_____________________________________________________________________________
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, 1998
Commission File Number
0-17187
_____________________________________________________________________________
LOGIC DEVICES INCORPORATED
_____________________________________________________________________________
CALIFORNIA 94-2893789
1320 ORLEANS DRIVE, SUNNYVALE, CALIFORNIA 94089
(408) 542-5400
_____________________________________________________________________________
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 April 30, 1998,
6,121,750 shares of Common Stock, without par value, were outstanding.
_____________________________________________________________________________
1 OF 14 PAGES
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LOGIC DEVICES INCORPORATED
INDEX
Page
Number
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 1998 and 3
December 31, 1997
Statements of Income for the three months ended 4
March 31, 1998 and 1997
Statements of Cash Flows for the three months 5
ended March 31, 1998 and 1997
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 13
Exhibit 11 14
Exhibit 12 15
2 OF 14 PAGES
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LOGIC DEVICES INCORPORATED
BALANCE SHEETS
March 31, December 31,
1998 1997
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 22,000 $ 87,900
Accounts receivable, net of allowance 7,473,500 6,781,800
Inventories 12,394,800 12,399,100
Prepaid expenses 481,400 412,000
Income taxes receivable 522,000 522,000
Deferred income taxes 621,900 621,900
Total current assets 22,515,600 20,824,700
Equipment and leasehold improvements, net 5,291,100 5,110,000
Other Assets 1,531,400 1,558,300
$28,338,100 $27,493,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings 4,500,000 3,525,000
Current portion of long-term obligations 569,300 658,500
Accounts payable 1,105,500 1,011,400
Accrued expenses 334,200 446,300
Total current liabilities 6,509,000 5,641,200
Long-term debt obligations, less current portion 678,500 705,300
Deferred income taxes 419,600 419,500
Total liabilities 7,607,100 6,766,000
Shareholders' equity:
Common stock 17,341,900 17,341,900
Common stock subscribed (307,500) (307,500)
Retained earnings 3,696,600 3,692,600
Total shareholders' equity 20,731,000 20,727,000
$28,338,100 $27,493,000
3 OF 14 PAGES
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LOGIC DEVICES INCORPORATED
STATEMENTS OF INCOME
Three months ended March 31, 1998 and 1997
(unaudited)
1998 1997
Net sales $ 3,245,000 $ 2,803,000
Cost of sales 1,869,900 1,761,000
Gross margin 1,375,100 1,042,000
Operating expenses:
Research and development 383,200 392,000
Selling, general and administrative 876,500 957,400
Operating expenses 1,259,700 1,349,400
Income (loss) from operations 115,400 (307,400)
Other expense (income), net 110,600 41,800
Income (loss) before taxes 4,800 (349,200)
Income taxes 800 (138,000)
Net (loss) income $ 4,000 $ (221,200)
Net (loss) income per common share $ 0.00 $ (0.03)
Weighted average common share equivalents 6,121,750 6,121,750
outstanding
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LOGIC DEVICES INCORPORATED
STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1997
(unaudited)
1998 1997
Cash flows from operating activities:
Net (loss) income $ 4,000 $ (211,200)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 328,100 319,900
Change in operating assets and liabilities:
Accounts receivable, net (691,700) (140,500)
Inventories 4,300 15,800
Prepaid expenses and other assets (69,400) (82,600)
Accounts payable 94,100 (599,000)
Accrued expenses (112,100) (119,200)
Income taxes payable - (140,700)
Net cash provided by (used in)
operating activities (442,700) (957,500)
Cash flows from investing activities:
Capital expenditures (509,200) (690,000)
Increase in other assets 27,000 (7,500)
Net cash (used in) investing activities (482,200) (697,500)
Cash flows from financing activities:
Bank borrowing, net 975,000 1,550,000
Repayment of long-term obligations (116,000) (13,500)
Net cash provided by (used in) financing activities 859,000 1,536,500
Net (decrease) in cash (65,900) (118,500)
Cash and cash equivalents at beginning of period $ 87,900 $ 670,900
Cash and cash equivalents at end of period $ 87,900 $ 670,900
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LOGIC DEVICES INCORPORATED
Notes to Financial Statements
March 31, 1998 and December 31, 1997
(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, 1997 and 1996, 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, 1998 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,
1998 1997
Raw Materials $ 2,863,300 $ 2,824,400
Work-in-process 6,689,600 6,468,900
Finished goods 2,841,900 3,105,800
$12,394,800 $12,399,100
Based on forecasted 1998 sales levels, the Company has on hand inventories
aggregating approximately twelve months of sales.
6 OF 14 PAGES
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LOGIC DEVICES INCORPORATED
Notes to Financial Statements
March 31, 1998 and December 31, 1997
(unaudited)
(C) FINANCING
On June 16, 1997, the Company renewed its $6,000,000 revolving line of
credit with Sanwa Bank extending the maturity to May 31, 1998. The line of
credit bears interest at the bank's prime rate (8.50% at March 31, 1998)
plus 0.75%. The line of credit requires the Company to maintain a minimum
tangible net worth of $19,000,000, 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 quarterly basis. As of December 31, 1997 and
March 31, 1998, the Company was not in compliance with certain covenants
under the borrowings. The Company obtained a waiver from the Bank for
December 31, 1997 and for March 31, 1998. 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 conditions.
The line of credit facility is secured by all of the assets of the
Company. As of March 31, 1998, $1,500,000 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.
7 OF 14 PAGES
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
REVENUES
Net revenues were $3,245,000 for the three months ended March 31, 1998, a
increase of 16% from $2,803,000 for the three months ended March 31, 1997.
The increase in revenues for the period was primarily the result of
increased sales volume on the Company's DSP products. Sales of the
Company's SRAM products increased slightly for the 1998 period. The
increased sales volume for the 1998 quarter was the result of an increased
backlog of orders for the period compared to the very weak order rates
experienced during late 1996 which impacted the first quarter of 1997.
EXPENSES
Cost of revenues increased 7%, from $1,761,000 in the three months ended
March 31, 1997 to $1,869,900 in the three months ended March 31, 1998.
Gross profit increased by 32%, from $1,042,000 in 1997 to $1,375,100 in
1998. This was the result of increased sales volume for the period which
spreads fixed overhead costs over more units. As a percentage of net
revenues, gross profit margin increased from 38% in the three months ended
March 31, 1997 to 43% in the three months ended March 31, 1998.
Research and development expense decreased slightly during the period
from $392,000 (14% of net revenues) in the 1997 period to $383,200 (12% of
net revenues) in the 1998 period. The Company is continuing its new
product development efforts and tooling to new foundry technologies. In
1997, the Company invested heavily in new product development. The Company
plans to continue its substantial investments in new product research and
development throughout 1998.
Selling, general and administrative expense decreased from $957,400 (35%
of net revenues) in the 1997 period to $876,500 (27% of net revenues) in
the 1998 period. This was the result of aggressive expense controls in
marketing, and travel expenses.
The Company had income from operations for the 1998 period of $115,400
versus a loss of $307,400 in 1997, due to the above mentioned factors.
For the 1998 period, the Company incurred $110,600 in other expense from
interest expense versus other expense of $41,800 in 1997, which consisted
of interest income.
As a result of the foregoing, the Company enjoyed net income of $4,000 in
the 1998 period versus a net loss of $221,200 in the 1997 period.
8 OF 14 PAGES
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LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
For the three months ended March 31, 1998, the Company had after-tax cash
earnings (defined as net income plus non-cash depreciation charges) of
$332,100 versus $108,700 for the 1997 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 used bank borrowing during both the 1997 and 1998 periods.
During the 1998 period, after-tax cash earnings of $332,100 and increases
in net indebtedness of $859,000, plus decreases in cash of $65,900,
accounts payable of $94,100 and inventory of $4,300, funded increases in
accounts receivables of $691,700, increases in accrued expenses of
$112,100, and increases in prepaid expenses and other assets of $69,400.
This resulted in total net cash used by operations of $442,700. The
Company invested $482,000 in capital expenditures and other assets during
the period. The Company has an income tax receivable of $522,000 for
which the Company expects to receive a refund in the second quarter of
1998.
During the 1997 period, after-tax cash earnings of $108,700 were
supplemented by a reduction in inventory of $15,800 but were offset by
increases in accounts receivable of $140,500, increases in prepaid
expenses and other assets of $82,600, increases in accounts payable of
$599,000, increases in accrued expenses of $119,200 and an increase in
income taxes payable of $140,700. This resulted in net cash used by
operations of $957,500. The Company invested $697,500 in capital
expenditures and other assets and increased net indebtedness by
$1,536,500.
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
high 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 365 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 140 days to 365 days within the periods between 1998 and
1992. 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
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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 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 has been actively reducing inventory levels over
the past several quarters.
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 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 66 to 52% of the Company revenues in 1998 and 1997, respectively),
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. The Company is
currently working to accelerate accounts receivable collections.
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 tool 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 16, 1997, the Company renewed its $6,000,000 revolving line of
credit with Sanwa Bank extending the maturity to May 31, 1998. The line of
credit bears interest at the bank's prime rate (8.50% at March 31, 1998)
plus 0.75%. The line of credit requires the Company to maintain a minimum
tangible net worth of $19,000,000, 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 quarterly basis. As of December 31, 1997 and
March 31, 1998, the Company was not in compliance with certain covenants
under the borrowings. The Company obtained a waiver from the Bank for
December 31, 1997 and a waiver for March 31, 1998. 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, 1998, $1,500,000 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
10 OF 14 PAGES
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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.
11 OF 14 PAGES
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 11 - Computation of Earnings Per Common Share.
(b) Exhibit 12 - The registrant filed a Form 8-K on March 23, 1998 with
the Securities and Exchange Commission.
12 OF 14 PAGES
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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 14, 1998 By /S/ WILLIAM J. VOLZ
William J. Volz
President and Principal
Executive Officer
Date: MAY 14, 1998 By /S/ MARY C. DEREGT
Mary C. deRegt
Chief Financial Officer
Principal Financial and
Accounting Officer
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EXHIBIT 11
LOGIC DEVICES INCORPORATED
Computation of Earnings per Common Share
(unaudited)
Three months ended March 31, 1998 and 1997
1998 1997
Weighted average shares of common stock 6,121,750 6,121,750
outstanding
Dilutive effect of common stock options - -
Dilutive effect of common stock warrants - -
Weighted average common and
common share equivalents 6,121,750 6,121,750
Net income (loss) $ 4,000 $ (221,200)
Net income (loss) per common
share equivalent $ 0.00 $ (0.04)
14 OF 14 PAGES
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-30-1998
<CASH> 22,000
<SECURITIES> 0
<RECEIVABLES> 7,643,500
<ALLOWANCES> 169,500
<INVENTORY> 12,394,800
<CURRENT-ASSETS> 22,515,600
<PP&E> 5,291,100
<DEPRECIATION> 328,100
<TOTAL-ASSETS> 28,338,100
<CURRENT-LIABILITIES> 6,509,000
<BONDS> 0
<COMMON> 17,341,900
0
0
<OTHER-SE> (307,500)
<TOTAL-LIABILITY-AND-EQUITY> 28,338,100
<SALES> 3,245,000
<TOTAL-REVENUES> 3,245,000
<CGS> 1,869,900
<TOTAL-COSTS> 1,259,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,600
<INCOME-PRETAX> 4,800
<INCOME-TAX> 800
<INCOME-CONTINUING> 4,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,000
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
