*---------------------------------------------------------------*
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
JUNE 30, 1996
Commission File Number
0-17187
*---------------------------------------------------------------*
LOGIC DEVICES INCORPORATED
(Exact name of registrant as specified in its charter)
*---------------------------------------------------------------*
CALIFORNIA 94-2893789
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
628 EAST EVELYN AVENUE, SUNNYVALE, CALIFORNIA 94086
(Address of principal executive offices) (Zip Code)
(408) 737-3300
(Registrant's telephone number,including area code)
______________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of the issuer's classes of
common stock, as of the latest practicable date. On August 7, 1996,
6,001,750 shares of Common Stock, without par value, were outstanding.
*---------------------------------------------------------------*
1 OF 18 PAGES
<PAGE>
LOGIC DEVICES INCORPORATED
INDEX
PAGE NUMBER
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1996 3
and December 31, 1995
Consolidated Statements of Income for the three 4
months ended June 30, 1996 and 1995
Consolidated Statements of Income for the six 5
months ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows for the 6
six months ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 9
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Part II. Other Information
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
Signatures 15
Exhibit 11 16
Exhibit 27 18
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
LOGIC DEVICES INCORPORATED
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 2,444,900 $ 4,378,500
Accounts receivable, net of allowance 5,856,000 5,844,000
Inventories 9,703,100 8,296,000
Prepaid expenses 938,400 980,300
Deferred income taxes 704,700 704,700
Total current assets 19,647,100 20,203,500
Equipment and leasehold improvements, net 2,780,500 2,409,800
Other assets 646,800 752,700
$23,074,400 $23,366,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations 175,200 175,200
Accounts payable 883,700 991,000
Accrued expenses 285,400 278,800
Income taxes payable 61,200 819,000
Total current liabilities 1,405,500 2,264,000
Long-term obligations 111,700 166,200
Deferred income taxes 225,000 225,000
Total liabilities 1,742,200 2,655,200
Shareholders' equity:
Common stock 17,008,900 16,741,900
Retained earnings 4,323,300 3,968,900
Total shareholders' equity 21,332,200 20,710,800
$23,074,400 $23,366,000
<PAGE>
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Three months ended June 30, 1996 and 1995
(unaudited)
1996 1995
Net revenues $ 3,495,800 $ 4,408,300
Cost of sales 1,799,300 2,581,200
Gross margin 1,696,500 1,827,100
Operating expenses:
Research and development 400,700 365,400
Selling, general and administrative 1,109,900 765,300
Operating expenses 1,510,600 1,130,700
Income from operations 185,900 696,400
Other income (expense), net 27,900 (94,600)
Income before taxes 213,800 601,800
Income taxes 80,000 195,200
Net income $ 133,800 $ 406,600
Net income per common share $ 0.02 $ 0.08
Weighted average common share equivalents 6,221,750 5,293,788
outstanding
<PAGE>
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Six Months ended June 30, 1996 and 1995
(unaudited)
1996 1995
Net revenues $ 7,105,000 $ 7,958,000
Cost of sales 3,774,700 4,464,700
Gross margin 3,330,300 3,493,300
Operating expenses:
Research and development 794,800 715,500
Selling, general and administrative 2,021,100 1,582,800
Operating expenses 2,815,900 2,298,300
Income from operations 514,400 1,195,000
Other income (expense), net 68,600 (193,500)
Income before taxes 583,000 1,001,500
Income taxes 228,500 322,700
Net income $ 354,500 $ 678,800
Net income per common share $ 0.06 $ 0.13
Weighted average common share equivalents 6,221,750 5,149,780
outstanding
<PAGE>
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1996 and 1995
(unaudited)
1996 1995
Cash flows from operating activities:
Net income $ 354,400 $ 678,800
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 506,900 612,700
Change in operating assets and liabilities:
Accounts receivable, net (12,000) (418,600)
Inventories (1,407,100) (55,900)
Prepaid expenses 41,900 (27,200)
Accounts payable (107,300) (446,000)
Accrued expenses 6,600 (80,600)
Income taxes payable (757,800) 21,400
Net cash (used in) provided by operating(1,374,400) 284,600
activities
Cash flows from investing activities:
Capital expenditures (725,200) (419,300)
Net increase in other assets (46,500) (136,700)
Net cash (used in) investing activities (771,700) (556,000)
Cash flows from financing activities:
Bank borrowing, net - 45,000
Proceeds from long-term debt - 800,000
Repayment of notes payable and long-term debt (54,500) (68,000)
Repayment of obligations to shareholders - (863,900)
Proceeds from exercise of warrants 258,900 258,600
Proceeds from exercise of employee stock options 8,100 161,900
Net cash provided by 212,500 333,600
financing activities
Net (decrease) increase in cash and cash (1,933,600) 62,200
equivalents
Cash and cash equivalents at beginning of
period $ 4,378,500 $ 222,300
Cash and cash equivalents at end of period $ 2,444,900 $ 284,500
<PAGE>
LOGIC DEVICES INCORPORATED
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(unaudited)
(A) BASIS OF PRESENTATION
The accompanying unaudited interim financial statements reflect all
adjustments which are, in the opinion of management, necessary to
present fairly the financial position, results of operations and cash
flows for the periods indicated.
The accompanying unaudited interim financial statements have been
prepared in accordance with the instructions for Form 10-Q and therefore
do not include all information and footnotes necessary for a complete
presentation of the financial position, results of operations, and cash
flows, in conformity with generally accepted accounting principles. The
Company has filed audited financial statements which include all
information and footnotes necessary for such a presentation of the
financial position, results of operations, and cash flows for the years
ended December 31, 1995 and 1994, with the Securities and Exchange
Commission. It is suggested that the accompanying unaudited interim
financial statements be read in conjunction with the aforementioned
audited financial statements. The unaudited interim financial
statements contain all normal and recurring entries. The results of
operations for the interim period ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
(B) INVENTORIES
A summary of inventories follows:
June 30, December 31,
1996 1995
Raw materials $ 2,520,000 $ 938,000
Work-in-process 3,265,600 3,912,600
Finished goods 3,917,500 3,445,400
$ 9,703,100 $ 8,296,000
Based on forecasted 1996 sales levels, the Company has on hand
inventories aggregating approximately twelve months of sales.
<PAGE>
LOGIC DEVICES INCORPORATED
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(unaudited)
(C) DEBT FINANCING
On June 28, 1996, the Company renewed its $8,000,000 revolving line
of credit with Sanwa Bank extending the maturity to May 31, 1997. The
line of credit bears interest at the bank's reference rate (8.25% at
June 30, 1996). The line of credit is secured by the assets of the
Company and requires the Company to maintain a minimum tangible net
worth, a maximum ratio of debt to tangible net worth, a minimum current
ratio, a minimum quick ratio, and profitability over a specified
interval of time. As of June 30, 1995, the Company had $8,000,000
available under the revolving line of credit.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
LOGIC DEVICES INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Net revenues decreased by 21%, from $4,408,300 for the three months
ended June 30, 1995 to $3,495,800 for the three months ended June 30,
1996. This decrease was due to a substantial decrease in revenues
derived from the Company's SRAM ("Static Random Access Memory") products
which accounted for 52% of revenues in the June 30, 1995 period, but
decreased to 18% of revenues in the June 30, 1996 period. Net revenues
from the Company's DSP ("Digital Signal Processing") products accounted
for 45% of revenues in 1995, and increased to 78% in 1996. The
semiconductor memory market is in the midst of a dramatic drop-off in
demand which began in the fourth quarter of 1995. SRAM memory suppliers
have been caught in a period of weak demand and have been reducing
prices to move their SRAM inventories. As a result of the adverse
market conditions, the Company has experienced order cancellations,
delivery push-outs, and sharply falling prices which affected SRAM
product revenues during the 1996 period. The Company's DSP product
line, which sells into a much more stable market environment than the
SRAM products, grew 38% in revenues over the 1995 period.
Net revenues decreased by 11%, from $7,958,000 for the six month
period ended June 30, 1995 to $7,105,000 for the six months ended June
30, 1996. This decrease was due to decreased net revenues derived from
the Company's SRAM products which accounted for 44% of revenues for the
1995 period, but decreased to 10% of revenues for the 1996 period. Net
revenues from DSP products accounted for 50% of revenues in 1995,
whereas DSP product sales comprised 85% of net revenues in 1996. The
sharp drop-off in demand in the memory market which began in the fourth
quarter of 1995 continued through the first half of 1996. The Company
has experienced order cancellations, delivery push-outs, and sharply
falling prices which affected SRAM product revenues during the first
half of 1996. The Company's DSP product line, which is more stable,
grew 51% in revenues over the first half of 1995.
EXPENSES
Cost of sales decreased 30% from $2,581,200 or 59% of net revenues
for the three months ended June 30, 1995 to $1,799,300 or 52% of net
revenues for the same period in 1996. Gross profit decreased 7%, from
$1,827,100 in the former period to $1,696,500 in the latter period. The
<PAGE>
decrease in gross profit is the result of lower revenues for the period.
As a percentage of net revenues, gross profit increased from 41% for the
three months ended June 30, 1995 to 49% for the three months ended June
30, 1996. The increase in gross profit margin for the period is the
result of a larger percentage of the Company's revenues coming from its
DSP product line which generally yields higher gross profit margin than
the Company's SRAM product line.
Cost of sales decreased 16% from $4,464,700 or 56% of net revenues
for the six months ended June 30, 1995 to $3,774,700 or 53% of net
revenues for the same period in 1996. Gross profit decreased 5% from
$3,493,300 in the former period to $3,330,300 in the latter period.
This decrease in gross profit is the result of lower revenues for the
period. As a percentage of net revenues, gross profit increased from
44% in the six months ended June 30, 1995 to 47% in the six months ended
June 30, 1996. This increase in gross profit margin is the result of a
higher revenue contribution from DSP products which yields a higher
gross margin than the Company's SRAM products.
Research and development ("R & D") expenses for the three months
ended June 30, 1995, were $365,400 and increased to $400,700 for the
same period in 1996. For the six month period, research and development
expenses were $715,500 for 1995, increasing to $794,800 for 1996. As a
percentage of net revenues, R & D expenses were 8% for the three months
ended June 30, 1995, compared to 12% for 1996. For the six months ended
June 30, 1995, R & D expenses as a percentage of net sales were 9%
compared to 11% for 1996. In the 1996 periods the Company has
dramatically increased its product development efforts. The Company
invested in additional personnel, product development tools and new
product tooling at its foundry sources to increase the Company's product
offerings and to diversify its foundry sources. The Company intends to
continue to make substantial investments in product R & D.
Selling, general and administrative ("S,G & A") expenses were
$765,300 for the three months ended June 30, 1995 and increased to
$1,109,900 for the same period in 1996. For the six months ended June
30, 1995, S, G & A expenses were $1,582,800, increasing to $2,021,100
for the same period in 1996. As a percentage of net sales, selling,
general and administrative expenses were 17% for the three months ended
June 30, 1995 compared to 32% in 1996. As a percentage of net sales,
selling, general and administrative expenses were 20% for the first six
months of 1995 compared to 28% in 1996. The Company increased its sales
and marketing efforts substantially for the 1996 period. Over the prior
year, the Company has added a sales office in Southern California to
service the south and midwest sales regions and a sales office in Great
Britain to service the European market, added an additional sales
engineer to staff its east-coast regional sales offices, and increased
the marketing and technical sales staff at the headquarters office. The
Company has also increased its marketing promotional effort with ad
placements and applications articles in industry trade publications as
well as additional promotional materials and a newsletter for the
Company's distributor and sales representatives. The Company intends to
continue to expand these efforts in the future.
<PAGE>
Net operating income decreased 73% to $185,900 for the three months
ended June 30, 1996 versus $696,400 for the same period in 1995. For
the six month period ended June 30, 1996 net operating income decreased
57% to $514,400 from $1,195,000 for the same period in 1995.
For the three month period in 1996, the Company earned $27,900 in
Other Income from interest on cash invested versus Other Expense of
$94,600 in 1995 which consisted of interest expense on outstanding debt.
For the six month period in 1996, the Company earned $68,600 in Other
Income from interest on cash invested versus Other Expense of $193,500
in 1995 which consisted largely of interest expense on outstanding debt.
The Company's effective tax rate for the three and six months period
for 1996 increased to 39% versus 32% for the 1995 period. This increase
is the result of utilization of the tax credits available to the Company
in the past.
Net income decreased 67% for the three months ended June 30, 1996 to
$133,800 compared to $406,600 for the same period in 1995. For the six
months ended June 30, 1996, net income decreased 48% to $354,500
compared to $678,800 for the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
For the six months ended June 30, 1996, the Company's after-tax cash
earnings ($861,300 for the 1996 period and $1,291,500 for the 1995
period) have provided much of the Company's source for working capital
needs and for capital expenditures.
During the 1996 period, after-tax earnings of $861,300 partially
funded increases in inventory of $1,407,100 and payment of income taxes
due of $757,800 which therefore resulted in net cash used in operations
of $1,374,400 for the first six months of 1996. The Company also
invested $771,700 in capital expenditures and other assets for 1996.
The Company received proceeds of $267,000 from the exercise of certain
warrants and employee stock options. The result was a net use of cash
for the first six months of 1996 of $1,933,600.
During the 1995 period, after-tax earnings of $1,291,500 funded the
increase in accounts receivables of $418,600, reduction in accounts
payable of $446,000 and resulted in net cash provided by operations of
$284,600. The Company invested in capital expenditures of $556,000. In
June 1995 the Company repaid its shareholder obligation with proceeds
from bank debt. In the 1995 period the Company received proceeds for
the exercise of warrants and employee stock options in the amount of
$420,500 which along with debt restructuring provided $333,600 in cash
from financing activities.
<PAGE>
WORKING CAPITAL
The Company's investment in inventories and accounts receivable has
been significant and will continue to be significant in the future.
Over prior periods, the Company, as a nature of its business, has
maintained these levels of inventories and accounts receivable.
The Company relies on third party suppliers for raw materials and as
a result maintains substantial inventory levels to protect against
disruption in supplies. The Company has historically maintained
inventory levels from approximately 225 days to 360 days, since 1990.
The low point in inventory levels came in 1992 and 1993 when the Company
had supply disruptions from one of its major suppliers.
The Company looks at its inventories in relationship to its sales
which have ranged from 155 days to 185 days within the periods between
1995 and 1990. This inventory to sales ratio is a more stable measure
of inventory levels, versus the traditional inventory turnover measure
because, at the times when the Company is experiencing supply
disruptions, and therefore lower inventory levels, the Company is also
experiencing increased costs of goods due to inefficiencies in its
operations stemming from sporadic deliveries which skews the numerator
and denominator in different directions for inventory turns
calculations.
The Company provides reserves for product material that is over one
year old with no back-log or sales activity, and reserves for future
obsolescence. The Company also takes physical inventory write-downs for
obsolescence.
Because of the Company's customer scheduled backlog demands up to
80% of the quarterly revenues are shipped in the last month of the
quarter. This places a large portion of the quarterly shipments into
accounts receivable not yet due per the Company's net 30 day terms.
This factor, combined with the fact that the Company's distributor
customers (which currently make up 65% of the Company revenues)
generally pay 60 days and beyond, results in the accounts receivable
balance at the end of the quarterly period being at its highest point
for the period.
Although current levels of inventory and accounts receivable impact
the Company's liquidity, the Company believes that it is a necessary
cost of doing business given that the Company is a fabless manufacturer.
The Company is in the process of diversifying its supplier base to
reduce the risk of supply disruption. However, this will require a
significant investment in product development related to product tooling
with new suppliers. The Company believes that as it expands its
customer base it will be able to even out the flow of its shipments
within its quarterly reporting periods.
<PAGE>
DEBT
The Company renewed its $8,000,000 revolving line of credit with
Sanwa Bank on June 27, 1996. The new agreement expires on May 31, 1997,
bears interest at the bank's reference rate (8.25% at June 30, 1996) and
is secured by the assets of the Company. The line of credit requires
the Company to maintain a minimum tangible net worth, a maximum ratio of
debt to tangible net worth, a minimum current ratio, a minimum quick
ratio, and profitability over a specified interval of time. As of June
30, 1996 and the date of this quarterly report, the Company had no
outstanding balance under the line of credit and is in compliance with
all covenant restrictions.
<PAGE>
PART II - OTHER INFORMATION
LOGIC DEVICES INCORPORATED
Item 5. Other Information.
The Annual Shareholders' meeting was held on August 1, 1996. The
election of the Board of Directors was the only matter to be voted on at
this year's meeting. There were 3,067,271 shares present or represented
by proxy at the meeting.
Shareholders are permitted to vote cumulatively in the election of
directors which allows each shareholder to cast a number of votes equal
to the number of directors to be elected by the number of shares owned
and to distribute such votes among the candidates in such proportion as
such shareholder may determine. In order to vote cumulatively, a
shareholder must give notice of this intention by proxy or at the
meeting. Thereafter, all shareholders will be entitled to cumulate
votes. The votes for each nominee are as set forth in the following
table:
Votes Votes
NOMINEE IN FAVOR AGAINST ABSTENTION
Howard L. Farkas 2,944,308 0 23,220
Burton W. Kanter 2,944,308 0 23,220
Albert Morrison,Jr. 2,944,308 0 23,220
William J. Volz 3,440,633 0 23,220
Bruce B. Lusignan 2,945,698 0 23,220
Item 6. Exhibits and Reports on Form 8-K.
(a) (1) Exhibit 11 - Computation of Earnings Per Common Share.
(2) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Logic Devices Incorporated
(Registrant)
Date: AUGUST 9, 1996 By /S/ WILLIAM J. VOLZ
William J. Volz
President and Principal
Executive Officer
Date: AUGUST 9, 1996 By /S/ TODD J. ASHFORD
Todd J. Ashford
Chief Financial Officer and
Principal Financial and
Accounting Officer
<PAGE>
EXHIBIT 11
LOGIC DEVICES INCORPORATED
Computation of Earnings per Common Share
(unaudited)
Three months ended June 30, 1996 and 1995
1996 1995
Weighted average shares of common stock 6,001,750 4,857,559
outstanding
Common stock equivalent convertible - 12,833
preferred stock
Dilutive effect of common stock options
and stock warrants 220,000 423,396
Weighted average common and 6,221,750 5,293,788
common share equivalents
Net income $ 133,800 $ 406,600
Net income per common $ .02 $ .08
share equivalent
<PAGE>
EXHIBIT 11
LOGIC DEVICES INCORPORATED
Computation of Earnings per Common Share
(unaudited)
Six months ended June 30, 1996 and 1995
1996 1995
Weighted average shares of common stock 6,001,750 4,817,240
outstanding
Common stock equivalent convertible - 12,833
preferred stock
Dilutive effect of common stock options
and stock warrants 220,000 319,707
Weighted average common and 6,221,750 5,149,780
common share equivalents
Net income $ 354,500 $ 678,800
Net income per common $ .06 $ .13
share equivalent
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,444,900
<SECURITIES> 0
<RECEIVABLES> 5,856,000
[ALLOWANCE] 0
<INVENTORY> 9,703,100
<CURRENT-ASSETS> 19,647,100
<PP&E> 10,799,700
<DEPRECIATION> 8,019,200
<TOTAL-ASSETS> 23,074,400
<CURRENT-LIABILITIES> 1,405,500
<BONDS> 0
<COMMON> 17,008,900
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 23,074,400
<SALES> 7,105,000
<TOTAL-REVENUES> 7,105,000
<CGS> 3,774,700
<TOTAL-COSTS> 6,590,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 583,000
<INCOME-TAX> 228,500
<INCOME-CONTINUING> 354,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 354,500
<EPS-PRIMARY> .06
<EPS-DILUTES> .06
</TABLE>
