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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
MARCH 31, 1997
Commission File Number
0-17187
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LOGIC DEVICES INCORPORATED
(Exact name of registrant as specified in its charter)
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CALIFORNIA 94-2893789
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1320 ORLEANS DRIVE, SUNNYVALE, CALIFORNIA 94089
(Address of principal executive offices)
(Zip Code)
(408) 542-5400
(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 May 7, 1997,
6,121,750 shares of Common Stock, without par value, were outstanding.
Page 1 of 14
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<PAGE>
LOGIC DEVICES INCORPORATED
INDEX
Page
NUMBER
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 1997 and 3
December 31, 1996
Statements of Income for the three months ended 4
March 31, 1997 and 1996
Statements of Cash Flows for the three months 5
ended March 31, 1997 and 1996
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 8
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Part II. Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
Signatures 12
Exhibit 11 13
<PAGE>
Part I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
LOGIC DEVICES INCORPORATED
BALANCE SHEETS
March 31, December 31,
1997 1996
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 552,400 $ 670,900
Accounts receivable, net of allowance 4,508,800 4,368,300
Inventories 13,913,100 13,928,900
Prepaid expenses 1,005,200 922,600
Income taxes receivable 930,500 789,800
Deferred income taxes 920,900 920,900
Total current assets 21,830,900 21,601,400
Equipment and leasehold improvements, net 4,650,600 4,204,300
Other Assets 625,600 694,300
$27,107,100 $26,500,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings 3,550,000 2,000,000
Current portion of long-term obligations 561,900 561,900
Accounts payable 475,600 1,074,600
Accrued expenses 412,600 531,800
Total current liabilities 5,000,100 4,168,300
Long-term debt obligations, less current portion 773,100 786,600
Deferred income taxes 419,500 419,500
Total liabilities 6,192,700 5,374,400
Shareholders' equity:
Common stock 17,341,900 17,341,900
Common stock subscribed (307,500) (307,500)
Retained earnings 3,880,000 4,091,200
Total shareholders' equity 20,914,400 21,125,600
$27,107,100 $26,500,000
<PAGE>
LOGIC DEVICES INCORPORATED
STATEMENTS OF INCOME
Three months ended March 31, 1997 and 1996
(unaudited)
1997 1996
Net sales $ 2,803,000 $ 3,609,200
Cost of sales 1,761,000 1,975,400
Gross margin 1,042,000 1,633,800
Operating expenses:
Research and development 392,000 394,100
Selling, general and administrative 957,400 911,200
Operating expenses 1,349,400 1,305,300
Income (loss) from operations (307,400) 328,500
Other expense (income), net 41,800 (40,700)
Income (loss) before taxes (349,200) 369,200
Income taxes (138,000) 148,500
Net (loss) income $ (211,200) $ 220,700
Net (loss) income per common share $ (0.03) $ 0.04
Weighted average common share equivalents 6,121,750 6,218,750
outstanding
<PAGE>
LOGIC DEVICES INCORPORATED
STATEMENTS OF CASH FLOWS
Three months ended March 31, 1997 and 1996
(unaudited)
1997 1996
Cash flows from operating activities:
Net (loss) income $ (211,200) $ 220,700
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 319,900 246,600
Change in operating assets and liabilities:
Accounts receivable, net (140,500) 460,300
Inventories 15,800 (547,400)
Prepaid expenses and other assets (82,600) 39,000
Accounts payable (599,000) 6,300
Accrued expenses (119,200) 73,500
Income taxes payable (140,700) (679,800)
Net cash provided by (used in) (1,109,900) (180,800)
operating activities
Cash flows from investing activities:
Capital expenditures (690,000) (358,000)
Increase in other assets (7,500) (69,400)
Net cash (used in) investing activities (697,500) (427,400)
Cash flows from financing activities:
Bank borrowing, net 1,550,000 -
Repayment of long-term obligations (13,500) (26,900)
Repayment of obligations to shareholders - -
Proceeds from exercise of warrants/stock options 258,900
Net cash provided by (used in) 1,536,500 232,000
financing activities
Net (decrease) in cash (118,500) (376,200)
Cash and cash equivalents at beginning of
period $ 670,900 $4,378,500
Cash and cash equivalents at end of period $ 552,400 $4,002,300
<PAGE>
LOGIC DEVICES INCORPORATED
Notes to Financial Statements
March 31, 1997 and December 31, 1996
(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 had 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, 1996 and 1995, 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 March 31, 1997 are not necessarily indicative of the results to
be expected for the full year.
(B) INVENTORIES
A summary of inventories follows:
March 31, December 31,
1997 1996
Raw Materials $ 3,139,600 $ 3,165,400
Work-in-process 5,918,500 6,744,900
Finished goods 4,855,000 4,018,600
$ 13,913,100 $ 13,928,900
Based on forecasted 1997 sales levels, the Company has on hand inventories
aggregating approximately twelve months of sales.
<PAGE>
LOGIC DEVICES INCORPORATED
Notes to Financial Statements
March 31, 1997 and December 31, 1996
(unaudited)
(C) FINANCING
On June 1, 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 prime rate (8.50% at March 31,
1997) plus 0.750%. The line of credit requires the Company to maintain a
minimum tangible net worth of $17,500,000, a maximum ratio of debt to
tangible net worth of not more than 0.50 to 1.00, a minimum current ratio
of not less than 2.00 to 1.00, a minimum quick ratio of not less than 1.50
to 1.00, and profitability on a year to date basis. As of December 31,
1996 and March 31, 1997, the Company was not in compliance with certain
covenants under the borrowings. The Company obtained a waiver from the
Bank for December 31, 1996 expects to receive a waiver for March 31, 1997.
The Company is also in the process of renewing its the line of credit with
the bank and the Company expect to renew the line under substantially
similar terms and condition. The line of credit facility is secured by
all of the assets of the Company. As of March 31, 1997, $4,450,000 was
available under the line of credit facility.
Under the terms of its line of credit facility, the Company is
precluded from paying any cash dividends without the consent of the lender
even if the Company is in compliance with all of the financial covenants
but is allowed to pay stock dividends whether or not there was any other
covenant violation. Regardless of any such restrictions in its bank loan
agreements, the Company does not intend to pay cash dividends in the near
future and anticipates reinvesting its cash flow back into operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
REVENUES
Net revenues were $2,803,000 for the three months ended March 31,
1997, a decrease of 22% from $3,609,200 for the three months ended March
31, 1996. The decrease in revenues for the period was largely the result
of lower sales volume for the Company's DSP products. Sales of the
Company's SRAM products increased slightly for the 1997 period. The
lower sales volume for the 1997 quarter was the result of limited backlog
for the period due to very weak order rate experienced during the last
half of 1996.
EXPENSES
Cost of revenues decreased 11%, from $1,975,400 in the three months
ended March 31, 1996 to $1,761,000 in the three months ended March 31,
1997. Gross profit decreased by 36%, from $1,633,800 in 1996 to
$1,042,000 in 1997. This was the result of the lower sales volume for the
period combined with a lower profit margins experienced on the Company's
SRAM products. As a percentage of net revenues, gross profit margin
decreased from 45% in the three months ended March 31, 1996 to 37% in the
three months ended March 31, 1997.
Research and development expense decreased slightly during the period
from $394,100 (11% of net revenues) in the 1996 period to $392,000 (14% of
net revenues) in the 1997 period. The Company is continuing its new
product development efforts and tooling to new foundry technologies. In
1996, the Company invested heavily in new design tools, development
software, and additional personnel to increase and accelerate new product
development in 1997. The Company plans to continue its substantial
investments in new product research and development throughout 1997.
Selling, general and administrative expense increased from $911,200
(25% of net revenues) in the 1996 period to $957,400 (34% of net revenues)
in the 1997 period. This was the result of increased marketing,
promotional, and travel expenses due to the operation of additional
regional sales and technical support offices in the 1997 period versus
1996.
The Company had a net operating loss for 1997 the period of $307,400
versus operating income of $328,500 in 1996, due to the above mentioned
factors.
For the 1997 period, the Company incurred $41,800 in Other Expense
from interest expense versus Other Income of $40,700 in 1996 which
consisted of interest income.
<PAGE>
As a result of the foregoing, the Company incurred a net loss of
$211,200 in the 1997 period versus net income of $220,700 in the 1996
period.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
For the three months ended March 31, 1997, the Company had after-tax
cash earnings of $108,700 and $467,300 for the 1996 period. Although the
Company has historically relied on after-tax earnings as the Company's
primary source of financing for working capital needs and for capital
expenditures, the Company use bank borrowing during the 1997 period.
During the 1997 period, after-tax earnings of $108,700 and increases
in bank borrowings of $1,550,000 funded increases in accounts receivables
of $140,500 and decreases in accounts payable of $599,000 and accrued
expenses of $119,200 which resulted in net cash used by operations of
$1,109,900. The Company invested $697,500 in capital expenditures and
other assets during the period. The Company has an income tax receivable
of $930,500 for which the Company expects to receive a refund of $350,000
in the second quarter of 1997 and approximately $500,000 in the third
quarter of 1997.
During the 1996 period, after-tax earnings of $467,300 supplemented by
reductions in income taxes payable of $679,800 and accounts receivables of
$460,300 which funded an increase in inventory of $547,400 resulted in net
cash used by operations of $180,800. The Company invested $427,400 in
capital expenditures and other assets and reduced net indebtedness by
$26,900. The Company received proceeds of $258,900 from the exercise of
employee stock options and the exercise of certain warrants.
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
turn over of 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.
<PAGE>
The Company looks at its inventories in relationship to its sales
which have ranged from 140 days to 325 days within the periods between
1996 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 lowest days on
hand of inventory to sales has been experienced when the Company has had
supply disruptions as in 1992 and 1993.
The Company provides reserves for any 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.
The Company's accounts receivable level has been consistently
correlated to the Company's previous quarter revenue level. Because of
the Company's customer scheduled backlog requirements, up to 80% of the
quarterly revenues are shipped in the last month of the quarter. This has
the effect of placing a large portion of the quarterly shipments reflected
in accounts receivable still not yet due per the Company's net 30 day
terms. This, combined with the fact that the Company's distributor
customers (which make up 52 to 55% of the Company revenues) generally pay
90 days and beyond, results in the accounts receivable balance at the end
of the quarterly period being at its highest point for the period. This
has been consistent over prior periods.
Although current levels of inventory and accounts receivable impact
the Company's liquidity, the Company believes that it is a cost of doing
business given the Company's fabless operation. 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 to 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.
FINANCING
On June 1, 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 prime rate (8.50% at March 31,
1997) plus 0.750%. The line of credit requires the Company to maintain a
minimum tangible net worth of $17,500,000, a maximum ratio of debt to
tangible net worth of not more than 0.50 to 1.00, a minimum current ratio
of not less than 2.00 to 1.00, a minimum quick ratio of not less than 1.50
to 1.00, and profitability on a year to date basis. As of December 31,
1996 and March 31, 1997, the Company was not in compliance with certain
covenants under the borrowings. The Company obtained a waiver from the
Bank for December 31, 1996 expects to receive a waiver for March 31, 1997.
The Company is also in the process of renewing its the line of credit with
the bank and the Company expect to renew the line under substantially
similar terms and condition. The line of credit facility is secured by
all of the assets of the Company. As of March 31, 1997, $4,450,000 was
available under the line of credit facility.
<PAGE>
Under the terms of its line of credit facility, the Company is
precluded from paying any cash dividends without the consent of the lender
even if the Company is in compliance with all of the financial covenants
but is allowed to pay stock dividends whether or not there was any other
covenant violation. Regardless of any such restrictions in its bank loan
agreements, the Company does not intend to pay cash dividends in the near
future and anticipates reinvesting its cash flow back into operations.
While the Company will continue to evaluate debt and equity financing
opportunities, it believes its financing arrangements and cash flow
generated from operations provide a sufficient base of liquidity for
funding operations and capital needs to support the Company's operations.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 11 - Computation of Earnings Per Common Share.
(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: MAY 13, 1997 By /S/ WILLIAM J. VOLZ
William J. Volz
President and Principal
Executive Officer
Date: MAY 13, 1997 By /S/ TODD J. ASHFORD
Todd J. Ashford
Chief Financial Officer
Principal Financial and
Accounting Officer
<PAGE>
EXHIBIT 11
LOGIC DEVICES INCORPORATED
Computation of Earnings per Common Share
(unaudited)
Three months ended March 31, 1997 and 1996
1997 1996
Weighted average shares of common stock 6,121,750 5,996,750
outstanding
Dilutive effect of common stock options - 2,000
Dilutive effect of common stock warrants - 220,000
Weighted average common and 6,121,750 6,218,750
common share equivalents
Net (loss) income $ (211,200) $ 220,700
Net (loss) income per common $ (0.03) $ 0.04
share equivalent
