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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 1, 2001
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
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Indicate the number of shares outstanding of the issuer's classed of common
stock, as of the latest practicable date. On July 26, 2001, 6,841,888 shares of
common stock, without par value, were outstanding.
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1 of 14 pages
LOGIC DEVICES INCORPORATED
INDEX
Page
Number
------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of July 1, 2001 and October 1, 2000 3
Consolidated Statements of Income for the three months ended
July 1, 2001 and July 2, 2000 4
Consolidated Statements of Income for the nine months ended
July 1, 2001 and July 2, 2000 5
Consolidated Statements of Cash Flows for the nine months ended
July 1, 2001 and July 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 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2 of 14 pages
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LOGIC DEVICES INCORPORATED
CONSOLIDATED BALANCE SHEETS
July 1, October 1,
2001 2000
----------------- ------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 357,300 $ 753,300
Accounts receivable, net of allowance 2,643,900 1,648,800
Inventories 12,173,200 12,182,300
Prepaid expenses and other assets 250,200 235,300
----------------- ------------------
Total current assets 15,424,600 14,819,700
Property and equipment, net 1,817,000 2,423,700
Other assets 202,400 345,100
----------------- ------------------
$ 17,444,000 $ 17,588,500
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ - $ -
Accounts payable 188,500 192,100
Accrued payroll and vacation 150,400 159,400
Accrued commissions 40,000 115,300
Other accrued expenses 12,200 38,600
Current portion, capital lease obligations 76,400 194,200
Income taxes payable 900 5,200
----------------- ------------------
Total current liabilities 468,400 704,800
Capital lease obligations, net of current portion 7,200 38,300
----------------- ------------------
Total liabilities 475,600 743,100
----------------- ------------------
Shareholders' equity:
Common stock 18,522,700 18,522,700
Accumulated deficit (1,554,300) (1,677,300)
----------------- ------------------
Total shareholders' equity 16,968,400 16,845,400
----------------- ------------------
$ 17,444,000 $ 17,588,500
================= ==================
3 of 14 pages
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Three months ended July 1, 2001 and July 2, 2000
(unaudited)
2001 2000
----------------- ------------------
Net revenues $ 2,490,000 $ 2,990,000
Cost of revenues 1,159,100 1,538,700
----------------- ------------------
Gross margin 1,330,900 1,451,300
----------------- ------------------
Operating expenses:
Research and development 528,900 425,500
Selling, general and administrative 780,200 830,900
----------------- ------------------
Total operating expenses 1,309,100 1,256,400
----------------- ------------------
Income from operations 21,800 194,900
Other expense, net 8,000 48,000
----------------- ------------------
Income before income taxes 13,800 146,900
Income tax provision - -
----------------- ------------------
Net income $ 13,800 $ 146,900
================= ==================
Basic income per common share $ - $ 0.02
================= ==================
Weighted average common shares outstanding 6,841,888 6,841,888
================= ==================
Diluted income per common share $ - $ 0.02
================= ==================
Weighted average common shares outstanding 6,841,888 6,844,884
================= ==================
4 of 14 pages
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Nine months ended July 1, 2001 and July 2, 2000
(unaudited)
2001 2000
----------------- ------------------
Net revenues $ 8,087,600 $ 8,768,600
Cost of revenues 4,323,500 4,325,500
----------------- ------------------
Gross margin 3,764,100 4,443,100
----------------- ------------------
Operating expenses:
Research and development 1,343,100 1,308,100
Selling, general and administrative 2,271,000 2,615,400
----------------- ------------------
Total operating expenses 3,614,100 3,923,500
----------------- ------------------
Income from operations 150,000 519,600
Other expense, net 16,600 190,500
----------------- ------------------
Income before income taxes 133,400 329,100
Income tax provision 10,400 800
----------------- ------------------
Net income $ 123,000 $ 328,300
================= ==================
Basic income per common share $ 0.02 $ 0.05
================= ==================
Weighted average common shares outstanding 6,841,888 6,748,471
================= ==================
Diluted income per common share $ 0.02 $ 0.04
================= ==================
Weighted average common shares outstanding 6,841,888 6,761,805
================= ==================
5 of 14 pages
LOGIC DEVICES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended July 1, 2001 and July 2, 2000
(unaudited)
2001 2000
----------------- -----------------
Cash flows from operating activities:
Net income $ 123,000 $ 328,300
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 915,800 1,100,700
Gain on disposal of equipment - (12,200)
Allowance for doubtful accounts - (150,000)
Changes in operating assets and liabilities:
Accounts receivable (995,100) 2,103,500
Inventories 9,100 (365,800)
Prepaid expenses and other assets (14,900) 16,600
Income taxes receivable - 68,000
Accounts payable (3,600) (540,400)
Accrued payroll and vacation (9,000) (71,300)
Accrued commissions (75,300) -
Other accrued expenses (26,500) 21,300
Income taxes payable (4,300) 16,200
----------------- -----------------
Net cash (used in) provided by operating activities (80,800) 2,514,900
----------------- -----------------
Cash flows from investing activities:
Capital expenditures (140,100) (193,500)
Proceeds from disposal of equipment - 600
Other assets (400) 10,400
----------------- -----------------
Net cash used in investing activities (140,500) (182,500)
----------------- -----------------
Cash flows from financing activities:
Proceeds from bank borrowing 500,000 -
Repayment of bank borrowing (500,000) (1,745,000)
Repayment of capital lease obligations (174,700) (168,400)
Repayment of notes payable, related party - (250,000)
Proceeds from exercise of warrants - 146,900
Proceeds from exercise of stock options - 242,400
----------------- -----------------
Net cash used in financing activities (174,700) (1,774,100)
----------------- -----------------
Net change in cash and cash equivalents (396,000) 558,300
Cash and cash equivalents, beginning of period 753,300 237,700
----------------- -----------------
Cash and cash equivalents, end of period $ 357,300 $ 796,000
================= =================
6 of 14 pages
LOGIC DEVICES INCORPORATED
Notes to Consolidated Financial Statements
July 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. All adjustments for the quarter ended July 1, 2001 were
of a recurring nature. Certain items were reclassified in the consolidated
financial statements for the quarter ended July 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 accounting principles generally accepted in the
United States of America. 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 July 1, 2001 are not necessarily
indicative of the results to be expected for the full year.
B. INVENTORY
A summary of inventories follows:
July 1, October 1
2001 2000
----------------- ------------------
Raw materials $ 4,991,000 $ 3,826,400
Work-in-process 3,652,000 5,573,900
Finished goods 3,530,200 2,782,000
----------------- ------------------
$ 12,173,200 $ 12,182,300
================= ==================
Based on forecasted sales levels, the Company has on-hand inventory
aggregating approximately 15 months of sales.
7 of 14 pages
LOGIC DEVICES INCORPORATED
Notes to Consolidated Financial Statements
July 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 (7.0% at July 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 July 1, 2001, the
Company had no outstanding balance on its line of credit, and was in compliance
with the covenants. As of July 26, 2001, Company has renewed this line of credit
with similar terms.
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 14 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
Like many companies in the technology sector, the Company experienced a
continued downturn in its revenues, resulting from a continued reduction of
revenues from discontinued products, the general downturn in the economy, and
the broad-based inventory correction within the industry. Net revenues decreased
17% from $2,990,000 for the quarter ended July 2, 2000 to $2,490,000 for the
quarter ended July 1, 2001.
Expenses
Cost of revenues decreased 25% from $1,538,700 for the quarter ended July 2,
2000, to $1,159,100 for the quarter ended July 1, 2001. While the gross profit
decreased by 8% from $1,451,300 in 2000 to $1,330,900 in 2001, as a percentage
of revenues, gross profit increased 5%, due to a large sale of "last time buy"
military products and the continued shift to higher-margin proprietary products.
Research and development expense increased from $425,500 (14% of revenues) in
the 2000 period to $528,900 (21% of revenues) in the 2001 period. This increase
resulted from efforts to increase staffing levels. The Company is committed to
new product development as a means to increase revenues in future fiscal years.
Selling, general and administrative expense decreased from $830,900 in the 2000
period to $780,200 in the 2001 period, due to the end of operating leases and
increased efforts to control costs, such as reducing administrative staffing
levels.
9 of 14 pages
Due to the aforementioned factors, the Company's income from operations
decreased from $194,900 for the 2000 period to $21,800 for the 2001 period.
During the 2000 period, the Company incurred $48,000 of other expense,
principally consisting of interest expense, compared to $8,000 of other expense
for the 2001 period, due to the reduction in bank borrowings.
As a result of the foregoing, the Company earned net income of $13,800 for the
quarter ended July 1, 2001, versus net income of $146,900 for the quarter ended
July 2, 2000.
Liquidity and Capital Resources
Cash Flows
For the nine months ended July 1, 2001, the Company used net cash of $80,800 in
operations. While the Company's inventory appears flat, there was a large
fluctuation during the nine-month period. As noted in the Form 10-Q/A for the
quarter ended April 1, 2001, dated May 31, 2001, the Company had a $672,500
increase in inventory during the first six months. During the three months ended
July 1, 2001, the Company was able to reduce this inventory down to a net
reduction of $9,100 through the first nine months of fiscal 2001. Accounts
receivable increased $995,100 during the nine months as some customers are
paying in 45-60 days rather than the Company's normal net 30 terms, due to the
downturn in the economy. The Company also paid down accrued expenses totaling
$101,800, spent $140,100 in capital expenditures, and repaid capital leases
aggregating $174,700.
For the nine months ended July 2, 2000, the Company had $2,514,900 in net cash
provided by operations. The Company's efforts to improve collections showed
results as accounts receivable were reduced by $2,103,500. During the nine-month
period, the Company also paid down accounts payable totaling $540,400, spent
$193,500 on 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 cash from the exercise of warrants and
stock options totaling $146,900 and $242,400, respectively.
Working Capital
Over prior periods, the Company, as a nature of its business, has maintained
high levels of inventory and accounts receivable. While the Company believes
this is a cost of doing business as a fabless operation, it endeavors to reduce
both inventory and accounts receivable.
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. During the
quarter ended December 31, 2000, when wafer fabricating capacity was tight, the
Company felt it was necessary to take advantage of available capacity from its
primary supplier to prepare for future sales of newer products. Other than this
instance, the Company continues to focus its sales efforts on reducing inventory
10 of 14 pages
levels. The Company is beginning to see the benefits of these efforts as it
reduced inventory from $12,854,800 to $12,173,200 during the quarter ended July
1, 2001.
The Company is continuing its shift in product offerings to higher-margin
proprietary products and is 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 has consistently been 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 a quarter. Therefore, a large portion of the
quarter-end accounts receivable balance is often not yet due per the Company's
normal net 30 day terms. The Company continues to closely analyze the credit
status of its customers, to accelerate its collection efforts, and to work
closely with customers to spread their orders and shipments throughout the
quarter, which reduces the ending accounts receivable balance.
Financing
The Company has a $2,000,000 line of credit with Comerica Bank-California, which
bears interest at the bank's prime rate (7.0% at July 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 July 1, 2001, the Company was in compliance with these
covenants and had no outstanding balance. This line of credit matures on July
31, 2001, and has been renewed with similar terms.
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 14 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 accounting principles
generally accepted in the United States of America. 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 14 pages
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K have been filed during the quarter
for which this report is filed.
13 of 14 pages
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: July 26, 2001 By /s/ William J. Volz
------------------------- -----------------------------
William J. Volz
President and Principal
Executive Officer
Date: July 26, 2001 By /s/ Kimiko Lauris
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Kimiko Lauris
Chief Financial Officer
and Principal Financial
and Accounting Officer
14 of 14 pages