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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
JULY 2, 2000
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 Number)
1320 ORLEANS DRIVE, SUNNYVALE, CALIFORNIA 94089
(Address of principal executive offices)
(Zip Code)
(408) 542-5400
(Registrant's telephone number, including area code)
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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 August 14, 2000, 6,841,888 shares
of common stock, without par value, were outstanding.
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LOGIC DEVICES INCORPORATED
INDEX
Page
Number
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of July 2, 2000 and October 3, 1999 3
Consolidated Statements of Income for the three months ended
July 2, 2000 and June 30, 1999 4
Consolidated Statements of Income for the nine months ended
July 2, 2000 and June 30, 1999 5
Consolidated Statements of Cash Flows for the nine months ended
July 2, 2000 and June 30, 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 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit 27 16
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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LOGIC DEVICES INCORPORATED
CONSOLIDATED BALANCE SHEETS
July 2, October 3,
2000 1999
----------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 796,000 $ 237,700
Accounts receivable, net of allowance 2,859,900 4,813,400
Inventories 12,204,100 11,838,300
Prepaid expenses and other assets 162,300 178,900
Income taxes receivable - 68,000
----------------- -----------------
Total current assets 16,022,300 17,136,300
Property and equipment, net 2,917,800 3,702,000
Other assets 333,000 502,400
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$ 19,273,100 $ 21,340,700
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ 1,745,000 $ 3,490,000
Accounts payable 293,400 718,200
Accrued expenses 223,100 388,700
Notes payable, related party - 250,000
Current portion, capital lease obligations 143,700 218,300
Income taxes payable 16,200 -
----------------- ------------------
Total current liabilities 2,421,400 5,065,200
Capital lease obligations, net of current portion 41,200 182,600
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Total liabilities 2,462,600 5,247,800
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Shareholders' equity:
Common stock 18,522,700 18,133,400
Accumulated deficit (1,712,200) (2,040,500)
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Total shareholders' equity 16,810,500 16,092,900
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$ 19,273,100 $ 21,340,700
================= ==================
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LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Three months ended July 2, 2000 and June 30, 1999
(unaudited)
2000 1999
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<S> <C> <C>
Net revenues $ 2,990,000 $ 3,532,100
Cost of revenues 1,538,700 1,797,000
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Gross margin 1,451,300 1,735,100
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Operating expenses:
Research and development 425,500 372,000
Selling, general and administrative 830,900 1,037,200
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Total operating expenses 1,256,400 1,409,200
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Income from operations 194,900 325,900
Other expense, net 48,000 126,500
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Income before income taxes 146,900 199,400
Income tax provision - -
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Net income $ 146,900 $ 199,400
================= ==================
Basic income per common share $ 0.02 $ 0.03
================= ==================
Weighted average common shares outstanding 6,841,888 6,632,388
================= ==================
Diluted income per common share $ 0.02 $ 0.03
================= ==================
Weighted average common shares outstanding 6,844,884 6,632,388
================= ==================
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LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Nine months ended July 2, 2000 and June 30, 1999
(unaudited)
2000 1999
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<S> <C> <C>
Net revenues $ 8,768,600 $ 9,859,100
Cost of revenues 4,325,500 5,289,800
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Gross margin 4,443,100 4,569,300
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Operating expenses:
Research and development 1,308,100 1,101,000
Selling, general and administrative 2,615,400 2,832,100
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Total operating expenses 3,923,500 3,933,100
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Income from operations 519,600 636,200
Other expense, net 190,500 389,100
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Income before income taxes 329,100 247,100
Income tax provision 800 800
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Net income $ 328,300 $ 246,300
================= ==================
Basic income per common share $ 0.05 $ 0.04
================= ==================
Weighted average common shares outstanding 6,748,471 6,632,388
================= ==================
Diluted income per common share $ 0.04 $ 0.04
================= ==================
Weighted average common shares outstanding 6,761,805 6,632,388
================= ==================
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LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended July 2, 2000 and June 30, 1999
(unaudited)
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 328,300 $ 246,300
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,100,700 1,306,300
Gain on disposal of equipment (12,200) -
Allowance for doubtful accounts (150,000) -
Changes in operating assets and liabilities:
Accounts receivable 2,103,500 252,100
Inventories (365,800) 816,000
Prepaid expenses and other assets 16,600 77,500
Income taxes receivable 68,000 -
Accounts payable (424,800) (854,300)
Accrued expenses (165,600) (234,700)
Income taxes payable 16,200 -
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Net cash provided by operating activities 2,514,900 1,609,200
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Cash flows from investing activities:
Capital expenditures (193,500) (153,200)
Proceeds from disposal of equipment 600 -
Other assets 10,400 310,700
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Net cash (used in) provided by investing activities (182,500) 157,500
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Cash flows from financing activities:
Bank borrowing, net (1,745,000) (1,850,000)
Repayment of capital lease obligations (168,400) (459,700)
Proceeds from notes payable, related party - 257,600
Repayment of notes payable, related party (250,000) -
Proceeds from common stock subscribed - 307,500
Proceeds from exercise of warrants 146,900 -
Proceeds from exercise of stock options 242,400 -
----------------- -----------------
Net cash used in financing activities (1,774,100) (1,744,600)
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Net increase in cash and cash equivalents 558,300 22,100
Cash and cash equivalents, beginning of period 237,700 142,900
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Cash and cash equivalents, end of period $ 796,000 $ 165,000
================= =================
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LOGIC DEVICES INCORPORATED
Notes to Consolidated Financial Statements
July 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 July 2, 2000 are not necessarily indicative of the
results to be expected for the full year.
B. INVENTORY
A summary of inventories follows:
July 2, October 3
2000 1999
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Raw materials $ 3,837,600 $ 3,618,800
Work-in-process 5,342,600 4,908,800
Finished goods 3,023,900 3,310,700
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$ 12,204,100 $ 11,838,300
================ ==============
Based on forecasted sales levels for fiscal year 2000, the Company has on-hand
inventory aggregating approximately 12 months of sales.
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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 (9.50% at July 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 matured July 26, 2000 and were replaced as of such date.
See Item 2, "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources-Financing." On July 2,
2000, the Company had an aggregate outstanding balance of $1,745,000 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.
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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 $2,990,000 for the three months ended July 2, 2000 decreased 15%
from $3,532,100 for the three months ended June 30, 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 14% from $1,797,000 for the three months ended June
30, 1999, to $1,538,700 for the three months ended July 2, 2000. The gross
profit decreased by 16%, from $1,735,100 in 1999 to $1,451,300 in 2000. As a
percentage of revenues, gross profit remained consistent between periods.
Research and development expense increased from $372,000 (10% of net revenues)
in the 1999 period to $425,500 (14% 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 $1,037,200 in the
1999 period to $830,900 in the 2000 period, due to increased efforts to control
costs.
Due to the aforementioned factors, the Company's income from operations
decreased from $325,900 for the 1999 period to $194,900 for the 2000 period.
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During the 2000 period, the Company incurred $48,000 of other expense,
principally consisting of interest expense, compared to $126,500 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 $146,900 for the
three months ended July 2, 2000, versus net income of $199,400 for the 1999
period.
Liquidity and Capital Resources
Cash Flows
For the nine months ended July 2, 2000, the Company had after-tax cash earnings
(defined as net income plus non-cash depreciation charges) of $1,429,000,
compared to $1,552,600 for the nine months ended June 30, 1999. During the 2000
period, after-tax cash earnings of $1,429,000, plus decreases in accounts
receivable of $2,103,500, funded decreases in accounts payable of $424,800 and
accrued expenses of $165,600. This resulted in total net cash provided by
operations of $2,514,900. During the 2000 period, the Company invested $193,500
in capital expenditures, reduced bank borrowings by $1,745,000, repaid related
party notes payable of $250,000, and reduced capital lease obligations by
$168,400. The Company also received $146,900 and $242,400 from the exercise of
warrants and stock options, respectively.
During the 1999 period, after-tax cash earnings of $1,552,600, plus an increase
in related party notes payable of $252,000 and decreases in accounts receivable
of $252,100 and inventories of $816,000, funded decreases in accounts payable of
$854,300 and accrued expenses of $234,700. This resulted in total net cash
provided by operations of $1,609,200. The Company invested $153,200 in capital
expenditures, reduced bank borrowings by $1,850,000, and reduced capital lease
obligations by $459,700 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.
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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 certain 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 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
a large distributor. See Part II - Item 1, "Legal Proceedings."
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 (9.50% at July 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. On July 2, 2000, the
Company had an aggregate outstanding balance of $1,745,000 under these
facilities, and was in compliance with its covenants.
Both of the above credit facilities expired July 26, 2000 and have been replaced
by a $2,000,000 revolving line of credit with Comerica Bank-California. The line
of credit bears interest at the bank's prime rate plus 0.25%, is secured by all
of the Company's assets, and is guaranteed, in part, by a federal agency. The
borrowings under the line of credit are to finance the cost of manufacturing,
producing, purchasing, or selling the Company's finished goods and services,
which are intended for export. The Company is required to maintain a quarterly
minimum quick ratio of 1.1 to 1.0, maintain a quarterly debt-to-effective
tangible net worth rate of not more than 0.60 to 1.0, and have a positive net
income as of the end of each fiscal year. Borrowings supported by export-related
inventory are required to not exceed 70% of the total outstanding borrowings. As
with the previous credit facilities, no dividends can be paid without the
consent of the parties to the loan agreements. The line of credit matures July
31, 2001.
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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. The
Company is generating cash in excess of its current expenditures and anticipates
having no outstanding bank debt within the next year.
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
August 2, 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 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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On July 28, 2000, the Company filed a Statement of Claim with the
American Arbitration Association in San Francisco, California,
against All American Semiconductor, Inc. (the "Distributor") seeking
a declaratory judgment that the Distributor has breached the
inventory stocking requirements and payment terms of the Exclusive
Distributor Agreement between them (the "Agreement"). The Company
also seeks to recover any money damages it suffered as a result of
such breaches. The Agreement appointed the Distributor as the
Company's exclusive domestic distributor and requires the Distributor
to, among other things, maintain certain levels of inventory. The
Distributor has not yet filed a response to the Statement of Claim.
Should the arbitration panel find that the Distributor has breached
the Agreement, the Company will terminate the Agreement. By its
terms, the Agreement is also terminable on December 31, 2000 and,
regardless of the outcome of the arbitration, the Company currently
intends to give such notice of termination.
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.
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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: August 14, 2000 By /s/ William J. Volz
---------------------- ----------------------
William J. Volz
President and Principal
Executive Officer
Date: August 14, 2000 By /s/ Kimiko Lauris
---------------------- ----------------------
Kimiko Lauris
Chief Financial Officer
and Principal Financial
and Accounting Officer
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INDEX TO EXHIBITS
Exhibit Number Description
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27 Financial Data Schedule.
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