrowings  against this
line of credit.

(9) Income Taxes
The  components  of  income  (loss)  before  income  taxes  are as  follows  (in
thousands):

         Year ended September 30,       1996            1995              1994
                  U.S.                $14,608         $ 4,005          $ (1,908)
                  Foreign                (471)          2,491             1,414
                                      $14,137         $ 6,496          $   (494)

Income tax expense (benefit) consists of the following (in thousands):

         Year ended September 30,       1996            1995              1994
                  Current:
                           Federal    $ 4,373         $ 1,603          $ (4,501)
                           State          463              29                 1
                                      $ 4,836         $ 1,632          $ (4,500)
                  Deferred:
                           Federal    $(1,413)        $  (261)         $  4,208
                           State         (718)            ---              ---
                                       (2,131)           (261)            4,208
                  Additional paid-in
                  capital from the
                  benefit of stock
                  options exercised       829             253               144
                                      $ 3,534        $  1,624          $   (148)




Total income tax expense  (benefit) differs from the amount computed by applying
the federal  corporate  income tax rate of 34% (35% for income  greater than $10
million) to income (loss) before income taxes as follows (in thousands):


         Year ended September 30,                   1996      1995      1994
                  Computed expected income taxes
                    (benefit)                     $4,807     $2,209   $ (168)
                  Changes in valuation allowance  (1,675)       102      469
                  State income taxes, net of
                     federal income tax benefit      412         27        1
                  Effect of foreign operations       150       (486)    (278)
                  Tax exempt foreign sales 
                     corporation income             (138)      (132)     (99)
                  Tax exempt interest income         (23)       (91)     (64)
                  Other                                1         (5)      (9)
                                                  $3,534     $1,624   $ (148)

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the  Company's  deferred tax assets as of September  30, 1996 and  September 30,
1995 are as follows (in thousands):

         Year ended September 30,                       1996            1995
                  Deferred tax liabilities:
                           Prepaid expenses            $  317          $ 333

                  Deferred tax assets:
                           Net operating loss 
                              carryforwards             1,813           1,703
                           Inventories                  1,695           1,379
                           Warranty provisions            773             773
                           Allowance for doubtful 
                              accounts                    583             601
                           Promotional and sales 
                              allowances                  500             510
                           Other                          755             633
                                                        6,119           5,599
                  Valuation allowance                  (1,813)         (3,408)
                  Deferred tax assets                   4,306           2,191
                  Net deferred tax assets              $3,989          $1,858

The Company has  recorded a valuation  allowance  in the amount set forth in the
above table for certain  deductible  temporary  differences  for which it is not
certain whether the Company will receive future tax benefit. The net decrease in
the  total  valuation  allowance  for the  year  ended  September  30,  1996 was
$1,595,000.  The change in the valuation  allowance for the year ended September
30, 1996, was primarily due to the recognition of federal and state deferred tax
assets based on taxable income generated in the current year and other potential
sources of taxable income of an appropriate character. The Company believes that
the  remaining  net deferred tax assets will more likely than not be  realizable
due to availability of the net operating loss carryback.

The Company has approximately  $6,042,000 of net operating loss carryforwards in
various foreign tax jurisdictions  which can be utilized to offset the Company's
future  taxable  earnings.  These  net  operating  loss  carryforwards  have  no
expiration dates.


(10) Operating Expenses
In 1988, the Company  entered into a nonexclusive  licensing  agreement with IBM
Corporation  ("IBM")  which  enables  the  Company to make,  use,  lease,  sell,
manufacture or have manufactured certain products under patent with IBM. In 1996
the Company  consummated a new  nonexclusive  fixed fee agreement with IBM which
expires in December 1998. The new agreement  still allows the Company to utilize
certain patents. Under this agreement,  the Company will pay a fixed fee royalty
to IBM (see note 14). Royalty expense under this agreement for fiscal 1996, 1995
and 1994 was $5,125,000, $5,289,000 and $5,867,000, respectively.

In April 1991, the Company entered into a non-exclusive  distribution  agreement
with  Microsoft  Corporation  ("Microsoft")  whereby the Company was granted the
right to distribute  specific  Microsoft  products.  Royalty  expense under this
agreement  for  fiscal  1996,  1995  and  1994 was  $2,802,000,  $2,174,000  and
$1,971,000, respectively, which is included in cost of sales in the accompanying
Consolidated Statements of Operations.

(11) Profit Sharing Plan
In September  1988, the Company  established a pretax savings and profit sharing
plan under Section 401(k) of the Internal Revenue Code. Under the plan, eligible
employees  are  able to  contribute  from 3% to 15% of their  compensation.  The
Company makes a matching  contribution of 50% of the first 5% contributed by the
employee and may, at its discretion,  make additional contributions to the plan,
up  to  a  maximum  of  15%  of  the  employee's  compensation.   The  Company's
contribution to the Plan was approximately  $264,000,  $234,000 and $195,000 for
fiscal 1996, 1995 and 1994, respectively.

The  Financial  Accounting  Standards  Board has issued  Statement  of Financial
Accounting  Standards  No. 112  ("SFAS  No.  112"),  "Employers  Accounting  for
Postemployment  Benefits" requiring accrual basis accounting for post employment
benefits.  The  Company  does not offer  post  employment  benefits  subject  to
guidelines  established by SFAS No. 112.  Accordingly,  no provisions  have been
reflected in the Company's  consolidated  financial  statements at September 30,
1996.




























<TABLE>


(12) International Operations
The following table reflects  information with respect to the Company's domestic
and foreign operations (in thousands):

<CAPTION>
                                              North
                                             America         Asia          Europe        Elimination       Total
<S>     <C>    <C>    <C>    <C>    <C>    <C>
 
Year ended September 30, 1996
Sales to unaffiliated customers          $  155,736      $  39,212      $   22,907     $       ---     $ 217,855
Intercompany sales                           20,856           ---             ---         (20,856)           ---
         Net sales                       $  176,592      $  39,212      $   22,907     $  (20,856)     $ 217,855
         Net income (loss)               $   11,038      $     (38)     $     (432)    $       35      $  10,603
         Identifiable assets             $  102,892      $  15,941      $   11,460     $  (11,653)     $ 118,640

Year ended September 30, 1995
Sales to unaffiliated customers          $  128,858      $  32,945      $   30,576     $     ---       $ 192,379
Intercompany sales                           22,408           ---             ---         (22,408)          ---
Sales to affiliated customers                    28             18            ---            ---              46
         Net sales                       $  151,294      $  32,963      $   30,576     $  (22,408)     $ 192,425
         Net income (loss)               $    2,781      $   1,041      $    1,450     $     (400)     $   4,872
         Identifiable assets             $   90,022      $  14,569      $   14,317     $  (11,688)     $ 107,220

Year ended September 30, 1994
Sales to unaffiliated customers          $  116,403      $  40,348      $   25,997     $     ---       $ 182,748
Intercompany sales                           21,244           ---             ---         (21,244)          ---
Sales to affiliated customers                   163            476            ---            ---             639
         Net sales                       $  137,810      $  40,824      $   25,997     $  (21,244)     $ 183,387
         Net income (loss)               $   (1,840)     $     (79)     $    1,493     $       80      $    (346)
         Identifiable assets             $   83,701      $  14,087      $   11,430     $  (11,289)     $  97,929
</TABLE>

The U.S.  Company had export sales to  unaffiliated  customers  of  $15,266,000,
$20,002,000 and $18,075,000 for fiscal 1996, 1995 and 1994, respectively.

During fiscal 1996,  1995 and 1994,  no customer  accounted for more than 10% of
net sales.




















(13) Commitments and Contingencies
The  Company  leases  its  U.S.   manufacturing   and  office  facilities  under
noncancelable  operating  leases  which  expire  in 1999.  Additionally,  office
facility  leases  for the  U.K.  subsidiary  expire  in  2010,  for  the  German
subsidiary in 2002 and for the Singapore  subsidiary in 1997. Rental expense for
fiscal 1996,  1995 and 1994 amounted to $1,507,000,  $1,685,000 and  $1,931,000,
respectively.

At September 30, 1996,  future minimum rental  payments under all  noncancelable
operating leases with terms in excess of one year are as follows (in thousands):

         Year ending September 30,
         1997                                                  $    1,606
         1998                                                         945
         1999                                                         735
         2000                                                         250
         2001                                                         250
         Thereafter                                                   436
                                                               $    4,222

The Company has been notified that certain of its products may require  licenses
under patents held by others. The Company evaluates these licensing proposals on
a case-by-case basis to determine whether licenses are necessary. In the opinion
of Company management,  the liability,  if any, resulting from such claims would
not have a  material  adverse  affect on the  Company's  consolidated  financial
statements.

The Company is involved with certain legal  proceedings and other claims arising
in the normal  course of  business.  In the opinion of Company  management,  the
liability,  if any,  resulting  from such  litigation  would not have a material
adverse affect on the Company's  consolidated  financial  position or results of
operations.

(14) Subsequent Event
On November  26,  1996,  the Company  consummated  an agreement to acquire a 20%
interest  (on a  fully-diluted  basis) in  RouterWare,  Inc.  ("RouterWare"),  a
Newport Beach,  California-based data communications products company, for $2.25
million  cash.  The  agreement  also calls for the  Company to fund  agreed-upon
development  projects with  RouterWare over the next three years with a combined
spending limit of $1.0 million.





















(15) Selected Quarterly Financial Data (unaudited)
The tables below set forth  selected  quarterly  financial  information  for the
years ended September 30, 1996 and 1995 (in thousands, except per share data):
<TABLE>
<CAPTION>

                                              First        Second         Third        Fourth
                                            Quarter       Quarter       Quarter       Quarter            Year
<S>     <C>    <C>    <C>    <C>    <C>    <C>

         1996
         Net sales                        $   57,139    $   55,047     $   50,230    $   55,439     $   217,855
         Gross profit                         11,921        11,558         11,362        12,979          47,820
         Net income (1)                        2,360         2,014          2,196         4,033          10,603
         Net income per share             $     0.20    $     0.17     $    0.18     $     0.32     $      0.87

         1995
         Net sales                        $   45,718    $   47,359     $   45,951    $   53,397     $   192,425
         Gross profit                          8,053         8,429          9,159        10,319          35,960
         Net income                              649         1,058          1,177         1,988           4,872
         Net income per share             $     0.06    $     0.09     $     0.10    $     0.17     $      0.41
</TABLE>

The sum of quarterly net income per share will not necessarily  equal the annual
amount since the calculations are based on the weighted average number of shares
outstanding during each period.

(1) During the fourth  quarter of fiscal 1996,  the Company  consummated a three
year agreement with IBM Corporation. This agreement impacted the royalty expense
accrual amount for calendar 1996 and resulted in a $1.2 million pretax reduction
in royalty expense in the fourth quarter of fiscal 1996.




<PAGE>


43


                                                                  SCHEDULE II


                 ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                             (Amounts in thousands)



                                                Year ended September 30,
                                            1996         1995          1994

Allowance for doubtful accounts
Balance, beginning of year                 $1,999       $1,870        $3,158
  Additions (reductions) charged
   (credited) to expense                      223          310          (752)
  Reductions                                 (195)        (181)         (536)
Balance, end of year                       $2,027       $1,999        $1,870



Allowance for sales returns
Balance, beginning of year                 $2,800       $2,050       $2,150
  Net additions (reductions) charged 
    (credited) to sales                    (1,100)         750         (100)
Balance, end of year                      $ 1,700       $2,800       $2,050



Allowance for price protection
Balance, beginning of year                $  324        $  225       $  ---
  Net additions charged to sales             123            99          225
Balance, end of year                      $  447        $  324       $  225



<PAGE>



                                    PART III


         Certain information required by Part III is omitted from this report in
that the Registrant will file a definitive proxy statement within 120 days after
the end of its fiscal year  pursuant to Regulation  14A (the "Proxy  Statement")
for its Annual  Meeting of  Stockholders  to be held  February  18, 1997 and the
information included therein is incorporated herein by reference.


Item 10.          Directors and Executive Officers of the Registrant.

                  Information  with respect to directors of ALR is  incorporated
by   reference   from  the   information   under  the   caption   "Election   of
Directors--Nominees" in the Company's Proxy Statement.  Information with respect
to executive  officers of ALR is  incorporated by reference from the information
under the caption "Executive Officers" in the Company's Proxy Statement.


Item 11.          Executive Compensation.

                  The information under the caption "Executive  Compensation and
Other   Information"  in  the  Company's  Proxy  Statement  is  incorporated  by
reference.


Item 12.         Security Ownership of Certain Beneficial Owners and Management.

                  The  information   under  the  caption  "Stock   Ownership  of
Management  and  Principal  Stockholder"  in the  Company's  Proxy  Statement is
incorporated by reference.


Item 13.          Certain Relationships and Related Transactions.

                  The information  under the caption  "Certain  Transactions" in
the Company's Proxy Statement is incorporated by reference.




<PAGE>



                                     PART IV


Item 14.         Exhibits, Financial Statement Schedule and Reports on Form 8-K.

(a)      The following documents are filed as a part of this report:

         Financial  Statements and Financial  Statement Schedule -- See Index to
Consolidated Financial Statements on page 20.

(3)  Exhibits  included  herein  (numbered  in  accordance  with Item 601 of the
Regulation S-K):

Exhibit
Number                Description of Exhibits

3.1 Articles of Incorporation (California) (1)

3.2 Restated  Certificate of  Incorporation  (following the  reincorporation  of
registrant in Delaware) (l)

3.3 Bylaws of Registrant (California) (1)

3.4  Bylaws of  Registrant  (following  the  reincorporation  of  Registrant  in
Delaware) (1)

3.5 Amended and Restated Bylaws of Registrant (2)

10.1 Agreement (relating to term loan facility of U.S. $15,000,000 dated January
26, 1989) among  Registrant,  The Mitsui Trust & Banking  Co.,  Ltd.,  The Tokai
Bank,  Limited  and  Singapore   International   Merchant  Bankers  Limited  and
Amendments (1)

10.4 Right of Participation Agreement dated March 1, 1990 between Registrant and
Wearnes Technology  (Private) Limited (1)

10.7 Stock Option  Letter dated  January 5, 1987  between  Registrant  and David
Kirkey and Amendments (1)

10.9 Stock Option  Letter dated  November  28, 1989 between  Registrant  and Vic
Sangveraphunsiri (1)

10.11 Registrant's  Flexible Stock Incentive Plan and related forms of Agreement
(1)

10.12 Form of Indemnification Agreement (1)

10.13  Manufacturing  Agreement dated as of October 22, 1985 between  Registrant
and Wearnes Technology (Private) Limited (1)

10.14  Agreement  dated  September  14,  1989  between  Registrant  and  Wearnes
Technology (Private) Limited (1)

10.16 Brand Name Distributor  Reseller  Purchase  Agreement dated April 24, 1989
between Registrant and Gates/FA Distributing (1) (3)

10.17  Agreement  dated  October 1, 1988 between  Registrant  and  International
Business Machines Corporation (1) (3)

10.18  Computer  Technology  License  Agreement  dated December 12, 1988 between
Registrant and Phoenix Technologies Ltd. (1) (3)

10.19  Amendment to Computer  License  Agreement dated as of May 5, 1989 between
Registrant and Phoenix Technologies Ltd. (1) (3)

10.20 Amendment to Computer Technology License Agreement dated as of November 9,
1989 between Registrant and Phoenix Technologies Ltd. (1) (3)

10.21 OEM Distribution  Agreement dated October 27, 1987 between  Registrant and
The Santa Cruz Operation, Inc. (1)

10.22  Amendment to OEM  Distribution  Agreement  dated October 27, 1987 between
Registrant and The Santa Cruz Operation, Inc. (1)

10.23  Amendment to OEM  Distribution  Agreement  dated October 27, 1987 between
Registrant and The Santa Cruz Operation, Inc. (1)

10.24  Standard  Form Lease dated April 27, 1988  between  Registrant  and Alton
Technical Center, Ltd. (1)

10.25 First  Amendment  to Standard  Form Lease  dated  August 15, 1988  between
Registrant and Alton Technical Center, Ltd. (1)

10.26  Second  Amendment  to Standard  Form Lease  dated June 23,  1989  between
Registrant and Alton Technical Center Holding Company, Ltd. (1)

10.27  Standard  Form  Lease  (Single  Tenant)  dated  August 21,  1989  between
Registrant and The Irvine Company (1)

10.28 Registrant's Directors' Non-Qualified Stock Option Plan (2)

10.33 ALR Reseller Terms and Agreement dated February 4, 1991 between Registrant
and JWP Information Systems and Addendum thereto (4) (5)

10.35 Loan and Security  Agreement dated June 16, 1993,  between  Registrant and
Heller Financial, Inc. (6)

10.36  Third  Amendment  to Standard  Form Lease  dated  March 31, 1994  between
Registrant and Alton Technical Center Holding Company, Ltd. (8)

10.37 First and Second  Amendments to Standard Form Lease (Single  Tenant) dated
August 17, 1993 and April 15, 1994,  respectively,  between  Registrant  and The
Irvine Company (8)

10.38 First  Amendment  to Loan and  Security  Agreement  dated  August 7, 1995,
between Registrant and Heller Financial, Inc. (9)

10.39 Third  Amendment to Standard Form Lease (Single Tenant) dated November 14,
1996 between Registrant and The Irvine Company (10).

11. Statement  Regarding the Computation of Per Share Earnings (Included on page
42.)

21. Subsidiaries of Registrant (7)

23.1 Consent of KPMG Peat  Marwick LLP

24.1 Power of Attorney (Included on page 41.)

(b) Reports on Form 8-K: None

(1) Incorporated by reference to identically numbered exhibits filed in response
to Item-16(a),  "Exhibits",  of Registrant's  Registration Statement on Form S-1
(file No. 33-33907), which became effective on April 11, 1990.

(2) Incorporated by reference to identically numbered exhibits filed in response
to Item 14 of the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1990 filed with the Securities and Exchange Commission on December
31, 1990.

(3) Confidential  treatment of certain portions of this agreement granted August
9, 1990.

(4) Incorporated by reference to identically numbered exhibits filed in response
to Item 14 of the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1991 filed with the Securities and Exchange Commission on December
27, 1991.

(5) Confidential  treatment of certain portions of this agreement  granted April
22, 1992.

(6) Incorporated by reference to identically  numbered exhibit filed in response
to Item 6 of the Company's  Quarterly  Report on Form 10-Q for the quarter ended
June 30, 1993 filed with the  Securities  and Exchange  Commission on August 13,
1993.

(7) Incorporated by reference to identically  numbered exhibit filed in response
to Item 14 of the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1993 filed with the Securities and Exchange Commission on December
29, 1993.

(8) Incorporated by reference to identically numbered exhibits filed in response
to Item 14 of the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994 filed with the Securities and Exchange Commission on December
22, 1994.

(9) Filed herewith in response to Item 14 of the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995.

(10) Filed  herewith in response to Item 14 of the  Company's  Annual  Report on
Form 10-K for the fiscal year ended September 30, 1996.


<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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, in the City of Irvine,
State of California, on the 26th day of December, 1996.

                          ADVANCED LOGIC RESEARCH, INC.

                          By:  /s/ Eugene Lu
                               Eugene Lu,
                               Chairman of the Board of Directors,
                               President, and Chief Executive Officer

POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature
appears  below  constitutes  and  appoints  Eugene Lu and  Ronald J.  Sipkovich,
jointly  and  severally,  his or her  attorneys-in-fact,  each with the power of
substitution,  for him or her in any and all capacities,  to sign any amendments
to this Report on Form 10-K,  and to file the same,  with  exhibits  thereto and
other  documents  in  connection  therewith,  with the  Securities  and Exchange
Commission,   hereby   ratifying   and   confirming   all  that   each  of  said
attorneys-in-fact,  or his substitute or substitutes, may do or cause to be done
by virtue hereof.

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  Report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated on December 26, 1996.

Signature                                    Title

/s/ Eugene Lu                         Chairman of the Board
Eugene Lu                             of Directors, President,
                                      and Chief Executive Officer
                                      (Principal Executive Officer)

/s/ Ronald J. Sipkovich               Vice President, Finance and
Ronald J. Sipkovich                   Administration, Chief Financial
                                      Officer and Secretary
                                      (Principal Accounting Officer)

/s/ Chun Win Wong                     Director
Chun Win Wong

/s/ Philip A. Harding                 Director
Philip A. Harding

/s/ Therese E. Myers                  Director
Therese E. Myers

/s/ Kenneth W. Simonds                Director
Kenneth W. Simonds

<TABLE>

                                                                   EXHIBIT 11



                 ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES
                 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
                (Amounts in thousands, except per share amounts)

<CAPTION>

<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                         Year ended September 30,
 
                                                                     1996             1995              1994
Primary earnings per share:-

Shares used in computing earnings per share:
Weighted average number of shares outstanding                        11,969           11,512          11,434
Incremental shares attributed to outstanding options                    280              238             -
                                                                     12,249           11,750          11,434
Earnings:
         Net income                                                $ 10,603          $ 4,872          $ (346)


Net income per common and common equivalent share                   $  0.87          $ 0.41          $ (0.03)




Earnings per share - assuming full dilution:-

Shares used in computing earnings per share:
Weighted average number of shares outstanding                        11,969           11,512          11,434
Incremental shares attributed to outstanding options                    320              419             -
                                                                     12,289           11,931          11,434

Earnings:
         Net income                                                 $10,603          $ 4,872          $ (346)


Net income per common and common equivalent share                   $  0.86          $ 0.41          $ (0.03)


</TABLE>