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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
APRIL 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 classed of common
stock, as of the latest practicable date. On May 1, 2000, 6,841,888 shares of
common stock, without par value, were outstanding.
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1 of 17 pages
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<TABLE>
<CAPTION>
LOGIC DEVICES INCORPORATED
INDEX
Page
Number
------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of April 2, 2000 and October 3, 1999 3
Consolidated Statements of Income for the three months ended
April 2, 2000 and March 31, 1999 4
Consolidated Statements of Income for the six months ended
April 2, 2000 and March 31, 1999 5
Consolidated Statements of Cash Flows for the six months ended
April 2, 2000 and March 31, 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds 13
Item 4. Submission of Matter to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit 27 17
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2 of 17 pages
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
LOGIC DEVICES INCORPORATED
CONSOLIDATED BALANCE SHEETS
April 2, October 3,
2000 1999
----------------- ------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,130,800 $ 237,700
Accounts receivable, net of allowance 3,142,500 4,813,400
Inventories 11,712,400 11,838,300
Prepaid expenses and other assets 225,500 178,900
Income taxes receivable - 68,000
----------------- ------------------
Total current assets 16,211,200 17,136,300
Property and equipment, net 3,243,100 3,702,000
Other assets 379,500 502,400
----------------- ------------------
$ 19,833,800 $ 21,340,700
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ 1,958,600 $ 3,490,000
Accounts payable 636,700 718,200
Accrued expenses 289,400 388,700
Notes payable, related party - 250,000
Current portion, capital lease obligations 184,100 218,300
Income taxes payable 21,800 -
----------------- ------------------
Total current liabilities 3,090,600 5,065,200
Capital lease obligations, net of current portion 103,500 182,600
----------------- ------------------
Total liabilities 3,194,100 5,247,800
----------------- ------------------
Shareholders' equity:
Common stock 18,498,800 18,133,400
Accumulated deficit (1,859,100) (2,040,500)
----------------- ------------------
Total shareholders' equity 16,639,700 16,092,900
----------------- ------------------
$ 19,833,800 $ 21,340,700
================= ==================
</TABLE>
3 of 17 pages
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<TABLE>
<CAPTION>
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Three months ended April 2, 2000 and March 31, 1999
(unaudited)
2000 1999
----------------- ------------------
<S> <C> <C>
Net revenues $ 2,768,800 $ 3,256,100
Cost of revenues 1,333,800 1,812,500
----------------- ------------------
Gross margin 1,435,000 1,443,600
----------------- ------------------
Operating expenses:
Research and development 453,700 359,900
Selling, general and administrative 822,300 910,900
----------------- ------------------
Total operating expenses 1,276,000 1,270,800
----------------- ------------------
Income from operations 159,000 172,800
Other expense, net 65,600 132,600
----------------- ------------------
Income before income taxes 93,400 40,200
Income tax provision - -
----------------- ------------------
Net income $ 93,400 $ 40,200
================= ==================
Basic income per common share $ 0.01 $ 0.01
================= ==================
Weighted average common shares outstanding 6,753,037 6,632,388
================= ==================
Diluted income per common share $ 0.01 $ 0.01
================= ==================
Weighted average common shares outstanding 6,858,623 6,632,388
================= ==================
</TABLE>
4 of 17 pages
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<TABLE>
<CAPTION>
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Six months ended April 2, 2000 and March 31, 1999
(unaudited)
2000 1999
----------------- ------------------
<S> <C> <C>
Net revenues $ 5,778,600 $ 6,327,000
Cost of revenues 2,786,800 3,492,800
----------------- ------------------
Gross margin 2,991,800 2,834,200
----------------- ------------------
Operating expenses:
Research and development 882,600 729,000
Selling, general and administrative 1,784,500 1,794,900
----------------- ------------------
Total operating expenses 2,667,100 2,523,900
----------------- ------------------
Income from operations 324,700 310,300
Other expense, net 142,500 262,600
----------------- ------------------
Income before income taxes 182,200 47,700
Income tax provision 800 800
----------------- ------------------
Net income $ 181,400 $ 46,900
================= ==================
Basic income per common share $ 0.03 $ 0.01
================= ==================
Weighted average common shares outstanding 6,701,764 6,632,388
================= ==================
Diluted income per common share $ 0.03 $ 0.01
================= ==================
Weighted average common shares outstanding 6,923,193 6,632,388
================= ==================
</TABLE>
5 of 17 pages
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<TABLE>
<CAPTION>
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended April 2, 2000 and March 31, 1999
(unaudited)
2000 1999
----------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 181,400 $ 46,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 738,800 900,200
Changes in operating assets and liabilities:
Accounts receivable 1,670,900 335,900
Inventories 125,900 347,100
Prepaid expenses and other assets (46,600) (116,000)
Income taxes receivable 68,000 -
Accounts payable (81,500) (235,200)
Accrued expenses (99,300) (162,400)
Income taxes payable 21,800 -
----------------- -----------------
Net cash provided by operating activities 2,579,400 1,116,500
----------------- -----------------
Cash flows from investing activities:
Capital expenditures (190,800) (202,500)
Decrease in other assets 33,800 273,700
----------------- -----------------
Net cash (used in) provided by investing activities (157,000) 71,200
----------------- -----------------
Cash flows from financing activities:
Bank borrowing, net (1,531,400) (1,100,000)
Repayment of capital lease obligations (113,300) (312,300)
Proceeds from notes payable, related party - 252,000
Repayment of notes payable, related party (250,000) -
Proceeds from exercise of warrants 146,900 -
Proceeds from exercise of stock options 218,500 -
----------------- -----------------
Net cash used in financing activities (1,529,300) (1,160,300)
----------------- -----------------
Net increase in cash and cash equivalents 893,100 27,400
Cash and cash equivalents, beginning of period 237,700 142,900
----------------- -----------------
Cash and cash equivalents, end of period $ 1,130,800 $ 170,300
================= =================
</TABLE>
6 of 17 pages
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LOGIC DEVICES INCORPORATED
Notes to Consolidated Financial Statements
April 2, 2000 and October 3, 1999
(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 April 2, 2000 are not necessarily indicative of the
results to be expected for the full year.
B. INVENTORY
A summary of inventories follows:
April 2, October 3,
2000 1999
----------------- ------------------
Raw materials $ 3,825,800 $ 3,618,800
Work-in-process 5,500,900 4,908,800
Finished goods 2,385,700 3,310,700
----------------- ------------------
$ 11,712,400 $ 11,838,300
================= ==================
Based on forecasted sales levels for fiscal year 2000, the Company has on-hand
inventory aggregating approximately 12 months of sales.
7 of 17 pages
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LOGIC DEVICES INCORPORATED
Notes to Consolidated Financial Statements
April 2, 2000 and October 3, 1999
(unaudited)
C. FINANCING
Since July 27, 1999, the Company has had two lines of credit with 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 (9.00% at April 2, 2000) plus
0.50%. This 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 the assets of the Company.
The second line of credit bears interest at the bank's prime rate plus 0.25%, 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 first line of credit facility. Both credit facilities
mature July 26, 2000. On April 2, 2000, the Company had an aggregate outstanding
balance of $1,958,600 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 line of credit facilities, the Company does not
intend to pay cash dividends in the near future and anticipates reinvesting its
cash flow in operations.
8 of 17 pages
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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 the 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 $2,768,800 for the three months ended April 2, 2000 decreased
15% from $3,256,100 for the three months ended March 31, 1999. This decrease in
revenues for the three-month period resulted from the discontinuation of product
lines in fiscal 1998 that still contributed revenues in the 1999 period. The
Company is continuing its shift in product offerings to higher margin
proprietary products and reducing the total number of products that it offers.
Expenses
Cost of revenues decreased 26% from $1,812,500 for the three months ended March
31, 1999, to $1,333,800 for the three months ended April 2, 2000. The gross
profit decreased by 0.6%, from $1,443,600 in 1999 to $1,435,000 in 2000. As a
percentage of revenues, gross profit increased from 45% for the three month
ended March 31, 1999, to 52% for the three months ended April 2, 2000, due to
the continued shift towards higher margin proprietary products.
Research and development expense increased from $359,900 (11% of net revenues)
in the 1999 period to $453,700 (16% of net revenues) in the 2000 period. The
Company plans to continue its substantial investments in new product research
and development.
Selling, general and administrative expense decreased from $910,900 in the 1999
period to $822,300 in the 2000 period, due to increased efforts to control
costs.
9 of 17 pages
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Due to the aforementioned factors, the Company's income from operations
decreased from $172,800 for the 1999 period to $159,000 for the 2000 period.
During the 2000 period, the Company incurred $65,600 of other expense,
principally consisting of interest expense, compared to $132,600 of other
expense for the 1999 period, due to the reduction in bank borrowings.
As a result of the foregoing, the Company earned net income of $93,400 for the
three months ended April 2, 2000, versus net income of $40,200 for the 1999
period.
Liquidity and Capital Resources
Cash Flows
For the six months ended April 2, 2000, the Company had after-tax cash earnings
(defined as net income plus non-cash depreciation charges) of $920,200, compared
to $947,100 for the six months ended March 31, 1999. During the 2000 period,
after-tax cash earnings of $920,200, plus decreases in accounts receivable of
$1,670,900 and inventories of $125,900, funded decreases in accounts payable of
$81,500 and accrued expenses of $99,300. This resulted in total net cash
provided by operations of $2,579,400. During the 2000 period, the Company
invested $190,800 in capital expenditures, reduced bank borrowings by
$1,531,400, repaid related party notes payable of $250,000, and reduced capital
lease obligations by $113,300. The Company also received $146,900 and $218,500
from the exercise of warrants and stock options, respectively.
During the 1999 period, after-tax cash earnings of $947,100, plus an increase in
related party notes payable of $252,000 and decreases in accounts receivable of
$335,900 and inventories of $347,100, funded decreases in accounts payable of
$235,200 and accrued expenses of $162,400. This resulted in total net cash
provided by operations of $1,116,500. The Company invested $202,500 in capital
expenditures, reduced bank borrowings by $1,100,000, and reduced capital lease
obligations by $312,300 during the period.
Working Capital
Over prior periods, the Company, as a nature of its business, has maintained
high levels of inventory and accounts receivable. The Company's investment in
inventory and accounts receivable has been significant, and will continue to be
significant in the future. 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 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.
10 of 17 pages
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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 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 its sales to
inventory ratio.
The Company's accounts receivable level is correlated to the Company's previous
quarter revenue level. Generally, the Company's customer scheduled backlog
results in up to 80% of the quarterly revenues shipping 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
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. By reducing its
number of distributors and increasing its collection efforts, the Company has
made significant progress in reducing its accounts receivable levels, and
expects to continue this reduction in the future. However, the Company continues
to experience stocking and collection issues with its largest distributor.
Financing
Since July 27, 1999, the Company has had two lines of credit with 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 (9.00% at April 2, 2000) plus
0.50%. This 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 the assets of the Company.
The second line of credit bears interest at the bank's prime rate plus 0.25%, 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 first line of credit facility. Both credit facilities
mature July 26, 2000. On April 2, 2000, the Company had an aggregate outstanding
balance of $1,958,600 under these facilities, and was in compliance with its
covenants.
The Company will continue to evaluate debt and equity financing opportunities.
It believes its current financing arrangements and cash flow from operations
provide a sufficient base of liquidity to support the Company's operations.
Year 2000 Compliance
The Company completed its internal assessment and remediation of its Year 2000
issues at an aggregate cost of approximately $50,000 prior to October 4, 1999,
the beginning of the Company's fiscal year 2000. The Company has not expended
any additional amounts on Year 2000 compliance from October 4, 1999 through May
8, 2000, consistent with the Company's projections. To date, there has been no
incidence of Year 2000 errors or shutdowns in the Company's internal systems. In
11 of 17 pages
<PAGE>
addition, the Company is not aware of any adverse impact of the Year 2000 on any
of its customers or suppliers.
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.
12 of 17 pages
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
On February 7, 2000, the Company issued 100,000 shares of its common stock, no
par value, upon the exercise in full of an outstanding warrant for such shares
with a term expiring February 15, 2000. The holder of the warrant paid the
aggregate exercise price of $146,900 to the Company in cash. This issuance of
shares was not registered under the Securities Act of 1933 in reliance on an
exemption from registration under Section 4(2) of such Act and rules promulgated
thereunder. No underwriters participated in the transaction. The shares of
common stock of the Company received upon exercise of the warrant were
subsequently resold in the open market pursuant to an effective registration
statement under the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
At 8:00 a.m. on April 4, 2000, the Company held its Annual Shareholders Meeting
at the Company's headquarters located at 1320 Orleans Drive, Sunnyvale,
California. The only item to be voted upon at the meeting was the election of
the Board of Directors. There were 5,573,020 shares present or represented by
proxy at the meeting, representing a quorum.
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 multiplied 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. No shareholders
elected to cumulate votes. The votes for each nominee are as set forth in the
following table:
Nominee Votes in Favor Votes Against Abstention
- ------------------- -------------- ------------- ----------
Howard L. Farkas 5,568,155 - 4,865
Burton W. Kanter 5,568,155 - 4,865
Albert Morrison Jr. 5,568,155 - 4,865
William J. Volz 5,568,155 - 4,865
Fredric J. Harris 5,568,155 - 4,865
Item 5. Other Information
Not applicable.
13 of 17 pages
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule, which can be found on
page 17 of this report.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
14 of 17 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 2, 2000 By /s/ William J. Volz
--------------------- --------------------------
William J. Volz
President and Principal
Executive Officer
Date: May 2, 2000 By /s/ Kimiko Lauris
--------------------- --------------------------
Kimiko Lauris
Chief Financial Officer
and Principal Financial
and Accounting Officer
15 of 17 pages
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule.
16 of 17 pages
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-1-2000
<PERIOD-END> APR-2-2000
<CASH> 1,130,800
<SECURITIES> 0
<RECEIVABLES> 3,396,000
<ALLOWANCES> 253,500
<INVENTORY> 11,712,400
<CURRENT-ASSETS> 16,211,200
<PP&E> 11,322,100
<DEPRECIATION> 8,079,000
<TOTAL-ASSETS> 19,833,800
<CURRENT-LIABILITIES> 3,090,600
<BONDS> 0
<COMMON> 18,498,800
0
0
<OTHER-SE> (1,859,100)
<TOTAL-LIABILITY-AND-EQUITY> 19,833,800
<SALES> 5,778,600
<TOTAL-REVENUES> 5,778,600
<CGS> 2,786,800
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,667,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142,500
<INCOME-PRETAX> 182,200
<INCOME-TAX> 800
<INCOME-CONTINUING> 181,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 181,400
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
