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 1, 2001
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 April 30, 2001, 6,841,888 shares of
common stock, without par value, were outstanding.
1 of 15 Pages
LOGIC DEVICES INCORPORATED
INDEX
Page
Number
------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of April 1, 2001 and October 1, 2000 3
Consolidated Statements of Income for the three months ended
April 1, 2001 and April 2, 2000 4
Consolidated Statements of Income for the six months ended
April 1, 2001 and April 2, 2000 5
Consolidated Statements of Cash Flows for the six months ended
April 1, 2001 and April 2, 2000 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 4. Submission of Matter to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2 of 15 Pages
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LOGIC DEVICES INCORPORATED
CONSOLIDATED BALANCE SHEETS
April 1, October 1,
2001 2000
----------------- ------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 231,200 $ 753,300
Accounts receivable, net of allowance 2,511,300 1,648,800
Inventories 12,854,800 12,182,300
Prepaid expenses and other assets 291,600 235,300
----------------- ------------------
Total current assets 15,888,900 14,819,700
Property and equipment, net 2,052,500 2,423,700
Other assets 246,700 345,100
----------------- ------------------
$ 18,188,100 $ 17,588,500
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ 500,000 $ -
Accounts payable 210,500 45,300
Accrued payroll and vacation 176,800 153,500
Accrued commissions 40,000 115,300
Other accrued expenses 189,700 191,300
Current portion, capital lease obligations 96,800 194,200
Income taxes payable 3,500 5,200
----------------- ------------------
Total current liabilities 1,217,200 704,800
Capital lease obligations, net of current portion 16,300 38,300
----------------- ------------------
Total liabilities 1,233,600 743,100
----------------- ------------------
Shareholders' equity:
Common stock 18,522,700 18,522,700
Accumulated deficit (1,568,200) (1,677,300)
----------------- ------------------
Total shareholders' equity 16,954,500 16,845,400
----------------- ------------------
$ 18,188,100 $ 17,588,500
================= ==================
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LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Three months ended April 1, 2001 and April 2, 2000
(unaudited)
2001 2000
----------------- ------------------
Net revenues $ 2,539,600 $ 2,768,800
Cost of revenues 1,324,000 1,533,800
----------------- ------------------
Gross margin 1,215,600 1,235,000
----------------- ------------------
Operating expenses:
Research and development 447,000 453,700
Selling, general and administrative 745,400 622,300
----------------- ------------------
Total operating expenses 1,192,400 1,076,000
----------------- ------------------
Income from operations 23,200 159,000
Other expense, net 1,700 65,600
----------------- ------------------
Income before income taxes 21,500 93,400
Income tax provision 9,600 -
----------------- ------------------
Net income $ 11,900 $ 93,400
================= ==================
Basic income per common share $ - $ 0.01
================= ==================
Weighted average common shares outstanding 6,841,888 6,753,037
================= ==================
Diluted income per common share $ - $ 0.01
================= ==================
Weighted average common shares outstanding 6,841,888 6,858,623
================= ==================
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LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Six months ended April 1, 2001 and April 2, 2000
(unaudited)
2001 2000
----------------- ------------------
Net revenues $ 5,597,500 $ 5,778,600
Cost of revenues 3,164,300 3,343,400
----------------- ------------------
Gross margin 2,433,200 2,435,200
----------------- ------------------
Operating expenses:
Research and development 814,300 882,600
Selling, general and administrative 1,490,800 1,227,900
----------------- ------------------
Total operating expenses 2,305,100 2,110,500
----------------- ------------------
Income from operations 128,100 324,700
Other expense, net 8,600 142,500
----------------- ------------------
Income before income taxes 119,500 182,200
Income tax provision 10,400 800
----------------- ------------------
Net income $ 109,100 $ 181,400
================= ==================
Basic income per common share $ 0.02 $ 0.03
================= ==================
Weighted average common shares outstanding 6,841,888 6,701,764
================= ==================
Diluted income per common share $ 0.02 $ 0.03
================= ==================
Weighted average common shares outstanding 6,841,888 6,923,193
================= ==================
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LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended April 1, 2001 and April 2, 2000
(unaudited)
2001 2000
----------------- -----------------
Cash flows from operating activities:
Net income $ 109,100 $ 181,400
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 616,700 738,800
Changes in operating assets and liabilities:
Accounts receivable (862,500) 1,670,900
Inventories (672,500) 125,900
Prepaid expenses and other assets (56,300) (46,600)
Income taxes receivable - 68,000
Accounts payable 165,200 (81,500)
Accrued payroll and vacation 23,300
Accrued commissions (75,300)
Other accrued expenses (1,600) (99,300)
Income taxes payable (1,700) 21,800
----------------- -----------------
Net cash (used in) provided by operating activities (755,600) 2,579,400
----------------- -----------------
Cash flows from investing activities:
Capital expenditures (121,500) (190,800)
Decrease in other assets 1,300 33,800
----------------- -----------------
Net cash used in investing activities (120,200) (157,000)
----------------- -----------------
Cash flows from financing activities:
Bank borrowing, net 500,000 (1,531,400)
Repayment of capital lease obligations (146,300) (113,300)
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 provided by (used in) financing activities 353,700 (1,529,300)
----------------- -----------------
Net change in cash and cash equivalents (522,100) 893,100
Cash and cash equivalents, beginning of period 753,300 237,700
----------------- -----------------
Cash and cash equivalents, end of period $ 231,200 $ 1,130,800
================= =================
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LOGIC DEVICES INCORPORATED
Notes to Consolidated Financial Statements
April 1, 2001 and October 1, 2000
(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. Certain items were reclassified in the consolidated
financial statements for the quarter ended April 2, 2000 to conform to the basis
used in the audited consolidated financial statements for the fiscal year ended
October 1, 2000.
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 years ended October 1, 2000 and
October 3, 1999, 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 1, 2001 are not necessarily indicative of the results to be expected
for the full year.
B. INVENTORY
A summary of inventories follows:
April 1, October 1,
2001 2000
----------------- ------------------
Raw materials $ 5,059,100 $ 3,826,400
Work-in-process 4,364,700 5,573,900
Finished goods 3,431,000 2,782,000
----------------- ------------------
$ 12,854,800 $ 12,182,300
================= ==================
Based on forecasted sales levels for fiscal year 2001, the Company has on-hand
inventory aggregating approximately 12 months of sales.
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LOGIC DEVICES INCORPORATED
Notes to Consolidated Financial Statements
April 1, 2001 and October 1, 2000
(unaudited)
C. FINANCING
On July 27, 2000, the Company obtained a line of credit from Comerica Bank -
California, with an availability of up to $2,000,000. The line of credit bears
interest at prime (8.0% at April 1, 2001) plus 0.25%, matures on July 31, 2001,
is secured by all of the Company's assets, and is guaranteed, in part, by a
federal agency. The line of credit requires the Company to maintain a quarterly
minimum quick ratio of 1.1/1.0, a quarterly debt to tangible net worth of no
more than 0.6/1.0, a quarterly tangible net worth of at least $16.5 million plus
50% of the quarter's net profit, and annual profitability. On April 1, 2001, the
Company had an outstanding balance of $500,000, and was in compliance with the
covenants.
Under the terms of its line of credit, 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.
8 of 15 Pages
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 1, 2000 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
Similar to most companies in the technology sector, the Company
experienced a downturn in revenues during the quarter. Net revenues of
$2,539,600 for the three months ended April 1, 2001 decreased 8% from $2,768,800
for the three months ended April 2, 2000. This decrease in revenues for the
three-month period resulted from the general downturn in the economy, the
broad-based inventory correction occurring within the industry, and a continued
reduction of revenue from discontinued products. 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 $1,533,800 for the three months
ended April 2, 2000, to $1,324,000 for the three months ended April 1, 2001. The
gross profit increased by 2%, from $1,235,000 in 2000 to $1,215,600 in 2001. As
a percentage of revenues, gross profit increased from 45% for the three month
ended April 2, 2000, to 48% for the three months ended April 1, 2001, due to the
continued shift towards higher margin proprietary products.
Research and development expense decreased from $453,700 (16% of net
revenues) in the 2000 period to $447,000 (18% of net revenues) in the 2001
period. The Company plans to continue its substantial investments in new product
research and development.
9 of 15 Pages
Selling, general and administrative expense increased from $622,300
in the 2000 period to $745,400 in the 2001 period, due to extensive marketing of
new products and additional equipment rent expense.
Due to the aforementioned factors, the Company's income from
operations decreased from $159,000 for the 2000 period to $23,200 for the 2001
period.
During the 2001 period, the Company incurred $1,700 of other expense
compared to $65,600 of other expense for the 2000 period. This reduction is due
to lower bank borrowing and the receipt of other income during the 2001 period.
As a result of the foregoing, the Company earned net income of
$11,900 for the three months ended April 1, 2001, versus net income of $93,400
for the 2000 period.
Liquidity and Capital Resources
Cash Flows
For the six months ended April 1, 2001, the Company had after-tax
cash earnings (defined as net income plus non-cash depreciation charges) of
$725,800, compared to $920,200 for the six months ended April 2, 2000. During
the 2001 period, increases in accounts receivable of $862,500 and inventories of
$672,500 resulted in net cash used by operations totaling $755,600. During the
2001 period, the Company invested $121,500 in capital expenditures and reduced
capital lease obligations by $146,300. The Company drew $500,000 on its line of
credit.
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. 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.
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.
10 of 15 Pages
The Company is continuing its shift to higher value proprietary
products, while 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 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. While the Company has been actively attempting to reduce inventory
levels over the past several quarters, it made large purchases of wafers during
the quarter ended December 31, 2000, as the wafer fabricating capacity was
tight. The Company felt it was necessary to take advantage of available capacity
from its primary supplier in order to prepare itself for future sales.
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 two-thirds 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. The Company
continues to work to accelerate collections and to work closely with customers
to spread their orders and shipments throughout the quarter, which reduces the
ending accounts receivable balance.
Although current levels of inventory impact the Company's liquidity,
the Company believes that it is a cost of doing business given the Company's
fabless operation. The Company feels it has made good progress in reducing its
accounts receivable balance during the prior fiscal year, and plans to increase
its efforts to reduce inventory during the coming year.
Financing
The Company has a $2,000,000 line of credit with Comerica
Bank-California, which bears interest at the bank's prime rate (8.0% at April 1,
2001) plus 0.25%, is secured by all the Company's assets, and is partially
guaranteed by a federal agency. The line of credit requires the Company to
maintain a quarterly minimum quick ratio of not less than 1.10 to 1.00, a
quarterly maximum debt to tangible net worth ratio of no more than 0.60 to 1.00,
a quarterly tangible net worth of at least $16.5 million plus 50% of the
quarter's profits, and annual profitability. On April 1, 2001, the Company was
in compliance with these covenants and had a $500,000 outstanding balance. This
line of credit matures on July 31, 2001.
Under the terms of its line of credit, 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
expect to pay cash dividends in the near future.
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 15 Pages
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 15 Pages
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. ("All American") seeking a declaratory judgment
that All American has breached the inventory stocking requirements and payment
terms of the Exclusive Distributor Agreement between them (the "Agreement"). The
Company also sought to recover any money damages it suffered as a result of such
breaches. The Agreement appointed All American as the Company's exclusive
domestic distributor and required it to, among other things, maintain certain
levels of inventory. All American filed a response to the Statement of Claim and
a counterclaim against the Company and its president, William J. Volz. All
American alleged that the Company sold products in North America without using
All American as its distributor, and sought to recover money damages from such
sales. The Company filed an answer and affirmative defenses to the counterclaim
denying those allegations.
On October 6, 2000, the Company sent a notice terminating the
Agreement, effective December 31, 2000, pursuant to its terms. As a result of
this termination and settlement of the claims on February 16, 2001, the Company
accepted returns totaling approximately $252,000 and repurchased approximately
$288,000 of product from All American.
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
At 8:00 a.m. on March 6, 2001, 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 6,072,138 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. One shareholder
elected to cumulate votes. The votes for each nominee are as set forth in the
following table:
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Nominee Votes in Favor Votes Against Abstention
------------------------------------ ------------------ ----------------- ------------------
Howard L. Farkas 6,000,138 - 9,500
Burton W. Kanter 5,937,638 - 9,500
Albert Morrison Jr. 5,937,638 - 9,500
William J. Volz 6,000,138 - 9,500
Fredric J. Harris 5,937,638 - 9,500
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) 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: April 30, 2001 By /s/ William J. Volz
------------------------ ---------------------------
William J. Volz
President and Principal
Executive Officer
Date: April 30, 2001 By /s/ Kimiko Lauris
------------------------ ----------------------------
Kimiko Lauris
Chief Financial Officer
and Principal Financial
and Accounting Officer
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