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
DECEMBER 31, 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 26, 2001, 6,841,888
shares of Common Stock, without par value, were issued and outstanding.
Page 1 of 13
LOGIC DEVICES INCORPORATED
INDEX
Page
Number
------
Part I. - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2000
and October 1, 2000 3
Consolidated Statements of Income for the three months
ended December 31, 2000 and January 2, 2000 4
Consolidated Statements of Cash Flows for the three months
ended December 31, 2000 and January 2, 2000 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 11
Part II. - Other Information 12
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Page 2 of 13
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LOGIC DEVICES INCORPORATED
CONSOLIDATED BALANCE SHEETS
December 31 October 1,
2000 2000
----------------- ------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 777,800 $ 753,300
Accounts receivable, net of allowance 2,203,100 1,648,800
Inventories 12,253,600 12,182,300
Prepaid expenses and other assets 578,400 235,300
----------------- ------------------
Total current assets 15,812,900 14,819,700
Property and equipment, net 2,217,300 2,423,700
Other assets 291,300 345,100
----------------- ------------------
$ 18,321,500 $ 17,588,500
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 798,100 $ 45,300
Accrued payroll and vacation 126,300 153,500
Accrued commissions 40,000 115,300
Other accrued expenses 200,100 191,300
Current portion, capital lease obligations 178,800 194,200
Income taxes payable 4,300 5,200
----------------- ------------------
Total current liabilities 1,347,600 704,800
Capital lease obligations, net of current portion 31,200 38,300
----------------- ------------------
Total liabilities 1,378,800 743,100
----------------- ------------------
Shareholders' equity:
Common stock 18,522,700 18,522,700
Accumulated deficit (1,580,000) (1,677,300)
----------------- ------------------
Total shareholders' equity 16,942,700 16,845,400
----------------- ------------------
$ 18,321,500 $ 17,588,500
================= ==================
Page 3 of 13
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the fiscal quarter ended
--------------------------------------------
December 31, January 2,
2000 2000
----------------- ------------------
Net revenues $ 3,058,000 $ 3,009,800
Cost of revenues 1,840,400 1,809,600
----------------- ------------------
Gross margin 1,217,600 1,200,200
----------------- ------------------
Operating expenses:
Research and development 367,300 428,900
Selling, general and administrative 745,400 605,500
----------------- ------------------
Total operating expenses 1,112,700 1,034,400
----------------- ------------------
Income from operations 104,900 165,800
Other expense, net 6,900 76,900
----------------- ------------------
Income before income taxes 98,100 88,800
Income tax provision 800 800
----------------- ------------------
Net income $ 97,300 $ 88,000
================= ==================
Basic and diluted income per common share $ 0.01 $ 0.01
================= ==================
Weighted average common shares outstanding $ 6,841,888 $ 6,650,488
================= ==================
Page 4 of 13
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the fiscal quarter ended
--------------------------------------------
December 31, January 2,
2000 2000
----------------- -----------------
Cash flows from operating activities:
Net income $ 97,300 $ 88,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 314,400 379,000
Allowance for doubtful accounts 77,000 -
Change in operating assets and liabilities:
Accounts receivable (631,300) 1,671,700
Inventories (71,300) (213,700)
Prepaid expenses and other current assets (343,100) (25,300)
Income taxes receivable - 68,000
Accounts payable 752,800 (53,200)
Accrued payroll and vacation (27,200) (54,900)
Accrued commissions (75,300) -
Other accrued expenses 8,800 80,000
Income taxes payable (900) 21,800
----------------- -----------------
Net cash provided by operating activities 101,200 1,961,400
----------------- -----------------
Cash flows from investing activities:
Capital expenditures (28,600) (122,800)
Decrease in other assets 1,300 31,900
----------------- -----------------
Net cash used in investing activities (27,300) (90,900)
----------------- -----------------
Cash flows from financing activities:
Bank borrowing, net - (822,700)
Repayment of capital lease obligations (49,400) (59,000)
Repayment of notes payable, related party - (250,000)
----------------- -----------------
Net cash used in financing activities (49,400) (1,131,700)
----------------- -----------------
Net increase in cash and cash equivalents 24,500 738,800
Cash and cash equivalents, beginning of period 753,300 237,700
----------------- -----------------
Cash and cash equivalents, end of period $ 777,800 $ 976,500
================= =================
Page 5 of 13
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 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 December 31, 2000 are not necessarily indicative
of the results to be expected for the full year.
(B) INVENTORIES
A summary of inventories follows:
December 31, October 1,
2000 2000
----------------- ----------------
Raw materials $ 4,433,900 $ 3,826,400
Work-in-process 5,164,200 5,573,900
Finished goods 2,655,500 2,782,000
----------------- ----------------
$ 12,253,600 $ 12,182,300
================= =================
Based on forecasted fiscal year 2001 sales levels, the Company has on
hand inventories aggregating approximately twelve months of sales.
(C) STATEMENT OF CASH FLOWS
During the quarter ended December 31, 2000, the Company's non-cash
investing and financing activities included the acquisition of $34,800 of
equipment under capital lease. There were no non-cash investing and
financing activities in the quarter ended January 2, 2000.
Page 6 of 13
LOGIC DEVICES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(D) 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 (9.50% at December 31, 2000) 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 December 31, 2000, the Company
had no outstanding balance 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.
Page 7 of 13
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 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
Net revenues increased by 2% from $3,009,800, for the three months
ended January 2, 2000, to $3,058,000, for the three months ended December 31,
2000, which is the Company's first fiscal quarter of 2001.
Expenses
Cost of revenues increased 2% from $1,809,600 in the three months ended
January 2, 2000 to $1,840,400 in the three months ended December 31, 2000. Gross
profit increased by 1%, from $1,200,200 in the fiscal 2000 period to $1,217,600
in the fiscal 2001 period. As a percentage of net revenues, gross profit margin
remained consistent at 40%, as the Company continues to reduce its product
offerings while focusing on more proprietary products.
Research and development expense decreased from $428,900 (14% of net
revenues) in the fiscal 2000 period to $367,300 (12% of net revenues) in the
fiscal 2001 period. In fiscal 1999 and 2000, the Company invested heavily in new
product development. The Company plans to continue its substantial investments
in new product research and development throughout fiscal 2001.
Selling, general and administrative expense increased from $605,500
(20% of net revenues) in the fiscal 2000 period to $745,400 (24% of net
revenues) in the fiscal 2001 period.
The Company had income from operations for the fiscal 2001 period of $104,900
versus income of $165,800 in fiscal 2000, due to the increase in selling,
general and administrative costs while the gross margin remained consistent.
Page 8 of 13
For the fiscal 2001 period, the Company had other expense of $6,900
versus other expense of $76,900 in the fiscal 2000 period, consisting mainly of
interest expense. The decrease is due to the Company having no outstanding
balance on its line of credit since August 2000.
As a result of the foregoing, the Company enjoyed an 11% increase in
net income from $88,000 in the fiscal 2000 period to $97,300 in the fiscal 2001
period.
Liquidity and Capital Resources
Cash Flows
For the three months ended December 31, 2000, the Company had after-tax
cash earnings (defined as net income plus non-cash depreciation charges) of
$411,700, a slight decrease from the fiscal 2000 period after-tax cash earnings
of $467,000.
During the fiscal 2001 period, the after-tax cash earnings of $411,700
were reduced by an increase in prepaid raw materials of $220,000, the purchases
of over $600,000 of wafers, and the payment of $75,300 in accrued commissions.
This, in combination with an increase in accounts receivable of $631,300 and in
accounts payable of $752,800, resulted in net cash from operations totaling
$101,200. Due to the Company's success in reducing its debt in the prior fiscal
year, the Company is now able to direct more of its cash earnings into
operations rather than toward financing activities.
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 increases 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.
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.
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.
Page 9 of 13
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 continues
to be 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 (9.50% at
December 31, 2000) 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 December 31, 2000, the
Company was in compliance with these covenants and had no 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
intend 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.
Page 10 of 13
Recent Developments
The Company's corporate headquarters and sole production facility is
located in Sunnyvale, California. The State of California and its two
electricity utility companies, Pacific Gas and Electric Co. and Southern
California Edison Co., have recently indicated that there is a statewide
electricity shortage and that these utility companies are in poor financial
condition. As a result of these problems, California has experienced temporary
localized electricity outages, or rolling blackouts, which may continue or
worsen into blackouts of longer duration in the future. The Company has
inventory levels it deems adequate for approximately twelve months, and its
silicon wafers are produced and its products are packaged by third parties
located outside of the State of California. Nevertheless, the blackouts in
Sunnyvale, California, even of relatively short duration, could impair or
temporarily cease the Company's operations, not only with respect to oversight
of existing operations, but also in the research and development of new
products. The Company could not readily or inexpensively relocate its
headquarters or production facility, even if such relocation would be beneficial
to its business.
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 11 of 13
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 seeks 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 requires 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 alleges that the Company sold products in North America without using
All American as its distributor, and seeks to recover money damages from such
sales. The Company has filed an answer and affirmative defenses to the
counterclaim denying those allegations. On October 6, 2000, the Company also
sent a notice terminating the Agreement, effective December 31, 2000, pursuant
to its terms. The parties are currently in settlement discussions. However,
definitive documents reflecting such settlement have not been executed as of the
date of this Quarterly Report on Form 10-Q, and such documents may never be
executed if the parties cannot agree to the terms thereof.
As a result of this termination and a possible settlement of the
claims, the Company has reserved $252,000, as of December 31, 2000, for
potential product returns 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.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) On December 20, 2000, the Company filed a Form 8-K, disclosing a
change in independent accounting firms from BDO Seidman, LLP to Hood & Strong
LLP.
Page 12 of 13
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 26, 2001 By: /s/ William J. Volz
------------------------ --------------------------
William J. Volz
President and Principal
Executive Officer
Date: January 26, 2001 By: /s/ Kimiko Lauris
------------------------ --------------------------
Kimiko Lauris
Chief Financial Officer and
Principal Financial and
Accounting Officer
Page 13 of 13