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
JANUARY 2, 2000
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 Number)
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 January 20, 2000, 6,650,488
shares of Common Stock, without par value, were issued and outstanding.
Page 1 of 16
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LOGIC DEVICES INCORPORATED
<TABLE>
<CAPTION>
INDEX
Page
Number
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<S> <C>
Part I. - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of January 2, 2000
and October 3, 1999 3
Consolidated Statements of Income for the three months
ended January 2, 2000 and December 31, 1998 4
Consolidated Statements of Cash Flows for the three months
ended January 2, 2000 and December 31, 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
Part II. - Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit 27 16
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Page 2 of 16
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
LOGIC DEVICES INCORPORATED
CONSOLIDATED BALANCE SHEETS
January 2, October 3,
2000 1999
----------------- ------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 976,500 $ 237,700
Accounts receivable, net of allowance 3,141,700 4,813,400
Inventories 12,052,000 11,838,300
Prepaid expenses and other assets 204,200 178,900
Income taxes receivable - 68,000
----------------- ------------------
Total current assets 16,374,400 17,136,300
Property and equipment, net 3,490,400 3,702,000
Other assets 426,000 502,400
----------------- ------------------
$ 20,290,800 $ 21,340,700
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ 2,667,300 $ 3,490,000
Accounts payable 665,000 718,200
Accrued expenses 413,800 388,700
Notes payable, related party - 250,000
Income taxes payable 21,800 -
Current portion, capital lease obligations 213,000 218,300
----------------- ------------------
Total current liabilities 3,980,900 5,065,200
Capital lease obligations, net of current portion 128,900 182,600
----------------- ------------------
Total liabilities 4,109,800 5,247,800
----------------- ------------------
Shareholders' equity:
Common stock 18,133,400 18,133,400
Accumulated deficit (1,952,400) (2,040,500)
----------------- ------------------
Total shareholders' equity 16,181,000 16,092,900
----------------- ------------------
$ 20,290,800 $ 21,340,700
================= ===================
</TABLE>
Page 3 of 16
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<TABLE>
<CAPTION>
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Three months ended January 2, 2000 and December 31, 1998
(unaudited)
2000 1998
----------------- ------------------
<S> <C> <C>
Net revenues $ 3,009,800 $ 3,070,900
Cost of revenues 1,453,000 1,680,300
----------------- ------------------
Gross margin 1,556,800 1,390,600
----------------- ------------------
Operating expenses:
Research and development 428,900 369,100
Selling, general and administrative 962,200 884,000
----------------- ------------------
Total operating expenses 1,391,100 1,253,100
----------------- ------------------
Income from operations 165,700 137,500
Other expense, net 76,900 130,000
----------------- ------------------
Income before income taxes 88,800 7,500
Income tax provision 800 800
----------------- ------------------
Net income $ 88,000 $ 6,700
================= ==================
Basic and diluted income per common share $ 0.01 $ 0.00
================= ==================
Weighted average common shares outstanding $ 6,650,488 $ 6,632,388
================= ==================
</TABLE>
Page 4 of 16
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<TABLE>
<CAPTION>
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended January 2, 2000 and December 31, 1998
(unaudited)
2000 1998
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 88,000 $ 6,700
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 379,000 464,000
Change in operating assets and liabilities:
Accounts receivable, net 1,671,700 1,093,000
Inventories (213,700) 308,200
Prepaid expenses and other assets (25,300) (58,400)
Income taxes receivable 68,000 -
Accounts payable (53,200) (580,400)
Accrued expenses 25,100 (88,000)
Income taxes payable 21,800 -
----------------- -----------------
Net cash provided by operating activities 1,961,400 1,145,100
----------------- -----------------
Cash flows from investing activities:
Capital expenditures (122,800) (18,600)
Decrease in other assets 31,900 27,900
----------------- -----------------
Net cash (used in) provided by investing activities (90,900) 9,300
----------------- -----------------
Cash flows from financing activities:
Bank borrowing, net (822,700) (1,100,000)
Repayment of capital lease obligations (59,000) (179,000)
Repayment of notes payable, related party (250,000) -
----------------- -----------------
Net cash used in financing activities (1,131,700) (1,279,000)
----------------- -----------------
Net increase (decrease) in cash and cash equivalents 738,800 (124,600)
Cash and cash equivalents, beginning of period 237,700 142,900
----------------- -----------------
Cash and cash equivalents, end of period $ 976,500 $ 18,300
================= =================
</TABLE>
Page 5 of 16
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LOGIC DEVICES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(A) BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
reflect all adjustments that are, in the opinion of management, necessary
to present fairly the financial position, results of operations, and cash
flows of the Company for the periods indicated.
The accompanying unaudited interim consolidated 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 for the Company, in conformity with generally accepted
accounting principles. The Company has filed audited financial statements
that include all information and footnotes necessary for such a
presentation of the financial position, results of operations and cash
flows for the fiscal year ended October 3, 1999 and the nine months ended
September 30, 1998, with the Securities and Exchange Commission. It is
suggested that the accompanying unaudited interim consolidated financial
statements be read in conjunction with the aforementioned audited
consolidated financial statements. The unaudited interim consolidated
financial statements contain all normal and recurring entries. The
results of operations for the interim period ended January 2, 2000 are
not necessarily indicative of the results to be expected for the full
year.
(B) INVENTORIES
A summary of inventories follows:
January 2, October 3,
2000 1999
----------------- ------------------
Raw materials $ 3,883,500 $ 3,618,800
Work-in-process 5,612,500 4,908,800
Finished goods 2,556,000 3,310,700
----------------- ------------------
$ 12,052,000 $ 11,838,300
================= ==================
Based on forecasted fiscal year 2000 sales levels, the Company has on
hand inventories aggregating approximately twelve months of sales.
Page 6 of 16
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LOGIC DEVICES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(C) FINANCING
On July 27, 1999, the Company obtained two new lines of credit from
Silicon Valley Bank, with an aggregate availability of up to $4,000,000.
A domestic line of credit bears interest at the bank's prime rate (8.50%
at January 2, 2000) plus 0.50%, which is 50 basis points less than the
rate borne under the Company's previous facility. The line of credit
requires the Company to maintain a minimum quick ratio of not less than
1.00 to 1.00 and profitability, on a quarterly basis. Borrowings under
the domestic line are subject to the limits of eligible domestic accounts
receivable and are secured by all of the assets of the Company. The
second line of credit bears interest at the bank's prime rate plus 0.25%,
and is secured by certain of the Company's inventory, accounts
receivable, and related proceeds, and is guaranteed in part by a federal
agency. This facility has other terms similar to the Company's first line
of credit facility. Both credit facilities mature July 26, 2000. On
January 2, 2000, the Company had an aggregate of $2,667,300 outstanding
under these facilities.
Under the terms of its line of credit facilities, the Company is
precluded from paying any dividends without the consent of the parties to
such agreements, even if the Company is in compliance with all of the
financial covenants. 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 in operations.
Page 7 of 16
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Reported financial results may not be indicative of the financial
results of future periods. All non-historical information contained in the
following discussion constitutes forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Some forward-looking statements are identified by words
"believe," "expect," "anticipate," "project," and similar expressions. These
statements are not guarantees of future performance and involve a number of
risks and uncertainties, including but not limited to operating results, new
product introductions and sales, competitive conditions, customer demand,
capital expenditures and resources, manufacturing capacity utilization, and
intellectual property claims and defense. Factors that could cause actual
results to differ materially are included in, but not limited to, those
identified in "Factors Affecting Future Results" in the Annual Report on Form
10-K for the Company's fiscal year ended October 3, 1999 and elsewhere in
Management's Discussion and Analysis of Financial Conditions and Results of
Operations in such Annual Report on Form 10-K and in this Quarterly Report on
Form 10-Q. The Company undertakes no obligation to publicly release the results
of any revisions to these forward-looking statements that may reflect events or
circumstances after the date of this report.
Results of Operations
Revenues
Net revenues of $3,009,800, for the three months ended January 2, 2000,
remained consistent with the net revenues of $3,070,900, for the three months
ended December 31, 1998, with a slight decrease of 2%.
Expenses
Cost of revenues decreased 13% from $1,680,300 in the three months
ended December 31, 1998 to $1,453,000 in the three months ended January 2, 2000.
Gross profit increased by 12%, from $1,390,600 in the fiscal 1999 period to
$1,556,800 in the fiscal 2000 period. As a percentage of net revenues, gross
profit margin increased from 45% in the three months ended December 31, 1998 to
52% in the three months ended January 2, 2000. This improvement was the result
of more sales of higher profit margin proprietary products.
Research and development expense increased from $369,100 (12% of net
revenues) in the fiscal 1999 period to $428,900 (14% of net revenues) in the
fiscal 2000 period. The Company is continuing its efforts to develop new
products. In fiscal 1998 and 1999, the Company invested heavily in new product
development. The Company plans to continue its substantial investments in new
product research and development throughout fiscal 2000.
Selling, general and administrative expense increased from $884,000
(29% of net revenues) in the fiscal 1999 period to $962,200 (32% of net
revenues) in the fiscal 2000 period.
The Company had income from operations for the fiscal 2000 period of
$165,800 versus income of $137,500 in fiscal 1999, due to the higher gross
profit margin.
Page 8 of 16
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For the 2000 period, the Company incurred $76,900 in other expense,
consisting mainly of interest expense, versus other expense of $130,000 in the
fiscal 1999 period. The decrease is mainly because the Company's existing line
of credit facilities have lower interest rates and the principal balance under
the current facilities is lower than the interest rate and the principal balance
under the Company's previous credit facility.
As a result of the foregoing, the Company enjoyed net income of $88,000
in the fiscal 2000 period versus net income of $6,700 in the fiscal 1999 period.
Liquidity and Capital Resources
Cash Flows
For the three months ended January 2, 2000, the Company had after-tax
cash earnings (defined as net income plus non-cash depreciation charges) of
$467,000, consistent with the fiscal 1999 period after-tax cash earnings of
$470,700. In the current three-month period, the Company generated substantial
cash from operations, which allowed it to reduce its bank borrowings and other
debt.
During the fiscal 2000 period, after-tax cash earnings of $467,000, a
decrease in accounts receivable of $1,671,700 and the receipt of a net income
tax receivable of $68,000 funded decreases in inventories of $213,700 and
accounts payable of $53,200, and increases in prepaid expenses of $25,300. This
resulted in total net cash provided by operations of $1,961,400. The Company
used these funds to reduce its bank debt by $822,700, to repay capital lease
obligations of $59,000, and to repay two related party notes payable totaling
$250,000.
During the fiscal 1999 period, after-tax cash earnings of $470,700 plus
decreases in cash and cash equivalents of $124,600, accounts receivable of
$1,093,000 and inventories of $308,200 funded increases in prepaid expenses of
$58,400 and decreases in accounts payable of $580,400 and accrued expenses of
$88,000. This resulted in total net cash provided by operations of $1,145,100.
The Company also used these funds to reduce its bank debt by $1,100,000 and to
repay capital lease obligations of $179,000.
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 turnover 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.
Page 9 of 16
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The Company is continuing its shift in product offerings to higher
margin proprietary products and reducing the total number of products that it
offers. As this transition continues, the Company expects to improve it sales to
inventory ratio.
The Company provides reserves for product material that is over one
year old, with no backlog or sales activity, and reserves for future
obsolescence. The Company also takes physical inventory write-downs for
obsolescence. The Company has been actively attempting to reduce 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 may be 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 made up 25% and 66% of
the Company revenues in the first three months of fiscal 2000 and 1999,
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 has begun to make progress in
reducing accounts receivable levels during the current fiscal year.
Financing
The Company has two line of credit facilities from Silicon Valley Bank,
with an aggregate availability of up to $4,000,000. A domestic line of credit
bears interest at the bank's prime rate (8.50% at January 2, 2000) plus 0.50%.
The line of credit requires the Company to maintain a minimum quick ratio of not
less than 1.00 to 1.00 and profitability, on a quarterly basis. Borrowings under
the domestic line are subject to the limits of eligible domestic accounts
receivable and are secured by all of the assets of the Company. The second line
of credit bears interest at the bank's prime rate plus 0.25%, and is secured by
certain of the Company's inventory, accounts receivable, and related proceeds,
and is guaranteed in part by a federal agency. This facility has other terms
similar to the Company's first line of credit facility. Both credit facilities
mature July 26, 2000. On January 2, 2000, the Company had an aggregate of
$2,667,300 outstanding under these facilities.
Under the terms of its line of credit facilities, the Company is
precluded from paying any dividends without the consent of the parties to such
agreements, even if the Company is in compliance with all of the financial
covenants. 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 in operations.
Page 10 of 16
<PAGE>
On February 24, 1999, the Company borrowed, in addition to its bank
borrowings, an aggregate principal amount of $250,000 from The Holding Company
and William J. Volz, President and a director of the Company. Burton W. Kanter,
a director of the Company, is the President of The Holding Company, but has no
beneficial interest therein, although certain members of Mr. Kanter's family do
have beneficial interests through various trusts. These loans were repaid during
the three months ended January 2, 2000.
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.
Year 2000 Compliance
The year 2000 creates the potential for date-related data to cause
computer-processing errors or system shutdowns because computer-controlled
systems have historically used two digits rather than four to define years. For
example, computer programs that contain date-sensitive software may recognize a
date using two digits of "00" as the year 1900 rather than the year 2000. The
miscalculations and systems failures that may be caused by such date
misrecognition could disrupt the operations of the Company. Since the risk
relates to computer-controlled systems, the Year 2000 issue affects computer
software, computer hardware, and any other equipment with imbedded technology
that involves date-sensitive functions.
The Company completed its internal assessment and remediation at an
aggregate cost of approximately $50,000 prior to October 4, 1999, the beginning
of the Company's fiscal year 2000. The Company also received written assurances
from all of its critical suppliers, including the silicon foundry supplying the
Company with silicon wafers, that they are Year 2000 compliant prior to October
4, 1999. Furthermore, the Company shifted production away from suppliers that
could not demonstrate Year 2000 compliance to the Company's satisfaction.
The Company does not expect to expend any material amount following
October 4, 1999 in connection with Year 2000 compliance, and has not expended
any additional amounts as of January 20, 2000. In addition, the Company is not
aware of any adverse impact of the year 2000 on any of its customers or
suppliers. However, until comfortably past January 1, 2000, the Company will not
be able to confidently assess whether there have been any adverse effects on any
of its customers or suppliers, or be able to determine whether and how the
impact of any such effects can be eliminated or minimized, whether by investing
in new technology or software to interface with these parties or by finding
alternative sources of supply.
Inasmuch as the Company began its fiscal year 2000 on October 4, 1999,
many of its internal systems have already begun to operate on year 2000 dates.
To date, there has been no incidence of Year 2000 errors or shutdowns.
Page 11 of 16
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company conducts all of its transactions, including those with
foreign suppliers and customers, in U.S. dollars. It is therefore not directly
subject to the risks of foreign currency fluctuations and does not hedge or
otherwise deal in currency instruments in an attempt to minimize such risks. Of
course, demand from foreign customers and the ability or willingness of foreign
suppliers to perform their obligations to the Company may be affected by the
relative change in value of such customer or supplier's domestic currency to the
value of the U.S. dollar. Furthermore, changes in the relative value of the U.S.
dollar may change the price of the Company's prices relative to the prices of
its foreign competitors. The Company also does not hold any market risk
sensitive instruments that are not considered cash under generally accepted
accounting principles. The Company's credit facilities bear interest at rates
determined from the prime rate of the Company's lender; therefore, changes in
interest rates affect the amount of interest that the Company is required to pay
thereunder.
Page 12 of 16
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule, which can be found on
page 16 of this report.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
Page 13 of 16
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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: January 20, 2000 By /s/ William J. Volz
------------------------ ---------------------------
William J. Volz
President and Principal
Executive Officer
Date January 20, 2000 By /s/ Kimiko Lauris
------------------------ ---------------------------
Kimiko Lauris
Chief Financial Officer and
Principal Financial and
Accounting Officer
Page 14 of 16
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
Page 15 of 16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-1-2000
<PERIOD-END> JAN-2-2000
<CASH> 976,500
<SECURITIES> 0
<RECEIVABLES> 3,395,200
<ALLOWANCES> 253,500
<INVENTORY> 12,052,000
<CURRENT-ASSETS> 16,374,400
<PP&E> 11,254,200
<DEPRECIATION> 7,763,800
<TOTAL-ASSETS> 20,290,800
<CURRENT-LIABILITIES> 3,980,900
<BONDS> 0
<COMMON> 18,133,400
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20,290,800
<SALES> 3,009,800
<TOTAL-REVENUES> 3,009,800
<CGS> 1,453,000
<TOTAL-COSTS> 2,844,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,900
<INCOME-PRETAX> 88,800
<INCOME-TAX> 800
<INCOME-CONTINUING> 88,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,000
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
